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 27 June 2012

27 Jun 2012 – " Never Make Your Move Too Soon " (BB King, 1978)

27 Jun 2012 – " Never Make Your Move Too Soon " (BB King, 1978)

Looks like markets somehow bottomed-out ahead of the EU meeting. The Peripherals widening didn’t scare the US off a mild ROn close, a mood carried over into most of Asia. No dramatic overnight news. On the rating front, Mauritius got upgraded to Baa1 by Moody’s, which is well deserved for these overly friendly people and consummate hosts. For the anecdote, aggressive second league, but lately prescient Egan Jones, brought down Germany by one notch to A+ neg on contingent EZ exposure (US AA neg, France BBB+ or UK AA- by EJ). But that was as much as one could get in overnight titbits.

Yesterday evening release of May French jobseekers showing the highest number since Sep 1999 at 2922k (after 2889k and 2895k fcst). Low had been 1984k in Feb 2008. Aïe! Mixed minor data showing Finnish Biz confidence recovering, but Consumer tanking (as unemployment jumped). German import prices drifting lower at +2.2% YoY (fcst 2.3% unchanged) and first German Länder CPI readings showing the same trend, which in turn might help follow through on rate cut thoughts at next week's ECB meeting. Italian Jun biz confidence bottoming out and well above forecast (88.9 against an 85.5 outlook after revised 86.6). On the positive Southern European side as well Spanish May Retail Sales decline clocking in only at -4.9% YoY (fcst was -8.1% after revised -10%). Overall German CPI at 2% (fcst 2.1% after 2.2%).

Mild ROn open with stocks trying to follow through US and Asian closes, but not really managing to get past the 0.5-0.75% line before drifting back to COB levels. Peripherals tightening in a little and EGBs softer by as much. Credit close to home. Drifting ahead of the Italian 2 YRS auction.

Italy issued the targeted amount of EUR 9bn 6m bills sold at 2.96% (after 2.10% end of May). Unchanged B/C of 1.6 from disciplined dealer group. Highest level since the 3.25% paid in Dec 2011. Peak stress levels were 6.50% end of Nov 2011, before the first LTRO.
We’ll close Q2 auction supply tomorrow with a final Italian offering of EUR 2.5bn 5s (EUR 3.4bn 5.66% in May, now 5.90%) and EUR 3bn 10s (last EUR 2.3bn at 6.03%, now 6.19%).

No surprise in these levels, hence continuous sideways trailing by mid-morning in slight RN/ROn move and sticking there over lunch.

Franco-German working dinner to prepare “contentious” (sic) discussions over the next two days. Pre-emptively, for those who still haven’t understood the German position, Schäuble is stressing that even the future “Deutschland Bonds” (Bund + Länder) will be without joint liability (Which in turns raises the question about their attractiveness, then, but that’s next year’s business).
Coming back to that Egan Jones assessment, it is very interesting to note that Schäuble has put the weight of contingent liabilities quite bluntly on the table, as well as the fact that Germany’s 2012 budget was calculated on a growth outlook that could be missed (as a reminder Germany’s debt/GDP ratio stood at 81.2% in 2011). In the same vein, the slight increase in Germany’s Q3 funding programme was clearly indicated as coming from EFSF contributions. Finally, it allowed likewise deflating an idea that had been circulating lately that Germany could subsidize the above-average periphery costs with its clearly below-normal rates. Germany’s stance for the next two days seems set in stone.

Big 7.1% dip in US MBA mortgage applications to kick off afternoon proceedings, but this is a very noisy and volatile number. Real leading data were mixed May Durable Goods Orders that came out higher then expected at +1.1% (fcst 0.5% after prior revised lower  to -0.2%) on the headline, but lower on ex transport at 0.4% (fcst +0.7% after -0.6%). Pending home sales in May increased by 5.9% (fcst 1.5% after -5.5%), confirming the previous days' rebound in the sector, triggering a positive shove in equities, albeit not in EGBs and unable to wholly turn around the Peripherals widening to +6 from COB (from a tighter -5 in the morning).

Cyprus bail-out approved by the EU FMs (Size yet unknown). EFSF or ESM provenance of the funds, and seniority questions will probably be part of the coming day’s debates. Tentatively put at via EFSF then transferred to the ESM. Spanish funds to be in any case funnelled through the FROB, as explained in the statement. IMF technical involvement. On Cyprus, the statement looks like a full-out Troika bail-out (statement).

Commodities (ex metals) still recovering. Afternoon ROn driven mostly by housing upbeat US equities (+1.5%), somehow trailed by Credit. ECB rate cut rumours as post-ex-pre-why not explanation, as you need a further one.
Quieter New Issue market after yesterday’s SSA frontal assault of EUR 11bn (including the Dutch auction) mostly in long to ultra-long and USD 5.5bn in shorter maturities. Closing increases of EUR 1bn KfW 2019 at MS -7 and EUR 1bn EIB 2021 at MS +65. Had German PBB issue EUR 500m 5 YRS Pfandbriefe at MS +38.
Placement stats of yesterday’s deals mainly unsurprising, showing German insurer appetite for the long end. Had a whooping 30% of the 7–year Austrian deal sold to Asia, which is interesting.

Closing levels:
10 YRS Yields: Germany 1,56% (+6); Luxembourg 1,90% (+6); Swaps 1,98% (+4); Finland 2,04% (+6); Netherlands 2,10% (+6); EU 2,38% (+5), Austria 2,48% (unch); EIB 2,60% (+5); France 2,64% (+1); EFSF 2,73% (+5); Belgium 3,09% (-1); Italy 6,19% (+2); Spain 6,88% (+4).

10 YRS Spreads: Luxembourg 34bp (-1); Swaps 41bp (-2); Finland 40bp (-1); Netherlands 53bp (unch); EU 82bp (-1); Austria 91bp (-6); EIB 103bp (-1); France 107bp (-5); EFSF 117bp (-1); Belgium 152bp (-8); Italy 462bp (-5); Spain 532bp (-3).

EUR swap curve 2-5 YRS 46bp (+2,0); 5-10 YRS 66bp (+1,0) 10-30 YRS 27bp (unch).
2 YRS German BKOs closed 0,120% (+2,1) and 5 YRS OBLs 0,62% (+6).

Main at 177 from 179 (1,1% tighter); Financials at 288 after 291 (1,0% tighter). SovX at 297 from 300. Cross at 705 from 714.

Stoxx Futures at 2157 / +1,6% (from 2123) with S&P minis at 1323 (+1,3% from 1306, at European close).
VIX index at 19,7 after 20,0 yesterday same time.

Oil 79,9/93,1 (WTI/Brent) from 78,6/91,5 (+1,6%/+1,8%). Gold at 1571 after 1571 (unch). Copper at 334 from 330 (+1,2%). CRB closes 276,0 from 271,0 (+1,8%).
Baltic Dry rising 7 to 988.

EUR 1,245 from 1,246

ECB deposits at EUR 747bn after EUR 750bn.

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

Rest of the Week:
Germany: Thu Unemployment fcst +34 after 0. Fri Retails Sales fcst 1.9% after -3.8% YoY
France: 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: Italy Thu PPI & CPI / Spain Thu Housing permits & CPI 
US: Thu 3rd Q1 GDP reading & Claims fcst 385k after 387k. 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:
(No risk these days…)

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