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 28 June 2012

28 Jun 2012 – " Nothing to Say " (Slash, 2010)

28 Jun 2012 – " Nothing to Say " (Slash, 2010)

Interesting open, showing yet again a divergence between rates and equities: EGBs start in ROff mode, ahead of the Italian auction, and probably discounting a revelation-less outcome of the next 48 hours, with the Core squeezed tighter and the Peripherals widening with Spain again approaching the 7%-mark. Equities, on the other hand, felt like trailing the US market and matching the slightly higher US close (compared to COB Europe). Credit a tick tighter. Commodities a tick firmer. Asia by and large put with the exception of Japan, following through on yesterday’s rally of 1.5% (plus better retail sales), and China down, again, 0.5%. Knowing that Chinese stimulus rumours were part of yesterday’s hope dope, that one hasn’t zeroed in at the right place.

Light initial data supply: Spanish housing still sliding with housing permits at -32.4% YoY in Apr (after prior -27.8%). German unemployment a tick higher at 6.8% (after prior revised to 6.8%, from what was thought a record low of 6.7% last month), so floored here since Dec 2011. Made later a bigger fuzz and used to explain ROff, but that still is very low.
Italian 5s around 5.98% and 10s around 6.25% in early quotes ahead of this week’s and quarter’s last EGB auction.

EZ indicators all on the softer side: Biz climate missing forecasts at -0.94 (expected -0.87 after revised -0.79), Consumer Confidence -198 (fcst -19.6 unchanged), Eco Conf at 89.9 (fcst 89.6 after revised lower +90.5), Indu Conf -12.7 (fcst -12 after revised lower -11.4) and Service Conf at -7.4 (fcst -6 after revised lower -5.2). As so often lately, all these levels hark back to Q3/2009. Back to the Future.

Markets starting to shift into ROff for good, including equities, with German officials leaking “Nein Nein Nein!”, not that this would be news.

Italy eventually sold EUR 2.5bn 5s at 5.84% (after 5.66% last month and 5.90% yesterday evening) and EUR 2.9bn 10s at 6.19% (after 6.03% and 6.19% COB), so slightly under EUR 3bn target, with both issues bid quite expensively compared to pre-auction levels. First reaction a 5 bp tightening to 6.20%, despite the still rather lame bid to cover ratios (1.5 and 1.28).
To put these levels into context, if it wasn’t for the panicky Nov 2011 auction at 7.56%, this brings us back to Sep 1997, and at that time yields were falling and converging pre-EUR introduction. Likewise for the 5 YRS auction, which levels peaked at 6.29% and then 6.47% in Nov and Dec 2011. The first time 5 YRS BTPs were issued below 6% was at 5.88% in Jul 1997. A sad and worrisome Back to the Future.

Seesawing lunch time session: depending on who spoke last in Brussels, press clippings and official rebuttals. ROff ROn ROff ROn in rapid succession.
Equities up 0.75%, down 1%, up 1.7%, down 1.25%... 10 YRS Bunds up 3 bp, down 4 bp, up 5 bp, down 3 bp… 
Basically ending where we stood around the Italian auction results’ announcement. A lot of movements for no movement going into US jobless claims showing the now usual miss / revision at 386k (fcst 385k after 387k, revised 392k).

Afternoon ROff, mainly trailing weaker US stocks, in the same manner as Europe closed ROn yesterday. EGB and Credit rather static. Roughly back to Tuesday levels. Italian auction papers close 5.82% (-2 bp from auction) and 6.18% (-1 bp), so no harm done, which is as good as it gets these days.

Waiting for whatever happens next…
New Issues market restricted to a EUR 650m CADES 12-YRS ILB increase and a EAA EUR 500m 3 YRS FRN block trade..

Closing levels:
10 YRS Yields: Germany 1,51% (-6); Luxembourg 1,86% (-4); Swaps 1,93% (-4); Finland 1,99% (-5); Netherlands 2,06% (-4); EU 2,36% (-3), Austria 2,50% (+2); EIB 2,57% (-3); France 2,67% (+3); EFSF 2,70% (-3); Belgium 3,11% (+2); Italy 6,18% (unch); Spain 6,89% (unch).

10 YRS Spreads: Luxembourg 36bp (+2); Swaps 42bp (+1); Finland 43bp (+3); Netherlands 55bp (+2); EU 85bp (+3); Austria 99bp (+8); EIB 106bp (+3); France 116bp (+3); EFSF 119bp (+2); Belgium 160bp (+8); Italy 467bp (+5); Spain 538bp (+6).

EUR swap curve 2-5 YRS 44bp (-2,0); 5-10 YRS 65bp (-1,0) 10-30 YRS 31bp (+4,0).
2 YRS German BKOs closed 0,100% (-1,3) and 5 YRS OBLs 0,57% (-5).

Main at 178 from 177; Financials at 289 after 288; SovX at 298 from 297. Cross unch at 705.

Stoxx Futures at 2153 / -0,2% (from 2157) with S&P minis at 1311 (-0,9% from 1323, at European close).
VIX index at 20,6 after 19,7 yesterday same time.

Oil 78,5/92,0 (WTI/Brent) from 79,9/93,1 (-1,8%/-1,2%). Gold at 1555 after 1571 (-1,0%). Copper at 332 from 334 (-0,6%). CRB at COB Europe 272,0 from 276,0 (-1,4%). Still very heavy precious metals...
Baltic Dry rising 6 to 994.

EUR 1,244 from 1,245

ECB deposits at EUR 773bn after EUR 747bn.

Greek bonds guesstimates: Greece little changed with 2023s at 26.50% from 26.75% and 2042s at 22.50%.
(20.25% and 16.75% before the first election round).

All levels COB 17:30 CET

Germany: 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% YoY
EZ: M3 fcst 2.3% after 2.5% and CPI 2.4% unch YoY
US: Pers. Income & Spending Chicago PMI Michigan Conf
Asia: China leading indicators

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