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 3 July 2012

03 Jul 2012 – " Diamonds And Rust " (Judas Priest, 1977)

03 Jul 2012 – " Diamonds And Rust " (Judas Priest, 1977)

A better US close, a positive although not exuberant Asian session were a good backdrop to kick off Tuesday. First quotes about where left yesterday evening with a bit of ROn spin. EGBs about unchanged, Peripherals a bit tighter. Equities up to 0.5% better, matching the US afternoon recovery. Commodities have shaken off the EUR slide back to 26 and closed better in the US session with Oil and Copper up 1.5%. Opening pattern similar to yesterday.

Light data front. China non-manufacturing PMI at 56.7 after 55.2 a welcome change after yesterday’s PMI slaughter. Good fall in Spanish jobless claims. While seasonal patterns are strong here with summer traditionally offering tourism jobs, this decrease was about double the expected number.

Netherlands sold far more than the targeted EUR 4bn with EUR 6bn of the new 5 YRS via its DDA (Dutch Direction Auction, which is midway between auction and syndication), attracting orders beyond EUR 13.5bn. Initial pricing thoughts had been 60-64 over the Jan 2018 Bund, later revised to 60-61 bp over. Priced at the tight end at 1.305% (Monday closing level 1.30%) and trading tighter down to 53 over Bunds by the end of the afternoon (1.22% at COB). Nice job!
Belgium sold EUR 1.3bn 3m bills at 0.21% (after 0.20%) and EUR 1.8bn 6m at 0.27% (unch). The EFSF raised EUR 1.9bn 3m bills at 0.118% (down from 0.14% last month).
On the government supply front, Ireland announced its comeback to the open markets with a EUR 500m 3m bill auction for next Thursday, having stopped issuing in Sep 2010. Nice, although Greece and Portugal never ceased to do so (4.31% and 4.73% for 3 and 6m in June for the first and, out of Lisbon, 2.17% in March for 3m, 2.65% and 2.69% for 6 and 9m in June). Still, nice to have the Irish back. Good performance lately, especially since eyeing an ESM sweetener. Outstanding 8 YRS Oct 2020 (Sorry, no 10s on tap anymore) at 6.20%, flat to Spain. 2 YRS at 4.70% slightly over Spain (4.62%). Last Spanish 3m at 2.36%. Would guess that Ireland can do similar.
Will have a reopening of EUR 4bn 5 YRS Germany tomorrow (0.41% in June and 0.56% in May, 0.56% at COB), as sole auction action tomorrow.
Most watched supply of the week remains Spain’s EUR 3bn BONO auction in 3 YRS, Oct 2016 and 10s on Thursday.

EZ PPI under expectations at -0.5% MoM (fcst -0.3% after revised +0.1%) / +2.3% YoY. Another data piece that will allow the ECB to cut rates by 25 bp on Thursday. Doubtful there will be more, though. Compromise between growth doves and M3 hawks.
Had the Spanish pharma industry ratting out on the unpaid bills by the Spanish regions, which is not nice, as it was decided that things were rosy these days.
EU officials on the tickers: Long road and first steps, flexibility of bail-out instruments, need to speed processes. Ireland to get an improved programme. Portugal, next? And Greece? Slovenia? Not sure that the following Van Rompuy choice of words will really go down well with austerity and sovereignty fans: “Luckily enough, the ESM has a decision-making procedure attached to it so that individual countries cannot block decisions.” Didn’t deter the Dutch Parliament to vote for it today, though. German Constitutional Court hearing on ESM 10 Jul.
ECB officials on the tickers: Need for deficit cuts, need for fiscal union and discipline. Each his role.
Anecdotally, ECB staff unions are warning of operational risks from the crisis-related over-worked staff.
France lowering 2012 growth outlook to 0.3% (Duh!) and 1.2% for 2013. No VAT increase, but targeted taxes to finance what was promised and needs financing. And, of course, will search for those savings of EUR 6-10bn this and EUR 33bn next year.

Entering lunchtime with Core EGBs wider by 2bp, Peripherals tighter by 4bp. Belgium still jogging ahead, tighter by 6bp and now through 3% in 10s. Equities static on the +0.5% open. Credit maybe a tick too tight (around 4% firmer). Oil firmer; give it a shove or a geopolitical spark, like Iran test-firing some missiles, and pronto Brent would hurdle the 3-digit mark with ease, which it did.
Past lunch oil up another 1.5% and everything else rather static.

Light and late US data pack ahead of tomorrow’s 4th of July holiday with NY ISM a low 49.7 (after 49.9) and May Factory orders growing higher than expected 0.7% (fcst +0.1% after revised -0.7%). Thu and Fri action packed with regards to US data.

Peripherals still getting some traction in the afternoon, grinding another couple of basis points down to 5.65% and 6.25%. Again, as yesterday, no necessarily to the detriment of Core EGBs. Factory orders good for a short-lived uptick, but then, pfff…, back to morning levels. Markets tiring out here.

Closing in unconvinced ROn mode. European equities taking their final lead from US peers. Peripherals pushing just the last basis points tighter. Note that these curves are finally steepening through renewed short end strength with both 2-3 YRS area down 20bp on the day. On the other hand, Core EGBs have not been driven into the wall, as one could have expected in full ROn modus. German 2 / 5 / 10s about unchanged from Friday.
Tug of war between wary optimists and tired pessimists? Glass half full or empty? Dusty diamonds, anyone?

Not a highly inspirational day to write about. Reduced volatility and very range-bound. Lack of real news flow. Action more in the financial people press, as it stands. And in EUR New Issues, as borrowers have come to learn that windows of opportunity, when seeing one, should be used. Knowing, too, that new issues will grind to an end probably as of the end of next week. Hence, EUR 7.5bn senior bank debt served in 2 days. Ce qui est pris n’est plus à prendre…

On the New Issue front, we still had borrowers jumping through the senior bank debt window opened up yesterday with ING printing EUR 1.5bn 3 YRS at MS +125, Raiffeisen EUR 750m 5 YRS at MS +165 and Intesa SanPaolo EUR 1bn 3 YRS at MS +410.
And sub debt is staging a come back as well with Generali’s EUR 750m 30nc10 at 10.125% and ABN EUR 1bn 10 YRS Tier 2 at MS +525.
Corporate supply restricted to Brazilian Vale with EUR 750m 10 YRS at MS +180, following yesterday’s American Movil 9 YRS trade.
Outside the Dutch, SSA supply restricted to a USD 500m 5 YRS FRN for Land NRW.

Closing levels:
10 YRS Yields: Germany 1,54% (+3); Luxembourg 1,87% (+2); Swaps 1,95% (+1); Finland 1,97% (+0); Netherlands 2,00% (-1); EU 2,36% (+2), Austria 2,43% (-2); EIB 2,58% (+2); France 2,54% (-4); EFSF 2,70% (+2); Belgium 2,94% (-7); Italy 5,62% (-10); Spain 6,22% (-12).

10 YRS Spreads: Luxembourg 33bp (-1); Swaps 41bp (-2); Finland 41bp (-5); Netherlands 46bp (-4); EU 82bp (-1); Austria 89bp (-5); EIB 104bp (-1); France 100bp (-7); EFSF 116bp (-1); Belgium 140bp (-10); Italy 408bp (-13); Spain 468bp (-15).

EUR swap curve 2-5 YRS 43bp (unch); 5-10 YRS 71bp (+3,0) 10-30 YRS 38bp (+3,0).
2 YRS German BKOs closed 0,090% (-0,5) and 5 YRS OBLs 0,56% (unch).

Main at 155 from 162 (tighter by 4,3%); Financials at 246 after 253 ( tighter by 2,8%). SovX at 267 from 274. Cross at 627 from 647.

Stoxx Futures at 2312 / +1,3% (from 2283) with S&P minis at 1368 (+1,3% from 1351, at European close).
VIX index at 16,7 after 16,7 yesterday same time.

Oil 87,4/100,5 (WTI/Brent) from 83,0/96,2 (+5,2%/+4,4%). Gold at 1620 after 1599 (+1,3%). Copper at 355 from 346 (+2,6%). CRB closes 290,0 from 283,0 (+2,5%).
Nice 12% recovery of Oil, which hit lows at 77.30 / 88.50 10 days ago.
Wow! Even the Baltic Dry got excited by the last days’ action: up 50 ticks to 1063 (+4.9%). High point in the last recovery from the Q4/2011 slide was 1165.

EUR 1,261 from 1,258

ECB deposits at EUR 802bn after EUR 773bn.

Greek bonds guesstimates: Greece a tick softer with 2023s up to 25.75% from 25.5% and 2042s at 21.5% from 21%.

All levels COB 17:30 CET

Rest of week:
Very, very light on European data. Tomorrow final Services PMI for all. Very heavy end of the week US data supply, following the 4th of July holiday.

Germany: Thu Factory Orders May fcst -6.0% YoY after -3.8% Fri IP fcst -1.2% after -0.7%
France:  Final Services PMI
EZ:  Wed Final PMI . EZ Retail Sales fcst -0.6% after revised -2.7%. Thu ECB
Periphery: Wed. Deficit/GDP Q1. Spain Fri Indu Output fcst -8.1% after -8.3%
US: 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:

(Diamonds and rust, gain and pain, glory and folly of daily life in the markets…)
(Bow to the original Joan Baez http://youtu.be/GGMHSbcd_qI)
(But, hey, I just like the cover much better…)
(And late 70s Metal is so much more fun to watch… This is Spinal Tap real life)

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