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

Tuesday 18 September 2012

18 Sep 2012 – “ Still Got The Blues " (Gary Moore, 1990)

18 Sep 2012 – “ Still Got The Blues " (Gary Moore, 1990)

Bluesy it felt, bluesy it ended. Let’s not too much delve in the sudden 5% oil flash crash of yesterday. It’s has now become commonplace that every 3 months someone spills his coffee on the keyboard, triggering algorithmic bubbles, with hindsight explanations of correlated rumours (SPR sales, in this case), leaving what’s left of flesh traders what to do next. Generally, and in absence of the next central bank stabilizer, you don’t want to catch a falling knife, so procrastinating seems a good option. US close soft, and would have been even softer, if it hadn’t been for the last 30 minutes algorithmic 0.25% rebound. Asia in the red for 0.50-1%; and hence a weaker European open, pretty much in the continuity of yesterday’s bluesy theme.
MENA and Sino-Japanese tensions still flaring.

Equities off some 0.50% and markets starting in “classical” Risk Off manner. Hadn’t had that for a while, but it’s like riding a bike, you don’t forget. You know the drill: slightly softer credit and ROff torsion in EGBs. Hard Core 1-2 tighter, long Periphery 4 wider, double that on the short end. Soft Core stable and acting as pivot.
Had down-to-earth comments from outspoken Austrian and Belgian ECB members Nowotny (Crisis to be over by 2020) and Coene (Of course markets will force Spain to seek a bail-out, if Madrid doesn’t volunteer for it soon). And oops… I still have the Blues.
Having merely caressed the 6%-mark yesterday, Spanish 10s hurdled into 6%-plus territory at the open.
Commodities soft across the board after last night’s bashing (Oil still down 3%). EUR right on the 31-handle (given that we were trading 1.26 two weeks ago, I haven’t yet seen the comments that the 8% rise from the July lows and after final QE debasement announcements would hurt European exporters, the Germans in front, but that cannot but pop-up soon).

Had now usual Spanish comments from DPM Saenz on fact and conditions checking. Pension reform (IMF pet-project) still a no-go. Spreads not Spain’s fault. Catalans should stop moaning and pay up. Nothing new, but somehow reigned in the widening. Spanish banks’ bad loans rose to 9.9% in July (from 9.4% in June) in the meantime.
The Spanish bill auction came out well and raised a little over target, without flooding, with slightly over EUR 3.5bn 1 YR paper at 2.835% (after 3.07%) and a touch over EUR 1 18m paper at 3.072% (after 3.335%). Bid-to-cover coming down on the longer tranche, which is normal given the falling yield level, although it wasn’t that much lower. 12m B/C better.
Levels spiked at 5.07% in June and 3.92% in July, respectively 5.11% and 4.24%. Home, ok, Draghi put value, 200bp from the top and 100bp since “Believe me”. A good 25bp lower since 21 Aug and ahead of the OMT clarification. Ball is now in Spain’s camp.
In any case, the auction was good for a turnaround in sentiment, if not in equities, at least in Spanish (longer) bonds. While the short end remained a little weaker than COB, 10 YRS managed to turn around from the 6.02% spike (+6), down 13bp to 5.89%.
Core EGBs still better bid on equity weakness and general shaken sentiment.
The European Investment Bank launched a new 10 YRS benchmark of EUR 3bn at MS +49 / Bund +76 / 2.38% (old ref +8, curve worth a small bp) 2.25% Oct 2022 XS0832628423.

Greece closed EUR 1.3bn (EUR 1bn auctioned, EUR 300m in comp bids) 3m at 4.31% (from prior 4.43%). Stable bill prices for Belgium, split into EUR 1.4bn 3m at -0.023% (from -0.021%) and EUR 1.5bn 0.095% (from 0.093%). EFSF for a short EUR 2bn 6m at -0.018% (after -0.018% end of Aug).
EUR 5bn German 2 YRS increase tomorrow COB 0.076% (last 0.00% on 22 Aug, after -0.6% sole negative auction and historic low on 18 Jul), as well as Portugal  EUR 1.75bn bills in 6 and 12m (last 2.29% and 3.51% mid July)

German ZEW figures were muted as some higher rebound was expected, post Central Bank announcements, with Current Sentiment down to 12.6 (from 18.2, fcst was 18) and Eco Sentiment muted to -18.2 (fcst was -20 after -25.5), the first rise in 5 months. Current at the lowest since Jul 2010. Big German depression. 5 YRS low was -93 in May 2009, peak was 92 in May 2011.
EZ Eco Sentiment did, on the other hand, rebound to -3.8 (from -21.2). Car component weak, as shown as well with the sa EZ car sales down 10.3% YoY (-5.2% from 3m average). Who needs a car with recession looming and near peak oil (in EUR terms in August).

Midday levels in ROff mode, although the Spanish discomfort waned a little.
Bunds1,64% (-4), OBLs 0,65% (-2); BKOs 0,073% (-1). Most EGBs in line, slightly wider to Bunds. EUR swap curve unchanged.
Spanish 2s 3,30% (+3), while 10s recovered to 5,91% (-5), 10 tighter from the morning high prints. Spanish 2-10s 261bp (-8). Italian 2-10s 281bp (-3) on slightly wider 2s and slightly tighter 10s. Note the decorrelation between IT & SP and Risk in general. 
Equities down 1.25%. Credit wider by 2.5% to 3.75% on Main and Financials. Crossover actually tame at +6 (+1.3%).
EUR at 1.306, having bounced slightly off 1.305 support levels. Commodities in the same sorry state they opened in Europe.

Post-lunch / Pre-US open levels all a little more upbeat, risk-wise.

Lot of noon / afternoon official chatter on the wires (Finland, Weidman, other ECB members, FED members, Greece, even the Dutch Queen) but eventually nothing highly conclusive. Had Juncker ask for Germany not to be overburdened and speaking of tough demands towards Spain, in case of support. Wasn’t that just the one thing that everyone seemed eager to avoid speaking about lately? Similar in support for Banking Union. Very German-sounding. In another German-leaning call, Portugal’s FM talked about his admiration for the German social-market economy. Uh, new trend?

US data once more on the restricted side. Q2 Current account deficit of USD 117bn better than the expected USD 125bn and down from Q1’s USD revised 134bn. 3% of GDP, down from 3.5%. Imports down 0.5%, Exports up 1.4% (How many Apple products?). 
US open -0.25% and UST at 1.79% (-5) pushing European risk back lower with the Periphery actually holding its stand.
NAHB Housing Market index at 40 (fcst 38 after 37), a 6-year high, providing a temporary solace and pushing US equities in slightly positive territory, taking Europe along.

Kept bouncing on the US closing line for the rest of the afternoon with EZ equities 1% lower (That is 2.5% lower for Milan).

Bunds closed at 1,64% (-4), OBLs at 0,65% (-2) and BKOs 0,076% (-0,7).
Spanish 2s closed at 3,26% (-1) and 10 YRS BONOs at 5,86% (-10). Spanish 2-10s 260bp (-9). Italian 2s and 10s down 5 bp to 2.25%, respectively 5.10%.
10 YRS Bunds still trading in that 1.13%-2.07% movement ( 1.49% 1.60% 1.71% points). UST 1.79%, down 4 like Bunds.
Commodities not rebounding much. Gold & Copper resilient, though.

Mixed bag of New Issues with the EIB printing EUR 3bn new 10 YRS at MS +49 and City-State Hamburg EUR 500m 10s at MS +11 for the SSA side. BPCE issued EUR 1bn long 5 YRS French covered bonds at MS +40. Corporate thirst quenched with an Anheuser Bush InBev 3-pack with EUR 750m long 4 YRS at MS +40, EUR 750m long 7 YRS at MS +60 and EUR 750m 30 YRS at MS +90. GE Capital for EUR 1bn 3 YRS at MS +67, French construction company Bouygues for EUR 700m long 10 YRS at MS +175 and Carrefour for EUR 600m 3 YRS at MS +230.

Closing levels:
10 YRS Yields: Germany 1,64% (-4); Luxembourg 1,71% (-4); Swaps 1,87% (-4); Netherlands 1,89% (-3); Finland 1,89% (-3); EU 2,01% (-2), Austria 2,13% (-3); France 2,26% (-2); EIB 2,28% (-2); EFSF 2,44% (-3); Belgium 2,62% (-3); Italy 5,10% (-5); Spain 5,86% (-10).

10 YRS Spreads: Luxembourg 7bp (+0); Swaps 23bp (unch); Netherlands 25bp (+1); Finland 25bp (+1); EU 37bp (+2); Austria 49bp (+1); France 62bp (+2); EIB 64bp (+2); EFSF 80bp (+1); Belgium 98bp (+1); Italy 346bp (-1); Spain 422bp (-6).

EUR swap curve 2-5 YRS 53bp (-2,0); 5-10 YRS 84bp (unch) 10-30 YRS 57bp (+1,0).
2 YRS German BKOs closed 0,076% (-0,7) and 5 YRS OBLs 0,65% (-2).

Main at 122 from 120 (1,7% wider); Financials at 194 after 189 (2,6% wider). SovX at 176 from 172. Cross at 471 from 469.
Stoxx Futures at 2561 / -1,0% (from 2586) with S&P minis at 1454 (-0,2% from 1457, at European close).
VIX index at 14,4 after 14,8 yesterday same time.

Oil 96,5/113,6 (WTI/Brent) from 99,3/116,2 (-2,8%/-2,2%). Gold at 1772 after 1770 (+0,1%). Copper at 381 from 381 (unch). CRB at EU COB 314,0 from 319,0 (-1,6%).
Wow! BDI has gone up a over 5.1%, hitting 697 from 663. New week, new luck! Second up session.

EUR 1,306 from 1,313 

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

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.
The Spanish EUR 4.5bn 3 and 10 YRS auction on Thursday 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.

EZ: 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: 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: Wed Housing Starts fcst 767k after 746k, Build Permits fcst 796k after 811k, Home Sales fcst 4.56m after 4.47m; Claims fcst 375k after 382k, PMI 51.3 after 51.9, Philly Fed fcst -4.6 after -7.1, Leading Ind fcst -0.1% after +0.4%

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

The Blues Is Alright…

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