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 2 October 2012

02 Oct 2012 – “ Jump, Jive N' Wail ” (Brian Setzer, 1998)

02 Oct 2012 –  “ Jump, Jive N' Wail ” (Brian Setzer, 1998)

Risk Off start in Europe, following the steady reversal of early US gains (with a spike after the positive US PMI publication that lifted US shares up to +1.20%), which slid lower into the close. In the case of the S&P, shares closed some 1% below the top; for the NASDAQ, it’s even some 1.4% with Apple weighting heavily. Asian session sideways to negative into the close (as Europe woke up and opened hung over from yesterday’s rebound). Japan negative. China closed. Australia cut rates 0.25% to 3.25%, giving in to ambient gloom and need for stimulus.
Rabid reaction with European equities rapidly giving back half of yesterday’s gains and down about 1%. Credit a couple of ticks wider, in line (+1.5%). European govies all a bit tighter, but with no particular outlier. BUNDs 1.45% (-1), as are USTs at 1.62%. Spain & Italy a tick or two tighter with short end outperforming another bp. Commodities drifting about 0.50% lower, compared to yesterday’s European closing levels. EUR just under 1.29. Not much else. Correction of the correction of the correction.

Appalling lack of hard data to steer the day. Markets will surf technicals and need to improvise and to be on the look-out for snippets, mainly from the Southern Front. Spanish Sep jobless claims doubling to 79.6k (from +38.2k), half more than expected. Quite seasonal data. End of summer jobs.

Nevertheless, things started to rather rapidly chill out, with Spanish bond tightening (pushing some 10bp tighter) leading a Risk recovery. Other EGBs rather sidelined, though with no real credit torsion seen at that stage. Recovery led by rumours some EU official acknowledged Spain was readying up bail-out demands. Long chain, nothing concrete nor official.

Spanish debt at this point eventually unabated by Moody’s comments about the bail-out numbers being rather on the optimistic side (in case of real stress) and seeing capital needs of EUR 70 to 105bn, should things go awry. There’s likewise a doubt, as others have previously delved on, whether the “bad bank” would be able to attract private capital, especially if the asset-transfers don’t take place at levels previously witnessed for instance in Ireland.

European PPI at 2.7% YoY beating 2.6% forecasts (after 1.8%, albeit revised down to 1.6%); +0.9% after 0.3% on a MoM basis. Certainly just another reason for the ECB to not touch rates this week, as all price indicators have been to the upside lately. A rate cut wouldn’t solve the transmission problem anyway.

Austria sold EUR 550m 2019 at 1.326% and EUR 770m 2044 at 2.88% (compares to 2044 Bunds at 2.31% and 2041 OAT at 3.17% - quite different long-term outlooks at work here). Belgian EUR 1.8bn 3m bills at -0.003% (from 0.023% mid Sep) and EUR 1.3bn 6m bills at +0.017% (after +0.004% early Sep). The EFSF rounded up supply with EUR 2bn 3m at -0.043% (after -0.045% last month).
Nothing on sales tomorrow. Spain’s EUR 4bn 2, 3 and 5 YRS auction on Thursday will be more interesting, as well as France new 10 YRS Oct 2022.

Mid-day sentiment much more upbeat than at the open – still with no more tangible reason. Good periphery performance, supporting equities up 0.50% compared to the close and over 1.5% from the early morning lows. Credit 1-1.5% tighter in response.
Bunds 1,48% (+2), OBLs at 0,55% (+0), BKOs 0,041% (-1) with UST unchanged at 1,63%.
Spanish 2s 3,09% (-16), 10s 5,72% (-12). Spanish 2-10s 262bp (+2).
Italian 2s 2,17% (-8), 10s 5,07% (-6). Italian 2-10s 290bp (+2).
Commodities around flat to yesterday evening and up 0.5% from the morning lows. EUR at slightly over 1.29 on COB levels.

Drifting sideways on the highs attained with nothing to actually trade on after lunch.

ISM NY at 52.9 after 51.4 the lone piece of US data popping up during the afternoon. Better than Q2 below the 50-mark, and a rebound from Aug, but less than the 55.2 of July and far less than the 60-plus in Q1.
Soft US equities, after a tentative +0.30-0.50% open, which rapidly drifted half a percentage point lower, to the dismay of European Risk.

Had furthermore a WSJ piece stating that those final EUR 2bn were still haggled over (a repeat of previous days’ rumours, suddenly reheated) and Moody’s stating it would postpone its decision on Spain by a month. While rather credit positive for the banks, the bail-out and possible ESM support by Spain have obviously a different implication for the sovereign. Duh! No fresh news, either, but suddenly acknowledged differently. Periphery bonds staying put, though, near today’s tightest prints.

Wow! Good equity swings in Europe. EStoxx down about 1% from COB to the morning lows, up nearly 2% from these lows to noon highs and tanking back over 1.25% into the close.
Core & Soft EGBs rather muted in volatility, closing by and large unchanged, with Periphery bonds running a separate path.
Again that decorrelation. Jump, Jive & Wail…
Bunds closed at 1,46% (unch), OBLs at 0,54% (-1) and BKOs 0,041% (-1) with UST at 1,62% (-1)
Spanish 2s at 3,11% (-14), 10s at 5,72% (-12). Spanish 2-10s 260bp (unch).
Italian 2s at 2,16% (-9), 10s at 5,08% (-5). Italian 2-10s 291bp (+3).
EUR holding steady at 1.295. Commodities by and large flat. Gold trying to tickle YTD high at $ 1787/oz.

Still light on data tomorrow with Final Composite and Service PMIs all around (NB: Final MfG added up 0.1 on European data on Monday, with only Italy a more positive outlier).

New issue supply still on the light side, despite the more upbeat environment. Still, pretty much alone on the floor Poland attracted a multi-billion book for a new 12 YRS deal, finally printing EUR 1.75bn at MS +143, following the (about a notch better) Czech 10 YRS tap at +116 yesterday.
A EUR 1bn joint-Länder was launched in 7 YRS at MS +8, while the corporate side saw Origin Energy for EUR 500m 7 YRS at MS +160.

Closing levels:
10 YRS Yields: Germany 1,46% (unch); Luxembourg 1,59% (unch); Netherlands 1,74% (+1); Finland 1,75% (+1); Swaps 1,76% (-1); EU 1,91% (unch), Austria 2,03% (unch); France 2,19% (unch); EIB 2,20% (unch); EFSF 2,37% (+1); Belgium 2,54% (unch); Italy 5,08% (-5); Spain 5,72% (-12).

10 YRS Spreads: Luxembourg 13bp (unch); Netherlands 28bp (+1); Finland 29bp (+1); Swaps 30bp (-1); EU 45bp (unch); Austria 57bp (unch); France 73bp (unch); EIB 74bp (unch); EFSF 91bp (+1); Belgium 108bp (unch); Italy 362bp (-5); Spain 426bp (-12).

EUR swap curve 2-5 YRS 48bp (unch); 5-10 YRS 80bp (unch) 10-30 YRS 60bp (+1,0).
2 YRS German BKOs closed 0,041% (-1) and 5 YRS OBLs 0,54% (-1).

Main at 132 from 133 (0,8% tighter); Financials at 195 after 200 (2,5% tighter). SovX unch at 145. Cross at 556 from 558.
Stoxx Futures at 2490 / -0,2% (from 2496) with S&P minis at 1439 (-0,7% from 1449, at European close).
VIX index at 16,1 after 15,6 yesterday same time.

Oil 92,4/112,0 (WTI/Brent) from 92,7/112,3 (-0,4%/-0,3%). Gold at 1780 after 1778 (+0,1%). Copper at 380 from 378 (+0,5%). CRB at EU COB 311,0 from 309,0 (+0,6%).
Baltic Dry up 1 tick to 778.

EUR 1,295 from 1,291

Greek bonds guesstimates: Greece stable near late tightest levels with 2023s at unchanged 19% and 2042s at 17.75%. Same comment: Troika haggling – or not, the market seems to price that the Greeks will be left off the hook.

All levels COB 17:30 CET

This week:
Hard data lacking in Europe to get things anywhere. Further Final PMI data on Wed. German Factory orders at the end of the week. Unemployment figures across Europe. Of course, US NFP on Friday.
ECB on 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: Wed Final Comp and Serv PMI 45.9 & 46, Retail Sales (last -1.7% YoY); Thu ECB (unchanged)
GE: Wed Final Serv PMI 50.6; Fri Fact Orders fcst 0% after 0.5%
FR: Wed Final Serv PMI 46.1
Italy: Wed Final Serv PMI
Spain: Wed Serv PMI; Fri Indu Output (last -5.4%)
US: Wed ADP fcst 140k after 201k, Non-MfG ISM 53.4 after 53.7 ; Thu Claims fcst 370k after 359k, Aug Fact Orders fcst -5.9% after +2.8%, FED minutes; Fri NFP fcst 115k after 96k, Rate 8.2% after 8.1%
China closed for the whole week.

Click link on title or below for today’s musical support:
Baby, baby, it looks like it’s gonna hail…
Baby, baby, it looks like it’s gonna hail…

Original by Louis Prima (1956)

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