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 14 August 2012

14 Aug 2012 – “ Not Fade Away " (The Rolling Stones, 1964)

14 Aug 2012 – “ Not Fade Away " (The Rolling Stones, 1964)

A rather positive start of the European session on first data sets showing German and French Q2 GDP faring a tick better than expected. German GDP slowed to 0.3% (instead of the 0.2% forecast) and France slithered past negative growth and managed to maintain itself at flat (forecasts had been -0.1 to -0.2%) for a third consecutive quarter. Need to have a pinch of salt here, as the INSEE already states that there has been quite an accumulation in stocks given generally weak expectations. So frontloading Q3. 
No exactly fireworks, but anything that isn’t totally bad these days is good to have. LCH margin hike on Italian and Spanish bonds taken with a shrug.

Equities up 0.75% plus, credit 2-3 tighter. EGBs across the curve 2-4 wider. Curves unchanged. Commodities flat to better with Brent once more past the $114 mark. EUR 1.238. Asia in ok +0.5% close already integrating German and French numbers (would otherwise have been slightly negative to flat). US close flattish negative, but with the S&P managing to still cling to 1400.
Hmm… And now?
Had the German Constitutional Court deny yesterday’s delay rumour, as we had already expected yesterday. Not that the news changed much, though. Market in holiday plus wait-and-see mode.

Eventually most Core countries managed to skip recession / negative GDP (even the Netherlands at +0.2%, but Finland at -1%) , but overall EZ GDP couldn’t print beyond forecasts and came out at as expected at -0.2% QoQ (after flat). European IP a tick better at -0.6% MoM (fcst -0.7% after May was revised up to +0.9% from +0.6%).
European ZEW, too, seemed to bottom out at -21.2 (after -22.3), knowing that its German peer didn’t look too good at 18.2 (fcst 18 after 21.1) for the current sentiment, but especially bleak on economic sentiment diving to -25.5 (fcst -19.3 after -19.6).
Not much reaction to all this. Cons and Pros seem to balance out. Stand-still thereafter. Basically everything set at the opening bell.

The Greek 3m bill auction fared well with eventually slightly over EUR 4bn sold (versus targeted EUR 3.125bn) at 4.43% (after 4.28% last month). Feels like the Greek Treasury didn’t hesitate to fill overbidding, as total bids were for EUR 4.248m. Not sure, whether that was wholly intended by the bidders… But there you go. Non-competitive bids are allowed for 30% of the amount until Friday. We’ll see if they’re lifted.
Belgium closed the supply for this week with EUR 1.15bn 3m sold at -0.012% (-0.003% end of July) and EUR 1.6bn 12m sold at 0.093% (0.04% in July).
Not much else, again. Spanish banks borrowing at the ECB rising by over 10% to a new record EUR 402bn in July (compared to Italian banks at 283bn from EUR 281bn in June). Portuguese Q2 unemployment at new record 15% with Q2 GDP dipping 1.2% QoQ (fcst -0.7%).

Midday levels show Hard Core EGBs still trading  2-3 bp softer than COB, Soft Core a tick or two firmer and the Periphery 4-5 better, although only in 10s with Spanish 2s wider by 10 bp again and now back to 4.20%.
Equities back a little from their highs, as Credit, EUR or commodities ahead of the US open and US data.

Having traded roughly 5% around the ECB conference on 02 Aug, and down from a 7% high print on 25 July, Spanish 2s traded down into 2 steps first to 4% on Friday after the ECB and then down another 60 bp to about 3.40% on Monday thereafter. 2-10s flattened from low 200s early July down to a 75 bp low, before shooting to 330, so we are now pretty steadily flattening back to Square 1 (Average since 2010 is roughly 200 anyway…Former low in the 60s was in November 2011. YTD average 230). To keep it short: Draghi’s effect is fading away…
In the meantime, Rajoy repeated that he wouldn’t ask for support before ECB buying details are fleshed out. Knowing that details can in reality only be fleshed out once someone, namely Spain, asks for help, as most solutions will need to be bespoke, we’re not exactly advancing. It’s not like the ECB was working on a new type of liquidity line, open to all, that could be drawn at will like an ATM. I had the impression there was some urgency.
And it’s not like the ECB reeeeaaaally craves to buy these bonds. Surprising complacency.

US Small Biz optimism under forecast at 91.2 (fcst 91.6 after 91.4), a 9m low.
 PPI 0.5% YoY (fcst +0.5% after +0.7%), profiting from then lower energy prices. Ex-food / energy sticky at +2.5% after 2.6%. Retail Sales higher at 0.8% (fcst +0.3% after -0.5%, revised lower to -0.7%). Revision even stronger on less Autos basis (+0.8% versus fcst +0.4% after -0.4% revised -0.8%).  Finally, US Biz inventories rose only 0.1% (fcst unch +0.3%).
Good news, but then not so good news?! So, no QE, after all? But good for an initial quick jolt in Risk and sending Bunds crashing down, as well as the EUR lower.
EGBs now twisting around stable Austria and France with the Hard Core sold off up to 6 and the Periphery down 6 for Italy to low 5.80s and over 10 for Spain to 6.70%, regardless of Rajoy’s non-comments. Spain-Bunds spread nearly tightening 20bp on a no news day. Beats me.
Might be (yet another) Handelsblatt article doing rounds about the possible snap elections, in case Merkel doesn’t gets her way with regards to German EUR / EZ support.

Had Germany’s EcoMin Roesler on the tapes late afternoon, opposing debt union out of Helsinki (Knights Who Say Ni).

Bunds at 1.47% (+7). BKO at -0.038% (+1.4). OBLs at 0.42% (+5).
Spain firmed up in the lows 6.70s (6.71%, 10 tighter), but the curve again flatter.

New Issues summer break interrupted by Unicredit launching an OBG (Italian covered bond) with EUR 750m long 5 YRS issued at MS +290, that is about 100 bp through Italy. The first public issue of such OBG since the same issuer brought a 10 YRS OBG in Aug last year at MS +215. Rating A2/AA+/A (versus Baa2/BBB+/A- for Italy). French BFCM even lining up a 10 YRS senior benchmark deal at MS +150 area.

Will skip tomorrow’s report, as most of Europe will be shut.

Closing levels:
10 YRS Yields: Germany 1,47% (+7); Luxembourg 1,69% (+4); Finland 1,73% (+8); Netherlands 1,77% (+7); Swaps 1,87% (+6); EU 1,95% (+5), Austria 2,05% (unch); France 2,10% (+1); EIB 2,16% (+5); EFSF 2,23% (+5); Belgium 2,57% (+1); Italy 5,83% (-5); Spain 6,71% (-10).

10 YRS Spreads: Luxembourg 22bp (-3); Finland 26bp (+1); Netherlands 30bp (unch); Swaps 40bp (-1); EU 48bp (-2); Austria 58bp (-7); France 63bp (-6); EIB 69bp (-2); EFSF 76bp (-2); Belgium 110bp (-6); Italy 436bp (-12); Spain 524bp (-17).

EUR swap curve 2-5 YRS 48bp (+4,0); 5-10 YRS 79bp (+1,0) 10-30 YRS 46bp (unch).
2 YRS German BKOs closed -0,038% (+1,4) and 5 YRS OBLs 0,42% (+5).

Main at 145 from 149 (2,7% tighter); Financials at 241 after 247 (2,4% tighter). SovX at 242 from 248. Cross at 574 from 591.
Stoxx Futures at 2431 / +0,7% (from 2414) with S&P minis at 1404 (+0,6% from 1395, at European close).
VIX index at 14,3 after 14,4 yesterday same time. Sad Old VIX…Approaching its Mar 2012 5-year lows…

Oil 93,4/113,5 (WTI/Brent) from 92,2/113,3 (+1,3%/+0,2%). Gold at 1601 after 1617 (-1,0%). Copper at 336 from 334 (+0,6%). CRB at EU COB 300,0 from 299,0 (+0,3%).
Baltic Dry down a further 1.8% to 750 from 764. Multi-year low at 647 (an inversion of today’s numbers) just 13.7 away%. Next week’s business, probably. The BDI does remain a very basic coalmine canary…and obviously there aren’t that many goods and ore to ship these days.

EUR 1,232 from 1,234

ECB deposits at EUR 326bn after EUR 311bn.

Greek bonds guesstimates: totally static at 2023s at 24.25% and 2042s at 20.00%

All levels COB 17:30 CET

Rest of Week:
Assumption Day tomorrow will shut most of Europe (Austria, Belgium, France, Italy, Lux, Portugal, Spain) leaving mostly Germany and Italy to play ball.
Market movements subject to US numbers and European rumours.

Germany: Fri PPI fcst +1.1% YoY after +1.6%
France: done for the week
EZ: Thu CPI fcst 1.9% after 1.6%
Periphery: done for the week
US: Wed CPI YoY fcst +0.2% after flat; Empire Manu, IP fcst +0.5% after +0.4%, Capacity fcst 79.2% after 78.9%; Thu Claims fcst 365k after 361k, Housing Starts fcst 757k after 760k & Building permits 768k after revised 760k, Philly Fed fcst -5 after -12.9; Fri Michigan Conf fcst 72.3 after 72.3 & Leading Indicators fcst +0.2% after -0.3%.

Click link on title or below for today’s musical support:
They will never fade away!

Before long years of tribulations…
And after…
Impressive that Mick Jagger still has the same hair style…

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