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 17 September 2012

17 Sep 2012 – “ Every Day I Have The Blues " (Memphis Slim, 1949)

17 Sep 2012 – “ Every Day I Have The Blues " (Memphis Slim, 1949)

Another week starts and not much hard data to bite one’s teeth into in the coming days.  Having had the last 2 weeks propped up by Ben and Jerry, oops, Mario, who delivered the f(l)avours that had been expected throughout the summer, markets will be in need for some concrete impulses to push further. Still, action in the coming days will mainly be dominated by sentiment, knowing that most indicators later in the week will be sentiment indicators, too, starting with ZEW tomorrow for Germany and the EZ and flash PMIs all around on Thursday. A sentimental journey, so to speak.
Probable driver still to be found with the Spanish bail-out question or Greek Troika worries. 
The Friday meetings in Cyprus didn’t yield much concrete and didn’t seem to have been a huge love fest, either. Haggling and bickering. So Banking Union is not for tomorrow at this stage.

While still positive, the US closing levels were well off highs and propped up by a quarter percentage point squeeze in the closing minutes.  Asia mainly in the red to start week. Weekend geopolitics dominated by tensions all around the ME, and spreading, as well as in Asia, and anti-austerity rallies in Southern Europe. 
Opening quotes in Europe softer on profit taking / risk aversion, although all in controlled manner.
Bunds about unchanged to a tick firmer on the shorter end. EGBs about flat. EUR swap curve a bit steeper. Periphery again off to a softer session, following the Friday slide, with bot Italian and Spanish 2s softer by 8 and the 10s by 4.
Equities about 0.5% weaker and Credit giving back a tick or two.
EUR opening in the low 31 (1.305 key level on the downside) and commodities a little below Friday levels.

For those who didn’t delve on Friday’s message, a repeat of the latest Periphery numbers: 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.
Italian July debt figures published Thursday were showing in contrast that Italian local debt had diminished 2% YoY. Break-down of the (historical second highest number after June) of the EUR 1.968bn in Italian debt (down EUR 4bn from June) in terms of maturity unsurprisingly confirms a funding shift to the short end. Debt up to 1 YR rose 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%.

EGB supply limited to bills. Combined EUR 2.48bn of Dutch 3m at -0.073% (from -0.063% 2 weeks ago) and 6m at -0.013% (from -0.023%).
France sold a combined EUR 3.8bn of 3m bills at -0.012% (from -0.021% last week), EUR 1.6bn 6m at -0.004% (from -0.008%) and EUR 1.4bn 12m at 0.029% (from 0.004%). It’s forensics, but yields are creeping up here…
Another round of bills tomorrow from Spain, EUR 2bn 3m for the EFSF, EUR 1bn 3m for Greece and EUR 3.2bn 3 & 12m for Belgium.
Otherwise, we’ll only have UR 5bn German 2 YRS on Wed with further EUR 1.75bn bills in 6 and 12m, courtesy of Portugal, as well as up to EUR 8bn French 2, 4 and 5s on Thursday. So nothing highly exciting, but the Spanish auctions.
Spanish bills for EUR 4.5bn 12 and 18m, so venturing well into OMT territory, to be followed by EUR 4.5bn in new 3 and 10 YRS on Thursday. While the last 12 & 18m bill auction was already for EUR 4.5bn (EUR 3.5bn 12m at 3.07% and EUR 980m 18m at 3.335% on 21 Aug), the bond auction size is rather on the mighty side. The last auctions were for EUR 3.5bn on 06 Sep, before that EUR 3.1bn on 02 Aug, just under EUR 3bn on 19 Jul and EUR 3bn on 05 Jul. So EUR 4.5bn is chunky. Might weight further on performance until Thursday.

Greece, Spain and Ireland meeting in Italy on Friday (Portugal not invited to join the party???).
Merkel press conference, but nothing crisp (“Bleeding heart” seeing Greek hardship, but that things couldn’t be delayed, although Greece should remain in EZ etc. No comment on BuBa / Weidman splits.)
And if everyone lets go, so why not the Finns? Revised budget and deficit outlooks now show 3.4% deficit this year (after 3.3% last year) and 2.8% next year (revised from 1%). To hell with austerity… Slippery road.

Midday levels still showing some adverseness, but not necessarily a recovery of the Hard Core from the bashing of last Friday (Bund closing 14 bp wider). Discomfort essentially on Spain, wider by 10 in 10s, pushed lower by the shorter throughout the morning. So here as well, no recovery from Friday’s weakness (+20 in 2s and +16 in 10s). Outside that, not much else.
Bunds closed 1,69% (-1), OBLs 0,69% (-2); BKOs 0,089% (-1,3). UST stable on US closing levels of 1.87%.
Spanish 2s 3,20% (+13), 10s at 5,86% (+10). 2-10s 266bp (-3).
Italian 2s 2.32% (+8), 10s 5.12 (+5). Italian 2-10s 281bp (-3)
Equities stable at -0.5%. Credit 2 ticks wider. Commodities and EUR at opening levels.

Early afternoon announcement of the Spanish auction sizes and the resignation of the Region of Madrid’s president (for personal and health reasons) adding a little more to Periphery blues. Sounds obvious, but at 5.90% the 6%-handle is in near sight…, which was duly touched by mid-afternoon. That level was broken to the downside following the OMT announcement 10 days ago.

The lone US data set for the day was a strong miss, as Empire Manufacturing numbers for Sep clocked in a -10.4  (fcst -2 after -5.85) with New Orders at the lowest since Apr 2009 and new orders since Nov 2010. Then again, last month was an even bigger near 13 point miss.
Uneventful slightly negative US open, confirming the bluesy European mood. Bluesy, but not utterly depressed.

Mostly bored.

Bunds closed at 1,68% (-2), OBLs at 0,67% (-3) and BKOs 0,084% (-1,8).
Spanish 2s closed at 3,27% (+20) and 10 YRS BONOs at 5,96% (+20), having flirted with the 6% mark. Spanish 2-10s 269bp (+0). Italian 2-10s 284bp (+0) with 2s and 10s out +8bp.
Not much else. UST tighter by 3, pretty much as Bunds.

New Issue supply rather limited with Rentokil cleaning EUR 500m 7 YRS at MS +195 in a quick wipe and Iberdrola adding EUR 250m 5 YRS at MS +295 on last week’s trade (down from the initial +360 for the first tranche). Morgan Stanley raised EUR 1bn 5 YRS at MS +275.
Should see a new EIB 10 YRS EARN (euro area reference note) tomorrow. Actual ref closed 2.30% / Bund +62 / MS +40 today. Hearing mid 40s over swap initial pricing thoughts.

Shana Tova, for those concerned.

Closing levels:
10 YRS Yields: Germany 1,68% (-2); Luxembourg 1,75% (-1); Netherlands 1,92% (-2); Finland 1,92% (-2); Swaps 1,91% (-3); EU 2,03% (-3), Austria 2,16% (+1); France 2,28% (+3); EIB 2,30% (-1); EFSF 2,47% (-4); Belgium 2,65% (+4); Italy 5,15% (+8); Spain 5,96% (+20).

10 YRS Spreads: Luxembourg 7bp (+1); Netherlands 24bp (unch); Finland 24bp (unch); Swaps 23bp (-1); EU 35bp (-1); Austria 48bp (+3); France 60bp (+5); EIB 62bp (+1); EFSF 79bp (-2); Belgium 97bp (+6); Italy 347bp (+10); Spain 428bp (+22).

EUR swap curve 2-5 YRS 55bp (-1,0); 5-10 YRS 84bp (unch) 10-30 YRS 56bp (-2,0).
2 YRS German BKOs closed 0,084% (-1,8) and 5 YRS OBLs 0,67% (-3).

Main at 120 from 118 (1,7% wider); Financials at 189 after 185 (2,2% wider). SovX at 172 from 172. Cross at 469 from 460.
Stoxx Futures at 2586 / -0,2% (from 2592) with S&P minis at 1457 (-0,3% from 1461, at European close).
VIX index at 14,8 after 14,3 yesterday same time.

Oil 99,3/116,2 (WTI/Brent) from 99,5/117,1 (-0,2%/-0,7%). Gold at 1770 after 1774 (-0,2%). Copper at 381 from 384 (-0,8%). CRB at EU COB 319,0 from 320,0 (-0,3%).
Baltic Dry up 1 tick to 663, after Friday’s1 tick fall…

EUR 1,313 from 1,315

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

ECB SMP unchanged at EUR 209bn

All levels COB 17:30 CET

This 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: 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:
The Original. Yep, 1949…

Love BB, but he “only” copied that one…

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