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


Monday, 2 July 2012

02 Jul 2012 – " I Got You (I Feel Good) " (James Brown, 1965)


02 Jul 2012 – " I Got You (I Feel Good) " (James Brown, 1965)

Given Friday’s announcements and subsequent rally, the relative dearth of weekend snippets and analyses seems a little surprising. As if, overwhelmed but the solutions offered on a Friday, everyone headed home to cool off and forget about the tension, postponing further reasoning to later. Still, there are things about a Pandora Box to recognize when seeing one... That bespoke Spanish ESM bailout might come back as boomerang, more rapidly than expected, as suddenly other European sovereigns will suddenly feel like they, too, have some ailing bank that could profit off that support. Ireland and Greece, of course, Cyprus, too. But in a top down approach, even Champion Germany runs defeasance structures (albeit at cheaper refinancing rates). Let everyone chew on last week's agreements and revert, and we'll be suddenly faced with demands that were not foreseen in the immediate urgency. 
Not that it doesn't make sense, as such, but that wave will be a big one to surf on. Just saying… Shaka sign. Hang loose...
Note as well that over the weekend, the ECB refrained from tweeting any congrats to the winning soccer team…

In the meantime, Fri US closing levels were just a tick higher from EU COB, leaving European outperformance of Friday above 1.5%. Asian equities far more cautious to kick off the week. Far more meaning a flattish reading…
First European quotes pretty much where left Friday. More positive spin on Core EGBs, down a couple of basis points (Bunds 1.55%); Periphery flat to wider (5.78% & 6.30%). Equities flat. Credit a tick firmer, but just so. EUR back to mid-26 handle. Oil gapping up from a European perspective (final squeeze was after COB). EU sanctions on Iran, kicking in for good as of today, should shave about 3% of official OPEC production.
Kicking off the day, week, quarter with a huge PMI data dump: HSBC China down to 48.2 after 48.4, Official PMI on Sunday 50.2, down from 50.4. Both data sets pointing to softer new orders and exports, a trend mirrored elsewhere in Asia, from Taiwan to S Korea. Over in Europe, Spain hitting a 3-year low at 41 (after 42). France and Italy little changed at 45.2 (from 44.7) and 44.6 (from 44.8), Germany beating estimates slightly at 45 (after 44.7) as does the overall EZ print at 45.1 (after 44.8)  Norway wrong-footed with a huge dip to 46.3 from 54.9, against about unchanged expectations.

Had real Periphery ROn kicking in about an hour into the day with the Periphery pushed down 10 bp, overtaking the Core, but actually not pushing the latter out either. Interesting convergence of firmer EGBs across the board and equities surging a further 1.75% by mid-morning. ROn sapping Core EGB, but just so. Italy and Spain short end driving ahead, with 2s double the tightening of 10s.
French Cour des Comptes audit showing need for deficit-cutting measures of EUR 6-10bn in 2012 and EUR 33bn next year to hit the 3% target. That’s about 1.7% on a EUR 2.000bn GDP. Ouch! EZ unemployment rate higher at 11.1% after 11.0% in May. Worrisome, Youth Unemployment now 22.6% (20.5% same time last year) with Spain at 52.1%, Greece 52.1%, Portugal 36.4%, Italy 36.2%, Ireland 28.5%, France 22.7%, UK 21.7%, Germany 7.9%... Ouch!
Finnish statement they would together with the Dutch oppose secondary bond buying a bit of a Nordic refresher and stalling the progression. Bickering Redux. Several stern reminders by the ECB to Greece to meet its programme. Actually several reminders to the Greeks, the subject having been put aside last week. ECB statements it couldn’t control everyone and that unconditional conditionality is wishful thinking. And several statements reminding that the banking supervision project, a pre-requisite, won’t be there before year-end… A lot of echoes on the statement front out there.

Only Dutch and French bills on offer today: The first sold EUR 1.1bn 3m at negative levels of -0.013% (from 0% at the last 2 auctions) and EUR 1bn 12m at 0.05% (unchanged from Jan), while France sold a total of EUR 8.3bn with EUR 4.5bn 3m at 0.048%, EUR 2bn 6m at 0.096% and EUR 1.8bn 12m at 0.163% (compares to 0.056%, 0.104% and 0.177% last week).
Will have a new Dutch 5 YRS 1.250% Jan 2018 for up to EUR 4bn on tap tomorrow, which is sizeable given late Dutch auction amounts that were rather around EUR 2bn plus (closing level 1.30%) . Belgian and EFSF bills tomorrow, too.
Most watched supply of the week will be Spain’s EUR 3bn BONO auction in 3 YRS, Oct 2016 and 10s on Thursday.

Bit of a break of massive ROn to start the lunch period with flat Bunds and The Periphery stronger by “just” 5. Equities still up 1plus %, but all off highs / off tights. Still, markets in good mood and getting some more traction on Risk with the first US accounts entering the market, before losing a little steam. EUR drifting lower to bounce off 26 handle at US open.

US data week kicking off with (,like everyone else, poor) PMI at 52.5 (fcst 52.9 unch), followed by very disappointing Manufacturing ISM at 49.7 (fcst 52 after 53.5) and an especially weak Prices Paid component at 37 (fcst 45.8 after 47.5) Contagion to new orders…Construction Spending rose 0.9% MoM in May (fcst 0.2% after 0.3%, revised 0.6%), showing, as last week, that at least housing is still faring about ok in the US.

US data blowing some ROff on the markets, pushing Spain back above closing levels and Core EGBs lower. Core EZ equity markets holding up, despite Peripherals going negative. Still these odd divergences. Sensing a disturbance in the Force…
Confirming slowdown is spreading everywhere, the Global PMI dipped below 50 for the first time since Summer 2009 at 48.9 after 50.6.

At the end of the day, still a decent close. I Feel Good – at least partially, hum, depending on asset classes…Feels good being a Bund. Feels even better being a Belgian OLO today, as Belgium is still keeping its tightening bias started last week with the whole curve down 12-16 bp. France following, probably on hedge buying. Peripherals short end steepening of the morning session all but gone. Spain closing wider. Credit indices halving gains. Core EZ equities on hope dope. EUR down. Split markets. Each his own.

Strong and diverse New issues traffic, profiting from initial ROn mood, especially in bank senior debt with a two-trancher from SG with EUR 1bn 3s and EUR 750m 10s at MS +148 and +248. Nordics following suit with EUR 1.5bn 3 YRS at MS +60 for Svenska and Danske issuing EUR 1bn 3 YRS at MS +170. Westpac issued EUR 1bn 7 YRS in covered bonds at MS +55.
Insurer Swiss RE reopened the sub debt market with EUR500m at 6.75% with Generali marketing a 30nc10s EUR benchmark.
Bulgaria was on the SSA stage with EUR 950m 5 YRS at MS +320.
Corporates saw American Movil calling in for EUR 1bn 9 YRS at MS +113, while non-IG Lafarge cemented EUR 500m 7 YRS at 6.000% (about MS +440s).

Closing levels:
10 YRS Yields: Germany 1,51% (-7); Luxembourg 1,85% (-6); Swaps 1,94% (-8); Finland 1,97% (-7); Netherlands 2,01% (-8); EU 2,34% (-6), Austria 2,45% (-7); EIB 2,56% (-5); France 2,58% (-10); EFSF 2,68% (-4); Belgium 3,01% (-17); Italy 5,72% (-6); Spain 6,34% (+5).

10 YRS Spreads: Luxembourg 34bp (+1); Swaps 43bp (-1); Finland 42bp (-4); Netherlands 50bp (-1); EU 83bp (+1); Austria 94bp (unch); EIB 105bp (+2); France 107bp (-3); EFSF 117bp (+3); Belgium 150bp (-10); Italy 421bp (+1); Spain 483bp (+12).

EUR swap curve 2-5 YRS 43bp (-4,0); 5-10 YRS 68bp (-1,0) 10-30 YRS 35bp (+5,0).
2 YRS German BKOs closed 0,100% (-2,2) and 5 YRS OBLs 0,56% (-5).

Main at 162 from 166 (2,4% tighter); Financials at 253 after 261 (3,1% tighter). SovX at 274 from 282. Cross at 647 from 662.

Stoxx Futures at 2283 / +1,2% (from 2255) with S&P minis at 1351 (+0,1% from 1349, at European close).
VIX index at 16,7 after 19,7 yesterday same time.

Oil 83,0/96,2 (WTI/Brent) from 82,3/95,4 (+0,9%/+0,9%). Gold at 1599 after 1598 (+0,0%). Copper at 346 from 347 (-0,3%). CRB at 283,0 from 278,0 (+1,8%) at Friday’s COB..
Baltic Dry up once more another 0.9% to 1013 from 1004.

EUR 1,258 from 1,267

ECB deposits at EUR 773bn after EUR 782bn. Unsurprisingly, the SMP settled no transactions last week (Unchanged EUR 210.5bn outstanding). (20.25% and 16.75% before the first election round).

Greek bonds guesstimates: Greece firm 2023s down to 25.5% from 26% and 2042s at 21% from 22%. Best level in 2023s since the post-electoral sell-off.

All levels COB 17:30 CET

This week:
Very, very light on European data. Very heavy end of the week US data supply, following the 4th of July holiday.

Germany: Thu Factory Orders May fcst -5.8% YoY after -3.8% Fri IP fcst -1.2% after -0.7%
France: Presque rien…
EZ:  EZ PPI fcst 2.5% YoY after 2.6%. Wed Final PMIs. EZ Retail Sales fcst -0.6% after revised -2.7%. Thu ECB
Periphery: Wed Services PMI fcst 42.5 after 42.8. Deficit/GDP Q1. Spain next to nada Wed Unemployment Fri Indu Output fcst -8% after -8.3%
US: Tue Factory Orders Wed closed Thu MBA mortgages; Claims; Non-Man ISM; Chain Store sales; Fri Payrolls & Unemployment

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

(Grandiose footwork – way before Moonwalking. Need to be as smooth and light-footed to sail the markets these days…)

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