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

Wednesday 18 July 2012

18 Jul 2012 – " Eisgekühlter Bommerlunder " (Die Toten Hosen, 1983)

18 Jul 2012 – " Eisgekühlter Bommerlunder " (Die Toten Hosen, 1983)

It’s always a pain when the mood shifts 5 minutes after sending out a daily close, which was the case yesterday. Had the markets been initially disappointed because Bernanke didn’t spontaneously pull a rabbit out of his hat during the testimony, instead pointing out what everyone knew about sluggish growth and downside risk, they performed a sharp U-turn just after the European close, as he mulled again that the FED could act, if things were to go awry. While this was already said in the opening remarks, a second interpretation validated some hope rally.
Hence, the visual Risk On open in Europe, at least in equities (+0.5-0.75%), ignoring as well a dismal Asian session, further weighted down by Wen comments. 10 YRS JGB at record 0.76%. Not much else. EGBs about flat. Peripherals initially some 5 bp tighter, with Italy visually just under 6%, on ROn sentiment. Credit a couple of ticks tighter. EUR hovering below the 23 mark. German 2 YRS a touch softer at -0.04% ahead of its auction.
No data to speak off, outside Spanish Q2 housing prices remaining on a historic slide at -8.3% YoY (after -7.2%) and Bank of Spain statistics of bad loans now at 8.95% (from 8.72%) or EUR 156bn.

EGB strengthened a little, as soon as equities and EUR came down from their highs.

The German 2 YRS auction was a success, despite (because?) of its negative yield: EUR 5bn sold at -0.06%, of which EUR 827m retained for market interventions. Bids for EUR 8.3bn, of which EUR 3.4bn at market price. A tail of a 10th of a cent. One of the highest bid to cover in a year. Having closed at -0.053% yesterday and trading up to 1bp wider in the morning, the final price was aggressive, too. Previous low had been +0.07% in May, then 0.10% in June. The Rolls-Royce of bonds: everyone thinks it’s too expensive, but wants some nevertheless. Cool. Eiskalt!
Portugal sold its targeted EUR 2bn with EUR 750m 6m at 2.29% (after 2.65%) and EUR 1.25bn 12m at 3.51% (down from 3.83% in June). Slightly decreased B/C in a probably mostly domestic driven auction. Decent result for a bailed-out country under Troika steering. As said yesterday, thoughts are given to extend maturities in the future; even to go as far as to sell notes again (same goes for Ireland).
Will close the week tomorrow with Spain’s (rather large) EUR 3bn auction in 2014 (last 5.09%), 2017 (last 5.54%) & 2019 bonds, as well as French BTANs in 3, 4 and a new 5 YRS (COB 0.93%).

Midday situation with EGBs outside the periphery all 3 to 6 bp firmer and the Periphery struggling. Italy, which 10s had tightened by up to 10bp during the ROn euphoria in the morning, gave back most of these gains, and drifted back above 6%, as Spain went into reverse and drifting out to 6.90%, on above mentioned figures, as well as repeated German calls and doubts about the ESM. Harking back to yesterday’s news about Bavaria challenging the long-lasting inner-German vertical and horizontal equalization. Germans know how a federal state works and know how much even that can be a pain. Hence the strict stance on rules and conditions. That won’t change. Eiskalt!
Was a bit of refresher on Risk and on the EUR.

That Greek bridge loan story is still around with Greece seeking EUR 3.8bn for payment of bonds maturing in August (mostly held by the ECB).

US figures consumption, all pre-open: Mortgage Applications on the rise of refinancing. Mixed then with Housing Starts at 760k (fcst 745k after 708k) & Building permits at 755k (fcst 765k after 784k) .
Ben on the screens later again and Beige Book tonight, knowing that most has probably been spelled out over the two testimonies anyway.

Middle East situation not really in the prices, as the tension in Syria is growing to new heights.
IMF annual review of EZ policies pitches a lot of already pitched ideas (QE, etc etc). No news.
Nothing crisp from Ben – outside comments that “Europe is not close to having a long term solution”… Thanks for the thumb up!

Same divergence between equity and rates as yesterday. EGB well supported. Equities, too… Different worlds…

Hard Core grinding ever tighter (–3 bp), but Soft Core a bit out of steam (+2). Italy stuck above 6% and Spain certainly on its way to re-test 7%, if the auction feels heavy. Near the 575 wides to Germany. European agencies playing catch-up with Soft Core. Credit in line with equities.
EUR undecided at taken the middle way.
BKO closing on yet another historic -0.063% low, as are OBLs at 0.26%

New Issue supply restricted to a EUR 250m increase of an outstanding 2027 issue at MS +51 by Dutch agency NWB.

Closing levels:
10 YRS Yields: Germany 1,20% (-3); Finland 1,57% (-2); Luxembourg 1,60% (-5); Netherlands 1,64% (-1); Swaps 1,78% (unch); Austria 1,99% (unch), EU 2,00% (-6); France 2,10% (+2); EIB 2,20% (-7); EFSF 2,29% (-6); Belgium 2,48% (+3); Italy 6,06% (+3); Spain 6,92% (+15).

10 YRS Spreads: Finland 52bp (-1); Luxembourg 40bp (-2); Netherlands 44bp (+2); Swaps 58bp (+3); Austria 79bp (+3); EU 80bp (-3); France 90bp (+5); EIB 100bp (-4); EFSF 109bp (-3); Belgium 128bp (+6); Italy 486bp (+6); Spain 572bp (+18).

EUR swap curve 2-5 YRS 36bp (-2,0); 5-10 YRS 74bp (+4,0) 10-30 YRS 43bp (+unch).
2 YRS German BKOs closed -0,063% (-1,1) and 5 YRS OBLs 0,26% (-2).

Main at 164 from 167 (1,8% tighter); Financials at 273 after 277 (1,4% tighter). SovX at 264 from 259. Cross at 654 from 665.

Stoxx Futures at 2281 / +1,5% (from 2247) with S&P minis at 1365 (+1,5% from 1345, at European close).
VIX index at 17,0 after 17,0 yesterday same time.

Oil 89,6/104,9 (WTI/Brent) from 88,1/103,6 (+1,7%/+1,2%). Gold at 1580 after 1577 (+0,1%). Copper at 346 from 345 (+0,3%). CRB at EU COB 297,0 from 294,0 (+1,0%). CRB up on Energy and Live Stocks.
Brent in EUR nearing 86.
Baltic Dry down again 1.7% to 1074 from 1093. And it’s not because of falling Commodity prices…

EUR 1,226 from 1,222

ECB deposits at EUR 382bn after EUR 404bn.

Greek bonds guesstimates: Still, no one speaks about Greece anymore… 2023s at 24.25% after 24.5% and 2042s unchanged at 21%.

All levels COB 17:30 CET

Rest of the week:
Germany: Fri PPI fcst 1.8% YoY from 2.1%
Periphery: IT Thu Indu Orders fcst +1.7% after -1.9% MoM / -12.3% YoY
US: Thu Claims fcst 365k after 350k, Ex Home Sales fcst 4.62m after 4.55m, Leading indicators fcst -0.1% after 0.3% & nothing on Friday

Click link on title or below for today’s musical support:
From Gin to Gin to Bommerlunder. A refresher. And R ’n R!

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