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

Wednesday 20 June 2012

20 Jun 2012 – " Land of the 1000 Dances" (Die Toten Hosen, 1997)

20 Jun 2012 – " Land of the 1000 Dances" (Die Toten Hosen, 1997)

It’s not like the G20 was a revelation and while the US closed positive, albeit off highs, Asia once more knew better then to get carried away. Not much overnight data, although Japanese exports and particularly imports grew better than expected (then again you need to buy something with that Yen strength).
Magic of the words with the G-20 supporting EU plans for closer economic union “that lead to sustainable borrowing costs.” By decree??? Doesn’t seem very powerful, does it? It’s like everyone compromising on the fact that looking for growth would be cool...
Whatever... Flattish European open on equities, but a very strong start in Periphery bonds, adding about 10 bp to yesterday’s tightening and getting Italy well off the 6% mark and Spain back through the magic 7, down to 6.90%. LCH Clearnet margin hike on Spanish paper pretty much unnoticed. Then again raising 10s from 13.6 to 14.7%, given the already high base, is no killer anymore. If DBRS were to cut Spain into the BBB bucket, ECB haircut hikes would wreak far more damage.
Credit better a couple of ticks in the wake. Core EGBs softer by up to 4 bp. Everything else by and large unchanged from COB with Gold maybe a little touch softer. Will need some harder facts to hold here, but FED hopes still supportive – at least until tonight.

On the data front: German PPI a tick lower than expected at 2.1% YoY after 2.4%. Dutch consumer confidence tanking further to -40 after -38, an all-time low, beating a -39 reading from Summer 2003 (Can’t remember why so low then). Italian Indu Orders levelling out at -12.3% after -14.3% YoY, but Indu Sales tanking to -4.1% after -3.1% YoY.

Some see-sawing with the Periphery giving back some gains, getting back and pushing further, mirrored by similar Bund movements, with especially Spain getting down to 6.85% and Bunds up to 1.60% before the auction results at the end of the morning.

Had the (in)famous 2 YRS 0% BKO, maturing on a Friday 13th, sold for additional EUR 5bn at 0.10%. (Trading 0.11% before the results, closing 0.086% yesterday), of which EUR 995m were retained for market interventions. Total bids for EUR 7.6bn, of which half unlimited, meaning at market price. 0.001 cts tail (so none).
Actually more than a decent result, given the manic-depressive mood swings. Launched last month at 0.07%, traded as low as 0.025% on 31 May and as high as 0.13% on 13 Jun.

Further short to medium term auction action tomorrow out of France with up to EUR 8.5bn in 2 to 5 YRS BTANs (May levels were 0.74%, 0.95%, 1.37% and 1.72%).
And, of course, drum roll, there will be Spain out for up to EUR 2bn in 2, 3 and 5 YRS (2s auctioned at 4.34% 2 weeks ago, 3 YRS mid May at 4.38% and 5s at 4.96% early May).
Whatever, levels will again be much higher, as the bonds are now trading 4.97%, 5.65% and 6.28% (at 17:30 CET). And, unfortunately for the auction bidders, they’re now about 50bp tighter from their Monday highs (5.45%, 6.20% and 6.80%).

Only set of US data were Mortgage Applications that fell -0.8% after rising 18% last week (volatile figure anyway).

To pass some time, contradictory leaks about readiness for ESM/EFSF bond purchases, Italian and Spanish demands for such, agreements to it, disagreement from others, euro-(now)bills (and no more -bonds). Finland in any case asking for collateral. Usual stuff. Nothing exciting. There’s even a Greek government, which suddenly seems of no interest to anyone any more – until demands to renegotiate bail-out terms will become pressing (as “key issue will be to form a bailout renegotiation team”). Talking of bailout: no further news yet, neither from Spain nor Cyprus (as numbers here seem to grow slowly, but surely). Procrastinating into the summer, in order not to get any Troika guys before the Fall?
Heavy Core EZ EGBs after lunch with Bunds out by 7 to 1.60% and Italy & Spain tighter by 12 to 17, down to 5.78% and 6.83%, and another 5 to greet the US pre-open at 5.73% and 6.78%. And a further final push for Spain after US open to hit 6.70%. Now down 55bp from Monday’s spike.

Not much else to do than watching the EGB curve twist and shake. Talking of Twist, it seems that QE is slightly off the rumour / wish list for the moment (and there goes Gold down to 1600), but Twisting further seems difficult for the FED given what remains as stock. Well, Ben better pulls a cool rabbit out of his hat to justify, where we have settled. Or a dance?
In the meantime, Bunds are “Tote Hose”... Very reminiscent of last week’s Tue and Wed movements (+12, then +7). 50d mavg is 1.503% / 100d 1.685%. Taking the last yield “spike” in March (2.07%) as start of the last leg to the 1.13% (01 Jun) low gives us levels at 1.35%, 1.49% resistances. 1.60% mid. 1.71% and 1.85% support. The actual levels are therefore rather important chart-wise. Next support about 140 figure in futures.
Lack of equity movement is strange. Neither ROn nor ROff. Spanish squeeze going on in parallel shift, so the curve remains relatively flat.

It’s been a cold Spring, but with hot markets. Would be nice to have a hot Summer and cool markets, for a change. However doubtful this might seem... Need to check tomorrow.
Rather brisk New Issue activity on the back of yesterday’s ROn day and supportive morning session. Had BNPP printing today’s largest deal with EUR 1.25bn 5 YRS senior paper at MS +150. EFSF was in for a EUR 1bn 7 YRS increase at MS +75. EIB, BNG and AFD joined with smaller taps. Zurich Financial printing EUR 500m 10s at MS +147.
Mixed platter on the corporate side with Italian ENI lightening up a EUR 750m 6 YRS deal at MS +215, Telenor calling in with a double trancher of EUR 500m long 5s and 10s at MS +45 and +80, as well as PSA driving away with EUR 600m long 3s at MS +385.

Closing levels:
10 YRS Yields: Germany 1,61% (+8); Luxembourg 1,96% (+6); Swaps 2,01% (+4); Finland 2,08% (+6); Netherlands 2,11% (+7); EU 2,44% (+4), Austria 2,43% (+4); EIB 2,64% (+3); France 2,67% (+3); EFSF 2,79% (+4); Belgium 3,19% (unch); Italy 5,75% (-15); Spain 6,70% (-29).
Tote Hose for the Core. Swaps, Finland, the Dutch, all back over 2% in 10s. Soft Block stable. Grandiose Spanish performance.

10 YRS Spreads: Luxembourg 35bp (-2); Swaps 40bp (-4); Finland 40bp (-4); Netherlands 50bp (-1); EU 83bp (-4); Austria 82bp (-4); EIB 103bp (-5); France 106bp (-5); EFSF 118bp (-4); Belgium 158bp (-7); Italy 414bp (-23); Spain 509bp (-37).

EUR swap curve 2-5 YRS 46bp (unch); 5-10 YRS 64bp (+1,0) 10-30 YRS 27bp (unch).
2 YRS German BKOs closed 0,150% (+6,2) and 5 YRS OBLs 0,66% (+8). Good auction, bad performance...

Main at 169 from 172 (1,7% tighter); Financials at 276 after 279 (1,1% tighter). SovX at 305 from 312. Cross at 661 from 667. Very odd, Financials, and to a lesser extent, Main were much stronger until noon, to realize then they were on their own?

Stoxx Futures at 2199 / +0,5% (from 2189) with S&P minis at 1349 (-0,1% from 1350, at European close).
VIX index at 18,8 after 17,9 yesterday same time.

Oil 83,0/95,0 (WTI/Brent) from 84,0/96,0 (-1,2%/-1,0%). Gold at 1608 after 1626 (-1,1%). Copper at 341 from 343 (-0,6%). CRB closes 274,0 from 277,0 (-1,1%).
Baltic Dry jumping to 972 from 954 (+1.9%). Back to life! Back to life! BUT, big caveat, for the last 10 years or so, there was quite some seasonality in that index, mostly peaking just before the summer break industrial lull. So, these might be the last cargoes booked, before trailing off at least until Fall. And who knows how things will look like in Fall? Or next week, as it stands?

EUR 1,271 from 1,269

ECB deposits unchanged at EUR 764bn.

Greek bonds guesstimates: Greece stable with 2023s at 26.0% and 2042s at 21.0% (20.25% and 16.75% before the first election round). NB: ND/PASOK/ Dem Left had combined 169 seats after the May 6 elections, 179 now
(out of 300). All this for that???

All levels COB 17:30 CET

Rest of Week:
European PMI data and US data dump tomorrow. Chinese PMI.

Germany: 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 Fri Cons Conf fcst 86 after 86.5 SP Thu mortgages
US: 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 indicators

Click link on title or below for today’s musical support:

(Because there’s not only Twist in life...)

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