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


Friday 6 July 2012

06 Jul 2012 – " Money's Too Tight (To Mention) " (Simply Red , 1985)


06 Jul 2012 – " Money's Too Tight (To Mention) " (Simply Red , 1985)

First pre-open quotes in ROff mood to close the week: EGBs a little tighter, Peripherals out by 7-8 past the 6% and 6.80%-marks. Credit a tick or two wider. Equities down half a percentage. EUR ailing below 24 handle. Friday pre-NFP / post-ECB blues morning.
Asia closed the week on a soft note with exception of China, for once, closing 2% higher after yesterday’s POBC cut. At least they seem to value their central bank’s surprises.

Quite noteworthy acceleration of the Soft Core (Buying programme? No visible trigger), as Austria, France and Belgium 10s suddenly lurched tighter by 15 basis points, helping as well Italy to come back to nearly unchanged and Spain to just a little wider from quite wider, but that was only a short-lived support. This massive Belgian catch-up to Austria and France, and the whole pack to the Core, means that Belgium, too, can finally celebrate hitting historic lows in 10s. And in 5s… Oh, and in 2s… Austrian and France deprived from celebrating new 10 YRS lows at this stage, having already had that opportunity early June, before being kicked wider again. But doing so up to 5s. New lows. Then again, German BKOs are now back to negative…

No eco data outside Spanish IP, which did better then expected, sliding “only” 6.1% YoY (fcst -8.1% after a fierce-8.3%, levels last seen in the Q3/2009 recovery).
No government supply. Need to see how negative German 6m bills will be auctioned off, given actual BKO levels. Already had one negative aution at -0.012% in Jan. June levels were 0.007%.

Quiet wires with exception of ECB’s Asmussen repeating for those who might have missed yesterday’s press conference “The ECB cannot compensate for what others - notably political authorities - fail to do. There is no substitute for good policies.”
Had Finland FM quoted as saying in quite frank manner that it wouldn’t cling to the EUR at all costs; later denied / mellowed down to a more “pc” commitment to EUR membership, but stressing its unwillingness to add further liabilities. Must have been a translation error, Suomi being tough on Google translator…

Heading into lunch / pre-NFP with some more EGB spread compression with Germany a tick tighter, Hard Core 5-7 tighter, Soft Core a small 10 tighter after the initial squeeze waned. Italy out by 8 just above 6% and Spain by over 20, hovering just below the 7% mark.
German May IP, which rose higher than foreseen at 1.6% sa MoM (fcst 0.2% after -2.1%) didn’t really floor the slight slide in equities.
Had ECOFIN 09 Jul pre-meeting leaks mentioning the Spanish bail-out would after all be EFSF-driven lifting BONOs a bit (cuts the ESM seniority discussion), pushing out decisions to late in the month.

Final potentially market moving data shot of the week: US non-farm payrolls ticking in at only 80k (fcst 100k after 69k, revised to 77k) with the Unemployment Rate at 8.2% (fcst 8.2% unch). Mixed results after revisions and some stronger components. Drop, bounce, drop. ROff.
ROff.
Sliding…
Slowly…
But certainly ROff. Closing on the lows. Note that Credit remains weaker than equities. Bunds down to 1.33%. Italy stuck slightly over 6% and Spain slightly below 7%. Peripheral curves still flattening: 2 YRS Italy at 4%, 2 YRS Spain at 5%.
BKOs -0.020%. OBLs 0.34%.

Next week will be much lighter on the data front all around, so sinking teeth into something firm to get a direction won’t be easy. Markets will hence probably keep trading on EZ-related news, rumours, snippets…
Fundamentals? Pfffffhhh

New Issue supply restricted to EUR 500m 10 YRS Nederlandse Gasunie at MS +83.

Closing levels:
10 YRS Yields: Germany 1,33% (-6); Finland 1,68% (-13); Luxembourg 1,72% (-4); Netherlands 1,73% (-11); Swaps 1,81% (-5); EU 2,19% (-5), Austria 2,19% (-15); France 2,36% (-13); EIB 2,43% (-4); EFSF 2,54% (-4); Belgium 2,77% (-14); Italy 6,01% (+5); Spain 6,91% (+17).

10 YRS Spreads: Finland 48bp (+3); Luxembourg 39bp (+2); Netherlands 40bp (-5); Swaps 48bp (+1); EU 86bp (+1); Austria 86bp (-9); France 103bp (-7); EIB 110bp (+2); EFSF 121bp (+2); Belgium 144bp (-8); Italy 468bp (+11); Spain 558bp (+23).

EUR swap curve 2-5 YRS 36bp (-3,0); 5-10 YRS 72bp (+1,0) 10-30 YRS 43bp (-1,0).
2 YRS German BKOs closed -0,020% (-2,6) and 5 YRS OBLs 0,34% (-6).

Main at 172 from 165 (4,2% wider); Financials at 283 after 268 (5,6% wider). SovX at 284 from 280. Cross at 684 from 664.

Stoxx Futures at 2232 / -2,2% (from 2283) with S&P minis at 1348 (-1,2% from 1365, at European close).
VIX index at 18,1 after 18,1 yesterday same time.

Oil 84,6/98,3 (WTI/Brent) from 87,6/101,0 (-3,4%/-2,7%). Gold at 1587 after 1609 (-1,4%). Copper at 341 from 348 (-2,0%). CRB closes 290,0 from 294,0 (-1,4%). Yep that recovery was a short one. Independence from the EUR was an illusion…
Baltic Dry still profiting from the late commodity recovery and adding another 1.7% to 1157 from 1138. High point in the last recovery from the Q4/2011 slide was 1165. 8 ticks. Best weekly performance since Mar 2011.

EUR 1,230 from 1,238

ECB deposits unchanged at EUR 791bn. With deposits at 0% now, need to see what happens. Between 0.25% and nada, what is the fear of another among banks worth? Will check next week as zero rates will apply from the 11th onwards. My guess: Won’t change much.

Greek bonds guesstimates: Greece 2023s unchanged at 25.75% and 2042s back down to 21.5%.

All levels COB 17:30 CET

On the week (compared to Fri 29 Jun COB):
Just to keep track of the EU 2-day meeting, the review will start last Thursday, when there was "Nothing to Say" (Bunds 1,51% -5; Spain 6,89% +1; Stoxx 2153% -0,2%; EUR 1,244). Last Friday, markets thought to have gone "One Step Beyond" (Bunds 1,58% +7; Spain 6,29% -60; Stoxx 2255% +4,7%; EUR 1,267), as the EU meeting yielded results (in the meantime lip commitments) beyond expectations and happily headed into the weekend, forgetting about all the trouble. While the weekend was mostly spent not deepening what had been said - or not said -, Monday was thus still "I Got You (I Feel Good)" (Bunds 1,51% -7; Spain 6,34% +5; Stoxx 2283% +1,2%; EUR 1,258), although first asset class divergences came to light. Tuesday was more of a sideways business ahead of the US holiday and busy following Gem Bankers woes with "Diamonds and Rust" (Bunds 1,54% +3; Spain 6,22% -12; Stoxx 2312% +1,3%; EUR 1,261). With the US celebrating "Independence Day" (Bunds 1,45% -9; Spain 6,37% +15; Stoxx 2305% -0,3%; EUR 1,252) and ahead of the ECB cum Spain auction day, markets became increasingly cautious on Peripheral and risk. One never knows. Some of the hope dope rally was probably overdone, after all. And as it happens, on Thursday Central Banks took a "Stand and Deliver" attitude (Bunds 1,39% -6; Spain 6,74% +37; Stoxx 2283% -1,0%; EUR 1,238) and delivered their goods. Thing is, they didn't do more than that… And Draghi cooled off the mood, Northern style. Much of the risk evaporated in thin air. Although equity remained rather resilient, all things considered.

So where does this leave us, knowing that despite all the exuberant highs and depressed lows, we had ended the previous week pretty much in unchanged matter?
Well, after a 10-day period that had not one but 2 bail-outs announced, a EU summit that initially seemed to good to be true, results-wise, and then ended up just being that, and a triplet of Central Bank cuts cum QE supportive measures, things don’t look much better…
The Core is back grinding tighter, although given absolute levels, things are a little slower. Started last week (and continuing) with Belgium, the Soft Core is getting back to record lows in catch-up yield buying. Italy lags, at best, and Spain is back just below the 7%-mark. Credit is little changed to a bit wider. Stocks just a touch softer on the week, but still about 4% over pre-EU summit levels. Commodities have shaken out their depression (and are celebrating EUR independence) with Oil (and soft commodities) back with a vengeance, while metals have been drifting sideways.

10 YRS Yields: Germany 1,33% (-25); Finland 1,68% (-36); Luxembourg 1,72% (-19); Netherlands 1,73% (-36); Swaps 1,81% (-21); EU 2,19% (-21);Austria 2,19% (-33); France 2,36% (-32); EIB 2,43% (-18); EFSF 2,54% (-18); Belgium 2,77% (-41); Italy 6,01% (+23); Spain 6,91% (+62).

10 YRS Spreads: Finland 48bp (+2); Luxembourg 39bp (+6); Netherlands 40bp (-11); Swaps 48bp (+4); EU 86bp (+4);  Austria 86bp (-8);France 103bp (-7); EIB 110bp (+7); EFSF 121bp (+7); Belgium 144bp (-16); Italy 468bp (+48); Spain 558bp (+87).

EUR swap curve 2-5 YRS 36bp (-11,0); 5-10 YRS 72bp (+3,0) 10-30 YRS 43bp (+13,0).
2 YRS German BKOs closed -0,020% (-14) and 5 YRS OBLs 0,34% (-27), on the week.
Swiss 2-years stuck at near record lows at -0.38%. Did weaken into low negative 30s, at worst.

Main at 172 from 166 (3,6% wider); Financials at 283 after 261 (8,4% wider). SovX at 284 from 282. Cross at 684 from 662.

Stoxx Futures at 2232 / -1,0% from 2255 with S&P minis at 1348 / -0,1% from 1349, at European COB last week.
VIX index at 18,1 after 19,7 last week.

Oil 84,6/98,3 (WTI/Brent) from 82,3/95,4 (+2,8%/+3,0%). Gold at 1587 after 1598 (-0,7%). Copper at 341 from 347 (-1,7%) . CRB closes 290,0 from 278,0 (+4,3%).
Baltic Dry surged to 1157 from 1004 (+15.2%). Best weekly performance since Mar 2011, probably on back of the commodity rebound. Would still be careful and watch for seasonal behaviour starting July.

EUR 1,230 after 1,267 last Friday

Greek bonds guesstimates: Improved just a little to 25.75% from 26.0% for 2023s and 21.5% from 22% for the 2042s (20.25% and 16.75% before elections).

All levels Friday COB 17:30 CET

Next week:
Pfff.. Next to nothing on the data front. Minor stuff here and there. Rather uneventful auction front to start the week (German and French bills, Dutch 3s, German 10s). Will have Italy selling bills o Thu and especially Bonds on Friday the 13th. Scary.
Will leave the market basically finding direction from whatever bits and pieces it can find, probably mainly Periphery-driven

Germany: Mon Exports fcst 0.1% after -1.7% MoM & trade balance Wed Final CPI Thu Wholesale prices
France: Mon BIZ sentiment (last 93) Tue IP fcst -1.5% after +0.9% YoY Thu CPI
Periphery: Italy IP fcst -9% after -9.2% YoY Fri CPI // Spain Wed Housing Fri CPI // Greece Tue IP Wed Unemployment
US: Fri Payrolls fcst 93 after 69k & Unemployment fcst unch 8.2%; Hourly Earnings fcst unch 1.7% YoY
US: Mon Consumer Credit Tue Small Biz optimism Wed Trade balance & Inventories, FOMC minutes Thu Claims Fri PPI

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

About 0% rates all around – unless very much higher… Not worth mentioning. Let’s talk about something else…
Need a song about liquidity…

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