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, 17 July 2012

17 Jul 2012 – " Cold Gin " (KISS, 1974)


17 Jul 2012 – " Cold Gin " (KISS, 1974)

Some more risk resilience at European open, after a muted US close (lower, but above lows) and slightly more upbeat Asian session (+0.25%-0.75% overall with HS 1% above that, spiking on stimulus hope dope). Same goes for the EUR trading on the 23 handle. EGB sluggishly flat with Hard Core a tick softer, the Soft Core outperforming by 5 and Peripherals about put. European equities up 0.3% (a one week high) and Credit a tick or two tighter. Moody’s downgrade of Italian banks taken with a shrug.
Ben to the rescue” remains the driver (report to the Senate today, House tomorrow), in absence of anything else.

Had some further light equity ROn preceding the ZEW publication with an additional quarter point added. EGB “wings” softer with Bunds backing up and Spain drifting to 6.80%. AFB still in catch up mode with Austrian 10s now through 2% and France just 10 wider. Belgium likewise performing and now through 2.50%.

Oil is still staging a discreet comeback with Brent well past the $100-mark. Priced in EUR, we’re now nearing EUR 85/barrel, up from 71 about a month ago. All-time high was 94 mid-March, a little more than peak oil in 2008 (EUR 90/barrel) before the post-Lehman collapse. Will be a costly driving season…

No immediate data stream to feed off with the ZEW figures later in the morning and a flood of bills as potential market movers. German ZEW figures were disappointing with Current fcst at 21 (fcst was 30.0 after 33.2 and already seriously reduced lower over the course of last week), while Economic Sentiment at -19.6 was about in line (fcst -20 after -16.9). Current peaked at 91.5 in May 2011, slid to 26.8 in Dec, rebounded to 44.1 in May. EZ Eco sentiment was down to -22.3 after 20.1. No impact.

On today’s bill menu tomorrow: Spain sold a little over the targeted EUR 3.5bn bills with EUR 2.6bn 12m at 3.92% at & EUR 962m 18m at 4.24% (down from 5.074% & 5.107% in mid June when Spanish 10s were trading 7.10%, just ahead of the bail-out calls). No impact.
Greek EUR 1.625bn (including non-competitive allocation) 3m at 4.28% (last 4.31%);  Belgian EUR 3bn about equally split between 3m at -0.016% after 0.211% (Welcome in the negative class of 2012, les Amis / Vrienden!) and 12m at 0.04% (last 0.561%) as well as the EFSF with EUR 1.49bn 6m bills at -0.011% (last 0.14%) (Welcome, too!).
On tomorrow’s plate: EUR 5bn German 2 YRS (COB -0.053%). Germany still entertaining the competition how low can we issue in negative territory… That low was (positive) 0.07% in May, before being pushed higher to a full 0.10% in June. So to make it up… Will have as well EUR 2bn Portuguese 6m and 12m bills (last 2.65% and 3.83% in June). Portugal will try to extend its funding maturities, as reported by the IMF.

Spain coming to grips that the touted lack of conditionality of the bail-out, initially hailed as a big victory, will not stand as such and that further efforts will certainly steer unhappiness back home, among others the question how to deal with the sub debt placed with retails investors.
Reminiscent of a “Mini Me eurocrisis”, the German State of Bavaria (2011 GDP EUR 446bn, 17% of Germany’s, and a debt/GDP <10%) is challenging inner-German transfer payments (and insisting on Spain being liable for its banking out).

Midday levels about unchanged from morning session. Hard Core slightly wider, Soft Core tighter, followed by the Supras, Spain a bit wider. Equities back to +0.3%, credit a couple of ticks tighter from the previous session. EUR unable to hold onto the 23 mark.

BoS Governor pitching the idea that the SMP, while not foreseen immediately, could be reactivated - if needed, which is not the case…. Not sure this would go down well with Northern members of the ECB. But good for some tightening off wides in the Periphery.
Spain and Finland reached a deal on the collateral issue, up to EUR 770m in cash, to be provided through the deposit guarantee (statement)..
Greece seeking a bridge loan in order to avoid further budget cuts seems the oddest news of the day and will certainly please Troika officials.

US CPI flat MoM, 2.2% ex YoY a non-event. IP +0.4% as fcst after -0.1%, revised to -0.2%. Capacity use slightly under consensus at 78.9 (fcst 79.2 after prior data revised lower 78.7%). Not much impact.
Markets waiting for US equities to open and Ben to speak / to read his comments..

Equities down the 0.50% gained ahead of the release once reading about “frustratingly slow progress” and just twist at this stage (link)… Downside potential and fiscal cliff. Sent the EUR straight down 50 pips, to start with.
Measured disappointment, though, but speeding up throughout the testimony. Ah, and tourism is good…(but getting expensive for Europeans at this rate…). Draghi tactic: a) if push comes to shove, we’ll certainly find something b) fix your fiscal cliff.
Refresher of the Day.

Good traction on Italian 10s for a while in the afternoon, because / despite the BoI seeing growth at -2%, knowing that Q1 was -1.4% and it sees Q2 more than 0.5% down. Means the rest of the year needs to be about flat. Still, recurrent Sicily default rumours, with Monti asking the governor to resign, are a reminder of contingent risk. 

Markets slipping into ROff. Same story again: Recurrent picture of Hard Core grinding slightly tighter (–1 bp), Soft Core doubling down on that (6-8 bp tighter). Italy eventually better today but still over the 6% mark and Spain stuck over 6.75%. Equities just a tick weaker after all. Gold non-QE victim. EUR slammed through 22, but rebounded off 1.219.
BKO eventually NOT closing on its historic -0.060% low, but ¾ bp wider, ahead of tomorrow’s auction. These Hard Core rates movements become very surgical.
Eventually quite resilient markets, given all the expectations…

New Issue of the day was KfW with EUR 3bn 4 YRS issued at MS -31, in line with outstanding benchmarks. A German GG give-away at a yield of 0.59% (compared to Jul 2016 Bunds at 0.12%), so to speak.
NordLB issued EUR 500m 7 YRS covered bonds at MS +9.

Closing levels:
10 YRS Yields: Germany 1,23% (unch); Finland 1,59% (-1); Luxembourg 1,64% (-1); Netherlands 1,65% (-2); Swaps 1,78% (+2); Austria 1,99% (-6), EU 2,06% (-4); France 2,08% (-6); EIB 2,27% (-5); EFSF 2,35% (-7); Belgium 2,45% (-8); Italy 6,03% (-7); Spain 6,76% (-1).

10 YRS Spreads: Finland 54bp (unch); Luxembourg 41bp (-1); Netherlands 42bp (-2); Swaps 55bp (+2); Austria 76bp (-6); EU 83bp (-4); France 85bp (-6); EIB 104bp (-5); EFSF 112bp (-7); Belgium 122bp (-8); Italy 480bp (-7); Spain 553bp (-1).

EUR swap curve 2-5 YRS 38bp (unch); 5-10 YRS 70bp (+1,0) 10-30 YRS 43bp (+1,0).
2 YRS German BKOs closed -0,053% (+0,8) and 5 YRS OBLs 0,29% (+1).

Main at 167 from 169 (1,2% tighter); Financials at 277 after 281 (1,4% tighter). SovX at 259 from 266. Cross at 665 from 672.

Stoxx Futures at 2247 / -0,2% (from 2252) with S&P minis at 1345 (-0,5% from 1352, at European close).
VIX index at 17,0 after 18,3 yesterday same time.

Oil 88,1/103,6 (WTI/Brent) from 87,4/103,3 (+0,8%/+0,3%). Gold at 1577 after 1594 (-1,1%). Copper at 345 from 349 (-1,1%). CRB at EU COB 294,0 from 293,0 (+0,3%).
Baltic Dry down again to 1093 from 1102. Uh, seasonality lurching…

EUR 1,222 from 1,227

ECB deposits at EUR 404bn after EUR 387bn.

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

All levels COB 17:30 CET

This week:
Germany: Fri PPI
Periphery: IT Thu Indu Orders & Sales // Spain: We Housing Px
EZ: Wed Construction
US: 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:
From Gin to Gin. A refresher.
An additional one… With Ace & Slash…

On a sadder note, Jon Lords’ passing. His organ intro to Lazy on Made In Japan will always remain with us. Had the day been just sluggish, I’d love to have taken “Lazy” as title, so here it is nevertheless http://youtu.be/kTkKD8BNZgo RIP

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