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, 13 July 2012

13 Jul 2012 – " Slow & Low " (Beastie Boys, 1986)


13 Jul 2012 – " Slow & Low " (Beastie Boys, 1986)

Overnight news was Chinese Q2 GDP clocking in at the widely expected / leaked / expectation-managed +7.6% YoY (after 8.1%) with Jun IP and Retails sales at 9.5% and 13.7% YoY, about in line. Of course, this is the lowest since Q3/2009, but this feels like soft landing steering about on track, with further “collared” measures at hand if needed, in order to support, but yet not to bubble out things. Eventually, not much news. Need to see after the summer.
On the European front, Moody’s downgraded Italy by 2 notches to Baa2. Not a huge surprise per se, although the wording pointing out outside contagion risk is quite franc. Fitch still at A- (unlike Spain) with DBRS, as accepted ECB collateral-rater at AH- (like Spain). So no imminent ECB haircut hike due to being shifted into the BBB-bucket (ECB grid).
Slightly negative US equity close, off lows, although off highs. Asian close eventually about flat, knowing that its wheels fell off already yesterday (weekly performance -2-3%).

European open actually sanguine, maybe a bit too optimistic with equities trying to catch up with the US (+0.25-0.5%). Italy out by 12 past the 6% mark (ahead of this morning’s auction) and Spain wider in sympathy to around 6.70%. Core EGB flat to a little tighter, but, hey, how low can you go…Credit flat. Commodities taking some solace in the controlled Chinese growth and a EUR off yesterday’s 1.217 lows.

No Stats to bite on with Italian CPI data delayed by strikes( eventually unch +3.6%). Talking of which, the downgrade seems to have kicked Italian linkers out of the Barclays ILB Index, leading to a massive sell-off there (2023s off 4.5 points, more than 60bp).
Leaks about the Troika visit in Greece finding out that 210 out of 300 “suggestions” remain open don’t bode well for the new Greek government’s negotiation power.
Spain to guarantee some regional debt, which despite FM assertions of the contrary of it not hurting Spain’s rating, is not exactly enticing news for Spanish bonds.
ECB reserves replenishment by over EUR 40bn to EUR 366bn from EUR 325bn.
EFSF FAQ on Spain is available (link) as is a “confidential” calendar (link). Open questions for next Friday’s ECOFIN.

EUR 3.5bn new Italian 3 YRS sold at 4.65% (compared to 5.30% last month and 4.77% yesterday evening, 20bp wider than the day’s lows). Seems seriously generous, given the situation. Lower B/C, though, given lower yield, as with yesterday’s bills.
As the bonds were quoted 4.86% ahead of auction results, the announcement immediately ripped the bond back down 20bp. And then back up 15… Seems one large stray hand might have “stabilized” some of the demand.
Had as well EUR 1.75bn in off-the runs: short EUR 0.8bn 2019 at 5.58%, EUR 0.6bn at 2022% at 5.82% and short EUR 0.4bn 2023 at 5.89%.

Short-lived confidence boost resulting in bringing Peripherals back to unchanged, as the whole EGB curve, equities up by a small 0.25%. Credit a bit firmer. EUR back over the 22 handle. Before simply shifting back to the initial wider level in BTPs, although with a slightly steeper curve.
Of course, all Italian auction levels were tighter than last month, but not exactly low.

Next news to trade off, please!

With no such news, markets traded totally sideways into the US session with solely the EUR trading back lower (knowing that 1.2135 is the historic 50% high-low retracement).
Headline US PPI higher than expected at +0.1% MoM (from-1% vs. -0.4% fcst), but in line at unch +0.2% ex food / energy.
Waiting for the end of the day reading whaling accident reports, as nothing else happens (outside the EUR that really seems like looking for a reason to test that 2153 support) and trying to count the number of EGBs hitting all-time lows (again), which starts to become boring.
Gapping up NY open, dragging the EUR up 80 pips within minutes, dragging European equities higher to the +1% mark and commodities in its wake. Spontaneous ROn Friday action. Michigan Confidence print of 72, below 73.5 fcst after 73.2, a 7-month low, with no influence on the suddenly brighter Friday mood. Crisis fatigue?

Nice equity (and commodities) close (DAX futures peaking at +2%).
Didn’t seem to impress EGBs, though. Nor credit, as it stands. No ROn mode behaviour here. And certainly not for Italy.

Soft Core action of the day, Belgium (2.64%, -13 on the week) closing in further on France (2.22%, -14 on the week), closing in on Austria (2.13%) closing in on the Hard Core.
BKO eventually closing on a historic -0.047% low.

New Issues restricted to a EUR 500m “ecoop” long 13 YRS bond by the EIB at MS +78.

Closing levels:
10 YRS Yields: Germany 1,25% (unch); Finland 1,61% (+1); Luxembourg 1,67% (unch); Netherlands 1,69% (+1); Swaps 1,76% (+1); Austria 2,13% (-2), EU 2,12% (unch); France 2,22% (-2); EIB 2,35% (+0); EFSF 2,47% (unch); Belgium 2,64% (-4); Italy 6,04% (+14); Spain 6,62% (+2).

10 YRS Spreads: Finland 52bp (+1); Luxembourg 42bp (unch); Netherlands 44bp (+1); Swaps 51bp (+1); Austria 88bp (-2); EU 87bp (unch); France 97bp (-2); EIB 110bp (unch); EFSF 122bp (unch); Belgium 139bp (-4); Italy 479bp (+14); Spain 537bp (+2).

EUR swap curve 2-5 YRS 38bp (+unch); 5-10 YRS 69bp (+1,0) 10-30 YRS 42bp (-1,0).
2 YRS German BKOs closed -0,047% (-0,5) and 5 YRS OBLs 0,30% (unch).

Main at 166 from 168 (-1,2%); Financials at 273 after 277 (-1,4%). SovX at 272 from 275. Cross at 665 from 665.

Stoxx Futures at 2251 / +1,2% (from 2225) with S&P minis at 1346 (+1,7% from 1324, at European close).
VIX index at 18,3 after 19,4 yesterday same time.

Oil 86,8/102,3 (WTI/Brent) from 84,9/99,6 (+2,2%/+2,7%). Gold at 1590 after 1559 (+2,0%). Copper at 349 from 340 (+2,6%). CRB at EU COB 293,0 from 288,0 (+1,7%).
Baltic Dry down again 1% to 1110 from 1121.

EUR 1,223 from 1,219

ECB deposits at EUR 366bn after EUR 325bn.

Greek bonds guesstimates: 2023s down 50bp to 24.5% and 2042s unchanged at 21%.

All levels COB 17:30 CET

On the week (compared to Fri 06 Jul COB):
We closed the post-EU package week with the fact that on Friday "Money's Too Tight (To Mention)" (Bunds 1,33% -6; Spain 6,91% +17; Stoxx 2232% -2,2%; EUR 1,23), a strong compression in Soft Core yields, chasing down Bunds, a depressed stock market and a EUR on the slide. Not enough monies around… Sad old red… Having chewed over the whole during the weekend, the mood was tense on what "Call It Stormy Monday" (Bunds 1,33% +0; Spain 7,02% +11; Stoxx 2226% -0,3%; EUR 1,23) saw testing times for the Periphery, but otherwise things didn’t move much. This was too the case on Tuesday with a lot of "Running To Stand Still" (Bunds 1,32% -1; Spain 6,94% -8; Stoxx 2239% +0,6%; EUR 1,225) with the exception of Spain, which started to jog ahead. That was all the more the case on Wednesday with BONOs humming "Keep On Running" (Bunds 1,27% -5; Spain 6,54% -40; Stoxx 2240% +0,0%; EUR 1,224) in a major empty market squeeze. The mood started to shift again yesterday with yields and the EUR seriously "Under Pressure" (Bunds 1,25% -2; Spain 6,6% +6; Stoxx 2225% -0,7%; EUR 1,219).

Another inconclusive week with regards to the resolution of the eurocrisis. While the week before was seriously doubting whatever had been decided at the EU meeting and mainly saw the Periphery being aggressively sold with hopes and money especially flowing into the Soft Core (Hard down 10bp in 10s, AFB down 30 to 40bp and Italy and Spain out by over 20 and 60bp), the ECOFIN outcome gave a little more credibility and things calmed down somewhat. Still, on the week the 10 YRS EGB curve crawled down roughly 10, Italy got back slashed by Moody’s and even if Spain is down over 25 bp on the week, the markets feel far from confident, as seen in the ailing EUR. Non-Peripheral EGBs all closed the week on new all-time lows with the short end of the Core now negative. Confidence, someone?
Equities traded eventually about sideways as were Credit Indices. Commodities held their stand, given the weak EUR.

10 YRS Yields: Germany 1,25% (-8); Finland 1,61% (-7); Luxembourg 1,67% (-5); Netherlands 1,69% (-4); Swaps 1,76% (-5); Austria 2,13% (-6);EU 2,12% (-7); France 2,22% (-14); EIB 2,35% (-8); EFSF 2,47% (-7); Belgium 2,64% (-13); Italy 6,04% (+3); Spain 6,62% (-29).

10 YRS Spreads: Finland 52bp (+4); Luxembourg 42bp (+3); Netherlands 44bp (+4); Swaps 51bp (+3); Austria 88bp (+2); EU 87bp (+1); France 97bp (-6); EIB 110bp (unch); EFSF 122bp (+1); Belgium 139bp (-5); Italy 479bp (+11); Spain 537bp (-21).

EUR swap curve 2-5 YRS 38bp (+2,0); 5-10 YRS 69bp (-3,0) 10-30 YRS 42bp (-1,0).
2 YRS German BKOs closed -0,047% (-3) and 5 YRS OBLs 0,30% (-3), on the week.

Swiss 2-years at -0.49%. One way from -0.38%...

Main at 166 from 172 (-3,5%); Financials at 273 after 283 (-3,5%). SovX at 272 from 284. Cross at 665 from 684.

Stoxx Futures at 2251 / +0,9% from 2232 with S&P minis at 1346 / -0,1% from 1348, at European COB last week.
VIX index at 18,3 after 18,1 last week.

Oil 86,8/102,3 (WTI/Brent) from 84,6/98,3 (+2,6%/+4,0%). Gold at 1590 after 1587 (+0,2%). Copper at 349 from 341 (+2,3%) . CRB closes 293,0 from 290,0 (+1,0%).
After having had the best weekly performance last week (rising over 15% from 1004 to 1157), the Baltic Dry has gone back into reverse and ended the week at 1110, missing out the intermediate 1165 Mar high by 3 ticks on Mon, its last rise.

EUR 1,223 after 1,230 last Friday

Greek bonds guesstimates: Improved to 24.5% from 25.75% for 2023s and to 21% from 21.5% for the 2042s (20.25% and 16.75% before elections).

All levels Friday COB 17:30 CET

Next week:
Outside the ZEW sentiments, not much out of Europe…Will start the week flooded in a sea of bills on Mon and Tue (More than EUR 16bn out of the Benelux, France, the EFSF, Greece and Spain)
Germany: Tue ZEW Current fcst 32.3 (after 32.2) Sentiment fcst -15 (after -16.9) Fri PPI
France: nothing at all
Periphery: Italy Mon Trade & Govt Debt Thu Indu Orders & Sales // Spain: We Housing Px
EZ: Mon Final CPI fcst unch 2.4%, Trade. Tue ZEW Wed Construction
US: Mon Retail Sales fcst +0.2% after -0.2%; May Biz Inventories Tue CPI fcst 1.6% after 1.7% YoY; IP +0.4% after -0.1%

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

Let yourself go…

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