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


Tuesday, 19 June 2012

19 Jun 2012 – " If I Ever Lose My Faith In You " (Sting, 1993)

19 Jun 2012 – " If I Ever Lose My Faith In You " (Sting, 1993)
http://youtu.be/EZKppXsqRHo

Somehow, when rumours the CBU (Central Banks United) will do whatever is needed to get things going, players jump on it and we move into ROn, but when the G20 leaks a draft statement that in essence says just the same, it is greeted by a general, worldwide shoulder shrug. Obviously, past experience has shown that G20 meetings tend to be long on words and short on action, while real frontal CBU interventions bend things right - at least for a while. But, ok, let’s live with it... To make it short, the US closed about unchanged, depending on index; Asia gave back some, although not all of Monday’s gains and Europe started about where it closed.

Cautious opening mood. Hard hat to avoid shoe drops. Had the faintest uptick attempt in the Periphery to push tighter from yesterday’s close, but initially to no avail, especially as it seeped that the final publication of the independent auditors’ findings about the state of Spanish banking would be postponed to September And this ahead of the 12 and 18m Spanish bill auction. Unfortunate...
Most indicators simply unchanged by mid-morning with equities slightly biased to the downside. No hard data, outside French biz sentiment and outlooks that came as expected, roughly unchanged from May with a slight downside bias. Slight downside is probably the most fitting “attitude du matin” anyway.

Spanish bill auction unsurprisingly expensive, but done in full with EUR 2.4bn raised at 5.07% for 1 year (after 2.99%) and EUR 0.6bn in 18m bills at 5.11% (after 3.30%). Better bid-to-cover ratios, especially the 18m at over 4, but with a steep 30cts tail on that issue, meaning the lowest served bids (for 60%) were at 5.35%. Happens to be the highest rate ever paid for 12m (Was before 5.02% at its worst in Nov 2011). The Spanish Treasury has duly noted having now covered 58.8% of its 2012 needs. Well, that’s probably before contingent liabilities…
Greece anecdotally selling EUR 1.3bn 3m bills at 4.31% (after 4.34%), but that must run on a domestically closed-shop basis. Finally, the EFSF sold just under EUR 1.5bn 6m at 0.14% (after 0.2% 2 weeks ago).

Whatever, good for a recovery in the Periphery (up to 10 tighter, getting Italy back through 6% and Spain near 7%) to the detriment of the Hard Core (5 softer) and lifting stocks from its lows.
Headline grabbing data in form of German ZEW Economic Sentiment tanking to -16.9 (fcst 2.3 after 10.8) and Current Conditions at 33.2 (fcst 39 after 44.1). ZEW EZ Sentiment equally dipping to -20.1 after -2.4. To round off the gloomy mood, EZ Construction dipped 2.7% / 5% MoM/YoY (Germany down, Spain and Italy very down, Netherlands down, France up).
Feels like when US equities rally after every bad figure, on expectations of outside help just around the corner getting intensified. Odd.

Bund decline post auction feels a little bit like last week’s round of softness. You don’t need much to miss a step here. Periphery recovery on one hand. Had a story about Dutch low-income housing association group Stichting Vestia managing to renegotiate / restructure a hung multi-billion swap portfolio, of which an unwind would have meant receiving tons of ultra-long swaps. But that feels like last week’s story of pension fund requirements getting alleviated. Sure. Possible. But doesn’t feel wholly conclusive.
It’s more like players are on the edge, are running smaller positions given increased volatility and are stuck in this Blade Runner-mooded market.
Will get the (in)famous 2 YRS 0% BKO on tap tomorrow for EUR 5bn (Was launched last month at 0.07% and traded as low as 0.025% on 31 May), as first bond auction of the week, followed by French and especially Spanish 2-5 YRS on Thursday. Closing at 0.09%, traded up to 0.13% on 13 Jun.

Late morning levels holding over lunch period. Equities just a wee bit up, credit a notch tighter, Periphery eventually off tightest levels, but still 7 tighter, Hard Core 5 wider. Commodities unchanged. EUR back up and trading low 26s. Yawn!
 
US housing-related figures showing “only” 708k Starts (fcst 722k after 717), due to strong revision of prior data (up to 744k from 717k) , but a surge in Permits at 780k Permits (fcst 730k after revised 723k). Positively biased. Then again, if the tone becomes too positive, there won’t be any QE3. Need to show some distress.

Early afternoon Periphery tightening sustained with Italy and Spain tickling 6.90% and 7.00% respectively. Hearing CDS basis trades possibly behind the Spanish performance (10 YRS CDS wider by 35 since y’day morning, tighter by 10 off the highs with cash wider by 20 and down 20+ from the highs).

Not much going on thereafter and into NY open, biased to the upside, as seemingly no downside around, and in waiting mode ahead of the FOMC / QE hopes. Might last until tomorrow. Driving European ROn sentiment and EGBs ex Periphery up yield-wise. EGB and swap curve steepening at odds with ROn, though.

Nothing really stunning out of the G20 / political sphere so far, neither good, nor bad. ESM formally passing German High Court. Germany certainly not going soft on Greek aid terms (for the moment). Greek government talks. Spain formally still has not asked for support and whatever support is probably still not drafted...Ah, that conditionality thing. EU wanting to do without rating agencies (That DBRS Spanish rating is still the only one keeping haircuts to shoot up on the short end). Lot of Faith out there in the meantime.
Strong ROn close, especially in equities, although the last couple of basis points on the Periphery seem to be gained cent by cent. Ah, equities..
   
New Issue supply still Germany-dominated, but down to a trickle with Daimler raising EUR 750m 6 YRS at MS +73 and Land Berlin EUR 500m 7 YRS at MS +9.

Closing levels:
10 YRS Yields: Germany 1,53% (+12); Luxembourg 1,91% (+11); Swaps 1,97% (+12); Finland 2,02% (+12); Netherlands 2,04% (+9); EU 2,40% (+11), Austria 2,39% (+4); EIB 2,61% (+10); France 2,65% (+4); EFSF 2,75% (+10); Belgium 3,18% (+6); Italy 5,90% (-14); Spain 7,00% (-12).
Good Soft Core/ AFB performance, while swaps just traded off with Bunds, taking the supras along.

10 YRS Spreads: Luxembourg 37bp (-1); Swaps 44bp (+1); Finland 44bp (-2); Netherlands 51bp (-3); EU 87bp (-1); Austria 86bp (-8); EIB 108bp (-2); France 111bp (-7); EFSF 122bp (-2); Belgium 165bp (-5); Italy 437bp (-25); Spain 546bp (-24).

EUR swap curve 2-5 YRS 46bp (+5,0); 5-10 YRS 63bp (+4,0) 10-30 YRS 27bp (+3,0).
2 YRS German BKOs closed 0,090% (+5,8) and 5 YRS OBLs 0,58% (+11).

Main at 172 from 179 (3,9% tighter); Financials at 279 after 288 (3,1% tighter). SovX at 312 from 319. Cross at 667 from 686.

Stoxx Futures at 2189 / +1,9% (from 2148) with S&P minis at 1350 (+1,2% from 1334, at European close).
VIX index at 17,8 after 21,8 yesterday same time. Wow, what a crash in vol!

Oil 84,0/96,0 (WTI/Brent) from 83,0/96,0 (+1,2%/+0,0%). Gold at 1626 after 1628 (-0,1%). Copper at 343 from 338 (+1,5%). CRB closes 277,0 from 271,0 (+2,2%).
Baltic Dry still steaming ahead with a 954 fixing after 938 (+1.7%). Weak patch getting corrected. Had been at 1165 early May, then drifting lower and rebounding to 1141, before crashing to 872 2 weeks ago.

EUR 1,269 from 1,257. EUR shorts have been reduced lately, but still out there and getting squeezed.
ECB deposits at EUR 764bn after EUR 741bn, certainly crawling back up fast for a reserve maintenance period start.

Greek bonds guesstimates: Greece getting a little softer with 2023s back to 26.0% from 25.75% and 2042s at21.0% from  20.75% (20.25% and 16.75% before the first election round), as Germany seems quite strict on keeping conditions unchanged in the grander scheme of things.

All levels COB 17:30 CET

This Week:
FED on Wed. PMI data on Thu. US data dump on Thu. Spanish and French short to medium term bonds on Thu.
Still light on hard market data, heavy on political agenda (Ecofin, Greece, Spanish bank audit result date, eventually)

Germany: 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: 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: Wed Mortgage application & FOMC Thu Claims 386k prior PMI prior  53.9 Philly Fed Home Sales fcst 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:
http://youtu.be/EZKppXsqRHo
(Happens to fit the rather quiet, pop closing mood. Faith lost in either end of the EGB spectrum, sometimes in both...)

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