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 26 September 2012

26 Sep 2012 – “ Bad Rain " (Slash & The Conspirators, 2012)

26 Sep 2012 – " Bad Rain" (Slash & The Conspirators, 2012)

Yes, it did feel kinda rainy already yesterday at market close, but the “Purple Rain” quickly transformed into a sea of red, as the market digested (non-voting) FED’s Plosser comments on his doubts on QE. Not that there was much in revelations in what he said, but somehow, it confirmed what everybody seems to fear deep inside. In any case, a good reason for a “sell-off” (It might have been the biggest drop in the S&P in a month, but, hey, we’re talking about just over 1% in the close, so hardly world-shattering for the moment).

Asia caught in the movement, with Japan particularly hit (-2%), having outperformed yesterday. China hitting a new low, closing just above 2.000, back to late Jan 2009 levels. Beware of further acceleration with China be closed for holiday during the whole of next week
Sprinkle on that belated mulling on the Spanish situation, BuBa’s Weidman renewed hard-line stance (and, btw, 7% is NOT outworldish, as having been tested in the past by some)(although at that time with higher growth and inflation figures against that) as well as conditioning on bank-aid and renewed legal checking (although rather rumoured than confirmed) on the ECB buying (not the ESM), as well as no ex-post ESM bank bailout, and you have a perfect mix to kick-start another day to hang out there to dry – under the rain. Bad Rain.

Total Risk Off start with Bunds down 6bp to 1.52% (ahead of the auction). Periphery kicked down the road in short and longs (2 YRS Italy +10 to 2.38%, Spain +11 to 3.20%, Italian 10s +8 to 5.24% and Spain thrown back to 5.84%, which is damn near to the symbolic 6%).

European equities down 1% plus. Credit still in massive correction phase after rolling out the new series with the Main wider by 4.5% and Financials out by 3%. Commodities downed with Brent off by over 2%. Gold stable (something needs to be) and EUR at 1.287.
(Light) Data front in line with mood with French Consumer Confidence down to 85 (fcst 86 unch), coupled with leaks confirming that tonight’s jobless claims with print way past the 3m-mark. Italian retail sales down 3.2% YoY (fcst -0.8% after -0.5%). Bank of Spain still seeing Q3 GDP falling at a “significant” pace. German CPI as expected +2.1% after 2.2% YoY.

Less comfortable day for a Periphery sales: Italy sold EUR 9bn 6m bills at 1.503% (last 1.59% end of Aug), Mediocre bid to cover of 1.4 and obviously with a tail up to 1.547%. Seemed to have been quoted 20 bp tighter yesterday.

Will be selling EUR 3bn each of on-the-run 5s (COB 4.12%, last 3.71% mid-Sep on off-the-run 5s) and 10s (COB 5.27%, last 5.82% end of Aug) tomorrow (next to EUR 1bn FRN).
Seemed like great back-drop for the German auction in full ROff mode: EUR 5bn 10 YRS sold at 1.52%, barely a concession to this morning’s lows (COB had been 1.58%, last 1.42% early Sep and early Aug), but with the BuBa loading up on EUR 1.8bn of paper, as there were only bids for EUR 3.9bn in total, of which EUR 3.2bn were allocated. 3 cts tail. Good result price-wise, but a fail nevertheless…
Spanish bonds wider by 25bp in2s to 3.34% and 24bp to 5.95% were shaky enough to actually support Bunds nevertheless and the immediate reaction after the auction result was about 1 bp widening in German 10s and then back to the day’s lows. Odd world.

Bunds hitting 1.50% (-8bp) as appetizer ahead of lunch, with Spain printing 6.000% (+29bp) (Spread, easy to guess, out by 37bp and hitting a round +450) and equities down 2% / Credit 6% wider.

Midday levels: Bunds 1,51% (-7), OBLs 0,56% (-5), BKOs 0,049% (-1,5) with UST 1,66% (-6)
Spanish 2s 3,31% (+22), 10s 5,98% (+27). Spanish 2-10s 267bp (+5). Hit 6% in 10s for the first time since 18 Sep.
Italian 2s 2,38% (+10), 10s 5,23% (+7). Italian 2-10s 285bp (-2).
1.286. Oil & Copper -1.75%.

Drifting sideways until US open (flat / slightly negative) and ahead of the sole US data set of the day. New Home Sales for Aug at 373k (fcst 380k after revised +2 to 374k) / -0.3% MoM (fcst +2.2% after +3.6%) not helping to lift spirits any higher…

10 YRS Bunds and UST back to 05 Sep, respectively 07 Sep levels… Ok, the Bund auction was a fail, but who cares? On the contrary, these amounts are missing now…
Oil inventories eventually of no interest, price action just depleted.

Yes, it did feel rainy yesterday… Total Risk Off close. Bad Rain.

Credit still mega-sluggish side (5-7% wider), back to early Sep levels. Equities (-2.6%) pretty much evenly and straight down the chart, no rebound really worth more than 0.25%.
Bunds closed at 1,46% (-12), OBLs at 0,52% (-9) and BKOs 0,033% (-3,1) with UST at 1,64% (-8)
Spanish 2s at 3,39% (+30), 10s at 6,03% (+32). Spanish 2-10s 264bp (+2).
Italian 2s at 2,41% (+13), 10s at 5,27% (+11). Italian 2-10s 286bp (-1).
Closing pretty on LOD (1.45%) in Bunds, HOD 6.03% in BONOs. Spain’s budget presentation will need to be quite convincing to turn around the mood.
EUR at 1.285 no more entangled in 50d, 100d & 200d MOV at 1.293 / 1.294 / 1.297
Commodities crashing.
Bad Rain, really Bad Rain!

New Issues side-lined on Risk Off and widening spreads. Lone appearance of the day was unrated Austrian steel-maker Voestalpine with EUR 500m 6 YRS at MS +295.

Closing levels:

10 YRS Yields: Germany 1,46% (-12); Luxembourg 1,59% (-4); Finland 1,72% (-13); Netherlands 1,74% (-11); Swaps 1,75% (-6); EU 1,90% (-6), Austria 2,04% (-7); France 2,20% (-8); EIB 2,20% (-5); EFSF 2,36% (-6); Belgium 2,55% (-5); Italy 5,27% (+11); Spain 6,03% (+32).

10 YRS Spreads: Luxembourg 13bp (+8); Finland 26bp (-1); Netherlands 28bp (+1); Swaps 29bp (+6); EU 44bp (+6); Austria 58bp (+5); France 74bp (+4); EIB 74bp (+7); EFSF 90bp (+6); Belgium 109bp (+7); Italy 381bp (+23); Spain 457bp (+44).

EUR swap curve 2-5 YRS 47bp (-4,0); 5-10 YRS 80bp (-2,0) 10-30 YRS 57bp (-2,0).

2 YRS German BKOs closed 0,033% (-3,1) and 5 YRS OBLs 0,52% (-9).
Main at 141 from 134 (5,2% wider); Financials at 209 after 194 (7,7% wider). SovX at 149 from 137. Cross at 581 from 547.

Stoxx Futures at 2497 / -2,6% (from 2563) with S&P minis at 1429 (-1,9% from 1456, at European close).
VIX index at 16,7 after 14,1 yesterday same time.

Oil 89,3/108,6 (WTI/Brent) from 92,8/110,9 (-3,8%/-2,1%). Gold at 1747 after 1772 (-1,4%). Copper at 371 from 380 (-2,4%). CRB at EU COB 303,0 from 308,0 (-1,6%).

Baltic Dry again down 1.5% to 752 from 763. Still up 13.6% from the 662 low 10 days ago. Maybe it’s just like catching a cab when it rains.  And someone really wanted to ship least week (iPhones?)

EUR 1,285 from 1,296

Greek bonds guesstimates: Unsurprising 25bp widening, Greece 2023s closing back to 19.5% (20% Friday) and 2042s back to 18% (18.25% Fri).

All levels COB 17:30 CET

Rest of this week:

Spanish budget tomorrow and bank audit due on Friday 28 Sep. Italian auction tomorrow.

EZ: Thu M3 & Biz Climate fcst -1.2 unch, final Sentiment Data -25.9, Fri CPI fcst 2.4% after 2.6%
GE: Thu unemployment fcst 6.8% unch, Fri Retails Sales fcst -0.9% YoY (after -1%)
FR: Fri final Q2 GDP 0.3% YoY,  Aug PPI fcst +2% YoY, Consumer Spending fcst -0.7% YoY
Italy: Thu Sep Biz Conf fcst 87.5 (last 87.2), Fri PPI fcst +2.5% after 2.4% YoY, CPI fcst 2.7% after 3.3%
Spain: Thu Housing Permits (last -32.6% YoY) & Retail Sales fcst -6.1% after -7.3%, CPI fcst 2.8% after 2.7%
US: Thu GDP revision, Personal Consumption, Durable Goods, Claims, Home Sales

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

Released this very afternoon. Hot off the press, as so much these days - so to speak

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