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 9 August 2012

09 Aug 2012 – “ Beautiful Days " (Venus, 2003)

09 Aug 2012 – “ Beautiful Days " (Venus, 2003)

The US having eventually closed in slight positive territory, with a dismal 10 YRS UST auction to boot, and with a bit of Asian help, supported by lower, but higher than  CPI figures in China (+1.8% after +2.2% with a 1.7% fcst) , European Risk opened on the brighter side. Further Chinese figures up for interpretation (Glass half full, half empty) as IP slowed to 9.2% YoY after 9.5% and a 9.7% fcst, while retail sales slowed to 13.1% after 13.7% and a 13.5% fcst. Slower, but hardly a plunge. Not sure this will trigger massive POBC stimulus. Why would one trigger that in a global slowdown at this stage, especially when trying to contain speculative bubbles? Seems more like the targeted soft landing. Japanese machine orders at -9.9% YoY missing -4.5% estimates after prior +1.0%. As seen in yesterday’s German IP figures, engineering is not at its top these days.
Whatever. Beautiful days in equity land: good figures are hailed, bad figures even more, on stimulus hope dope.

European equities opening up 0.5%, credit reversing yesterday’s softer patch. Commodities and EUR about unchanged from COB. EGBs a bit softer with the Periphery 10s tighter by 7, bringing Italy down to 5.80% and Spain hovering above the 6.75% mark (having briefly traded in the 6.90s, hence close to 7% late morning yesterday). Periphery curves about unchanged. DBRS downgrades of Italy and Spain shrug off, as still in the A bracket (although there’s just 1 notch left for Spain now).
No auctions, nor data. No shoe dropping. Bond bears are from Mars, Equity traders from Venus. Beautiful days…

No major data. Note Dutch CPI sticky at +2.6% (fcst unch 2.5%). Hardly hype- inflated, but sticky. Will have someone soon hark back that the ECB’s mandate (for the moment) is primarily to control inflation. And given soft commodities’ and energy’s trend lately post-summer figures might surprise. Spanish housing transactions for June down -11.4% after -11.6%. Greek May unemployment at new 23.1% high (after prior 22.5% and 16.8% one year ago) with Youth UE now at 55%.

Spoiler came from the ECB monthly survey that a) highlighted growth risk (Duh!), b) expects GDP to fall 0.3% (earlier -0.2% estimates) and c) stated that “The adherence of governments to their commitments and the fulfilment by the European Financial Stability Facility/European Stability Mechanism of their role are necessary conditions”. And then Conditionality reappeared…“Governments must stand ready to activate the EFSF/ESM in the bond market when exceptional financial market circumstances and risks to financial stability exist -- with strict and effective conditionality.” 
ECB to EU governments: “Guys, we won’t fly solo…” 

No further auction supply in the EZ for the week, unless there was demand for Belgian OLOs via an option reverse inquiry (ORI) auction on Friday, which seems doubtful at this stage.

Noon levels about unchanged from COB. Hard Core and Soft Core EGBs about flat, BTPs a touch tighter, BONOs unchanged. Equities flattish to slightly lower. Credit relatively much tighter (-1.5%). EUR on the low 23 handle.
Note that despite the ECB statement and later BdF’s Noyer repeating the message, the short end both in Spain and Italy didn’t tighten a tick and even softened a little in Italy.

ECB to EU governments: “Guys, we won’t fly solo…” 
Bond Market to ECB “Show me the money!”
Equity market “Someone said Money? Buy!”

The Italian government seems to have had discussions about bond buying, but feels it has time before deciding (…) and that current measures undertaken would mean no more further conditionality (…). That “non conditionality” thing seems to be a fixed idea that will break its teeth once September kicks in, as we are not simply discussing drawing money at an ATM, I would say. News coincides with some renewed Periphery short end weakness.

Mixed initial US figures with a lower trade deficit at $42.9bn (fcst $-47.5bn after revised $-48bn), better Claims at 361k (fcst 370k after revised up 367k), but with Continuous Claims at 3332k above consensus of 3275k after revised higher prior 3279k.

With the US opening positive, European Risk got a leg up with the EUR back over the 23 handle, having traded down to 1.2290s. Inventories declined 0.2% against a +0.3% forecast after prior data got revised as well from +0.3% to flat.
US equities in slight positive territory qualify for European risk to go up 1% from today’s lows. Beautiful days…

Bunds at 1.45%. BKO through Friday levels at -0.06%, OBLs at 0.40%.
Spanish and Italian 2-10s flatter by 10 bp.
Estoxx back to early April levels, up 14% since end of June low and 8% from the post-ECB conference lows; Credit at the lowest since early May. Beautiful days…

With Brent still near $113 and a slightly weaker EUR, we’re now at EUR 91.75 per barrel (All-time high 94.15). Still need to hold on onto your shoes in the Middle East…

The New Issues summer drought was interestingly interrupted by two US issuers that hadn’t been seen for ages: Wells Fargo raised EUR 1.5bn 10 YRS at MS +85 (on a EUR 5bn book) and Procter & Gamble cleanly raised EUR 1bn 10s at MS +25 ( a mere 2.094%). The first hadn’t been seen in EUR since 2008, the second since 2007. Yes, feels like ancient times.
Otherwise, Soffin (Germany) guaranteed FMS, the DepFa defeasance structure, increased a 9 YRS deal by EUR 1.5bn at MS +17. German bid.

Closing levels:
10 YRS Yields: Germany 1,45% (+2); Finland 1,69% (+2); Luxembourg 1,70% (-2); Netherlands 1,74% (+1); Swaps 1,86% (-1); EU 1,97% (-3), Austria 2,06% (+1); France 2,11% (unch); EIB 2,17% (-1); EFSF 2,26% (-1); Belgium 2,50% (-2); Italy 5,84% (-3); Spain 6,82% (-2).

10 YRS Spreads: Finland 24bp (unch); Luxembourg 25bp (-4); Netherlands 29bp (-1); Swaps 41bp (-3); EU 52bp (-5); Austria 61bp (-1); France 66bp (-2); EIB 72bp (-3); EFSF 81bp (-3); Belgium 105bp (-4); Italy 439bp (-5); Spain 537bp (-4).

EUR swap curve 2-5 YRS 47bp (unch); 5-10 YRS 79bp (unch) 10-30 YRS 44bp (-1,0).
2 YRS German BKOs closed -0,060% (-1,1) and 5 YRS OBLs 0,40% (unch).

Main at 146 from 149 (2,0% tighter); Financials at 241 after 247 (2,4% tighter). SovX at 242 from 247. Cross at 576 from 578.
Stoxx Futures at 2435 / +0,2% (from 2431) with S&P minis at 1401 (+0,1% from 1399, at European close).
VIX index at 15,4 after 16,0 yesterday same time.

Oil 93,9/112,8 (WTI/Brent) from 94,2/112,9 (-0,3%/-0,1%). Gold at 1614 after 1614 (unch). Copper at 343 from 343 (unch). CRB at EU COB 306,0 from 304,0 (+0,7%).
Baltic Dry once more down 2.7% to 790 from 812.
As a reminder it fell pretty much straight down from a 2173 high in Oct to the 1800-900 area by the end of 2011, then straight down from 1930 to 647 by early Feb, recovered to 1165 early May, plunged back to 872 by early June, then rebounded to 1162 early July and has been correcting since – on a daily basis.

EUR 1,229 from 1,237
ECB deposits at EUR 278bn after EUR 317bn.

Greek bonds guesstimates: unchanged at 2023s at 24.25% and 2042s at 20.00%.

All levels COB 17:30 CET

Germany: Fri CPI fcst unch +1.7% YoY
France: Fri IP fcst -1.8% after -3.5% Manu P fcst -2.1% after -4.3%
Periphery: IT Fri CPI fcst unch +3.7% unch
US: Fri Imp / Exp prices

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

And Curiosity has just found out on Mars that what looked like a rock revealed itself as just being a rock…

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