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, 28 September 2012

28 Sep 2012 – “ After The Rain Has Fallen ” (Sting, 1999)

28 Sep 2012 –  “ After The Rain Has Fallen ” (Sting, 1999)

Bizarrely, and even after slapping my screens several times to make sure things were working, real opening levels in EGBs very quite simply FLAT. All flat! Haven’t seen that in ages!
Bunds unchanged at 1.45% (as were USTs at 1.63%). German curve unchanged. Soft Core, Swaps and Agencies frozen at COB levels. Periphery flat. Italy stuck at 5.17% in 10s and 2.35% in 2s. And the same for Spain, 5.92% in 10s and the 3.30% in 2s from yesterday’s close. Fascinating, Dr. Spock, fascinating.
Sportive start into the European day in equity futures, but eventually settling for a small plus of 0.50%, in line with US futures. Credit tighter though (2-3%) and most Commodities a little better than yesterday evening with the EUR at 1.293 (some 80 pips higher). Eventually all levels seen yesterday in the after-market session in futures, but off the highest levels (as was the close in the US).
Asian picture mixed, mostly better with China much better to close the month and quarter and ahead of the one-week holiday close. Japan an outlier here (closing the fiscal half-year, too), down 1%, but closing slightly off lows on a disappointing data dump (a dozen or so) with PMI about flat at 48 (after 47.7), better retailing figures, but with Industrial Production down 1.3% MoM/4.3% YoY (fcst were -0.5%/-3.4% after -1%/-0.8%).

Light data front to close the week: French Q2 GDP confirmed at flat. German Retail sales a touch better than expected, but with prior revised lower. French Aug PPI overshooting at +1.2% MoM/2.6% YoY (fcst +0.6% after +0.4%), probably on energy costs. Consumer spending undershooting at -0.8% MoM (fcst -0.3% after +0.4%), probably the same reason. Spanish CPI shooting up to +3.5% (fcst 2.8% after +2.7%), which is a) sticky at high levels and b) another prong squeezing Spanish well-being. Likewise Italian PPI overshooting at +0.8% MoM/+3% YoY. Forget any ECB rate cut next week. Transmission might be broken, and energy prices the culprit, but this is fodder for the hawks.
Final squash of any rate cut hope should be the EZ CPI, which clocked in at 2.7% (far over the 2.6% forecasts after 2.6%).

Bizarre catatonic morning with nothing moving. Equities down a little and just slightly positive by mid-morning and Periphery bonds a touch softer, with Spanish 2s adding bp, pushing out Italian and Spanish 10s by 2.
The announcement that the bank stress results would come out only at 18:00 CET, thus after market close in Europe, next to Germany’s re-affirming the joint AAA North Hawks position on ESM bank recaps, gave a little Risk Off shudder, pushing the Periphery a little wider again, Spain tickling the 6% and stocks into the red.
No major reaction to French plans to reduce 2013 debt issuance by about EUR 12bn, with bonds down to EUR 170 from EUR 178bn.

Shudder morphing into real Risk Off at midday with equities down 1% (at the lowest since 07 Sep) and Spain past 6% for good.
Bunds 1,42% (-3), OBLs 0,50% (-2), BKOs 0,023% (-1,3). UST 1,62% (-1)
Spanish 2s 3,38% (+8), 10s 6,02% (+10). Spanish 2-10s 264bp (+3).
Italian 2s 2,41% (+6), 10s 5,23% (+6). Italian 2-10s 283bp (+1).
Credit back to flat after this morning too optimistic start (but outperforming).
EUR out of the equity-correlation loop (for now) and holding above 1.29 (maybe on dashed rate cut fantasy). Commodities still slightly positive.

Post-lunch blues not helped by US Personal Income missing expectations at 0.1% (fcst +0.2% after +0.3%, eventually revised lower to +0.1%) and Spending as foreseen at +0.5% (after +0.4%). Equities down to -1.75%.
Still Risk bottoming out a little with the Periphery eventually paring losses to stabilize around unchanged levels and with US cash opening solely down 0.5%.
Mood soured to close the week by 2 further misses with the Chicago PMI diving to 49.7, hence below the expansion mark, while forecast had seen a small correction from 53 to 52.8 and Michigan Confidence numbers at 78.3 (fcst 79 after 79.2).

Total Risk Off close with a final dump in equities, although the Periphery remained stable ahead of the Spanish Bank numbers (and underlying bail-out hopes?)
Bunds closed at 1,44% (-1), OBLs at 0,51% (-1) and BKOs 0,021% (-1,5) with UST at 1,61% (-2)
Spanish 2s at 3,36% (+6), 10s at 5,91% (-1). Spanish 2-10s 255bp (-6).
Italian 2s at 2,33% (-2), 10s at 5,16% (-1). Italian 2-10s 283bp (+1).
Equities down 2%. Credit remarkably flat. Odd.

Had to slap my screens again tonight, given the tons of “unchanged” data in EGBs. Have decorrelated from equities, as has the USD (closing about unchanged).

No new issues today.

Closing levels:
10 YRS Yields: Germany 1,44% (-1); Luxembourg 1,56% (-1); Finland 1,72% (unch); Netherlands 1,71% (-1); Swaps 1,73% (-1); EU 1,88% (unch), Austria 2,02% (-2); France 2,17% (-3); EIB 2,18% (unch); EFSF 2,37% (unch); Belgium 2,53% (-2); Italy 5,16% (-1); Spain 5,91% (-1).

10 YRS Spreads: Luxembourg 12bp (unch); Finland 28bp (+1); Netherlands 27bp (unch); Swaps 29bp (unch); EU 44bp (+1); Austria 58bp (-1); France 73bp (-2); EIB 74bp (+1); EFSF 93bp (+1); Belgium 109bp (-1); Italy 372bp (unch); Spain 447bp (unch).

EUR swap curve 2-5 YRS 48bp (unch); 5-10 YRS 80bp (+1,0) 10-30 YRS 58bp (+2,0).
2 YRS German BKOs closed 0,021% (-1,5) and 5 YRS OBLs 0,51% (-1).

Main at 136 from 136 (unch); Financials at 204 after 203 (0,5%). SovX at 148 from 149. Cross at 568 from 568.
Stoxx Futures at 2452 / -2,0% (from 2501) with S&P minis at 1431 (-0,1% from 1433, at European close).
VIX index at 15,6 after 16,2 yesterday same time.

Oil 91,8/111,9 (WTI/Brent) from 91,5/111,7 (+0,3%/+0,1%). Gold at 1773 after 1765 (+0,5%). Copper at 376 from 371 (+1,3%). CRB at EU COB 308,0 from 306,0 (+0,7%).
Baltic Dry rebounding 22 (3%) to 766.

EUR 1,285 from 1,284

Greek bonds guesstimates: Greece down 50bp again with 2023s closing 19.25% (20% Friday) and 2042s down to 18% (18.25% Fri). Not sure those hard-fought measures will pass internally and with the Troika.

All levels COB 17:30 CET

On the week (compared to Fri 21 Sep COB):

Last week had been a bluesy week, mainly boring and marked by being “No Fun”. It was worth a last-ditch attempt to grab all promises and expectations and "Turn Them Into Gold" (Bunds 1,59% +2; Spain 5,73% -1; Stoxx 2565% +0,5%; EUR 1,299) in a Friday afternoon squeeze attempt. It just didn’t really work out that way… Monday, the Fall having started on time, set the wet and depressing theme of the next couple of days as "Raindrops Keep Fallin’ On My Head" (Bunds 1,56% -3; Spain 5,65% -8; Stoxx 2551% -0,5%; EUR 1,291), although Spain held its own in uncertain environment. To no avail, though, as Tuesday confirmed the season with a shower of "Purple Rain" (Bunds 1,58% +2; Spain 5,71% +6; Stoxx 2563% +0,5%; EUR 1,296) on a mixed set of tension factors. Still, positive US sentiment figures were good for a late equity rally, although the Periphery as well as Credit started to feel quite leaded. Plosser comments after the European close sent US risk, followed by Asia, packing leading to a Risk Off open on Wednesday. Eventually the day ended even worse than it started "Bad Rain" (Bunds 1,46% -12; Spain 6,03% +32; Stoxx 2497% -2,6%; EUR 1,285), weighted down by an equity sell-off and Periphery fears. The fact that the Bund auction failed didn’t hinder the auctioned paper to rally nevertheless. Eventually, Thursday started in milder manner, recouping some of the losses. It just felt like another "The Rain Song" (Bunds 1,45% -1; Spain 5,92% -11; Stoxx 2501% +0,2%; EUR 1,284) with dire US data, but the end of day Spanish budget was taken rather positively on first sight.

We closed last week with a question on everyone’s mind is “What’s next? Where can we move to WITHOUT support?” And this week didn’t really bring the answer. Confirmation that Fall has started, though. Yes, a rainy week it was. No grand announcements (outside the Spanish budget people are still chewing on). Ongoing geo-political and regional tensions. Starting soft anyway, Risk got kicked as Plosser stated an obvious truth, obliterated of late, and the rather global macro environment suddenly came back front-stage. The EGB credit torsion started last week continued with Germany, despite a failed auction on Wednesday, adding another 15 basis points (26 bp tighter in two weeks) to close back below 1.50%. Other Hard Core issuers taken along for the ride. Soft Core and Agencies sharing half that strength. Spain faced with a sell-off over 6%, recovered from the widest levels, but added 18bp on the week. Italy, too a little wider. After having closed the prior week roughly flat, this week’s widening is starting to put a chink into the Draghi put. That is especially the case on the shorter end with Italian 2s adding 15bp to 2.33% and Spanish 29bp to 3.36%. Having flirted with the 400 to Bunds last week, Spanish 10s hit 450.
The EUR swap curve flattened notably with the 2-10 spread down 11bp to 128.
Having outrageously performed 2 weeks ago and starting to correct last week (5-5% wider), Credit remained under pressure with some index post-roll adjustments adding to the malaise. Main widened by 7% and Financials even by 12%, here again victim of the Draghi put value correction. Having outperformed equities in the post-summer squeeze, we are facing the same on the way down, as equities eventually “only” lost 4.4% in Europe, of which half today.  VIX on the rise in the US, but still historically low.
Commodities suffering a little under the ambient blues, but nothing really major. Note Gold crawling higher, little by little, targeting the 1800 12-month high. After an explosive recovery last week, BDY back to sleep.
After the last 2 weeks’ explosive supply (over EUR 50bn), action was much, much tamer this week with a mere 11 (smaller-sized) benchmarks on the chop for a total of EUR 6.8bn. Periphery supply was limited to a EUR 1bn BBVA senior trade. The one trade that stood out was Petrobras’ 2-trancher totalling EUR 2bn for 6.5 and 11 years (plus GBP 400m in 17 YRS).

10 YRS Yields: Germany 1,44% (-15); Luxembourg 1,56% (-7); Finland 1,72% (-16); Netherlands 1,71% (-15); Swaps 1,73% (-9); EU 1,88% (-7); Austria 2,02% (-10); France 2,17% (-10); EIB 2,18% (-6); EFSF 2,37% (-3); Belgium 2,53% (-10); Italy 5,16% (+6); Spain 5,91% (+18).

10 YRS Spreads: Luxembourg 12bp (+8); Finland 28bp (-1); Netherlands 27bp (+0); Swaps 29bp (+6); EU 44bp (+8); Austria 58bp (+5); France 73bp (+5); EIB 74bp (+9); EFSF 93bp (+12); Belgium 109bp (+5); Italy 372bp (+21); Spain 447bp (+33).

EUR swap curve 2-5 YRS 48bp (-4,0); 5-10 YRS 80bp (-7,0) 10-30 YRS 58bp (-3,0).
2 YRS German BKOs closed 0,021% (-1) and 5 YRS OBLs 0,51% (-7), on the week. with UST at 1,61% (-16)
2 Swiss 2-years remarkably stable at -0.16%.

Main at 136 from 127 (7,1%); Financials at 204 after 182 (12,1%). SovX at 148 (+15). Cross at 568 from 521.

Stoxx Futures at 2452 / -4,4% from 2565 with S&P minis at 1431 / -1,8% from 1457, at European COB last week.
VIX index at 15,6 after 14,0 last week.

Oil 91,8/111,9 (WTI/Brent) from 93,1/111,0 (-1,4%/+0,8%). Gold at 1773 after 1773 (+0,0%). Copper at 376 from 380 (-1,1%) . CRB closes 308,0 from 309,0 (-0,3%).

EUR 1,285 after 1,299 last Friday

Greek bonds guesstimates: And another good week with 2023s down to 19.25% from 20% and 2042s a little tighter at 18% from 18.25%.

All levels Friday COB 17:30 CET

Next week:
Hard data lacking in Europe to get things anywhere. Final PMI data on Mon and Wed. German Factory orders at the end of the week. Unemployment figures across Europe. Of course, US NFP on Friday.
ECB next Thursday won’t do much on rates. Difficult to see the input here, unless Mario was to pull yet another rabbit out of his hat, but the mandate is quite stretched by now.
Should remain rather technical, subject to Periphery rumours and jitters. Spanish auction on Thu, as well as a new French 10 YRS.

EZ: CPI fcst 2.4% after 2.6%; Mon Final Mfg PMI 46, EZ unemployment (last 11.3%); Tue EZ PPI (last 1.8% YoY); Wed Final Comp and Serv PMI 45.9 & 46, Retail Sales (last -1.7% YoY); Thu ECB (unchanged)
GE: Mon Final MfG PMI 47.3; Wed Final Serv PMI 50.6; Fri Fact Orders fcst 0% after 0.5%
FR: Mon Final Mfg PMI 42.6; Wed Final Serv PMI 46.1
Italy: Mon Final MfG PMI & Unemployment (last 10.7%); Wed Final Serv PMI
Spain: Mon Mfg PMI; Tue Unemployment (last 38.2k); Wed Serv PMI; Fri Indu Output (last -5.4%)
US: Mon Final PMI ; MfG ISM fcst 50 after 49.6, PX paid fcst 55.1 after 54, Construction Spending fcst 0.5% after -0.9%; Wed ADP, Non-MfG ISM; Thu Claims, Fact Orders, FED minutes; Fri NFP
China closed for the whole of next week.

Click link on title or below for today’s musical support:
I promise I’ll change the theme next week…

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