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

Wednesday 19 September 2012

19 Sep 2012 – “ The Thrill Is Gone " (BB King, 1969)

19 Sep 2012 – “ The Thrill Is Gone " (BB King, 1969)

So Japan, too, has succumbed to the song “Gimeeee, QEeeeee, for Eterni-tyyyyyy”, announcing additional buying of JPY 10trn, propping up Japanese stocks by 1% (but closing off highs) with the rest of Asia duly following (up some 0.5%). If that was an attempt to fight the currency war as well, response was not really impressive with the JPY reacting a mere 60 pips, before giving back a third back to 79 (since Jan 2011, we had 2 peaks at 85 and 84 and 2 lows in Q4/2011 and Q1/2012 around 76. Average was 79.60. And we are up a small 2% from the latest low of about 77.20 last week). Hmmm, if that is all what JPY 10trn can buy…
US equities closed about flat on average, probably thanks to the fruit shop (Apple closed on a new high, up 2% above $ 700). Excruciating and intolerably nerve-wracking 5-tick range in the S&P, but mostly trading between 1457 and 1459 (0.14%)… YAWN!

Light Risk On rebound with equities up 0.25-0.5%. Bunds wider by 2 (UST by 3), ahead of the 2 YRS auction. Swaps and agencies unchanged. Soft Core a little softer. Periphery on the go with the Italian curve tighter by 5 and especially 2 YRS Spain down 22 bp to 3.04%. Spanish 10 YRS down 8 to 5.78%, continuing the push away from the 6% mark. Credit about unchanged. Energy commodities still on the softer side. Metals a tick better. EUR unchanged from last night.
Usual Spanish “need to see details” comments with the EFSF naming former a IMF deputy director of the Western Hemisphere (former Spanish eco state secretary at the FM and chairman of a Spanish brokerage) as “senior adviser”. Must be a coincidence.

Not much in terms of data. EZ Construction output has improved in July to -0.3% MoM / -4.7% YoY, but with June revised lower to -0.6%.
PMI round tomorrow. With pretty much nothing on Friday and nothing either in the US

Quite a healthy German 2 YRS auction with EUR 5bn issued at 0.060% (COB was 0.076%), of which about EUR 900m retained for market interventions. Bid to cover of 2.1, best since January. Tail of 0.002cts (…). Last auction results were 0.000%, -0.060% (historic low and sole negative yield auction), +0.10% and +0.070%, respectively for Aug, Jul, Jun and May. In range.
Portuguese bill auction over target of EUR 1.75bn, split in EUR 709m 6m at 1.70% (down from 2.292% in July) and EUR 1.29bn 18m at 2.967% (down from 4.537% - in April. 12m were sold at 3.51% at the July auction). Bid to covers slightly lower, given lower yields, but still healthy at 3.1 (from 3.8) and 2.4 (from 2.6 in April). Compares to yesterday’s Spanish bill sales of 1 YRS at 2.835% and 18m at 3.072%. Nevertheless Portuguese 2 YRS still quote around 4.75% mid (compared to 3.07% for similar BONOs). Probably less reluctant than Spain to get OMT support, I’d see some value there.
Yesterday’s EIB EUR 3bn 10 YRS benchmark has come in nicely against the former Sep 2022 reference from +8 to +2.5. 
Risk Off environment obviously helpful, as for today’s KfW 5 YRS and French CADES 10 YRS deals.

Getting ready for this week’s most focused-on auction with EUR 4.5bn of Spanish new 3 YRS 3.75% Oct 2015  ES00000123P9 (COB 3.86%) and 10 YRS Jan 2022 (COB 5.67%) on the chop.
Will have as well up to EUR 8bn Sep 2014, Feb 2016 and Jul 2017 BTANs (COB 0.21%, 0.53% and 0.99%, from 0.12% in Jul and 0.86% in July in 2s and 5s).

Midday levels in unconvinced mode. Spain firm with the short end squeezed (with no obvious reason in sight).
Bunds 1,61% (-3), OBLs 0,62% (-3), BKOs 0,052% (-2,4). UST unch 1.79%
Spanish 2s down 25 bp to 3,01% and 10 YRS BONOs at 5,76% (-10). Spanish 2-10s 275bp (+15), finally steepening again.
Italian 2-10s 290bp (+5).
Equities hovering on the slightly depleted morning levels of -0.4%. Credit mixed, but about on last night’s levels.
EUR on 30-handle with commodities still on the heavy side.
Waiting for US input – then again given the excruciating lack of volatility and direction yesterday… Where’s the thrill?

Post-lunch / Pre-US open S&P announced it wouldn’t junk Spain in the near future gave risk a leg up, but didn’t have any effect on Spanish bonds, knowing that at Baa3 / BBB + / BBB / AL (from Moody’s / S&P / Fitch and DBRS, all with negative outlook) the one rating that counts is the Canadian one to keep Spain falling into a higher haircut bucket on ECB repos. At BBB+, S&P still has a couple of notches compared to Moody’s anyway and already said last month that a bailout request wouldn’t necessarily impact the rating.
US housing starts on the weaker side, after already MBA mortgage applications falling 0.2%, with 750k Permits (fcst was 767k after 746k, revised lower to 7.33k), MoM up 2.3% after -2.8%, but with Permits crawling higher to 803k (fcst 769k after 812k, revised 811k).

Afternoon titbits: In seemingly yet another attempt of making sure that Spain would rather not bail-in to a bail-out, EU SPOX stressed the strict conditionality of any aid programme. Between too much and too little German-sounding catch phrases, there ought to be a middle-ground.
Italian banks’ domestic deposits on the rise (+3.5% YoY), as are, however non-performing loans rising to 5.7% (+15% MoM. 5% a year ago) with foreign deposits down 17%, for the 13th month.

Pretty lame US start, reminiscent of yesterday. Where’s the thrill?

Final data set of the day with Existing Home Sales in Aug rising much higher than expected to 4.82m (fcst 4.56m after 4.47m), so 7.8% MoM (fcst 2% after 2.3%). Immediate reaction? Barely any. +0.20% in equities.
Claims and PMI tomorrow. Nothing on Friday.

Rest of afternoon close to home, but Risk drifting in higher in absence of negative news. European equities squeezing out a quarter percentage point.
Oil trashed another 2.5% after higher than expected inventory data, now down 7.5% from Fri evening. Metals stable.
Will mainly have to check PMI data all around tomorrow.

Bunds closed at 1,61% (-3), OBLs at 0,63% (-2) and BKOs 0,061% (-1,5). UST 1.78 (-1).
Spanish 2s closed at 3,04% (-22) and 10 YRS BONOs at 5,67% (-19). Spanish 2-10s 263bp (+3). 10 YRS spread closing in on 400-mark.
Italy riding on Spain’s tail with 10s tighter by 12bp and through 5% again (4.98%). Italian 2s back to 2.11% (-14). Italian 2-10s 287bp (+2).
Why do Spanish bonds always rally like hell AHEAD of the auctions? So often ends up in bruises. Ok, that will be tomorrow’s thrill.

New Issues still active, although in less explosive manner. After yesterday’s EIB 10 YRS, KfW and CADES split the SSA stage with the first issuing EUR 5bn 5 YRS at MS -11 (OBL +28) and the second EUR 3bn 10 YRS at MS +66 (OAT curve +18). EUR 500m 7 YRS for Land Niedersachsen at MS +5.
BHP Billiton unearthed cheap gold with EUR- and GBP double-tranchers with EUR 1.25bn 8 YRS at MS +72, EUR 750m 12 YRS at MS +112, GBP 750m 12 YRS at UKT +120 and GBP 1bn 30 YRS at UKT +115. Another EUR double-trancher was issued by Austrian Oil OMV with EUR 750m 10 YRS at MS +93 and EUR 750m 15 YRS at MS +135. Finally, Hammerson issued EUR 500m 7 YRS at MS +145.

Closing levels:
New EIB Ref Oct 2022 (came at Sep 202 + 7, is now +2.5)

10 YRS Yields: Germany 1,61% (-3); Luxembourg 1,68% (-3); Swaps 1,84% (-3); Netherlands 1,88% (-1); Finland 1,90% (+1); EU 1,98% (-3), Austria 2,14% (+1); France 2,27% (+1); EIB 2,27% (-1); EFSF 2,41% (-3); Belgium 2,64% (+2); Italy 4,98% (-12); Spain 5,67% (-19).

10 YRS Spreads: Luxembourg 7bp (unch); Swaps 23bp (unch); Netherlands 27bp (+2); Finland 29bp (+4); EU 37bp (unch); Austria 53bp (+4); France 66bp (+4); EIB 66bp (+2); EFSF 80bp (unch); Belgium 103bp (+5); Italy 337bp (-9); Spain 406bp (-16).

EUR swap curve 2-5 YRS 53bp (unch); 5-10 YRS 84bp (unch) 10-30 YRS 59bp (+2,0).
2 YRS German BKOs closed 0,061% (-1,5) and 5 YRS OBLs 0,63% (-2).

Main at 121 from 122 (0,8% tighter); Financials at 191 after 194 (1,5% tighter). SovX at 171 from 176. Cross at 464 from 471.
Stoxx Futures at 2569 / +0,3% (from 2561) with S&P minis at 1456 (+0,1% from 1454, at European close).
VIX index at 13,8 after 14,4 yesterday same time.

Oil 92,2/108,4 (WTI/Brent) from 96,5/113,6 (-4,5%/-4,6%). Gold at 1773 after 1772 (+0,1%). Copper at 382 from 381 (+0,3%). CRB at EU COB 309,0 from 314,0 (-1,6%).
Definitively new week, new luck! Third up session .BDI adding another 3.2%, after yesterday’s +5.2% and fixed up 25 ticks to 722.

EUR 1,307 from 1,306

Greek bonds guesstimates: Everything still stable here with 2023s down to 20% from 20.50% with 2042s stable at 18.25%.

All levels COB 17:30 CET

Rest of the week:
Light on data. 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.

EZ: 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: Thu 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%. Nothing on Friday.
China: Flash PMI (prior 47.6)

Click link on title or below for today’s musical support:
Probably one of the best versions out there, played together with Gary Moore.

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