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

Thursday 19 July 2012

19 Jul 2012 – " One Bourbon, One Scotch, One Beer " (John Lee Hooker, 1966)

19 Jul 2012 – " One Bourbon, One Scotch, One Beer " (John Lee Hooker, 1966)

Mild Risk On mood to open Europe after the last two day of gains. US closed near their highs, Asia eventually succumbed as well to the party mood (which didn’t hinder a new low of 0.74% in JGBs). It’s not like Ben on his second day said much more than on Tuesday, but Risk felt comforted nevertheless.

Equities up another 0.5% by mid-morning. Hard Core a bit softer, Soft Core still squeezing in. Peripherals about put with Italy slightly tighter, but still over 6%, and Spain (ahead of the auction) slightly wider, but still under 7%. EUR, while overshooting at open to 1.2325 back 50 pips lower.
New French 5s trading 0.85% ahead of the auction (and 2s now below 0.10%)

No data to speak off. Action, if any, to come from parliamentary debates in Spain, Germany, Italy and Finland or from the Spanish auction results.
There’s no money in the public coffers”, as stated by Montoro, probably not the best sales pitch to get an auction going.

Spain sold just under the targeted amount of EUR 3bn in off-the-runs with EUR 1.36bn 2 YRS at 5.20% (up from earlier in the month 3 YRS at 5.09%), EUR 1.07bn 5s at 6.46% (from 5.54% for long 4s 2 weeks ago and 6.07% last month) and EUR 0.55bn 7s at 6.70%, which capped the mood, given the low overall bid to cover and the 10bp tails (stop-out rates were 5.30% 6.54% and 6.80%). Especially the 2 YRS B/C got halved to 1.9.
While no surprise as such, this is a record high for Spanish 5 YRS (Q4/2011 peak had been 5.54%, thereafter the highest paid had been 6.07% end of June). 
Will need a couple of drinks to swallow that one…
Had Bunds immediately shooting up 20 cts on that, Spanish 2-10 flattening 20 bp and 10 YRS BONOs tickling 7%. 

French BTANs fared better with EUR 1.8bn 3 YRS at 0.12% (down from 0.83%), EUR 2.65bn 4 YRS at 0.53% (down from 1.05%) and EUR 4.5bn of new 5 YRS 0.86% (COB yesterday 0.93%). Needless to point out that these are all record lows.
France also sold EUR 1.5bn ILBs, split in 2019, 2022 and 2040s

(Re-leaked) News that the draft bail-out MOU would allow the EFSF to buy Spanish bonds were good for equities, but didn’t impact Spanish bonds, still reeling from the auction. Odd world. Anyhow, the EU later confirmed that actual bail-out funds could only be used for Spanish banks, as requested. That news was either not read, or simply ignored.
Midday picture with Core EGBs wider by a couple of bps, Soft Core tighter by the same. Italy faring ok and back just through 6% in 10s and Spain wider just below the 7% mark, having spiked through for a short while after the auction results (hitting 580 to Bunds, a new high). Equities up 1%. Credit grinding tighter.

Italian Parliament signing off Fiscal Compact and ESM.

Claims came out higher then expected at 386k (fcst 365 after 350, revised to 352) with Continuing Claims now at 3314k (fcst 3300k after 3304, revised 3313). No immediate reaction… Anyhow, the mood is that if figures are bad, Ben will help…

Positive US open. Pretty static markets in EGBs, though. Note a weaker EUR and stronger commodities, especially Oil with Brent at 107 now at EUR 87.5/brl.(94 high was in Mar this year, having bounced off the 72 support of the last18 months). Getting some traction from ME tensions.
The final data round for the week delivered only misses: Philly Fed at -12.9 (fcst -8 after -16.6). Homes sales declining 5.4% (fcst +1.5% after 0% revised to +1.5%) and finally leading indicators dipping to -0.3% (fcst -0.1% after 0.3%, revised 0.4%). Prompting only muted disappointment…

Still the divergent world views between equity and rates as during the last days. EGBs better supported. Equities, too… 

Had Bunds a bit on the softer side throughout the day, but upheld by recurrent shakes. Soft Core still on the mend with Austria at +75 to Bunds and France less than 10 wider, well back through the 100-mark. Italy ok. Question is whether there will be (positive) contagion from the Soft Core for yield hunters and, in the other direction, from Spain. Spain held so so today, did overshoot 7%, but closed back below. The level itself is just symbolic; we all know…Fact is, Spanish funding is a costly thing. Credit feeling slightly heavier than equities.
BKO closing at -0.056%. OBLs at tick softer at 0.28%

No data from nowhere tomorrow (but German PPI). ECOFIN conf call to start at lunchtime.

New Issues on hold in EUR. EIB out for a USD 5 YRS benchmark at MS +40 (from +33 end of March).

Closing levels:
10 YRS Yields: Germany 1,22% (+2); Finland 1,57% (unch); Luxembourg 1,61% (+1); Netherlands 1,64% (unch); Swaps 1,76% (-2); Austria 1,97% (-2), EU 1,99% (-1); France 2,06% (-4); EIB 2,21% (+1); EFSF 2,28% (-1); Belgium 2,44% (-4); Italy 5,99% (-7); Spain 6,97% (+5).

10 YRS Spreads: Finland 53bp (unch); Luxembourg 39bp (-1); Netherlands 42bp (-2); Swaps 54bp (-4); Austria 75bp (-4); EU 77bp (-3); France 84bp (-6); EIB 99bp (-1); EFSF 106bp (-3); Belgium 122bp (-6); Italy 477bp (-9); Spain 575bp (+3).

EUR swap curve 2-5 YRS 39bp (+3,0); 5-10 YRS 70bp (-4,0) 10-30 YRS 43bp (+0,0).
2 YRS German BKOs closed -0,056% (+0,8) and 5 YRS OBLs 0,28% (+1).

Main at 162 from 164 (1,2% tighter); Financials at 272 after 273 (-0,4%). SovX at 262 from 264. Cross at 644 from 654.

Stoxx Futures at 2299 / +0,8% (from 2281) with S&P minis at 1371 (+0,4% from 1365, at European close).
VIX index at 16,1 after 17,0 yesterday same time.

Oil 91,8/107,3 (WTI/Brent) from 89,6/104,9 (+2,5%/+2,3%). Gold at 1588 after 1580 (+0,6%). Copper at 353 from 346 (+2,0%). CRB at EU COB 302,0 from 297,0 (+1,7%). Brent in EUR now at 87.50.
Baltic Dry down for the 8th day in a row, down 2% to 1053 from 1074.

EUR 1,226 from 1,226

ECB deposits at EUR 360bn after EUR 382bn.

Greek bonds guesstimates: Still, no one speaks about Greece anymore… 2023s back to 24.50% from 24.25% and 2042s unchanged at 21%.

All levels COB 17:30 CET

Germany: PPI fcst 1.8% YoY from 2.1%

Next Week:
Not much outside the global PMI data round on Tuesday, IFO on Wed in Germany. New Homes in the US on Wed, Durable Goods and Claims on Thu, Pending Home Sales Fri.

Click link on title or below for today’s musical support:
From Gin to Gin to Bommerlunder. Round up with the above mentioned combination…

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