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 26 June 2012

26 Jun 2012 – " Quiet Times " (Dido, 2008)

26 Jun 2012 – " Quiet Times " (Dido, 2008)

Ended up getting all the nasty news that was priced in, at least for the day: Moody mass downgrade of Spanish banks, Cyprus call for bail-out as well as the resignation of the yet not sworn-in Greek FinMin. As you can only get so much, the confirmation of all this didn’t pile up further. US weak close, but better than Europe. Asia tame close, slightly soft, but no more. Shanghai putting a numerically nice 2222 close on the floor. Talking of floor, Chines equities look a bit breathless at their 5m lows. Chart support here 2132 & then 2093 (so about 4% to 6% lower). 

Bits and pieces on the data front: German Consumer Confidence beating estimates at 5.8 (fcst 5.6 after 5.7), visibly on wage hikes, as was the French equivalent, stable at 90 (fcst was 89). On the Dutch side, final Q1 GDP was a positive surprise, as it eventually grew 0.3% QoQ after initial decline of 0.2% readings. Then again, that is backwards looking and Dutch figures have all been on the sad side lately. But still. Finnish unemployment jumping to 9.5% after 8.4%, which puts an ugly double-digit number in sight. Italian Apr Retail Sales further in decline at -1.6% MoM (fcst -0.6% after -0.2%, revised further to -0.8%), gives an ugly -6.8% YoY reading. Steepest MoM drop since May 2004. Largest YoY drop since the series started in 2001.

Uneven start with Peripherals a bit on the weaker side ahead of auction supply. Equities tentative slightly higher at open. Tick better in Credit. Core EZ initially a tick better, too, but giving back some. Maybe due to Dutch 10 YRS auction hedging, as well as announced EU and Austrian then Finnish New Issues on the long end (7 YRS Austria, 2028 EU, 2044 Austria, 2042 Finland).
Let’s settle for Risk Neutral. RN.

This was seen as being a good day to hammer out billions of auctions and syndicated government / SSA bonds…

The Dutch raised EUR 2.2bn in 10s at 1.995% (from 2.14% last month and a 1.98% close yesterday). Again slightly on the tight side amount-wise (had been announced for up to EUR 3bn), but nicely shot through the 2% mark and a historic low yield.
Spain managed to sell slightly over target EUR 3.1bn bills with EUR 1.6bn 3m at 2.36% (after 0.85%) and EUR 1.5bn 6m at 3.24% (after 1.74%). 15 bp tails in much lower bid to cover. No need for an abacus to see costs soaring 2 to 3 times. Brings us back to Oct 2011 levels seen just before the all-out Dec spikes at 5.11% and 5.23% Ouch!
To round up auction supply, Italy sold EUR 3bn at 4.71% (after 4.04%) and just under EUR 1bn in 2016 and 2026 ILBs.
Italy announced a minimum of EUR 30bn in bonds for Q3, of which EUR 12bn new 10s Nov 2022, EUR 9bn new 3s Jul 2015 and EUR 9bn new 2 YRS zeroes Sep 2014. Plus possible taps in 5s, old 10s and old 2s. Well, that is an ambitious summer programme and might leave some dealers feel a bit alone at times.
Wednesday will get a EUR 9bn chunk of Italian 6m bills (last 2.10%) and readying an equally chunky Thursday sales of up to EUR 2.5bn 5s and EUR 3bn 10s.

For the anecdote, the Swiss issued record low CHF 791m 3m bills at -0.85% (-0.62% one month ago, -0.16% two months ago. Went negative for good Q3/2011… Wonder why… Quick check EURCHF at 1.201. Traded down to 1.2004 yesterday, the lowest since the SNB missed a 1.195 quote on 05 Apr. Ooops!)

Ending the morning session after a slightly negative post-auction ROff loop, before going back to RN. Equities about unchanged, Credit flat to tick better. EGBs soft, all of them. Peripherals settling at +5-8 after the auctions, with Italy back over 6%. Core +3/6, probably on hedging / new issues switching. Austria, Finland and the Netherlands a tick weaker still on supply. Belgium best performer at unch, having digested yesterday’s auction (Has now done about EUR 24.7 from an early June upwards revised EUR 34bn 2012 bond programme, so 72%).

Afternoon session mostly bobbling around. Anyone interested in reading “Towards a Genuine Economic and Monetary Union” (an 8-handed pitch by Van Rompuy, Barroso, Juncker and Draghi? 7 pages, but ends with “Further work is necessary to develop a specific and time-bound road map for the achievement of the genuine Economic and Monetary Union.” Seems to have been cut by 3 pages, covering short term solutions, since first circulating yesterday and meeting very unhappy coughs from over the Rhine. Nice belated rule book. Should have existed before and seems difficult to implement post-ex. Will probably allow telling a common ground on a future vision will have been found at the EU meeting, but there won’t be a short –term fix. So we’re not there yet, solution-wise…

US Case Shiller figures second set of positive housing figures in as many days at 0.67% (fcst 0.3% from 0.09% revised upwards to 0.73%) and Apr Home Price index bottoming out to 135.8 (fcst 134.85 after 134.08 revised).
Very quiet and cosy afternoon session for a while, just trailing sideways on noon levels throughout most asset classes with solely the misses of US Consumer Confidence at 62 (fcst 63 after 64.9 revised 64.4) and Rich Fed Manu Index at -3 (fcst 2 after 4) triggering a short-lived downside hick-up and then a slight ROff bias. Too bad.
Getting pressure on the Periphery again with Spain softly widening past 6.75%, pulling Italy further from the 6% mark. Other EGBs still on the soft side, given the sudden EUR 12bn plus AAA/AA+ long end supply.
Bit of gloom added by the ECB reminding that Cypriot bonds wouldn’t be eligible as collateral anymore. Cyprus bailout numbers not spelled out yet, but EUR 6 to 10bn recurrent (35-59% of 2011 EUR 17bn GDP and 2011 debt at EUR 12bn, 71.6% debt/GDP).
Quiet times, if it wasn’t for the Spanish widening. But, what are 25 bp nowadays (+35 in 2 YRS Spain AND Italy) and 50 bp since Friday???
Only asset classes bottoming out today are commodities (but precious metals). Geopolitical risk under-priced, as seen in Oil, mainly Bent, reacting to Syrian tensions.
Crowded House in SSA (Sovereigns, Supras & Agencies) New Issues: Austria and Finland adding to the EU long end supply, while KfW, CADES and OekB were all working on shorter USD. 
Given the bail-outs lining up, the question whether a gift wrapping is needed for the EU funds is probably unnecessary. No, thanks, it’s for immediate consumption. (cleared for Ireland at noon)
EU EUR 2.3bnbn Apr 2028 at MS +68. Austrian EUR 3bn 7 YRS at MS +42 and EUR 2bn 2044s at MS +100. Finland EUR 1.5bn new 30 YRS at MS +45, plus another EIB increase of an outstanding 9 YRS deal at MS +65.
Must have had at least one bookrunner feeling slightly conflicted at times, as running all 3 x-long deals (Hat off, nevertheless!).
On the covered bond side NZ newcomer ABS Bank raised a debut EUR 500m 5 YRS mortgage-backed CB at MS +68, while Carlsberg offered EUR 500m 7 YRS at MS +112 to quench a EUR 4bn thirst for household name corporate issuers.
CADES USD 3bn 3 YRS MS +105. OeKB USD 1.5bn 3 YRS at MS +53. KfW USD 1bn 4s at MS +5. 

Closing levels:
10 YRS Yields: Germany 1,50% (+4); Luxembourg 1,85% (+4); Swaps 1,93% (+4); Finland 1,98% (+7); Netherlands 2,04% (+5); EU 2,33% (+4), Austria 2,47% (+5); EIB 2,54% (+4); France 2,62% (+5); EFSF 2,68% (+4); Belgium 3,10% (-1); Italy 6,17% (+17); Spain 6,85% (+25).

10 YRS Spreads: Luxembourg 34bp (0); Swaps 43bp (unch); Finland 42bp (-1); Netherlands 53bp (+1); EU 83bp (unch); Austria 97bp (+1); EIB 104bp (unch); France 112bp (+1); EFSF 118bp (unch); Belgium 160bp (-4); Italy 467bp (+14); Spain 535bp (+21).

EUR swap curve 2-5 YRS 44bp (+1,0); 5-10 YRS 65bp (+1,0) 10-30 YRS 27bp (unch).
2 YRS German BKOs closed 0,090% (+2,1) and 5 YRS OBLs 0,56% (+3).

Main at 179 from 178. Financials at 291 after 290. SovX at 300 from 298. Cross at 714 from 703.

Stoxx Futures at 2123 / -0,2% (from 2127) with S&P minis at 1306 (-0,2% from 1308, at European close).
VIX index at 20,0 after 18,1 yesterday same time. Finally waking up to sliding markets.

Oil 78,6/91,5 (WTI/Brent) from 78,5/89,9 (+0,2%/+1,8%). Gold at 1571 after 1575 (-0,2%). Copper at 330 from 329 (+0,3%). CRB closes 271,0 from 269,0 (+0,7%). Finally waking up to geo-political risk.
Baltic Dry rising to 981 after being stuck for 3 days at fixed unchanged at 978.

EUR 1,246 from 1,248

ECB deposits at EUR 750bn after EUR 775bn.

Greek bonds guesstimates: Greece sideways with 2023s at 26.75% and 2042s at 22.50%.
(20.25% and 16.75% before the first election round).

All levels COB 17:30 CET

This Week:
Germany: Wed Imp Px fcst 2.3% unch YoY & CPI fcst 2.1% after 2.2 % YoY Thu Unemployment Fri Retails Sales fcst 2.3% after -3.8% YoY
France: Tue evening Jobs Fri PPI fcst 2.7% unch YoY Cons Spending Fcst 0.1% after 0.4% YoY Final Q1 GDP 0.3%
EZ: Thu Biz Climate fcst -0.81 after -0.77, Final Cons Conf, M3 fcst 2.2% after 2.5% and CPI 2.4% unch YoY
Periphery: IT Wed Biz Conf fcst 85.5 after 86.2 Thu PPI & CPI SP Wed Retail Sales fcst -7.9% after -9.8% Thu Housing permits & CPI
US: Tue Case Shiller Cons Conf fcst 64 after 64.9 Wed Durable Goods fcst 0.5% after 0% Thu GDP & Claims Fri Pers. Income & Spending Chicago PMI Michigan Conf
Asia: China leading indicators Japan Thu PMI & Retailers

Click link on title or below for today’s musical support:
 (Can’t always be Rock’ N Roll… Need to relax once in a while)

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