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

Monday 16 July 2012

16 Jul 2012 – " Sloe Gin " (Joe Bonamassa, 2007)

16 Jul 2012 – " Sloe Gin " (Joe Bonamassa, 2007)

Another week, another Ctrl C Ctrl V market open… Friday afternoon’s exuberancia in the US didn’t translate into Asia, which by and large closed weakish - and squarely negative in China, having been a positive outlier on Friday. Wen’s call for more hardship despite stabilization policies, meaning probably more orchestrated soft landing and no flash flush stimulus. Shanghai now through the Jan low of 2148, as well the lowest since Q1/2009, when the post-Lehman rebound took the index to 3472 (-38%).

European open as one could expect: Core a tick bid; Peripherals a couple of bps out; credit, too. Equities a touch lower, but still holding on to most of Friday’s surge. EUR unchanged. Commodities unchanged.
Financials wider, as Libor-gate is spreading on one hand and ECB hinting to see Spanish senior debt holder biting the bullet, too.
No data. Weekend titbits scarce on the official front with Merkel re-drawing a line in the sand (and filling it with concrete?) that there can’t and won’t be any uncontrolled solidarity. From the German side as well, BuBa’s Weidman rejections of using ESM funds to bring down (Italian) yields.
Talking of which the Constitutional Court announcement of a decision for 12 Sep was a bit of a downer, sending EUR and risk testing a little lower. EUR trading back through 22-mark, but without much additional damage to risk. Pushing Core EGBs lower, though.

Solely Core bills on the plate today. Dutch EUR 1.25bn 3m at -0.041% (from -0.013%) and EUR 1.1bn 6m at -0.029% (from +0.019%). France following with its weekly bill auction with EUR 4bn 3m at -0.0015% (last -0.005%), EUR 1.8bn 6m at -0.11% (last -0.006%) and EUR 1.8bn 12m at -0.002% (last +0.013%). So everything negative on that front…
On the menu tomorrow: Spanish EUR 3.5bn 12m & 18m bills (last 5.074% & 5.107% in June); Greek EUR 1.25bn 3m (last 4.31%), Belgian EUR 3bn 3 and 12m (last 0.211% & 0.561%) as well as EFSF EUR 1.5bn 6m bills (last 0.14%) 
Spain EUR 3bn 2014, 2017 and 2019 auction to watch on Thursday. Both Spanish targeted auction amounts seem rather on the high side, given the latest comparable exercises.

Summer time traffic. Low volatility, low volume... Morning session ending where it started, pretty much to the basis point. Soft Core again a little tighter, keeping its compression movement. Italy stuck above 6% and Spain at 6.70%. EUR down to 1.2180, though, before rebounding.
Looks like direction will need to come from US figures and/or earnings. Bernanke testimony on Wed for (unlikely) QE hints. Final (this side of the summer break) ECOFIN on Friday, supposedly to deal only with the Spanish bail-out modalities.

US data showed fair Empire Manu (7.4 versus +4 after 2.3), but it was Retail Sales that people had been looking forward to and expecting a rebound. Here the miss was harsh with -0.5% (fcst had been +0.2% after May’s -0.2%). Pretty much same miss throughout all subcomponents. Last time US retails sales fell 3 months in a row was Q4/2008. Risk a little undecided / unmoved after publication, with exception of the EUR, which was entitled to rise back to past 22, given that obviously the US have problems, too.
Mirroring the decline in sales, Biz Inventories rose 0.3% (fcst 0.2% after revised 0.3%).
IMF obviously cautious and revising everyone’s growth forecast to the downside.
As every bad news seems to get a silver lining, today’s US figures might warrant some QE hopes, hence some resilience in equities on rumours Ben might signal something on Wed. But why should he do more than in the FOMC minutes or as the EB lately? Hints will just be to have something up the sleeve, if push comes to shove.

Europe slipping into (light) ROff (and then out). Recurrent picture of Hard Core grinding tighter (–3 bp), Soft Core doubling down on that (up to 10 bp tighter). Peripherals drifting wider with Italy eventually further off the 6% mark at 6.10% at close and Spain at 6.77% (+15 bp). Equities about unchanged after all.
BKO eventually closing on a historic -0.060% low.
Slow dragging day, if it wasn’t for the EUR jogging back and forth all the time. Something gotta move, I guess.

Will look at tomorrow’s ZEW figures tomorrow (expectations have been quite reduced over the last days) with Current seen at 30 (after 33.2) and Economic seen as slow as -20 (from -16.9). EZ Eco Sentiment was last -20.1.

New Issue activity starting to slip into summer lull. Might be the last week to do something sizeable, if there’s supportive news flow. Otherwise, and outside special or opportunistic situations, benchmark activity should pick up mid-August at the earliest.
Czech Railways in for EUR 300m 7 YRS at MS +275.

Closing levels:
10 YRS Yields: Germany 1,23% (-2); Finland 1,60% (-1); Luxembourg 1,65% (-2); Netherlands 1,67% (-2); Swaps 1,76% (unch); Austria 2,05% (-8), EU 2,10% (-2); France 2,14% (-8); EIB 2,32% (-3); EFSF 2,42% (-5); Belgium 2,53% (-11); Italy 6,10% (+6); Spain 6,77% (+15).

10 YRS Spreads: Finland 54bp (+1); Luxembourg 42bp (unch); Netherlands 44bp (unch); Swaps 53bp (+2); Austria 82bp (-6); EU 87bp (unch); France 91bp (-6); EIB 109bp (-1); EFSF 119bp (-3); Belgium 130bp (-9); Italy 487bp (+8); Spain 554bp (+17).

EUR swap curve 2-5 YRS 38bp (unch); 5-10 YRS 69bp (unch) 10-30 YRS 42bp (unch).
2 YRS German BKOs closed -0,060% (-1,3) and 5 YRS OBLs 0,28% (-2).

Main at 169 from 166 (1,8% wider); Financials at 281 after 273 (2,9% wider). SovX at 266 from 272. Cross at 672 from 665.

Stoxx Futures at 2252 / +0,0% (from 2251) with S&P minis at 1352 (+0,4% from 1346, at European close).
VIX index unchanged at 18,3 yesterday same time.

Oil 87,4/103,3 (WTI/Brent) from 86,8/102,3 (+0,7%/+1,0%). Gold at 1594 after 1590 (+0,3%). Copper at 349 from 349 (unch). CRB unchanged at EU COB 293.
Baltic Dry down again 1% to 1102 from 1010.
EUR 1,227 from 1,223

ECB deposits at EUR 387bn after EUR 366bn.
ECB SMP buying for last week: nada...

Greek bonds guesstimates: No one speaks about Greece anymore… Unchanged. 2023s at 24.5% and 2042s at 21%.

All levels COB 17:30 CET

This 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 30.0 (after 33.2) Sentiment fcst -20 (after -16.9) Fri PPI
France: nothing at all
Periphery: Thu Indu Orders & Sales // Spain: We Housing Px
EZ: Tue ZEW Wed Construction
US: Tue CPI fcst 1.6% after 1.7% YoY; IP +0.4% after -0.1% Wed Mortgage App; Housing Starts fcst 745k after 708k & Building permits fcst 765k after 784k

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

Bonamassa is an absolute Über God of guitar. Master technician. Absolute brilliant. 

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