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, 10 July 2012

10 Jul 2012 – " Running To Stand Still " (U2, 1987)


10 Jul 2012 – " Running To Stand Still " (U2, 1987)

Hmmm… Should we be impressed? Eventually, most was already on the table yesterday afternoon, so the ECOFIN outcome seems to be mainly technical, with further details still to be fine-tuned. A road map, so to speak. Ok. Better than none, but not that much.
Initial result? Peripherals tighter by 5 across the curve. 10 YRS BONOs slightly through 7%. Spanish problem obviously somehow alleviated. And no one spoke of Italy – as there was no obvious reason to do so. Seniority question probably settled. Final lien to the state (debt) visibly not. Conditionality?
Equities flat. Currency unchanged. Credit a couple of ticks tighter. So was that it??? Waiting for details.

US close was slightly negative, though off lows. Alcoa better than expected, but results much lower in absolute terms. Asia slightly down. Chinese trade balance shooting up on diminishing exports (11.3% after 15.3%, although better than the 10.6% fcst), but imports were nearly halved to 6.3% after 12.7% (fcst 11%) pointing to internal growth issues. Looks like the Jan low at 2148 really will be tested, thereafter then we’ll need to see, as these were Mar 2009 post-Lehman levels.
Egan Jones taking Austria and the Netherlands down to A neg.
French Production figures a big miss with Industrial at -1.9% MoM (fcst -1% after revised +1.4%) and Manufacturing at -1% (fcst -0.3% after also revised lower -0.9%). YoY numbers ugly at -3.5% and -4.3%, respectively. Aïe! Italian IP surprising to the upside at +0.8% (fcst -0.6% after -1.9%). Still, that’s -6.8% YoY (after -12%). Better, but nowhere like roaring.

One hour into the session, things hadn’t changed much either. EGBs better bid for choice. Equities a touch weaker. Italy just above 6% and Spain at 6.95%. Peripheral short end a firmer and 2-10 wider by 5. No immediate impact of the German Constitutional Court president stating deciding on the ESM wouldn’t be easy and probably with no results today. On the contrary, had a sudden 1% plus surge in equities on no real discernible news, other than more buyers than sellers in an empty market. Pushing screen sentiment in ROn mode. Or was it because of additional 10bp tightening in Peripherals? Or feeding on one another? Credit pushing tighter as well, including Financials, unharmed by the overnight demise of yet another broker (MFG-style).

Dutch auction rapidly done and dusted, although at the lower end, with EUR 2.6bn sold at 0.218% (COB was 0.235%, with OBL 1 tighter around auction). Record low (down from 0.456% in May), but non-event.
EUR 1.625bn Greek bills at 4.70% (after 4.73%). Pretty much same amounts and bids as last time. Domestic thing. Non-event.
Will have a EUR 5bn reopening on 10 YRS Bunds tomorrow (was last 1.52% in June after the May all-time low at 1.47%). So this one will one way or another mark a new level (COB 1.32%).
Tricky auctions of the week should remain the one for EUR 7.5bn Italian bills on Thu and Italian 3 YRS to close the week on a Friday 13th (amount still open; was EUR 3bn 3s and 1.5bn 7 and 8 –year bonds last month).

Either I didn’t get my calendar right, but the drop in ECB deposits from EUR 795bn to EUR 791bn is just a blip. Usually, new reserve maintenance periods start with a chunky dip, to be repleted thereafter over time. Especially at 0%. Not a game changer, that 0% rate. Very surprising. Then again, if it is to buy Core EGB bills at negative rates, 0% is attractive. To be rechecked tomorrow.

Lunchtime high in equities (+1%) and Peripherals (tighter by additional 10 bp for -22 to 25 bp on the day, 5.87% and 6.76%. Short end an additional 10 bp tighter). US small biz optimism numbers slipping to 91.4 (fcst 93.3 after 94.4), only a temporary upset (that did send EUR down to 1.226, before rebounding too short of 23.
No shoe dropping? Stay ROn.
US open good for an additional 0.25% in equities and a couple of bps in Spain. And, still, Core EGBs just stay put.

Spain bank recap plan seemingly via EFSF bonds into FROB into bad banks, to be refinanced if needed at the ECB. ESM funding once existing and a common banking supervision in place. Need to get the ECB take on that one, unless the final liability / guarantee gets clearer. Conditionality seems missing somehow at this stage, something Draghi is very keen on. And the MoU asking for haircuts on hybrids and sub debt will have retail investors in arms, given what has been sold to them.

Some confusing talk about the ECB acting as agent for the EFSF leading to SMP hopes after all. Given the actual staffing of the EFSF and existing trading desks at the ECB that’s only technical help, similar to the one given to the EFSF by the German Finanzagentur when issuing bills (presentation, page 15) and nothing new. SMP to sleep tight, in order for the ECB to remain credible.
Bundesbank’s Weidman at Constitutional hearing explaining the pros and cons from the mainstream (and BuBa) point of view. Hearing dragging on and the Fiscal Compact part hasn’t even started yet. Final cold shower is the news that the Court could need more than several weeks to come to a conclusion on that subject.

European equities unable to hold on to 1% plus levels with US peers barely up, and then turning negative, and the EUR testing lower as well.
Interesting asset class divergences from the now-often usual correlations. Bunds a tick firmer at 1.32% (ahead of tomorrow’s auction) with BKOs slightly negative again; Spain down to 6.78% (-24 bp) and 2-10 spread 10bp wider; Italy down to 5.94% (-15). Soft Core performing in line. Equities up 0.75%, but off highs. Credit too tight. EUR weak and a drag on commodities. Hmmm… Odd.

Main New Issues courtesy of the EFSF with EUR 6bn 5 YRS at MS +50 (from low 50s premarketing), its biggest syndicated deal to date, profiting from the EZ supportive mood. GDF Suez brought a EUR 1.5bn double-trancher in 5 and 10s at MS +43 and +93 (after a late May double-trancher of EUR 2bn in 4s and 6s). French CDC added to the SSA supply with USD 1bn 3 YRS at MS +105 and EAA increased a 4 YRS deal by EUR 400m at 3mE +35. FMS (German GG) is readying a 5 YRS deal for tomorrow.
NordLB had a nice lift off of its EUR 500m 5 YRS inaugural aircraft-backed covered bonds at MS +55.

Closing levels:
10 YRS Yields: Germany 1,32% (-1); Finland 1,67% (-1); Luxembourg 1,73% (-1); Netherlands 1,73% (-2); Swaps 1,82% (unch); EU 2,20% (-2), Austria 2,23% (-4); France 2,39% (-3); EIB 2,44% (-1); EFSF 2,54% (-2); Belgium 2,78% (-7); Italy 5,94% (-15); Spain 6,78% (-24).

10 YRS Spreads: Finland 50bp (unch); Luxembourg 41bp (unch); Netherlands 41bp (-1); Swaps 50bp (+1); EU 88bp (-1); Austria 91bp (-3); France 107bp (-2); EIB 112bp (+0); EFSF 122bp (-1); Belgium 146bp (-6); Italy 462bp (-14); Spain 546bp (-23).

EUR swap curve 2-5 YRS 37bp (+1,0); 5-10 YRS 69bp (-1,0) 10-30 YRS 41bp (unch).
2 YRS German BKOs closed -0,010% (-0,5) and 5 YRS OBLs 0,34% (unch).

Main at 168 from 173 (-2,9%); Financials at 277 after 282 (-1,8%). SovX at 282 from 285. Cross at 664 from 678.

Stoxx Futures at 2239 / +0,6% (from 2226) with S&P minis at 1344 (-0,1% from 1345, at European close).
VIX index at 18,1 after 18,1 yesterday same time.

Oil 85,0/98,6 (WTI/Brent) from 85,2/99,1 (-0,3%/-0,5%). Gold at 1586 after 1587 (-0,1%). Copper at 339 from 342 (-0,9%). CRB closes 291,0 from 291,0 (unch).
Baltic Dry did NOT manage (yet) to hold onto late gains and fell back 2 to 1160. High point in the last recovery from the Q4/2011 slide was 1165.

EUR 1,225 from 1,230

ECB deposits at EUR 791bn after EUR 795bn.

Greek bonds guesstimates: Unchanged with Greece 2023s at 25.5% and 2042s at 21.5%.

All levels COB 17:30 CET

Rest of this week:
Will have Italy selling bills on Thu and especially Bonds on Friday the 13th. Scary.

Germany: Wed Final CPI Thu Wholesale prices
France: Thu CPI
Periphery: Italy Fri CPI // Spain Wed Housing Fri CPI // Greece Tue IP Wed Unemployment
US: 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:

Lot of stand-still and “unch” on my screens today, outside, of course, equities and the periphery.

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