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

Monday 3 September 2012

03 Sep 2012 – “ No Money Down " (Chuck Berry, 1957)

03 Sep 2012 – “ No Money Down " (Chuck Berry, 1957)

Wobbly start of the week on roughly unchanged levels. Initial low prints in equity futures on the back of negative Asian numbers, especially out of China (, which didn’t hinder a positive close there, for once). Chinese PMI figures, official and private, showed further contraction (HSBC PMI 47.6 after 49.3, Manu at 49.2 after 50.1), joining last week’s slower Japanese numbers – and probably today’s final European ones. Obviously an official print below 50 is tough for China.
Weekend final consensus of Bernanke’s comments a mix of no QE yet, but still QE sometime, if needed. This, in a nutshell, is just in line with the last weeks / months line of thought, which has upheld markets so far: Things don’t look good, but central bank money might fix it. Not having had to stand up to it for the moment, Ben and Mario’s strategy looks efficient. US equities closed positive, but off highs.
European equities opened positive, after pre-open negative trading, up a good 0.5%. Credit unchanged. Commodities unchanged with only Copper sticking out, up 1%. EGBs mainly in line with the Periphery a couple of bps better. Spain doing fine despite Bankia recap numbers and Rajoy’s assertion that funding was dire, this, then again, is just stating the obvious. Catalonia junked to by S&P, joining Moody’s June move. EUR 26bn of outstanding bonds, of which EUR 3bn due this year and next to EUR 7bn next year.
France 2 bp softer on weekend CIF bail-out needs, maybe as well on Belgian auction hedging. Belgium a tad weaker ahead of its auction.
ECB bond buying cliff hanger: options go out tomorrow to the NCBs to chew over for Thursday’s show-down – or not.

Final Manufacturing PMI round: Germany 44.7 (after 45.1 flash, prior 43), France 46 (after 46.2 flash, prior 43.4), Italy 43.6 (after prior 44.3), Spain better at 44 (after 42.3). Overall EZ 45.1 (from 45.3 flash and 44 in July), seventh month of contraction. Only Ireland prints above 50.
So, most flash estimates revised lower, but still bottoming out from July, but not wildly… Half full, half empty glass.
Will have final Services PMI on Wednesday, otherwise European data fodder will be scarce.

Belgium sold the targeted EUR 3.2bn with EUR 1.4bn 2019 at 2.004%, EUR 1.1bn 10s at 2.584% (from 2.624% in July) and EUR 700m 2041s at 3.445%. Record lows. B/C stable.
Otherwise bill assault with the Dutch selling EUR 1.6bn 3m sold at -0.063% (from -0.043% in August) and EUR 1.1bn 6m sold at -0.023% (from -0.021% previously) and France raising EUR 4bn 3m at -0.014%, EUR 1.6bn 6m at -0.008% and EUR 1.2bn 12m at +0.002%. Basically unchanged levels. 
Will have Austria selling EUR 1.2bn in 5s and 7s tomorrow, hardly a market-mover, next to 3 and 6m Belgian bills (last -0.012% in August and +0.002% in July), as well as EUR 875m Greek 6m (last 4.68% in Aug) and EUR 2bn EFSF 3m bills. So nothing earth shattering out there. 10 YRS Bunds on Wednesday. French OATs on Thursday.
Toss-a-coin Spanish EUR 3.5bn 2-4 YRS on Thursday morning will be the one to focus on.

Midday picture showing Bunds out by 1, other Hard Core tighter, Soft Core out by 3 and the Periphery a good 5 tighter, but off tightest levels. Good short end performance in Spain with 2s trading down 15 bp to 3.48%. Belgium softer by 5 in 10s on supply. Equities up 0.5%. Credit a tick tighter. Commodities a bit firmer. Nothing major.

With the US closed, the afternoon was expected to be rather uneventful, unless some news was to pop up to stir spirits. Yawn!

Leaves time to muse about what people can really expect from the ECB.
Rate cut? Nah! Why now, as all CPI figures ticked higher lately, and not later, when things might get awry?
A miracle on the bond buying side? Hardly possible. The game of chicken with the Periphery is still ongoing (“Ask first, you’ll get conditions then” against “Show us the conditions and we’ll have a thought about them and revert later – if needed.”) and will last until either Periphery Debt suddenly gets a fan base again or, most probable, markets get jittery again, because of the uncertainty, and dumps what is left.
A further LTRO? Wouldn’t help the Periphery. Local banks can’t load up anymore and finally the whole stuff ends at the ECB. If you spin this further, it IS already an indirect enough financing anyway.
“Believe me, it will be enough!” will request some massive outside-the-box thinking…

Andalucia has become the latest Spanish region asking for a EUR 1bn “advance” (next to Catalonia for EUR 5bn, Valencia for EUR 4.5bn and Murcia for EUR 300m), while waiting to see the conditions for further amounts.

As it happens, while equities remained in their own lofty world, the Periphery started to pare its morning gains, leading to a firmer Core EGBs. All that despite Schäuble signalling (in near undemocratic manner from a German constitutionalist’s point of view) that he was sure the ESM would not be ruled unconstitutional (from his personal point of view to keep the split of powers) Had likewise Merkel on the wires several times today, but nothing really new outside the usual pro-Europe / pro-debt reduction talks. Still, very spend thrift. As it happens, Van Rompuy announced a summit on EU finances for Nov 22 & 23.

Had finally leaks of a closed door Draghi meeting with euro-MPs that he was comfortable with 3 YRS bonds, which will certainly trigger some heated discussions, where money-markets and their transmission into the economy end. Might embolden some buying at the Spanish auction, but the immediate market reaction initially was muted, as most of the Periphery short end performance took place in the morning.
Still, eventually good for a bit of Risk On into the close, although rather dispersed with equities up and EGBs down, thus shaving a couple of bps of the Spanish spread to Bunds.

Bunds at 1.38% (+4). BKO at -0.040% (-0.5). OBLs at 0.36% (+2).
Spain at 6.84% (-2).  Spanish 2s 3.44% (-15).New Italy 5.85% (-9). Italian 2-10s 326 (from 318). Spanish 2-10s 340 (from 327). 
Equities firmer by 1%, Credit by 2%. Mostly end of day movement, following the Draghi leak.

Healthy New Issue supply with a German sub-Euribor Pfandbrief trade of EUR 500m Münch Hyp 5 YRS at MS -14 (seems pretty much record-breaking), EUR 500m 10s from HVB UniCredit at MS +22, some senior supply with EUR 900m 3.5 YRS from French BPCE at MS +120 and a EUR 250m increase for 7 YRS ING at MS +120. On the Public Sector front Land Niedersachsen raised a EUR 600m 8 YRS FRN at 3mE +5, while German GG FMS announced an upcoming long 7 YRS trade to be closed tomorrow.
Sugar Baby of the day was a EUR 850m 10 YRS at MS +15 from Nestlé (Aa2/AA). Won’t make anybody fat with a yield of a mere 1.86%...

Closing levels:
10 YRS Yields: Germany 1,38% (+4); Luxembourg 1,58% (+2); Swaps 1,75% (+3); Finland 1,67% (-6); Netherlands 1,77% (+6); EU 1,86% (+4), Austria 2,04% (+2); EIB 2,10% (+4); France 2,20% (+5); EFSF 2,38% (+5); Belgium 2,61% (+6); Italy 5,85% (-9); Spain 6,84% (-2).

10 YRS Spreads: Luxembourg 20bp (-2); Swaps 37bp (-1); Finland 29bp (-10); Netherlands 39bp (+2); EU 48bp (+0); Austria 66bp (-2); EIB 72bp (+0); France 82bp (+1); EFSF 100bp (+1); Belgium 123bp (+2); Italy 447bp (-13); Spain 546bp (-6).

EUR swap curve 2-5 YRS 46bp (+1,0); 5-10 YRS 78bp (+1,0) 10-30 YRS 48bp (+0,0).
2 YRS German BKOs closed -0,040% (-0,5) and 5 YRS OBLs 0,36% (+2).

Main at 145 from 149 (-2,7%); Financials at 240 after 248 (-3,2%). SovX at 231 from 233. Cross at 574 from 591.
Stoxx Futures at 2460 / +0,9% (from 2437) with S&P minis at 1408 (-0,1% from 1410, at European close).
VIX index at 17,5 after 17,0 yesterday same time.

Oil 96,7/115,5 (WTI/Brent) from 96,2/113,8 (+0,5%/+1,5%). Gold at 1693 after 1676 (+1,0%). Copper at 349 from 344 (+1,5%)
CRB at EU COB 310,0 from 308,0 (+0,6%).
Baltic Dry falling back below the 700-mark at 698 from 703, another 7.3% until hitting the 647 Feb low. Then again, given tanking Iron Ore and tanking Chinese exports, no wonder!

EUR 1,260 from 1,260

ECB deposits at EUR 346bn after EUR 330bn.
No SMP buying last week.

Greek bonds guesstimates: 2023s down to 22.75% from 23.25% from 23.50% and 2042s down to 18.75% at 19.25%, as Schäuble said that everything possible was done for Greece.

All levels COB 17:30 CET

This Week:
ECB on Thursday.
Spanish 2-4 YRS auction on Thursday, just hours before the ECB meeting, probably the most exciting govie auction of the week.

EZ: Wed Final Serv & Comp PMI Retail Sales  Fri Q2 GDP fcst -0.2% unch
Germany: Wed Final Serv PMI 48.3 Thu Jul Factory Orders fcst +0.8% MoM after -1.7%
France: Wed Final Serv PMI 50.2 Fri Q2 Unemployment 10%
Italy: Tue Final Serv PMI
Spain: Fri Retail Sales (-5.2% Jul)
US: Tue Final PMI; Manu ISM fcst 49.9 after 49.8 ISM PX 47.5 after 39.5%; Constr Spending +0.5% after +0.4% Tue Final Productivity & Unit Labour Costs; Wed ADP Employment fcst +130k after 163k Claims (372K) Non Manu ISM fcst 52.5 after 52.6

Click link on title or below for today’s musical support:
Not easy to find an inspiring title related to today… A bit of Master Berry can never harm, though.And the title is appropriate enough to fight the tight-fisted Northern front…

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