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, 25 September 2012

25 Sep 2012 – “ Purple Rain " (Prince, 1984)

25 Sep 2012 – “ Purple Rain " (Prince, 1984)

We remain caught in what seems to be a slow-motion corrective movement after the last weeks of exuberance. Nothing dramatic. But the market feels like a rain-drenched rag, heavy and wet. Had a final attempt by US equities to tickle out Friday’s (lower) closing levels, but that again failed in the last 45 minutes and ended in a broadly 0.5% loss.  UST have corrected their post-QE trauma and are back to 1.70% in 10s. Asia has been duly following suit, off 0.25-0.5% with exception of Japan closing up a wee-bit. Not much of hard data.
European open in line with the gloomier ambiance: Bunds opening 3 tighter at 1.53% with EGBs pivoting around unchanged Soft Core and widening out 3-5 in the Periphery (with Italy once more a little softer than Spain). Italian short end softer ahead of the 2 YRS Zero auction. Equities down a small 0.25%. Credit is drifting wider by 2%. EUR stuck on the 29-handle and Commodities unchanged to 0.5% firmer. Unexciting.

French data mixed to morose with own-company outlook at -6 (from prior -6 revised -7), Consumer Confidence taking an austerity-announcement-driven dip (and late post-summer realisation that things ARE messy out there ) to -52 from a -44 unchanged forecast, although Biz Climate remained unchanged at 90 (fcst 89). Consumer Conf at May 2009 level. Spanish Producer Prices wider at +1% MoM / +4.1% YoY (after +0.8 / +2.6%), confirming fears voiced by ECB’s Coeuré over the weekend that Inflation, although seemingly in check, had to remain contained, as this is the ECB’s main mandate. Nowotny reapeating Coeuré weekend comments on improbable negative rates.

Italy about hitting the EUR 4bn target with EUR 3.94bn 2 YRS Zeros issued at 2.532% (3.064% end of Aug, 4.86% end of Jul). Spain out with EUR 1.4bn 6m bills at 1.203% (after 0.946%) and EUR 2.6bn 6m at 2.213% (after 2.026%), the latter with a rather low B/C for bills of 1.8.
Back to Earth for both short ends of the curve… Draghi promise a little breathless.
On the opposite end of the curve, the Dutch rapidly issued EUR 1.9bn 2033s on tap at 2.497% (COB was 2.52%). Last sold that maturity mid- June, showing how the curve steepened in the meantime (+20) for Hard Core curves.
EUR 5bn German 10 YRS tomorrow (COB 1.58%, last 1.42% early Sep and early Aug) and Italy targeting EUR 9bn 6m bills sale tomorrow (last 1.59%), before selling EUR 6bn of on-the-run 5s and 10s on Thursday (next to EUR 1bn FRN).

In absence of data, some political and data noise:
Spain still playing coy on bail-out, now asking how much the ECB would buy, while protesters are in the streets and the Catalans start a three-day debate on secession, seeking advice from Brussels on the matter. Spanish Foreign Minister not amused and threatening an indefinite Spanish veto of a Catalan EU membership. Will have the Spanish 2013 budget proposal on Thursday and bank liquidity needs by Friday (although they already seem massaged down).
ESM investment / liquidity guidelines circulating with 15% to be kept in AA assets. Great! We certainly needed another asset-manager chasing Soft and Hard Core debt (next to the SNB, which has amassed EUR 80bn in EUR EGBs up to July).
Greece pushing for a roll-over of its ECB /NCB debt, while the IMF is pushing for write-downs. Should the latter happen, I doubt it would go down well with the major contributor nations’ electorate, once presented with a hard bill. Even the French might suddenly wake up and realize how much they’re on the hook.
S&P updating and lowering its 2012-2013 outlook of EZ growth to -0.8% / zero from +-0.7%/ +0.3%. Tracks latest PMI data sets, all drifting lower.

Midday light ROff market picture. Periphery softer in unison. Equities down 0.25%, after bouncing off lows. Credit maintains its morning weakness at 3% wider.
Bunds 1,52% (-4), OBLs 0,55% (-2); BKOs 0,041% (unch). UST 1,69% (-2)
Spanish 2s at 3,07% (+8), 10s at 5,70% (+5). Spanish 2-10s 263bp (-4).
Italian 2s at 2,30% (+8), 10s at 5,16% (+6). Italian 2-10s 286bp (-3).
Commodities unchanged, except Oil up 1%. EUR unchanged. Boring.

Pre-US open EUR bounce to 1.295 pulling stocks higher (or vice versa?) and pushing Bunds (and UST) to closing levels. Not much of an impact on the softer Periphery (+8-11 on the short end, +5-6 in 10s).
Split Case-Shiller data with MoM increase of +0.44 (fcst +0.75% after revised lower 0.91%), but higher YoY at +1.20% (fcst +1.05% after revised higher 0.59%).

Draghi press conference only repeating latest mantras. Nothing new.
Flattish positive US open on the 13.600 / 1.460-mark (yesterday’s high & Friday’s close).
Wow, strong jump in US Consumer Confidence at 70.3 (fcst 63.2 after 60.6, revised 61.3), as well as positive Richmond FED at +4 (fcst -6after -9). Just held down a little by House Prices solely rising +0.2% (fcst +0.6% after +0.7%, revised +0.6%). Good for 0.2% in equities. Ok, people were just confident to get a new iPhone. I get it.

Eventually Catalan early elections confirmed for 25 Nov or 02 Dec. Ah… Seems we’ll be treated to some serious sideshow on Spain / EU / EZ inner workings. Andalucia confirming “studying” EUR 4.9bn of bail-out needs (but no fresh news).
NB: 16% of Spain’s population and 18.5% of GDP.
Talking of which: Spain’s deficit through Aug rose to 4.8% (compared to 3.8% same time last year) on 8.9% higher government spending (explained as transfers to the regions) and Tax receipts down 4.6%. Need to see what Thu 2013 budget will reveal. That Rajoy has “communication issues”, as said by Schäuble today, must have been a slip of a tongue in a like-minded FM round (meeting Austria, Finland and the Netherlands).

ROn, following the US lead.  Another fairly uninspiring day. In absence of hard data, subject to rumours and sentiment, as well as sudden “squeezes” or “sell-offs”, albeit in very tight ranges. Mood maybe less rainy then yesterday, but, call me a bear, it doesn’t feel very convincing out there.
Bunds sold ahead of tomorrow’s auction. Credit still on the sluggish side (3%-plus wider), despite equities +0.5%.
Bunds closed at 1,58% (+2), OBLs at 0,60% (+4) and BKOs 0,064% (+2,3) with UST at 1,72% (+1)
Spanish 2s at 3,09% (+10), 10s at 5,71% (+6). Spanish 2-10s 262bp (-5).
Italian 2s at 2,28% (+6), 10s at 5,16% (+6). Italian 2-10s 287bp (-2).
Giving back most of yesterday’s tightening in Spain. Closing just off wides, but certainly not any tighter.
EUR at 1.296 entangled in 50d, 100d & 200d MOV at 1.293 / 1.294 / 1.297. Choose your preferred level.
Nice commodities performance across the board, led by Oil and Copper (+1.5% and +1.3%).

Low and cautious New Issues traffic with Deutsche Hypo EUR 500m7 YRS Pfandbriefe (covered bonds) at MS +4 and 2 smaller corporate offerings with Finnish TelCo Elisa EUR 300m7 YRS MS +105 and a EUR 250m increase of a 2020 deal at MS +155 from French chemists Arkema.

Closing levels:
10 YRS Yields: Germany 1,58% (+2); Luxembourg 1,63% (+2); Swaps 1,81% (+4); Finland 1,85% (+1); Netherlands 1,85% (+2); EU 1,96% (+4), Austria 2,11% (unch); EIB 2,25% (+4); France 2,28% (+3); EFSF 2,42% (+5); Belgium 2,60% (+1); Italy 5,16% (+6); Spain 5,71% (+6).

10 YRS Spreads: Luxembourg 5bp (unch); Swaps 23bp (+2); Finland 27bp (-1); Netherlands 27bp (+0); EU 38bp (+2); Austria 53bp (-2); EIB 67bp (+2); France 70bp (+1); EFSF 84bp (+3); Belgium 102bp (-1); Italy 358bp (+4); Spain 413bp (+4).

EUR swap curve 2-5 YRS 51bp (+2,0); 5-10 YRS 82bp (-3,0) 10-30 YRS 59bp (-4,0).
2 YRS German BKOs closed 0,064% (+2,3) and 5 YRS OBLs 0,60% (+4).

Main at 134 from 130 (3,1% wider ); Financials at 194 after 187 (3,7% wider). SovX at 137 (+2). Cross at 547 from 531.
Stoxx Futures at 2563 / +0,5% (from 2551) with S&P minis at 1456 (+0,4% from 1450, at European close).
VIX index at 14,1 after 14,4 yesterday same time.

Oil 92,8/110,9 (WTI/Brent) from 91,6/109,4 (+1,4%/+1,4%). Gold at 1772 after 1763 (+0,5%). Copper at 380 from 375 (+1,3%). CRB at EU COB 308,0 from 306,0 (+0,7%).
Baltic Dry back into reverse, down 9 tick to 763 (-1.2%). Still up 15% from the 662 low 10 days ago.

EUR 1,296 from 1,291

Greek bonds guesstimates: Regardless of rumours and strikes in Athens, Greece keeps crawling tighter with 2023s closing at 19.25% from 19.50% (20% Friday) and 2042s at 17.75% from 18% (18.25% Fri).

All levels COB 17:30 CET

This week:
Running empty on data flow. End of month data publication fatigue, so markets will run on sentiment, technicals and rumours. Merkel / Draghi & Merkel / Lagarde meeting in the coming 2 days.
Spanish budget on Thu and 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.

EZ: Fri 27 M3 & Biz Climate + final Sentiment Data
GE: Wed CPI fcst 2.1% after 2.2%; Thu unemployment
FR: Wed Cons Conf fcst 86 after 87 and unemployment
Italy: Wed Retail Sales (fcst 0% after +0.4% MoM); Thu Biz Conf (last 87.2)
Spain: Thu Housing Permits (last -32.6% YoY) & Retail Sales. Fri Bank audit.
US: Wed New Home Sales; Thu GDP revision, Personal Consumption, Durable Goods, Claims, Home Sales

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

If you have 20 minutes to spare…Ultra-long Monster version

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