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 13 September 2012

13 Sep 2012 – “ Sing, Sing, Sing " (Benny Goodman, 1937)

13 Sep 2012 – “ Sing, Sing, Sing " (Benny Goodman, 1937)

One of the real questions of modern days’ Western economics is not about solving the EZ crisis, a Spanish bail-out or whether we’ll get Q3 tonight or just skip to QE4v.2 in 2 months. The real question is whether a product launch like the iPhone 5 shouldn’t be declared as national priority. Indeed, if the world’s largest economy counts on a smart phone, as nice at it may be, to add 0.5% to the GDP, then this product and associated fruit shop might need to be declared of systemic importance, if not even TBTF (too big to fail). And obviously the intrinsic value of such a product of such importance is grossly underestimated. This ought to be eligible as collateral, as barter unit, as safe haven product. But that’s just a passing thought…
Flattish plus US close, as Apple did not disappoint on its newest product, but nothing spectacular, as the latest version still doesn’t do your errands or cleans the kitchen, and ahead of today’s FED announcements. Asia more on the flattish minus side with China on a softer patch, searching for its next leader (launch as pre-leaked as the newest iPhone).

The Dutch reconducted PM Rutte, which in itself wasn’t won in advance and is a first in the last couple of years, as most incumbent leaders in Europe have been shoved aside. Note that finalizing coalition governments in the Netherlands tends to be a rather lengthy process. The incumbent government was brought down on austerity haggles to hit deficit targets. So this is better than a plain Eurosceptic vote, but the Netherlands will certainly remain a rather tight-fisted EU partner going forward.
No real macro data for fundamental leads.
Softer European kick-off with equities down some 0.25%. EGBs recovering a basis point or two up the Periphery, which in turn is roughly some 5 bp softer, across the curve. Credit giving back some of yesterday’s tightening with Financials visually back over the 200-mark. Commodities a touch softer. EUR still lofty on the 29-handle.

OMT? Tick. Karlsruhe? Tick. ESM / EFSF com OMT up and running. Soon. Tick.
QE3? Ok, maybe tonight. Half tick.
What’s next? Banking Union? Pfff… Months away. Fundamental good macro news? Probably not tick. Spain situation? Waiting. The Catalan situation has obviously potential to develop into an irksome play within the play, as it increasingly pitches for independence, EUR exit et al. Italy? Below the radar. Waiting for Spain. Greece? Uh… Before lunch… procrastinating to early October. After lunch…

The Italian auction raised the targeted EUR 4bn at 2.75%, slightly discounted from morning levels, but tighter than yesterday’s 2.79% close. Obviously, borrowing costs are down from the 4.65% paid in July. These bonds were closing 3.08% one week ago, 3.75% 2 weeks ago and spiked past 5.60% end of July.
Additional EUR 1bn were sold in 5 YRS at 3.71% (from COB 3.77% and 4.73% in Aug) and EUR 1.5bn in 2026s at 5.32% (from COB 5.35%). Bid to cover ratios ranging from 1.5 to 1.9 just so so.
Ireland auctioning EUR 500m 3m bills at 0.70% for a second time since Sep 2010. Levels down 110 bp from early July’s 1.80%. Flat to yesterday’s Italian bills. 5 YRS Ireland about 3.95%, so BTP +20s and 2025s at 5.65, so BTPs +30s. Ba1/BBB+/BBB+ against Italy’s Baa2/A-/BBB+. There’s definitively a life after a bail-out.
A real candidate for OMT support.
Spain announced a EUR 3bn Jan 2016 FRN private placement to be launched on 21 Sep (announced as already fully underwritten) to fill the gap of its Regional Liquidity Fund FLA (so EUR 6bn PP, EUR 8bn via loans with Spanish banks – backed by BONOs, EUR 6bn from the Spanish lottery – funded in loans, too, if I remember well, as well as the probably missing EUR 1bn in 2015, 2016 and 2017 bonds). Spanish Q2 regional budgets to be published after COB.

Out of Steam midday picture. Equities down about 0.75%. Credit out 1-2 ticks. EGB Risk Off credit torsion unwinding some of yesterday’s Bund decompression. 
Bunds 1,58% (-4); OBLs 0,61% (-3); BKOs 0,058% (-1,8). EUR swap curve flatter on long end outperformance.
Spanish 2s 2,84% (+9); 10 YRS BONOs 5,65% (+5). Italian 2s 10 wider to 2.26%.  and 10s 3 wider to 5.11%. Spanish 2-10s 281bp (-4). Italian 2-10s 285bp (-7).
Softer Periphery, caught between a heavy Italian auction (2.85% +10, 3.82% +11 and 5.37% +5) and Catalan separatist calls.
Commodities unchanged. EUR unchanged, not reacting to negative deposit rate discussions. Not fiercely reacting either to the SNB sticking to the 1.20 level (A 1.22 peg rumoured last week saw a move from 1.20 up to 1.216).

Greek Q2 unemployment at record 23.6% (from 22.6 in Q1 and 16.3% in Q2/2011). Youth unemployment (16-24) at 53.9%.

US data to kick-start the afternoon:  PPI +2% higher fcst +1.7% after +0.5% YoY, ex food & energy stable at 2.5%; Claims missing expectations at +382k (fcst +370k after 365k, revised up +2k); Continuous clams better at 3283k (fcst 3318k after 3322%, revised up by 10k).
Bit of weight on Risk. Ok, one more reason for QE, but QE doesn’t create jobs.

Afternoon titbits: WSJ article citing the IMF that Greece wouldn’t make it and was in need for a 3rd bail out. Sending markets spinning into (limited) ROff. Quite limited ROff. Of course, denied by the Greek government.
Limited fall out, though…
Waiting for the Fed to Sing, Sing, Sing.

Bunds closed at 1,56% (-6), OBLs at 0,60% (-5) and BKOs 0,061% (-1,5).
Spanish 2s closed at 2,87% (+12) and 10 YRS BONOs at 5,60% (unch). Italian 2s up 9 to 2.25%. 
Spanish 2-10s 273bp (-12). Italian 2-10s 282bp (-10).
Limited 1% drop in equities. Some correction in Credit.
EUR unchanged, commodities mainly unchanged as well. Some upside pressure on Oil on Middle-East tensions.
Waiting for the Fed to Sing, Sing, Sing.

Primary Markets reopening for some more Periphery corporates and covered bonds with Intesa San Paolo EUR 1bn 7 YRS OBG at MS +245 (some 50 through Italy), Telecom Italia EUR 1bn 5 YRS at MS +355, Repsol EUR 750m long 5 YRS at MS +335 (Spain curve -25), next to MAN issuing EUR 500m 3 YRS at MS +45 and Reed Elsevier with EUR 550m 8 YRS at MS +95.

Closing levels:
10 YRS Yields: Germany 1,56% (-6); Luxembourg 1,66% (-6); Netherlands 1,81% (-7); Finland 1,81% (-7); Swaps 1,83% (-6); EU 1,96% (-6), Austria 2,07% (-3); France 2,17% (-3); EIB 2,21% (-7); EFSF 2,43% (-9); Belgium 2,54% (-2); Italy 5,07% (-1); Spain 5,60% (unch).

10 YRS Spreads: Luxembourg 10bp (unch); Netherlands 25bp (-1); Finland 25bp (-1); Swaps 27bp (unch); EU 40bp (unch); Austria 51bp (+3); France 61bp (+3); EIB 65bp (-1); EFSF 87bp (-3); Belgium 98bp (+4); Italy 351bp (+5); Spain 404bp (+6).

EUR swap curve 2-5 YRS 51bp (-1,0); 5-10 YRS 81bp (-2,0) 10-30 YRS 58bp (-1,0).
2 YRS German BKOs closed 0,061% (-1,5) and 5 YRS OBLs 0,60% (-5).

Main at 127 from 125 (1,6% wider); Financials at 203 after 199 (2,0% wider). SovX at 182 from 182. Cross at 496 from 491.
Stoxx Futures at 2545 / -0,9% (from 2567) with S&P minis at 1432 (-0,3% from 1437, at European close).
VIX index at 15,7 after 16,2 yesterday same time.

Oil 98,2/116,8 (WTI/Brent) from 97,3/116,0 (+1,0%/+0,6%). Gold at 1733 after 1733 (unch). Copper at 371 from 371 (unch). CRB at EU COB 316,0 from 315,0 (+0,3%).
Baltic Dry UP 2 ticks to 663! First rise since the beginning of September (at 724). Feb low at 647 2.4% away.

EUR 1,291 from 1,290

Greek bonds guesstimates: 2023s stable at 20.50% and 2042s softer, back to 18.25% from 17.50%. Limited fall-out

All levels COB 17:30 CET

EZ: EZ Aug CPI fcst +2.6% after +2.4%
Spain: Q2 House prices prior -12.6% YoY
US: 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

Click link on title or below for today’s musical support:
Actually some 3s & 40s tunes were pretty explosive. Old day hard rock, so to speak… And Gene Krupa was a wild drummer.

Or this other outstanding classic !

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