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 20 July 2012

20 Jul 2012 – " Alabama Song (Whisky Bar) " (The Doors, 1967)

20 Jul 2012 – " Alabama Song (Whisky Bar) " (The Doors, 1967)

First time this week European stocks didn’t gap up in slight joyful mood. US closed slightly better, although off highs in low volume and Asia is closing the week on a depressed note (-0.75-1.5%). China’s awaited stimulus, if it were to come, definitively strictly controlled, especially on housing (, where there seems to have been a bottoming out). So no “free for all” cash stimulus to expect, rather than a controlled soft landing.

Risk Neutral opening in attentive mood, knowing there’s next to nothing on the data plate (German PPI turned out lower than expected at 1.6% YoY down from 2.1%, fcst 1.8%) nd the ECOFIN call starting noon. Shouldn’t expect surprises here, unless last minute bickering starts. For the Northerners, the final lien for the banking bail-out remains with the sovereign.
No auctions.
Flat EGB open with Bunds a tick firmer and the Periphery a tick softer right on 6% and 7%. Equities flat to a tick lower. Credit flat. EUR over mid 22s.

Leaves time to reflect about the next to 15% rise in the CRB from its lows one month ago, having slid next to 25% from the Summer 2011 post-Lehman highs. In EUR terms, the rise is a couple of% higher; still. Brent in EUR at 87.5, up from a 71.5 low one month ago (+22%). Holiday season having started in Europe, people will realize at the pump that some expenses have just risen unexpectedly.

Few titbits: Slovenia “hoping” to issue in fall and acknowledging a serious financial situation. ESM passing the Finnish parliament (at 109 to 73 less supportive than Germany’s 473 to 97 vote yesterday). Italian government still trying to catch Sicily before default. Spanish EUR 18bn possible funding need for the regions to be covered by EUR 6bn from the state lottery and EUR 12bn from the sovereign, although for the moment this is (surprisingly) not foreseen to increase funding needs. Given the travails of each auction, another 4 to 5 auctions would really be a pain. Spain has now done 68.6% of its intended EUR 86bn (so ex those additional EUR 12bn) of medium and long-term debt, as released yesterday. So another EUR 27bn to go. Portugal pitching its intention to issue on a bespoke, reverse-enquiry basis, if markets permit.

Late morning picture with Core EGBs tighter by a couple of bps (wit Bunds back below 1.20%), Soft Core tighter by some more. Italy after trying to join the Soft Core back wider just over 6% and Spain a little wider as well on 7% mark, re-hitting 580 to Bunds, the newest new high. Equities a shade lower. EUR through mid 22s. 
Then ROff accelerating and feeding on itself with Spain and Italy both given another jolt 5-10 wider and EGBs some tighter, hence Spain widening to 588. Equities down 0.75% and the EUR low 1.22s.
(NB: previous Spanish 10 YRS intraday high was 18 Jun at 7.15%. German intraday low at 1.13% on 01 Jun).
Hair of the Dog…
The news that Valencia (BBG ticker VALMUN) was asking for financial support, while not a surprise (see above) came out right after the ECOFIN call had about approved the bail-out pushed things a little further still. That is next to the economic outlook Spain just released (2013 GDP down to -0.5% from+0.2%, Unemployment at 24.6%, Domestic demand expected at -2.8% from -1.7%... Oh dear, oh dear… Hard times ahead).
Risk Off with stocks plunging additional 1% (that is past 3% for periphery exchanges). Bund yield tanking and the Peripherals out by over 15 bp and Spain hitting 600 to Bunds, past the former 7.15% high. EUR through 22 handle.

Of course, weaker US open. Goes without saying, this time… With this time no data and probably no further constructive comments to hold up spirits ahead of the weekend. Too much partying. Hangover mood.
Time to panic? Or heading to the next whisky bar? Question is now what next? Somehow, we’ve been here before, but since then we had LTRO1, LTRO2, a (bank) bail-out, lots of European haggling and bickering… Hot Summer.

Bunds ticking new lows, Spain new wides. 5 YRS Jul 2017 at 6.94%. Spread-eagled…

BKO closing at -0.075%. OBLs at tick at 0.24%

New Issues drought interrupted by an explosive Akzo Nobel issuing a 10 YRS EUR benchmark at MS +105, next to a GBP 1bn increase of a long 3 YRS FRN EIB at 3mL +45.

Closing levels:
10 YRS Yields: Germany 1,16% (-6); Finland 1,54% (-3); Luxembourg 1,56% (-5); Netherlands 1,60% (-4); Swaps 1,70% (-6); EU 1,93% (-6), Austria 1,88% (-9); France 2,06% (+0); EIB 2,15% (-6); EFSF 2,23% (-5); Belgium 2,45% (+1); Italy 6,14% (+15); Spain 7,24% (+27).

10 YRS Spreads: Finland 38bp (+3); Luxembourg 40bp (+1); Netherlands 44bp (+2); Swaps 54bp (+0); EU 77bp (+0); Austria 72bp (-3); France 90bp (+6); EIB 99bp (+0); EFSF 107bp (+1); Belgium 129bp (+7); Italy 498bp (+21); Spain 608bp (+33).

EUR swap curve 2-5 YRS 36bp (-3,0); 5-10 YRS 70bp (+0,0) 10-30 YRS 45bp (+2,0).
2 YRS German BKOs closed -0,075% (-1,9) and 5 YRS OBLs 0,24% (-4).

Main at 169 from 162 (4,3%); Financials at 284 after 272 (4,4%). SovX at 270 from 262. Cross at 662 from 644.
Stoxx Futures at 2236 / -2,7% (from 2299) with S&P minis at 1363 (-0,6% from 1371, at European close).
VIX index at 16,5 after 16,1 yesterday same time.

Oil 91,0/106,5 (WTI/Brent) from 91,8/107,3 (-0,9%/-0,7%). Gold at 1581 after 1588 (-0,5%). Copper at 345 from 353 (-2,3%). CRB at EU COB 303,7 from 302,0 (+0,6%).
Baltic Dry down for the 9th day in a row, down 1,5% to 1037.

EUR 1,217 from 1,226

ECB deposits at EUR 357bn after EUR 360bn.

Greek bonds guesstimates: Still, no one speaks about Greece anymore… 2023s back to 25.50% from 24.50% and 2042s up 50bp to 21.50%.

All levels COB 17:30 CET

On the week (compared to Fri 13 Jul COB):
Last Friday mostly felt "Slow & Low" (Bunds 1,25% unch; Spain 6,62% +2; Stoxx 2251% +1,2%; EUR 1,223) for most of the day with things just dragging on. If it hadn’t been for a furious NY opening, it would have stayed that way. Monday was definitively quieter with markets trading sideways with "Sloe Gin" (Bunds 1,23% -2; Spain 6,76% +14; Stoxx 2247% -0,2%; EUR 1,222). In absence of real news, Tuesday was Ben’s day and initially he poured some Cold Gin" (Bunds 1,23% unch; Spain 6,76% +0; Stoxx 2247% +0,0%; EUR 1,222) and refreshed the mood by his cautious call. Still, once over the first disappointment, markets got a high on hope dope and saw helicopters, hidden behind clouds. Wednesday was time to raise a glass of "Eisgekühlter Bommerlunder" (Bunds 1,20% -3; Spain 6,92% +16; Stoxx 2281% +1,5%; EUR 1,226) to Germany’s longest contribution to negative rates, as 2 YRS were issued at -0.06%. While Ben didn’t deliver any more than previously, markets remained in seemingly inebriated mood. Still, Thursday felt heavier and in need of "One Bourbon, One Scotch, One Beer" (Bunds 1,22% +2; Spain 6,97% +5; Stoxx 2299% +0,8%; EUR 1,226) to swallow the Spanish auction with a 5 YRS issued at record high at 6.46% and in lower bid to cover demand. A TUI (Trading UI) week finishing with a slight hangs over…

Take away of the week? It was another fairly good week for equities and credit, despite contrary data, hooked on the hope that Central Banks will manage (what exactly?). That is before this afternoon. Bonds always took a different view of things and traded in flight to quality mode. Given record record record lows in the Hard Core, we again saw the Soft Core in a huge catch-up, led from behind by Belgium and France. Agencies and Swaps were in line with the Hard Core performance, as was actually Italy. This leaves ailing Spain once more an outlier with 10 YRS back (+71bp after last week’s -25bp) to the 7%-mark (ahead of the finalizing its bank bail-out). We note that Hard Core EGBs have gone negative up to flat up to 2 YRS, 3 YRS for Germany.
It’s been a massive week for Commodities (ex soft metals) with Oil up over 5% and Soft Commodities soaring, for a while. That is before this afternoon.

10 YRS Yields: Germany 1,16% (-9); Finland 1,54% (-7); Luxembourg 1,56% (-11); Netherlands 1,60% (-9); Swaps 1,70% (-6); EU 1,93% (-19);Austria 1,88% (-25); France 2,06% (-16); EIB 2,15% (-20); EFSF 2,23% (-24); Belgium 2,45% (-19); Italy 6,14% (+10); Spain 7,24% (+62).

10 YRS Spreads: Finland 38bp (-14); Luxembourg 40bp (-2); Netherlands 44bp (+0); Swaps 54bp (+3); EU 77bp (-10); Austria 72bp (-16);France 90bp (-7); EIB 99bp (-11); EFSF 107bp (-15); Belgium 129bp (-10); Italy 498bp (+19); Spain 608bp (+71).

EUR swap curve 2-5 YRS 36bp (-2,0); 5-10 YRS 70bp (+1,0) 10-30 YRS 45bp (+3,0).
2 YRS German BKOs closed -0,08% (-3) and 5 YRS OBLs 0,24% (-6), on the week.
Swiss 2-years stable at -0.49%.

Main at 169 from 166 (1,8%); Financials at 284 after 273 (4,0%). SovX at 270 from 272. Cross at 662 from 665.
Stoxx Futures at 2236 / -0,7% from 2251 with S&P minis at 1363 / +1,3% from 1346, at European COB last week.
VIX index at 16,5 after 18,3 last week.

Oil 91,0/106,5 (WTI/Brent) from 86,8/102,3 (+4,8%/+4,2%). Gold at 1581 after 1590 (-0,6%). Copper at 345 from 349 (-1,1%) . CRB closes 303,7 from 293,0 (+3,7%).

EUR 1,217 after 1,223 last Friday

Greek bonds guesstimates: Back to 25.50% from 24.5% for 2023s and to 21.50% for the 2042s (20.25% and 16.75% before elections).

Baltic Dry has gone back into reverse and ended the week at 1037 from 1110.

All levels Friday COB 17:30 CET

Next Week:
German and French bills on Monday. Up to EUR 2.5bn Dutch 2s and 2024 bonds on Tuesday. Spanish bills on Wed. EUR 3bn 30 YRS Bunds at record low on Wed. Italian 2 YRS Zeroes on Thu and closing the month with Italian bills on Fri.
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… All that ends bad with a hangover…

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