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

Thursday 21 June 2012

21 Jun 2012 – " Summertime Blues" (The Who, 1969)

21 Jun 2012 – " Summertime Blues" (The Who, 1969)

It’s summer now. And obviously things are not changing, as of today, as the weather is grey and markets are mellow. Ben only half delivered with a 6-month Twist extension, but eventually no one, except equity markets, really believed there would be anything more grandiose than that. Keeping powder dry. Still, given the ramp up in risk going into yesterday’s FOMC, the disappointment was fairly muted. US equities fizzled out from their highs, but closed barely negative. Asian session mixed, some up, some down, with China most hit at -1.5%, following a flash PMI taking us down to a 7-month low at 48.1 (after 48.4).

Opening quotes mostly unchanged and uninspiring, but for Spain, who’s still staging its own on catch-up rally (ahead of its auction). Equities a touch lighter.

The most striking changes to yesterday’s COB are in commodities, which got slammed by rising Oil stocks, still non-QE reeling Gold and China-disappointed Copper.
WTI at $80 looks really pale. With the exception of the post-Summer 2011 dip, that brought us down to $78 for a couple of days, we’re back to 2010 lows in Q1 and Q3. As it happens, expressed in EUR, levels are similar with the currency then trading in the 1.25-1.30, too. Happens to also be true for Copper in the 325 area.
Interesting chart formations on both. It’s basically make or break: if we don’t hold here, triggering lower levels would bring us back to post-Lehman 2009 depression levels. Might not please commodity producers. Geopolitical risk totally underpriced, too.

It’s PMI day: French figures slightly better than expected both for Manufacturing and Services at 45.3 and 47.3 (fcst 44.5 and 44.7 after 44.7 and 45.1, hence stabilizing on low levels). The last time we had readings at 50 and above was during Jan to Mar 2012. German PMIs bleak with Manu at 44.7 (fcst 45.2 unch) and Serv at 50.3 (fcst 51.5 after 51.8). Here again Summer 2009 levels... EZ PMIs actually in line or better with Composite unchanged at 46 (fcst 45.5 after 46), Manu at 44.8 (fcst 44.8 after 45.1) and Serv at 46.8 (fcst 46.4 after 46.7).
EZ Consumer Confidence down to -20 from -19.3. Guess what... Summer 2009. 
Why is that Summer 2009 reference always creeping back??? (Fittingly The Black Eyed Peas were way up in the dance charts with... Boom Boom Pow. Oh, and that Jacko-guy passed away...).

Had the yet-to-be-auctioned Spanish bonds tightening to 4.85%, 5.53% and 6.18% ahead of results (down from 4.97%, 5.65% and 6.28% yesterday evening).

Eventually, results showed total sales of EUR 2.2bn (versus expected EUR 2bn) with EUR 0.7bn in 2s at 4.71% (from 4.34% 2 weeks ago), EUR 0.9bn in 3s at 5.55% (from 4.38% mid May) and EUR 0.6bn in 5s at 6.07% (from 4.96% early May).
Bid to cover ratios excellent, but tails still too big with 8bp in 2s, 5bp in 3s and 12bp in 5s. There must have been very stern calls put in to get that overbidding.
Unfortunately for the auction bidders, results were about 75bp tighter on average than their Monday highs (5.45%, 6.20% and 6.80%), 20bp than yesterday evening and about 10 than this morning.
Unfortunately for Spain, these are nevertheless record-high funding levels... So no one’s really happy here. 

France fared better with EUR 8.5bn sold at 20 to 30 bp below May’s auction with EUR 2.8bn 2s at 0.54% (from 0.74%), EUR 1.2bn 3s at 0.83% (versus 1.09%), EUR 1.1bn 4s at 1.05% (versus 1.37%) and finally EUR3.4bn 5s at 1.43% (versus 1.72%). La vie en rose... Had a final slice of EUR 1.44bn French ILB 2002, 2023 and2027 to round up things, which closes government supply for this week.

Whatever the price tag of the Spanish auction (and its reduced size), the cover was good enough to keep Spanish bonds on their highs with 10s down to 6.50% (6.60% ahead of the auction and 6.70% at close) and well through the 500 to Bund mark, taking Italy along on the ride, but in less ebullient manner. Morning close on ROn Espana mood, but flattish to heavy everywhere else.
Spain’s targeted 2012 bond issuance of EUR 86bn is now done at 61.4%. So just EUR 33bn more to do…If yields were to remain at today’s average level of about 5.5% and assuming budget calculations were on something like 3.5%, this would add further 0.6% to the deficit. As of 31 May, average cost of the outstanding debt was 4.07% (with average issuance cost at 2.56% in 2010, 3.90% in 2011 and 3.09% YTD in 2012). Waiting for audit results, due after COB. Spailout unheard of during the last 48 hours, but to be formalised thereafter.
Those EUR 10bn Cyprus numbers circulating seem astonishing (2011 GDP EUR 17.761bn Debt 12.720bn, debt/GDP 71.6%).

US final data dump for the week with Claims the now usual miss at 387k (fcst 383k after 386k, increased to 389k), followed by lower PMI at 52.9 (fcst 53.3 after 54), then missed Philly Fed at -16.6 (fcst flat after -5.8) and finally missed Home Sales at 4.55k (fcst 4.57m after 4.62m), but with higher than expected prices at +0.8% Mom (fcst +0.4% after 1.8%) and stronger Leading Indicators at +0.3% (fcst +0.1% after -0.1%). Mixed bag, but all on the softer side.

Otherwise nothing really new. Usual verbal euro pin pong and idea pitching in run-up to next week’s Ecofin: French euro Bonds, then euro Bills support seems to have found its way to a shelf. New things is EFSF/ESM buying. ECB to work on own ratings to avoid DBRS on Spain-style situations. ECB to be softening Collateral criteria. Greek opening bail-out softener discussions with a 2-year delay and no public sector job cuts. Various answers following. Some ROn sentiment getting a push from Schaeuble views on leveraged EFSF buying being possible.

Interesting afternoon action with all EGBs starting to perform after the US figures, while equities were still holding up. Spain not holding below 6.50% and giving back some gains in what remains an extremely solid day. Commodity bashing. EUR down to 1.26. Credit doing quite well, with Financials performing despite abundant talks of an imminent Moody’s bashing round. US market-style behaviour: The worse the news, the higher expectations that the Central Bank will act. But given the latest move…Final flight to quality push in Core EGBs, as equities turned flat to negative again and Credit realized that. Italy ending unchanged. Spain giving back 10 bp from its tightest levels. 2 YRS BKO back through yesterday’s auction levels. Puzzling close on ROff realization.
New Issue activity lull with solely EIB working on its tap strategy and raising additional EUR 650m on an existing Sep 2019 deal at MS +46.

Closing levels:
10 YRS Yields: Germany 1,53% (-8); Luxembourg 1,86% (-10); Swaps 1,95% (-6); Finland 1,99% (-9); Netherlands 2,04% (-7); EU 2,35% (-9), Austria 2,43% (0); EIB 2,55% (-9); France 2,64% (-3); EFSF 2,70% (-9); Belgium 3,18% (-1); Italy 5,72% (-3); Spain 6,55% (-15).

10 YRS Spreads: Luxembourg 34bp (-2); Swaps 43bp (+3); Finland 40bp (unch); Netherlands 51bp (+1); EU 82bp (-1); Austria 91bp (+8); EIB 103bp (-1); France 112bp (+5); EFSF 117bp (unch); Belgium 165bp (+7); Italy 420bp (+6); Spain 503bp (-6). So, all that rally on Spain’s own before being eventually joined by everyone else...

EUR swap curve 2-5 YRS 46bp (+0,0); 5-10 YRS 62bp (-2,0) 10-30 YRS 27bp (+0,0).
2 YRS German BKOs closed 0,100% (-4,8) and 5 YRS OBLs 0,60% (-6).

Main at 169 from 169 (unch); Financials at 274 after 276 (0.7% tighter). SovX at 300 from 305. Cross at 681 from 661.
Financials down to 265 before giving back most gains...

Stoxx Futures at 2194 / -0,2% (from 2199) with S&P minis at 1339 (-0,7% from 1349, at European close).
VIX index at 17,0 after 18,8 yesterday same time.

Oil 79,4/90,6 (WTI/Brent) from 83,0/95,0 (-4,3%/-4,6%). Gold at 1572 after 1608 (-2,2%). Copper at 331 from 341 (-2,9%). CRB closes 270,0 from 274,0 (-1,5%).

Baltic Dry at 978 after 972.

EUR 1,258 from 1,271. Had sell-off only starting after the US figures confirmed general softness???

ECB deposits at EUR 780bn after EUR 764bn. ECB deposits still climbing at an unusual pace given the early stage of the reserve maintenance period.

Greek bonds guesstimates: Greece softer with 2023s at 26.5% after 26.0% and 2042s at 22% after 21% (20.25% and 16.75% before the first election round). Start of the game of chicken on softening bail-out terms.

All levels COB 17:30 CET


Watch those German IFO figures after the PMI round. Chinese Leading Indicators.

Germany: IFO Biz fcst 105.9 after 106.9 Current fcst 112 after 113.3 Expect 99.9 after 100.9
EZ: Construction -3.8% YoY prior
Periphery: IT Cons Conf fcst 86 after 86.5
US: Nope
Asia: China leading indicators

Click link on title or below for today’s musical support:
(PMI blues & rainy start into the Summer...)
(Of course, originally 1958 by Eddie Cochran. Well covered, by the Stones, T Rex or Joan Jett, among others...)

1 comment: