Daily Musings and Music of a Euromarket Professional

Uncomfortable as it may be, being aware of sitting on a time bomb shouldn't keep us from being able to laugh about it - and to listen to some music!

Daily musings of a euromarket professional


Friday, 15 June 2012

15 Jun 2012 – " Hey Hey, My My (Into the Black) " (Neil Young, 1979)


15 Jun 2012 – " Hey Hey, My My (Into the Black) " (Neil Young, 1979)


There is nothing like a good show of faith like BOE’s King’s “large black cloud of uncertainty” to get you going on a Friday morning. Rumours of the CBU’s (Central Banks United) readiness to stand-by whatever happens after the weekend were good for a close up 1% in the US, although off their highs, while most of Asia closed... about flattish to flattish plus, as most often than not this week, and ending the latter on average about 1.5% higher.

European opening quotes all better, across the board. Still, as you never know,  EGBs opened better, too, from the Core to the Periphery with especially Italy catching up, tighter by over 10 bp, and moving back towards the 6%-mark (having flirted with 6.30% yesterday morning). Spain likewise a little stronger, but at 6.85% still very near the fatal unlucky 7. A first attempt to break through 6% was eventually short-lived for BTPs, but helped Spain crawl another 5 bp tighter. With equities up 1%, credit tightened by 4-6.
Not much impact of slightly loose canon, but lately much buzzed about (and often ahead of the curve) rating agency Egan-Jones taking France down to BBB+ from A-.

Not much data to speak of. Bank of Spain adjusted figures on regional debt, which showed an increase to EUR 145bn (13.5% of GDP), bringing Spain’s total public debt to 72.1% of GDP in Q1 (after 68.5 in Q4 /2011). With a GDP at EUR 1,074bn, adding EUR 100bn would bring the ratio to 81.4%.

Having a bit of a Risk On morning pushing equities up, probably pretty much into the void. Banking union talk ongoing, central bank readiness. An equity bail-out?
Second attempt by Italy and Spain to tighten down to 5.98% (-17) and 6.80% (-9) respectively. AFB tighter by 5. Core wobbly on closing levels, but not trading off despite the equity / credit performance. Waiting…
Periphery not holding symbolic levels, transferring a couple of ticks to the Core. Smallest communicating vessels micro-movements. Waiting…

Round of US data misses didn’t seem to hurt sentiment immediately (as CBU support remains hoped for): Empire Manu down to 2.3 (fcst 12.5 after 17.1); US May Industrial Production at -0.1% (fcst +0.1% after 1.1%); Capacity Utilization 79% (fcst 79.2% unch) and finally Jun Michigan confidence at 74.1 (fcst 77.5 after 79.3). Well, all figures below forecast and pointing to a slowdown.
Had seemingly no impact on equities, but did help EGBs pay up, although Bunds only sluggishly and as laggard to the Soft Core. Spain drifting back to opening levels. Italy stuck above 6%, if only just so.

Odd close. Obviously the equity hopefuls are on board, as well as the bears in EGBs. Good final and conclusive Italian dash through the 6% into the close (-23 to 5.92%), likewise for the AFB team (-8 to -10) and both the EFSF and the EIB.
Italian tightening move is flat across the curve, while Spain’s curve is still flattening out through short-end underperformance with the 5% cut-off now in 2 YRS, 6% cut-off in 4 YRS.

New Issues on hold.

And next week?  Light on hard market data, heavy on political agenda (G20, Ecofin, Greece, Spanish bank audit results)...
Mostly European sentiment indicators to start the week. FED on Wed. EZ PMI data on Thu. US data dump on Thu.
Supply-wise, mainly bills until Wed with the German 0% Jun 2014 auction. Spanish and French short to medium term bonds on Thu.
In case of emergency, break piggy bank and buy Swiss 2 YRS at -0.34% - or 5 YRS at -0.03%, if you don’t feel like going too much into negative territory.


Hey Hey, My My...


Closing levels:
10 YRS Yields: Germany 1,45% (-4); Luxembourg 1,83% (-6); Finland 1,88% (-6); Swaps 1,88% (-4); Netherlands 1,94% (-6); Austria 2,33% (-11); EIB 2,52% (-9); France 2,58% (-10); EFSF 2,67% (-8); Belgium 3,08% (-9); Italy 5,92% (-23); Spain 6,86% (-3).10 YRS

Spreads: Luxembourg 38bp (-2); Finland 43bp (-2); Swaps 43bp (-4); Netherlands 49bp (-2); Austria 88bp (-7); EIB 107bp (-5); France 113bp (-6); EFSF 122bp (-4); Belgium 163bp (-5); Italy 447bp (-19); Spain 541bp (+1).

Greek bonds guesstimates: Trading up quite strongly with 2023s down to 27% from 28.25% and 2042s at 22.75% from 23.25%. (20.25% and 16.75% before elections).

EUR swap curve 2-5 YRS 43bp (unch); 5-10 YRS 58bp (+1,0) 10-30 YRS 27bp (-6,0). Good x-long recovery.
2 YRS German BKOs closed 0,070% (-2) and 5 YRS OBLs 0,52% (-3)

Main at 175 from 180 (tighter by 2,8%); Financials at 279 after 285 ( tighter by 2,1%). SovX at 318 from 322. Cross at 678 from 702.

Stoxx Futures at 2167 / +0,7% (from 2152) with S&P minis at 1331 (+0,9% from 1319, at European close). In sync.
VIX index at 22,3 after 23,0 yesterday same time.

Oil 84,0/98,0 (WTI/Brent) from 83,0/97,0 (+1,2%/+1,0%). Gold at 1627 after 1623 (+0,3%). Copper at 340 from 335 (+1,5%). CRB closes 273,0 from 271,0 (+0,7%).
Baltic Dry up closing the week up again 1.3% to 924 from 912.

EUR 1,264 from 1,261
ECB deposits down to EUR 700bn after EUR 704bn.

All levels COB 17:30 CET

On the week (compared to Fri 08 Jun COB):
Oh yes, markets are still suffering mood swings worth a deeper discussion with Dr. Freud, but then again reality is harsh and that can everyone’s kicking around seems to be more a boomerang than anything else. Spain had closed the week in grand manner, telling all to get lost and in no need for help (“Toréador / Votre Toast, je peux vous le rendre”) (link), but decided over the weekend that an unconditional credit line wouldn’t harm to fix its banking system. That “shock and awe” attempt had a half-time of a couple of hours, before markets went belly up on that “Unfinished Sympathy” (link), lacking nuts and bolts, sending Spanish bonds wider by 30 bp. Tuesday, depression started to sink in seriously and the mood turned to “November Rain” (link), as Spain kept widening, but so were the rest of EGBs with Bunds getting a beating at the same time. And the pressure was kept on Wednesday, as players seemed to capitulate and taking a “Downtown Train” (link), as if pulling out of Europe for good. “In a Broken Dream” (link) of the EZ spirit, we had Spain testing the 7% mark yesterday.

In a bashing of epic proportions, Spailout, Take 1, pushed BONOs up to 80 bp wider to the tipping point of 7% and out by about 70 basis points on the week, contaminating Italy and then eventually everyone, including Germany, as the final link of a chain of potential paymasters. So eventually, everyone ended up as looser this week.Relatively speaking the Soft Core held best, all things considered. Interestingly, Credit indices are flat on the week. While always rosy equities took comfort that the CBU will just uphold for ever a carry trade made off about 0% short-term yields and ridiculous long term yields. Should have a look on the Nikkei to get back to reality… Gold in any case a winner.
Oh, and thanks to Rajoy’s text message, the world has been brought to attention that Uganda has a debt/GDP ratio of 29.2%.

10 YRS Yields: Germany 1,45% (+12); Luxembourg 1,83% (+8); Finland 1,88% (+12); Swaps 1,88% (+9); Netherlands 1,94% (+11); Austria 2,33% (+2); EIB 2,52% (+4); France 2,58% (+7); EFSF 2,67% (+7); Belgium 3,08% (+11); Italy 5,92% (+16); Spain 6,86% (+67).10 YRS

Spreads: Luxembourg 38bp (-3); Finland 43bp (unch); Swaps 43bp (-5); Netherlands 49bp (-1); Austria 88bp (-10); EFSF 122bp (-5); France 113bp (-5); Belgium 163bp (-1); Italy 447bp (+4); Spain 541bp (+55).

Greek bonds guesstimates: Trading up quite strongly on the week with 2023s down to 27% from 28.5% and 2042s at 22.75% from 23.5%. (20.25% and 16.75% before elections).

EUR swap curve 2-5 YRS 43bp (+3,7); 5-10 YRS 58bp (+5,1) 10-30 YRS 27bp (+7,7). Steeper throughout all segments.
2 YRS German BKOs closed 0,07% (+3) and 5 YRS OBLs 0,52% (+8), on the week.

Main at 175 from 176 (about unch); Financials at 279 after 279 (unch). SovX at 318 from 320. Cross at 678 from 697.

Stoxx Futures at 2167 / +1,1% from 2143 with S&P minis at 1331 / +1,8% from 1308, at European COB last week.
VIX index at 22,3 after 22,5 last week.

Oil 84,0/98,0 (WTI/Brent) from 83,2/98,0 (+1,0%/+0,0%). Gold at 1627 after 1583 (+2,8%). Copper at 340 from 329 (+3,4%) . CRB closes 273,0 from 270,8 (+0,8%). Gold always doing fine in QE mode.
After a wobbly previous week, during which the Baltic Dry finally found a floor, things were better over the last days with today’s fixing at 924 from 877 last Friday (+5.4%).

EUR 1,264 after 1,248 last Friday
All levels Friday COB 17:30 CET

Next Week:
Quite light on hard data and mostly sentiment indicators to start the week. FED on Wed. PMI data on Thu. US data dump on Thu.
All about bills until Wed with German 0% Jun 2014 auction. Spanish and French short to medium term bonds on Thu.
Light on hard market data, heavy on political agenda (G20, Ecofin, Greece, Spanish bank audit results)

Germany: Tue ZEW Eco fcst 5 after 10.8 Current 39 after 44.1 Wed PPI fcst 2.3% after 2.4% YoY Thu PMI Manu fcst 45.4 after 45.2 Services fcst 51.7 after 51.8 Fri IFO Biz fcst 105.9 after 106.9 Current fcst 112 after 113.3 Expect 99.9 after 100.9
France: Tue Company / Prod Outlook Biz Conf fcst 92 after 93 Thu PMI Manu fcst 44.7 unch Services fcst 45.2 after 45.1
EZ: Thu Comp PMI fcst 45.8 after 46 Construction -3.8% YoY prior
Periphery: IT Wed Indu Orders prior -14.3% YoY Fri Cons Conf fcst 86 after 86.5 SP Wed trade balance Thu mortgages
US: Mon NAHB Tue Housing Starts fcst 720k after 717k Wed Mortgage application & FOMC Thu Claims 386k prior PMI prior  53.9 Philly Fed Home Sales fsct 4.57m after 4.62m Leading Ind fcst +0.1% after -0.1%
Asia: China Flash PMI on Thu, Fri leading indics

Click link on title or below for today’s musical support:
(Once you’re gone, You can’t come back... Better to burn out, then to fade away...  Well, about to test that...)

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