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 7 September 2012

07 Sep 2012 – “ It’s So Easy " (Guns ‘N Roses, 1987)

07 Sep 2012 – “ It’s So Easy " (Guns ‘N Roses, 1987)

Sailing in a sea of love and happiness Friday morning open. After yesterday’s explosive afternoon, the US followed the lead closing up 2% to hit the highest levels since 2008 (Nasdaq even on end 2000 levels). Not to be left alone, China announced a CHN 1trn infrastructure plan, which propelled the indices up 4% with many construction stocks stuck at +10% circuit-breaker levels. So all is good to close the week. Markets finally see the light at the end of the tunnel (, which could as well just be an oncoming train) and are waiting for today’s NFP numbers. Knowing that this number is subject to a two-edged interpretation: if too good, it might refrain the FED from triggering at too early QE. But in the current mood, if good, then good, if bad, then QE, so good. Easy.

Yep, a roaring start. Tentatively opening up 0.50%, European equities rapidly added an additional 1%. Risk On torsion in EGBs, led by ever tighter Periphery bonds (Italian 10s down 25, Spain 30 tighter, down to 5.15% and 5.70% respectively), dragging the Soft Core along, down 5bp. Periphery movement pretty even across the curve with the short end down 20bp, leading to some further flattening with both 2-10s now in the low 300.
Hard Core only mildly wider, which is surprising. German bonds 1 to 2 wider, across the curve.
EUR ripping higher. Commodities softer along the way (odd) with solely copper slightly up (thus not profiting from China input). On the Risk On stories, we have as well rumours that the SNB is looking to re-peg the CHF to 1.22, leading it to meet more than halfway over 1.212. Central Banks United have the upper hand these days. 
So don’t mess with them…
At least not this week…

Data front positive with German trade beating estimates with exports rising 0.5% MoM (fcst -0.5% after revised slightly better -1.4%) and imports up 0.9% (fcst -0.3% after -2.9%). One, not only the Bundesbank, would note that German Labour Q2 costs remain on the rise, up 2.5% from previous 1.8%.
Spanish Industrial output sinking further to -5.4% (fcst -5.2%), but unnoticed in the Periphery joy.
Had final pre-launch smoothy with German July IP up 1.3% (fcst was 0% after -0.9%n subsequently revised better to -0.5%). All is good.

No government auctions, but a flurry of (largely smaller) new issues. Santander drawing an instant response of EUR 4bn in orders for a 3.5 YRS deal initially touted at 400 over swaps, allowing a EUR 2.5bn transaction at +390. Has as well Italian toll-road operator Atlantia issuing EUR 750m Mar 2020 at +295.
Next week is rather light on EGB supply with mainly bills on the plate. Dutch 10 YRS on Tuesday. OBLs on Wednesday.  Will check the Italian 3YRS auction on Thursday to assess the Draghi put after one week

Midday levels still showing healthy risk appetite, albeit with equities 0.5% off highs.
Credit through the roof, though. Financials down 50bp on the week to hit end of March levels and now 20 over this year’s lows (180). Likewise for Main (12m low 110). Crossover on the 12m lows of 500 (crossed to the upside in Aug 2011).
German Bunds +2 to 4, depending on maturities.
Spanish 2s 2,76% (-11) and 10s 5,71% (-28).  Italian 10s 5,20% (-17). Spanish 2-10s 296bp (-16). Italian 2-10s 300bp (-12).
Stoxx Futures +1,3%. Main at 124 from 132 (6,1% tighter); Financials at 202 after 217 (6,9% tighter)
Oil 95,8/113,9 (WTI/Brent) (-1,3%/-0,6%). Gold 1695 (-0,6%). Copper 358 (+1,4%)
EUR 1,269, having touched 1.27 for the first time since end of May.

All US data at 14:30 CET close the week with a NFP print of only 96k (fcst 130k after 163k, revised lower to 141k), private payrolls below fcst, manufacturing actually diminishing. Add lower than foreseen hourly earnings and weekly hours. Only positive is an unemployment rate nevertheless falling to 8.1% (fcst unchanged 8.3%), but most probably due to enough people falling out of the stats to do so…
Sent equities tanking 0.50% and EUR up to 1.2750 in initial reaction. But then again, it’s the New Normal: Bad is good, as triggering QE. Call the Central Banks! 
Wait! Can you justify a further QE with stocks a 4-year highs and unemployment coming down (at least in the arcane statistical data…). So flattish US open after all.

Peeling lustre off the Risk On mood and taking Bunds down 6 basis points from their widest levels (1.61%). Gold up $30, as in, if everyone starts to debase…Copper getting traction.

EUR trailblazing to 1.28, as / despite equities getting softer…

Spanish deputy PM Saenz on the tapes: budget to be approve 27 Sep. “Possible” rescue to be discussed at the Ecofin. Will be checked with rigor.

Bunds closed at 1,52% (-5), down 10bp from today’s wides. OBLs at 0,44% (-3). BKOs 0,030% (-0,2).
Spanish 2s closed at 2,67% (-20) and 10 YRS BONOs at 5,61% (-38). 10 YRS Italy down to 5.15% (-22).
Spanish 2-10s 294bp (-18). Italian 2-10s 295bp (-17).
Equities still up 0.75% on the day, but closing off highs. Credit likewise off tightest prints, but huge outperformer.

Turning to those sovereigns probably running their abacus on OTM opportunities: Irish 5 to 10s down 20 to 25bp. Portugal down 40 to 50bp (Good call yesterday…) with 2, 5 and 10s now nearing the 4%, 6 and 8% mark.

Closing levels:
New Sep 2022 as German ref (Jul 2022 +3)
10 YRS Yields: Germany 1,52% (-5); Luxembourg 1,66% (-1); Finland 1,82% (-4); Swaps 1,83% (-1); Netherlands 1,85% (-5); EU 1,95% (-4), Austria 2,08% (-1); France 2,20% (-5); EIB 2,21% (-3); EFSF 2,48% (-3); Belgium 2,62% (-6); Italy 5,15% (-22); Spain 5,61% (-38).

10 YRS Spreads: Luxembourg 14bp (+4); Finland 30bp (+1); Swaps 31bp (+4); Netherlands 33bp (+0); EU 43bp (+1); Austria 56bp (+4); France 68bp (+0); EIB 69bp (+2); EFSF 96bp (+2); Belgium 110bp (-1); Italy 363bp (-17); Spain 409bp (-33).

EUR swap curve 2-5 YRS 50bp (-1,0); 5-10 YRS 81bp (+0,0) 10-30 YRS 55bp (+1,0).
2 YRS German BKOs closed 0,030% (-0,2) and 5 YRS OBLs 0,44% (-3).

Main at 126 from 132 (-4,5%); Financials at 204 after 217 (-6,0%). SovX at 189 from 210. Cross at 508 from 537.
Stoxx Futures at 2544 / +0,8% (from 2524) with S&P minis at 1434 (+0,5% from 1427, at European close).
VIX index at 14,8 after 16,2 yesterday same time.

Oil 95,6/113,6 (WTI/Brent) from 97,0/114,6 (-1,4%/-0,9%). Gold at 1735 after 1706 (+1,7%). Copper at 364 from 353 (+3,1%). CRB at EU COB 310,0 from 310,0 (+0,0%).
Baltic Dry down 0.9% to 669 from 675. Another 3.3% until hitting the Feb low at 647. 

EUR 1,279 from 1,263

ECB deposits at EUR 342bn after EUR 347bn.

Greek bonds guesstimates: Unchanged with 2023s at 21.50% and 2042s at 18.25%.

All levels COB 17:30 CET

On the week (compared to Fri 31 Aug COB):

The end of last week had initially an air of "Dust in the Wind" (Bunds 1,34% +2; Spain 6,86% +29; Stoxx 2437% +1,2%; EUR 1,26) as Bernanke didn’t deliver (immediately) on QE hopes, still things felt good for risk and eventually the market decided to take further central bank support for granted and closed on a positive note, ahead of the US Labor Day weekend, putting aside Spanish woes. Monday started with "No Money Down" (Bunds 1,38% +4; Spain 6,84% -2; Stoxx 2460% +0,9%; EUR 1,26), rather wobbly with Manu PMIs all around on the soft side. Still, as Mario stared to leak his plans and that buying up to 3 YRS was granted, Risk became more courageous. Tuesday had people "Shake Your Money Maker" (Bunds 1,39% +1; Spain 6,54% -30; Stoxx 2436% -1,0%; EUR 1,256) for further details. Wednesday remained thus choppy, with once more soft Serv PMIs and despite the OMT getting widely leaked, players felt like "(Shake, Shake, Shake) Shake Your Booty" (Bunds 1,48% +9; Spain 6,38% -16; Stoxx 2441% +0,2%; EUR 1,261) Eventually, the Bund auction was a disaster, too. Yesterday, finally, was the big day and Draghi deliver on some shock and awe. While most had been leaked before, markets went positively "Shock Me" (Bunds 1,57% +9; Spain 5,99% -39; Stoxx 2524% +3,4%; EUR 1,263). All is good!

Well, a hell of a positive week, we had. All is well, all is fixed. After having decided that the FED hadn’t ended support yet, it was the ECB’s turn to deliver and “Believe me, it will be enough” turned out initially good. Although one will have to admit that nothing has actually been done so far. But should it be needed, something could be done. Final picture of the week is some serious ROn. Bunds went softer by over 20 basis points on the old reference with the new 10 YRS benchmark off to a choppy start, having met a failed auction. Other Hard Core, swaps and associated agencies got trashed 10 to 15 bp, as well while the Soft Core fared okay-ish. Star Performers were obviously Periphery bonds with Spain leading with a 125 bp tightening.
Flight to security bonds lost their flair with 2 YRS BKOs trading again in positively territory.
The swap curve steepened quite substantially, while the Periphery curves, after a round of early bear steepening, flattened back to just under 300bp.
Needless to say that this was a field week for equities, up 4.5% on the week, but it is credit that reacted most fiercely to the new feeling of security with the Main tighter by 15%, as Financials ripped 18% tighter.
Commodities less sparkling or interesting. Note that Gold ventured past the 1700-mark for a while and ends the week positively. Copper the most impressive, although mostly in the run-up to the end of the week and not much inspired by the Chinese infra projects (yet). Iron Ore sinking. Baltic Dry sinking.
EUR positive, although far less than the week before, often choppy, but mostly tightly range-bound until the squeeze out of this afternoon following the NFP.

All is well. But where do we go from here??? As seen today things a running a bit out of steam…

10 YRS Yields: Germany 1,52% (+18); Luxembourg 1,66% (+10); Finland 1,82% (+9); Swaps 1,83% (+11); Netherlands 1,85% (+14); EU 1,95% (+13); Austria 2,08% (+6); France 2,20% (+5); EIB 2,21% (+15); EFSF 2,48% (+15); Belgium 2,62% (+7); Italy 5,15% (-79); Spain 5,61% (-125).
New Sep 2022 as German ref (Jul 2022 +3)

10 YRS Spreads: Luxembourg 14bp (-8); Finland 30bp (-9); Swaps 31bp (-7); Netherlands 33bp (-4); EU 43bp (-5);  Austria 56bp (-12); France 68bp (-13); EIB 69bp (-3); EFSF 96bp (-3); Belgium 110bp (-11); Italy 363bp (-97); Spain 409bp (-143).

EUR swap curve 2-5 YRS 50bp (+5,0); 5-10 YRS 81bp (+4,0) 10-30 YRS 55bp (+7,0).
2 YRS German BKOs closed 0,030% (+6) and 5 YRS OBLs 0,44% (+11), on the week.
Swiss 2-years trashed to -0.18% from  -0.48%. No need for security no more.

Main at 126 from 149 (-15,4%); Financials at 204 after 248 (-17,7%). SovX at 189 from 233. Cross at 508 from 591.
Stoxx Futures at 2544 / +4,4% from 2437 with S&P minis at 1434 / +1,7% from 1410, at European COB last week.
VIX index at 14,8 after 17,0 last week.

Oil 95,6/113,6 (WTI/Brent) from 96,2/113,8 (-0,6%/-0,2%). Gold at 1735 after 1676 (+3,5%). Copper at 364 from 344 (+5,8%) . CRB closes 310,0 from 308,0 (+0,6%).
Baltic Dry down 4.8% to 669 from 703 on its relentless slide towards February’s century low of 647.. Just another 3.3%.

EUR 1,279 after 1,260 last Friday

Greek bonds guesstimates: Another good week with 2023s down to 21.5% from 23.25% and 2042s at 18.25% from 19.25%

All levels Friday COB 17:30 CET

Next Week:
Pretty much a minor macro week. Raft of Chinese data on Sunday. End of week brisker in the US, but subordinated to the FED decision and possible announcements on Thu 13 Sep (Yes, Thursday).
No exciting auctions. Will check the Italian 3YRS auction on Thursday to assess the Draghi put after one week.

EZ: Mon Investor Conf Sep fcst -28.3 after -30.3; Wed Jul IP fcst -3.4% after -2.1%; Fri EZ Aug CPI fcst +2.6% after +2.4%
Germany: Mon Wholesale PX; Wed final CPI 2.2%
France: Aug Biz Sentiment prior 90 (Jul), IP fcst -0.6% Mom after flat / -2.3 YoY, Man Prod prior -2.6%; final CPI +2.3%
Italy: Mon final Q2 GDP -2.5% YoY; Wed IP fcst -0.5% Mom after -1.4% / -7.6% YoY after -8.2%, Thu final CPI +3.5%, Gov Debt
Spain: Tue Aug House transactions prior -11.4%; Wed final CPI +2.7%; Fri Q2 House prices prior -12.6% YoY
US: Mon cons credits; Tue Trade Balance; Wed Imp Prices, Jul Inventories  fcst +0.3% after -0.2%; Thu PPI fcst +1.7% after +0.5% YoY; Claims fcst +370k after 365k; Fri Aug CPI fcst +1.6% after +1.4%, Retail Sales fcst +0.6% after +0.8%; IP +0.2% after +0.6%, Mich Conf 74 after 74.3
China: Sun CPI fcst +2% YoY after 1.8%, PPI fcst -3.2% YoY after -2.9; IP fcst +9% YoY after +9.2%, Retail sales fcst +13.2% YoY after 13.1%; Mon Trade balance

Click link on title or below for today’s musical support:
Easy? Hum. Maybe not. Need to confirm…

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