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 21 September 2012

21 Sep 2012 – “ Turn Them Into Gold " (Ladylike Dragons, 2011)

21 Sep 2012 – “ Turn Them Into Gold " (Ladylike Dragons, 2011)

Had a couple of (mixed) late European news living up the US session, which eventually managed to eke out a small gain on the Indu, small loss on the other indices: Revised Italian outlook on growth and deficit (2012 GDP down to -2.4% from Q2 estimates of -1.2% and deficit up to -2.6% from -1.7% with 2013 deficit expectations tripled from -0.5% to -1.8% (Here goes the fiscal consolidation); continuation of the report that the ESM was to be signed by Wed with Spain then potentially able to decide (…) by Thu (seems highly doubtful…) and finally Greece, where a couple of EUR billions are still missing to make ends meet, which seems to put increasing strains on the coalition. S&P up 10 ticks from the opening lows to close less than a point below the previous sessions. Asia heading mixed, but roughly flat into the weekend; China roughly flat but down 5-6% on the week and Japan up some 1.5% after its own QE (but with JPY stubbornly strong at 78.2).

Light Risk On open for a session that won’t see any meaningful macro, so inclined to surf sentiment, rumours and technicals. Still mulling all that PMI data showing a generally softer H2 worldwide.
Bunds morning quotes softer by 2-3 around the 1.60% pivot, UST out by 3 to 1.78%, compared to the European close. Rest of EGB equally softer by 1-2 bp. Periphery about flat to a tick tighter across the curve with Italy still past 5% and Spain a little below 5.75% (after yesterday’s 5.83% high in 10s). Equities up some 0.25-0.50%, trying to match the higher US close. Credit tighter (1.5-2.5%), but still subject to index rolls out / into the new series. Commodities rebound in Oil (+1.5%) after this week’s 7% plus bashing until yesterday. Copper getting some colours back. EUR trying, but failing, to tackle the 1.30 from below.
Spanish July mortgage lending down over 27% YoY. House mortgages down “only” 17.5%. Dutch house prices down 8% YoY, pushing thrifty Consumer Spending down 1.5% YoY.

Uneventful morning, outside a rather short-lived feedback loop between some stops on EUR past the 30-handle, masked as Risk On, pulling equities higher, pulling the EUR higher up to 1.305 – until it ran out of steam and drifted back to opening levels.
Had eventually the EU SPOX spooking the rounds with statements of Spain retaining full structural programmes implementation controls and the Troika taking a one week “break” out of Greece.

Closing the morning  with Bunds 1,59% (+2), OBLs 0,59% (+1), BKOs 0,046% (+0,5) with UST at 1,78% (+3)
Spanish 2s 3,06% (-3) & 10s at 5,73% (-1) a little better. Italian 2s 2,16% (+3) and 10s 5,07% (+4) a little softer. Curves unchanged. Equities flattish to slightly negative after the late morning spike up. EUR right on 1.30.

No meaningful US data until Tuesday’s Housing and Consumer Confidence. Not much to chew on. Quadruple witching on US equities at quarter end.
Hearing from the IMF that Spanish banks could need less than expected. Some unclear / contradictory comments out of Spain on pension reform / freezes (a much probable condition of ESM / ECB support). Seems like markets are readying up for some kind of support negotiations, following next week’s budget cum reforms approvals on Thursday. IBEX up 1.5%. 
Tedious Risk On with the Periphery slipping.

Same EUR pattern as earlier with a squeeze from 1.297 to 1.304, ahead of Wall Street open, before slipping again.
Pump dump pump slump?
Wall street opening about up 0.25%. More for the iPhone-driven NASDAQ. There must be an app for that.

Rumours of behind the scenes haggling to keep the non-used banking bail-out funds to cover other needs seem to be wishful thinking, that I doubt would pass the Northern Front cum ECB spirit of conditionality. Bail-out funds? Turn Them Into Gold? Unlikely.
Closing comments from Schaueble that all is good in Europe, respecting everyone’s efforts. Ok. And “steadfast” Spain doesn’t need a programme. Hum.

Closing the week in uncomfortable expectations. Bit of disconnect between more cautious bonds and more bullish equities.
Bunds closed at 1,59% (+2), OBLs at 0,59% (+1) and BKOs 0,033% (-0,8) with UST at 1,77% (2)
Spanish 2s at 3,07% (-2), 10s at 5,73% (-1). Spanish 2-10s 267bp (+2).
Italian 2s at 2,18% (+5), 10s at 5,10% (+7). Italian 2-10s 292bp (+2).

New Issues on hold after this week’s EUR 26bn of supply, mostly in AAA SSA names, as well as prime name covered bonds and household corporates. Had nevertheless Portuguese toll road operator Brisa selling EUR 300m 5.5 YRS just shy off MS +600.

Closing levels:
10 YRS Yields: Germany 1,59% (+2); Luxembourg 1,63% (+1); Swaps 1,82% (+3); Netherlands 1,86% (+0); Finland 1,88% (+1); EU 1,95% (+1), Austria 2,12% (-1); France 2,27% (+0); EIB 2,24% (+2); EFSF 2,40% (+3); Belgium 2,63% (-2); Italy 5,10% (+7); Spain 5,73% (-1).

10 YRS Spreads: Luxembourg 4bp (-1); Swaps 23bp (+1); Netherlands 27bp (-2); Finland 29bp (-1); EU 36bp (-1); Austria 53bp (-3); France 68bp (-2); EIB 65bp (+0); EFSF 81bp (+1); Belgium 104bp (-4); Italy 351bp (+5); Spain 414bp (-3).

EUR swap curve 2-5 YRS 52bp (+2,0); 5-10 YRS 87bp (+1,0) 10-30 YRS 61bp (+2,0).
2 YRS German BKOs closed 0,033% (-0,8) and 5 YRS OBLs 0,59% (+1).

Main at 124 from 125 (0,8% tighter); Financials at 197 after 202 (2,5% tighter). SovX at 171 from 171. Cross at 458 from 468.
Stoxx Futures at 2565 / +0,9% (from 2541) with S&P minis at 1457 (+0,5% from 1450, at European close).
VIX index at 14,0 after 14,3 yesterday same time.

Oil 93,1/111,0 (WTI/Brent) from 92,3/109,0 (+0,9%/+1,8%). Gold at 1773 after 1763 (+0,6%). Copper at 380 from 378 (+0,5%). CRB at EU COB 309,0 from 308,0 (+0,3%).
Totally and definitively new week, new luck, new trend! Fourth positive session, with the Baltic Dry adding yet another 2.5%, fixing at 774 from 755. Question remains: What is shipped? Ore? iPhones? Xmas toys?

EUR 1,299 from 1,295

Greek bonds guesstimates: 2023s closing the week down to 20% from 20.50% from 20% and 2042s likewise tighter 25bp at 18.25%.

All levels COB 17:30 CET

On the week (compared to Fri 14 Sep COB):

Closed last Friday with a feeling of "Why Does My Heart Feels So Bad" (Bunds 1,7% +14; Spain 5,76% +16; Stoxx 2592% +1,8%; EUR 1,315), as after the unleashing of OMT and QE, Risk had reached a levels that demanded hard positive data to push on further. A positive close, but off highs. And as it stands, Monday felt like "Every Day I Have the Blues" (Bunds 1,68% -2; Spain 5,96% +20; Stoxx 2586% -0,2%; EUR 1,313). Nothing dramatic. Mostly boring. But ending with Spanish 10s crashing to 6% and Oil just crashing, mysteriously. As nothing lasts forever (but the Blues), stocks retreated further on Tuesday, but Spain bounced off the 6%-mark on a fair bill auction, so we "Still Got The Blues" (Bunds 1,64% -4; Spain 5,86% -10; Stoxx 2561% -1,0%; EUR 1,306). And the bluesy mood prevailed on Wednesday with "The Thrill Is Gone" (Bunds 1,61% -3; Spain 5,67% -19; Stoxx 2569% +0,3%; EUR 1,307). While indicators were slightly divergent, most was done on the back of mildly positive US figures, everyone was ignoring. Spain’s lone squeeze ahead of the auction didn’t trigger real appetite either. So we slipped to Thursday and saw PMI data in China and France disappoint big time, small time in for the EZ and better in Germany. After initially tanking, a fairly correct Spanish auction held stress about ok. At least it didn’t add any. Lacklustre US open, a session marked by "No Fun" (Bunds 1,57% -4; Spain 5,74% +7; Stoxx 2551% -0,7%; EUR 1,295). A bluesy week.

So after 2 hell of positive weeks with fairy dust sprinkled by the CBU (Central Banks United), which saw EStoxx adding over 6%, Spanish 10s tightening some 125bp down to a 5.55% low before drifting back out a little to 5.76% last Friday (and 2s down to as low as 2.70% before snapping back to 3.07%), Credit tightening by over 20% and Financials by 27%, the EUR ripping 550 pips higher and the Risk decompression taking its toll on Bunds (adding 36% to close at 1.70% last week), things seem a little out of breath here. Post-Central Bank intervention depression, so to speak, as the question on everyone’s mind is “What’s next? Where can we move to WITHOUT support?” Add to that soured geopolitics that stirred spirits in Asia, MENA and to some extend in regional Spain.
Hard Core getting some strength back with Bunds back to the 1.60% pivot, tighter by 11 on the week (+18 the week before). EGB credit torsion pivoting around a performing Austria and a heavier France, facing the reality of a growth slump, as confirmed by this week’s PMI. Agencies all in line with swaps around -12, correcting pretty much the previous week widening. Periphery still an uneasy place to be and closing the week roughly unchanged (2 YRS Italy down 5, 10s wider by 3 and Spanish 2s unchanged with 10s tighter by 3).
EUR swap confirming flight into the medium part of the curve, flatter in 2-5 and steeper in 5-10 and longer out.
Credit giving back some of its huge post-QE/ OMT rally gains, as equities ran a little out of steam.
On the commodities front, we note the slump in Oil and relative strength of Gold ($10 off the 2012 highs). We note as well the 17% rebound in the moribund Baltic Dry Index, showing some demand for bulk shipments.
New Issue supply was tamer quality-wise than last week’s explosive EUR 25bn, of which more than half was for Periphery issuers. Actually, size-wise, it was a bigger week, as next to EUR 26bn were issued in benchmark format, but of that amount over the half was done for AAA SSA issuers (EUR 5bn KfW, EUR 3bn CADES and EIB, the rest for German Länder), next to EUR 2bn for prime quality covered bond issuers. Next to EUR 10bn were issued for corporates, however here again, it was concentrated on strong house-hold names with EUR 2.25bn for Anheuser Busch InBev, EUR 2bn for BHP Billiton, EUR 1.5bn for OMV and EUR 1bn GE. Periphery issuers represented only EUR 1bn for three utility issuers, including a retap. So back to caution after last week’s take-all approach.

10 YRS Yields: Germany 1,59% (-11); Luxembourg 1,63% (-13); Swaps 1,82% (-12); Netherlands 1,86% (-8); Finland 1,88% (-6); EU 1,95% (-11); Austria 2,12% (-3); France 2,27% (+2); EIB 2,24% (-9); EFSF 2,40% (-11); Belgium 2,63% (+2); Italy 5,10% (+3); Spain 5,73% (-3).

10 YRS Spreads: Luxembourg 4bp (-2); Swaps 23bp (-1); Netherlands 27bp (+3); Finland 29bp (+5); EU 36bp (unch);  Austria 53bp (+8); France 68bp (+13); EIB 65bp (unch); EFSF 81bp (unch); Belgium 104bp (+13); Italy 351bp (+14); Spain 414bp (+8).

EUR swap curve 2-5 YRS 52bp (-4,0); 5-10 YRS 87bp (+3,0) 10-30 YRS 61bp (+3,0).
2 YRS German BKOs closed 0,033% (-7) and 5 YRS OBLs 0,59% (-12), on the week. with UST at 1,77% (-10)
Swiss 2-years eventually rather stable at -0.16 (up 1bp on the week and from -0.48% 3 weeks ago).

Main at 124 from 118 (5,1% wider); Financials at 197 after 185 (6,5% wider). SovX at 171 from 172. Cross at 458 from 460.
Stoxx Futures at 2565 / -1,0% from 2592 with S&P minis at 1457 / -0,3% from 1461, at European COB last week.
VIX index at 14,0 after 14,3 last week.

Oil 93,1/111,0 (WTI/Brent) from 99,5/117,1 (-6,5%/-5,2%). Gold at 1773 after 1774 (-0,1%). Copper at 380 from 384 (-1,0%) . CRB closes 309,0 from 320,0 (-3,4%).
Having slipped last week from 669 to 662, this week proved a good one. Totally and definitively new week, new luck, new trend! Five positive session, with the Baltic Dry adding 17%, fixing at 774. From 662, the best week since Aug 2010. Question remains: What is shipped? Ore? iPhones? Xmas toys?

Greek bonds guesstimates: And another good week with 2023s down to 20% from 20.5% and 2042s stable at 18.25%.

EUR 1,299 after 1,315 last Friday

All levels Friday COB 17:30 CET

Next week:
Running empty on data flow with next week not offering much more. German IFO on Monday. End of month data publication fatigue, so markets will run on sentiment, technicals and rumours.
Spanish bank audit due on Friday 28 Sep.
Probably uneventful auction supply next week: 10 YRS Bunds on Wed and long Italians to close the month next Fri to focus on. Italian and Spanish bills on Wed and Thu shouldn’t be market-rocking in the current environment.

EZ: Fri 27 M3 & Biz Climate + final Sentiment Data
GE: Mon IFO (last 102.3, Current 111.2, Expectations 94.2); Wed CPI; Thu unemployment
FR: Tue Biz Confidence; Wed unemployment
Italy: Tue Con Conf (last 86), Wage data; Wed Retail Sales (last +0.4% MoM); Thu Biz Conf (last 87.2)
Spain: Mon PPI (last +2.6% YoY); Thu Housing Permits (last -32.6% YoY) & Retail Sales. Fri Bank audit.
US: Mon Chicago & Dalles FED; Tue Case-Shiller Home PX, Cons Conf (last 60.6), Rich FED; Wed New Home Sales; Thu GDP revision, Pers Consumption, Durable Goods, Claims, Home Sales

Click link on title or below for today’s musical support:
And why not? Nice band.

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