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, 14 September 2012

14 Sep 2012 – “ Why Does My Heart Feel So Bad " (Moby, 1999)

14 Sep 2012 – “ Why Does My Heart Feel So Bad " (Moby, 1999)

Ok, so now everyone has delivered. Ben is good for USD 40bn per month in MBS while still twisting. Might have POBC add its pebble, but by and large the floor is now back to the economy. This in turn will mean that, having paid up bad news all along the summer as certain indicators for further intervention, this strategy ought to come to an end now. Starting today, bad news will again be bad news. This sounds kind of normal. So to get the ball rolling, we will need good news from now on and every NFP release will now be the one thing to watch.
Unsurprising 1.5% surge in US equities yesterday evening in reaction to QE3, giving a nod to potentially open-ended buying. Then again the S&P had already risen 14% from the 01 Jun low to yesterday. An additional 1.5% seems fair. But, the, what’s next? Initial 10 bp sell-off in 10 YRS UST to 1.82% (as not –yet – on the buying menu), which eventually was reversed, given Ben’s gloomy statements, closing back on the day’s lows, just before the announcement, of 1.72%.Ok, QE3v2 or QE4 option remains to buy USTs. Some overnight weakness in USTs again to 1.76%, as Asian risk in majority hailed QE with some 1.75-2.5% rises (Mainland China aside, still searching for its leader in spe). Gold up 2.5%, Copper even 3% (more a surprise).

Initial explosive ROn start in Europe, unsurprisingly, with equities shooting up 2%, nearing Mar 2012 highs (2608 in EStoxx, broken lower in Aug 2011) and Bunds sold off 7bp. Initial ROff credit torsion (on first quotes Bunds +7, Spain -5, Italy hitting 5% in 10s), Credit 5.5% to 7% tighter, before correcting on the wings within 30 minutes with equities giving back 0.25% and both Bunds and Spain paring some of respective losses or gains.

Some rumours of backstage negotiations on Spain, but any such rumour is an easy one to pull out these days. Will need to see what the EZ FM meeting ending tomorrow will yield. Sees there’s a Franco-German tug of war on whether or not Spain ought to seek support. Of course, everyone’s happy Europe has taken a big step forward (essentially Mario, as it is), everyone will repeat the ECB is totally independent and that market players are simply stupid not to understand that everything is fine out there.
Talking of Spain Q2 debt to GDP has risen 3% to 75.9% with the regional debt to GDP up to 14.2% from 13.8% in Q1 (12.8% in Q2/2011) with Catalonia leading the pack with 22% (EUR 44bn, up 10% from a year earlier), 29% of the total regional debt.. Total regional debt now stands at over EUR150bn. Spanish Aug ECB bank borrowing rose to 389bn from 376bn. Spanish Q2 house prices down a record 14.4% YoY.
Had actually Italian July debt figures published yesterday showing that Italian local debt had diminished 2% YoY. Break-down of the (historical second highest number after June) EUR 1.968bn (down EUR 4bn from June) in terms of maturity unsurprisingly confirms a funding shift to the short end with debt up to 1 YR up to EUR 525bn from EUR 501bn a year ago, 1-5 YRS at EUR 574bn from EUR 533bn and over 5 YRS down to EUR 869bn from EUR 877bn. Funding mix is now 26.7% up to 1 year, 29.2% in 1-5 YRS and 44.2% in longer than 5s (from a year ago 26.2%, 27.9% and 45.9%). Amounts due within 5 YRS hence now EUR 1.098bn from EUR 1.034bn, 85% of that in government bills and bonds due out to 2017 EUR 937bn. EUR 148bn still to redeem in 2012, EUR 250bn in 2013, EUR 160bn in 2014 and EUR 165bn in 2015. 57% of total bonds and bills. Spain in comparison has EUR 487bn due until 2017 included (2012 EUR 554bn, 2013 EUR 127bn, 2014 EUR 90bn, 2015 EUR 71bn, 2016 EUR 71bn, 2017 EUR 72bn. 66% of total bonds and bills).  OMG! OMT fodder?
Germany up to 5 YRS vs. total 60.1%. France 57.5%.

ECB Spanish negotiations rumours denied by the ECB. Not huge impact, but good for light equity push to the opening highs and for the EUR to hit again1.305.
EUR 2010 – 2012 levels: 1.188 low – 1.260 – 1.305 – 1.341 mid – 1.377 – 1.422 – 1.494 high. Moving averages 50d 1.242 100 1.254 200 1.283

Midday levels still showing some ROn, as well as Hard and even Core decompression (+7 to 12 for Bunds). All spreads to Germany tighter. Equities in post-QE euphoria, but outshined by Credit.
Bunds 1,68% (+12), OBLs 0,69% (+9) ;BKOs 0,096% (+3,6).
Spanish 2s heavy at 2,90% (+3) and 10 YRS BONOs static at 5,60% (+0). Italian 2s 2.20% (-5) and 10s 5.01% (-6) faring well.
Steeper EUR swap curve with 2-5 YRS 53bp (+2,0); 5-10 YRS 83bp (+2,0) and flat 10-30 YRS 58bp (+0,0).
Credit risk diving well beyond Equities with Main at 118 from 127 (-7,1%); Financials at 186 after 203 (-8,4%). SovX at 172 from 182. Cross down 40 points (8%) at 456 from 496.
Stoxx Futures at 2596 / +2,0% (from 2545) with S&P minis at 1458 (+1,8% from 1432, at European close, before QE3).
Commodities strong on weaker USD, QE and ME tensions: Oil 100,1/117,7 (+2,0%/+0,8%). Gold 1775 (+2,4%). Copper 384 (+3,5%). EUR 1,311 from 1,291, off 1.315 lows.
UST back up to 1.82%, yesterday’s high, on European trading and Bund sell-off.

Getting afternoon chatter out Cyprus’ FM / CB meetings on positive climate, softer stance towards Greece. Of course, no one pushed Spain to a bail-out, which it is the sole to decide. Banking Union not a done thing, though, with Germany blocking. Portugal on track and everyone’s darling.
Positive mood spin to keep the spirits going, but nothing neither concrete nor new.

US data showing CPI in line with expectations, up 0.6% MoM, 1.7% YoY. Retail Sales probably rather on the soft side with +0.9% a tick over forecast, but with prior data revised down 2 ticks to +0.6%. Sales ex cars and gas only rising 0.1% (fcst 0.4% after +0.9% revised +0.8%).

US Industrial Production quite a miss at -01.2% (fcst +0% after +0.6% revised +0.5%). Manu Production likewise a miss at -0.7% (fcst -0.3% after +0.5% revised 0.4%). Ok, no impact. As QE has actually started yet, we’ll turn a blind eye on that number, but behave in the future, right? At some point, bad numbers will just be bad numbers. Whatever Mich Sentiment was a roaring 79 (fcst 74 after 74.3). Biz Inventories eventually up 0.8% (fcst +0.4% after +0.1%). All is good.

Afternoon rumours of Spanish downgrade doing rounds, accelerating weakness on the short end (+20 past 3%) and pushing out 10s over 5.70%. Economy Minister talking about EUR 60bn needs for the bank bailout, in line with figures given during the summer.
Belgium faces a EU fine of EUR 700m for trying to postpone further austerity measures after local elections mid-Oct. Ah, austerity…

Bunds closed at 1,70% (+14), OBLs at 0,71% (+11) and BKOs 0,101% (+4,1).
Spanish 2s closed at 3,07% (+20) and 10 YRS BONOs at 5,76% (+16). Italian 2s managed to close tighter at 2.23% (-2) after dropping earlier. Likewise for 10s closing unchanged at 5.07%. Spanish 2-10s 269bp (-4). Italian 2-10s 284bp (+2).

10 YRS Bunds closing well past the sort of double top, as well as YTD average AND 50% HiLo retracement, we had around 1.60% and back to end of Apr 2012 levels. Retracements at 1.71% and 1.85%. High was 2.07% end of March.
Risk closing off highs on renewed EUR malaise.
UST now at 1.86%

Given how many unconventional means have been deployed over the last weeks, I wouldn’t exclude some form of stimulus postpartum depression… With nothing in immediate sight, it’d better hold. Why does my heart feel so bad?

Primary Markets in EUR saw a single, however symbolic transaction, with (non-IG) Energias do Portugal (EDP) being the first Portuguese corporate issuer hitting the screens since Jan 2011 with EUR 750m 5 YRS around MS +478, about 25bp through the Portuguese state.
This closes a MASSIVE EUR supply week with EUR 36 benchmark transactions launched for roughly EUR 25bn, of which over half the amount of roughly EUR 13bn was for Periphery borrowers (7 Italians for EUR 6.75bn, 7 Spanish for EUR 5.4bn and today’s EDP deal to round it off).

Closing levels:
10 YRS Yields: Germany 1,70% (+14); Luxembourg 1,76% (+10); Netherlands 1,94% (+13); Finland 1,94% (+13); Swaps 1,94% (+11); EU 2,06% (+10), Austria 2,15% (+8); France 2,25% (+8); EIB 2,31% (+10); EFSF 2,51% (+8); Belgium 2,61% (+7); Italy 5,07% (unch); Spain 5,76% (+16).

10 YRS Spreads: Luxembourg 6bp (-4); Netherlands 24bp (-1); Finland 24bp (-1); Swaps 24bp (-3); EU 36bp (-4); Austria 45bp (-6); France 55bp (-6); EIB 61bp (-4); EFSF 81bp (-6); Belgium 91bp (-7); Italy 337bp (-14); Spain 406bp (+2).

EUR swap curve 2-5 YRS 56bp (+5,0); 5-10 YRS 84bp (+3,0) 10-30 YRS 58bp (unch).
2 YRS German BKOs closed 0,101% (+4,1) and 5 YRS OBLs 0,71% (+11).

Main at 118 from 127 (7,1% tighter); Financials at 185 after 203 (8,9% tighter). SovX at 172 from 182. Cross at 460 from 496.
Stoxx Futures at 2592 / +1,8% (from 2545) with S&P minis at 1461 (+2,0% from 1432, at European close, before QE).
VIX index at 14,3 after 15,7 yesterday same time, traded below 14 before rebounding.

Oil 99,5/117,1 (WTI/Brent) from 98,2/116,8 (+1,3%/+0,2%). Gold at 1774 after 1733 (+2,3%). Copper at 384 from 371 (+3,5%). CRB at EU COB 320,0 from 316,0 (+1,3%).
Baltic Dry down 1 tick to 662, after yesterday’s lone 2 tick rise…2.3% to the 647 low.

Greek bonds guesstimates: All stable with 2023s at 20.50% and 2042s 18.25%.

EUR 1,315 from 1,291

All levels COB 17:30 CET

On the week (compared to Fri 07 Sep COB):

The follow-up to last Thursday’s rally lasted into the end of the week. "It's So Easy" (Bunds 1,52% -5; Spain 5,61% -38; Stoxx 2544% +0,8%; EUR 1,279) seemed to be on Central Bankers’ mind. The mood peaked then, but what a way to end the week. Promises yield results before application. Monday we got played "The Number of the Beast" (Bunds 1,55% +3; Spain 5,67% +6; Stoxx 2531% -0,5%; EUR 1,28), as the Baltic Dry slid to a beastly combination. Outside this, the most notable feat was a New Issue bonanza of over EUR 14bn, with over half for cash-deprived peripheral borrowers. Risk appetite started to wane nevertheless, as almost all stimuli hopes have been about fulfilled, but macro figures are dire. Tuesday felt grey in Europe, hadn’t it been for the last of trading things were mostly unchanged and ended with Moody’s comments on the US pushing the EUR higher, in turn pulling stocks. "Here Comes The Rain Again" (Bunds 1,54% -1; Spain 5,66% -1; Stoxx 2560% +1,1%; EUR 1,287) Among all boxes to check, there still was the German Constitutional Court’s decision on the ESM. That was done on Wednesday, allowing Europe in theory to go "Yes Sir, I Can Boogie" (Bunds 1,62% +8; Spain 5,6% -6; Stoxx 2567% +0,3%; EUR 1,29). Ok, connect that iPhone 5 into the speakers! Still, long awaited, as the iPhone 5, already discounted the surprise effect was contained. Thursday was Ben’s days, like Wednesday had been the GCC day, as last Thursday had been the OMT day. Everyone was waiting for him to "Sing, Sing, Sing" (Bunds 1,56% -6; Spain 5,6% +0; Stoxx 2545% -0,9%; EUR 1,291), expecting he would deliver what was expected. In the meantime, the lofty Risk levels were hard to hold. And he sung well!

Well, that was another hell of a positive week. Or at least in parts. Following the OMT decompression of last week (Bunds +18 to 1.52%, Spain down 125 to 5.61% and Italy down 79 to 5.15%) and associated Risk On (Equities +4.4%, Main 15% tighter, Financials 18%), things went a bit sideways, even with the Karlsruhe ESM sign-off in pocket, for most of the week. Yesterday’s QE re-lit flight OUT of quality with Germany ending the week wider by another 18 bp to 1.70%. Italy and Spain are (were) doing fine, but somehow less than one could have imagined, closing the week at 5.07% (-8) and 5.76% (+15 ), as both curves short end struggled and flattened. Italian 2s managed to close flat at 2.20% (+7) on the week, Spain closing much softer, especially on Friday, wider by 40 bp to 3.07% (from 2.67%). Good Soft Core performance with Austria and France holding about alright on the week. Best performer of the week is actually Belgium.
The EUR swap curve steepened some more throughout the week.
Equities rose about 2% on the week, mainly on today’s post-QE reaction, as between ups and downs, we were about flat on the week going into QE. Note that the VIX has crashed back through 14 this Friday. Credit, on the other hand, kept its outperformance pretty steadily throughout the days.
This closes a MASSIVE EUR supply week with EUR 36 benchmark transactions launched for roughly EUR 25bn, of which over half the amount of roughly EUR 13bn was for Periphery borrowers (7 Italians for EUR 6.75bn, 7 Spanish for EUR 5.4bn and today’s EDP deal to round it off).
Commodities were pushed on by a softer USD with Copper and Gold adding to the previous week’s gain (Gold +3.5%, Copper +5.8%) and Oil was upheld by Middle East tensions with the WTI on the 100-mark. CRB +3.2%.
EUR up 350 pips from 1.28 last week and 550 from 1.26 a fortnight ago (…). Too many shorts.

10 YRS Yields: Germany 1,70% (+18); Luxembourg 1,76% (+10); Netherlands 1,94% (+9); Finland 1,94% (+12); Swaps 1,94% (+11); EU 2,06% (+11); Austria 2,15% (+7); France 2,25% (+5); EIB 2,31% (+10); EFSF 2,51% (+3); Belgium 2,61% (-1); Italy 5,07% (-8); Spain 5,76% (+15).

10 YRS Spreads: Luxembourg 6bp (-8); Netherlands 24bp (-9); Finland 24bp (-6); Swaps 24bp (-7); EU 36bp (-7); Austria 45bp (-11); France 55bp (-13); EIB 61bp (-8); EFSF 81bp (-15); Belgium 91bp (-19); Italy 337bp (-26); Spain 406bp (-3).

EUR swap curve 2-5 YRS 56bp (+6,0); 5-10 YRS 84bp (+3,0) 10-30 YRS 58bp (+3,0).
2 YRS German BKOs closed 0,101% (+7) and 5 YRS OBLs 0,71% (+16), on the week.
Swiss 2-years eventually stable at -0.17 (up 1bp on the week and from  -0.48% 2 weeks ago).

Main at 118 from 126 (6,3% tighter); Financials at 185 after 204 (9,3% tighter). SovX at 172 from 189. Cross at 460 from 508.
Stoxx Futures at 2592 / +1,9% from 2544 with S&P minis at 1461 / +1,9% from 1434, at European COB last week.
VIX index at 14,3 after 14,8 last week.

Oil 99,5/117,1 (WTI/Brent) from 95,6/113,6 (+4,1%/+3,0%). Gold at 1774 after 1735 (+2,2%). Copper at 384 from 364 (+5,5%) . CRB closes 320 from 310 (+3,2%).
Baltic Dry down 1% to 662 from 669 on its relentless slide towards February’s century low of 647.. Just another 2.3%. Did tick up 2 ticks on Thursday, though…

EUR 1,315 after 1,279 last Friday

Greek bonds guesstimates: And another good week with 2023s down to 20.5% from 21.5% and 2042s stable at 18.25%

All levels Friday COB 17:30 CET

Next week:
Light on data. US housing on Wed. Flash PMIs on Thursday are all expected a tick better.
Spanish 3 and 10 YRS auction on Thursday.

EZ: Tue Sep ZEW prior -21.2, Wed Construction, Thu Advanced PMI Comp fcst 46.6 from 46.3, Manu 45.5 from 45.1, Services 47.5 from 47.2, EZ Confidence fcst -24 after -24.6
GE: Tue ZEW Current fcst 18 after 18. and Sentiment -20 after -25.5; Thu PPI fcst +1.5% after 0.9% YoY, PMI Manu fcst 45.2 after 44.7, Services fcst 48.5 after 48.3
FR: Thu PMI Manu fcst 46.5 after 46, Services 49.4 after 49.2
Italy: Thu Indu Orders prior -9.4% YoY, Sales prior +2.7% YoY Spain: Fri Mortgages
US: Mon Empire -2 after -5.9; Tue NAHB Index fcst 38 after 37; Wed Housing Starts fcst 765k after 746k, Build Permits fcst 795k after 811k, Home Sales fcst 4.56m after 4.47m; Claims fcst 370k after 382k, PMI 51.5, Philly Fed fcst -3.3 after -7.1, Leading Ind fcst -0.1% after +0.4%

Click link on title or below for today’s musical support:
These open doors
These open doors 
These open doors

For all other little guys wondering out there.

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