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 4 July 2012

04 Jul 2012 – " Independence Day " (Bruce Springsteen, 1977)

04 Jul 2012 – " Independence Day " (Bruce Springsteen, 1977)

Positive close in the US although half the gains were regained in a closing squeeze in a shortened session ahead of Independence Day. Asia overall about flat with China slightly depressed by a 10m low read in Services PMI (52.3 after 54.7).
Starting the day with a bit of profit taking in European equities, taking Credit a tick wider and EGBs a little tighter and with Spain keeping its tightening bias in a session that shouldn’t be too exiting, given closed US markets and ahead of tomorrow’s ECB (and BoE) meeting.

First Southern European Service PMI readings better than expected (Spain 43.4, first 41.3 after 41.8 and Italy 43.1, first 43.1 after 42.3). Would need confirmation to see whether there’s a bottoming out here. French numbers likewise better at 47.9 (expected 47.3 after 45.1 in May), as was the overall EZ at 46.4 after 46. Germany dipped unexpectedly below the 50 mark, down to 49.9 (expected unch 50.3, down from 51.8 in May). Final EZ Composite PMI at 47.1 after 46.7 in May.
EZ May Retail Sales came out split with sharp downside revisions of prior data: MoM +0.6% (fcst flat after -1% revised to -1.4%), YoY -1.7% (fcst -1% after -2.5% revised -3.4%)

Italian first quarter deficit surged to 8%, the second highest reading since Q1/2009 and third largest reading since EUR introduction, immediately pushing out BTPs by 5 bp, while pushing the Core tighter, and then pulling Spain back to closing levels.

Germany sold EUR 4bn 5 YRS Germany at 0.52% (0.41% in June and 0.56% in May, 0.56% at COB), in today’s sole auction. EUR 800m retained for market interventions.
Bids were impressively slightly over EUR 9bn, one of highest amount in the last 5 years (EUR 9.082bn in May 2011, EUR 9.015bn in Nov 2011 and EUR 10.375bn in Sep 2007). No tail. EUR 4.7bn entered “at market”. Not exactly cheap it may be, sought after it remains… (Last “fail” was Sep 2011). Good post auction performance down to 0.50%, closing at 0.48%.

Most watched supply of the week remains Spain’s EUR 3bn BONO auction in 3 YRS, Oct 2016 and 10s tomorrow, before the ECB (Results 10:40 CET). 3s were sold at 5.457% 2 weeks ago. On-the-run 5 YRS at 6.072%. One month ago 10s were auctioned at 6.044% in 10s (early June). Closing levels today: 4.88%, 5.45% and 6.37% (mid).
Will have as well France with up to EUR 8bn in 2019 (1.92% in June), 2022 (last 2.46%) and 2023 OATs.

ECB officials on the tickers: Once more, no more SMP! Need for deficit cuts, need for fiscal union and discipline. Is now well rehearsed mantra.
Revision of the 2012 French budget: EUR 7.2bn in new and one-off taxes to hit the 4.5% deficit target. State spending foreseen at 52.6% in 2012, 56.1% and 55.4% in the following years to come down to 53.4% by 2017. 0% deficit target postponed to 2017.Debt/GDP to peak next year at 90.6 to hit 82.4 in 5 years. GDP growth assumption is 0.3%, 1.2%, 2% thereafter.
Sprinkled a bit of gloom on the CAC and added 2 bps on OATs in the immediate aftermath.

Ending the morning with Bunds down to 1.48% (-6), Italy out by 10 at 5.72% and Spain by 9 at 6.31%. Other EGBs 3 to 7 tighter, but for France widening a tick. Credit those couple of ticks wider quoted at open. Equities down 0.50%. EUR a bit on the weaker side. Everything else about unchanged.

With the US closed, the afternoon simply dragged on with a light ROff feeling as the Periphery drifted slowly wider, France on stand-still and the Core squeezed tighter. Credit weaker with Financials giving back yesterday’s gains and more. Sudden change of mind in equities, paring morning losses loss ahead of tomorrow in very low volume.
Nothing strong, nor concrete, nor very firm, but Core EZ unease with the ESM discussions of last week, as seen by the South, is just seeping through. Opposition parties, Central Bankers, junior government partners, constitutional issues in the Northern part all seem via titbits and comments ready to sand in some of the discussions or to delay the processes. Give it another 2 weeks and everyone will have gone on holiday (despite the ECOFIN claiming to remain on stand-by).

Closing in unconvinced ROff mode and treading water ahead of tomorrow’s Spanish auction, ECB / BOE meetings and US claims numbers. EUR ticking down to low 25s
Yet another not especially inspirational day to write about. Libor-gate turning into mudslinging contest, with possible further fall-outs on the industry.

Fairly restricted New Issue traffic with Italian Gas distributor SNAM profiting from the better early morning mood on Peripherals to issue EUR 1bn 4 YRS at MS +340 (price talk initially about 20bp back of BTPs; at closing through, given the weaker Italian short end).
The EFSF added EUR 1bn to its recently issued 2037 deal at MS +115. Rentenbank added EUR 250m on a 7-year deal at MS flat. Baylaba issued EUR 500m 10 YRS Pfandbriefe at MS +17. Later joined by Germany GG FMS for EUR 500m long 3s at MS -18. Add yet again German LBank (Land BaWü risk) for a sizeable GBP 450m 2 YRS FRN, and you get the SSA picture of the day.

Closing levels:
10 YRS Yields: Germany 1,45% (-9); Luxembourg 1,81% (-6); Finland 1,88% (-9); Netherlands 1,92% (-8); Swaps 1,91% (-4); EU 2,30% (-6), Austria 2,40% (-3); EIB 2,52% (-6); France 2,54% (+0); EFSF 2,64% (-6); Belgium 2,93% (-1); Italy 5,76% (+14); Spain 6,37% (+15).
Another day of strong Dutch performance, closing in on Finland (interpolated 10s YRS). France relatively softer.

10 YRS Spreads: Luxembourg 36bp (+3); Finland 44bp (+2); Netherlands 47bp (+1); Swaps 46bp (+5); EU 85bp (+3); Austria 95bp (+6); EIB 107bp (+3); France 109bp (+9); EFSF 119bp (+3); Belgium 148bp (+8); Italy 431bp (+23); Spain 492bp (+24).

EUR swap curve 2-5 YRS 41bp (-2,0); 5-10 YRS 70bp (-1,0) 10-30 YRS 42bp (+4,0).
2 YRS German BKOs closed 0,070% (-2,3) and 5 YRS OBLs 0,48% (-8).

Main at 159 from 155 (2,6%); Financials at 254 after 246 (3,3%). SovX at 271 from 267. Cross at 642 from 627.

Stoxx Futures at 2305 / -0,3% (from 2312).

Oil 87,0/99,5 (WTI/Brent) from 87,4/100,5 (-0,4%/-1,0%). Gold at 1615 after 1620 (-0,3%). Copper at 350 from 355 (-1,4%). 

EUR 1,252 from 1,261

ECB deposits at EUR 807bn after EUR 802bn. Anything over EUR 800bn is quite an amount.

Greek bonds guesstimates: Greece softer on the long end with 2023s up to 25.75% unch and 2042s at 22% from 21.5%.

All levels COB 17:30 CET

Rest of week:
Spanish auction. 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%
EZ:  Thu ECB
Periphery: Spain Fri Indu Output fcst -8.1% after -8.3%
US: Thu MBA mortgages; Claims fcst 385k after 386k; Non-Man ISM fcst 53 after 53.7; Chain Store sales; Fri Payrolls fcst 90 after 69k & Unemployment fcst unch 8.2%; Hourly Earnings fcst unch 1.7% YoY

Click link on title or below for today’s musical support:
(The Boss, on stage, tonight in Paris, France)

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