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

Thursday 4 October 2012

04 Oct 2012 – “ So What? ” (Anti-Nowhere League, 1981)

04 Oct 2012 – “ So What? ” (Anti-Nowhere League, 1981)

He he he. Repetitive patterns. Just made it into the US close with the S&P adding the extra 0.25% in the last hour of trading, robo-traded, probably. That is after robots gone wild turned Kraft into a flash fondue. Helpfully, wealth effect generator Apple up 1.5%, thanks Jobs (RIP). Still, off highs US settlement, but 0.50% higher than at European close.
Good Japanese session, with China still off. Oil still licking wounds. Gold crawling up again. EUR flat overnight and rising at European open. Looks like the first presidential debate was good enough to lower the bar for future expectations. No hard data. Not much more to say in overnight action or news.
No news out of Spain, with the head of Catalonia calling the 2013 sovereign budget unrealistic and demanding a twice higher regional deficit leeway (and thus immediately breaking a Tuesday agreement on a spirit of loyalty cooperation) and saying any bail-out request could be weeks away (for instance after the Catalan elections on Oct 25…).
Unclear German tango steps on Spailout, being at once supportive and obviously standing with both feet on the breaks.

Had a short-lived up to 1% surge in futures at cash open, but eventually things rapidly balanced out in more subdued manner.
Equities up a small half percentage point, matching US futures crawling slightly higher after close. Credit a tick tighter. EGBs flat up to the Soft Core. Italian bonds a bit softer. Spanish bonds softer ahead of the auction with 2 YRS out 8bp and 10s 4bp. UST unchanged from European COB. Settling in for probable sideways trading ahead of the Spanish auction and the ECB press conference.

Closing auction supply for this week: Spanish EUR 4bn target reached with EUR 2bn SPGB Oct 2014 at 3.282% (Stop 3.39%; COB 3.20%, ahead of auction 3.27%) EUR 710m Oct 2015 at 3.956% (Stop 4.03%; COB 3.90%; ahead of auction 3.96%) and EUR 1.28bn Jul 2007 at 4.766% (Stop 4.83%; COB 4.73%, ahead of auction 4.76%). All lines in comfortable bid to cover of 2 to 2.5, but once more with some heavy tails of 7 to 11bp between average and stop-out price. No overbidding whatsoever this time.
Last auction was 20 Sep with 3s sold at 3.85%, before that 06 Sep with 2s at 2.80%, 3s at 3.68% and 4s at 4.60%. So funding costs on the rise. Need a new Mario super pill…
Disappointing auction results coincided with Cyprus revealing EUR 11bn bail-out needs (62% of 2011 GDP of EUR 17.7bn). Add the recurrent rumour of the AAA nation pushing for delaying Greek loan tranches. Leading to a general Risk Off movement. Add ISTAT revising Italian 2011 debt/GDP to 120.7% (from 120.1) and you get the feel.

The Trésor managed to put the new OAT on liquid rails with EUR 4.8bn OAT Oct 2022 sold at a tight 2.28% (COB 2.30%, unch ahead of auction Apr 2022 +11.5bp). No discount here. ISIN FR0011337880. Last auction in 10s was at 2.21% (Apr 2022). Additionally, off –the-runs fared well with EUR 1.4bn Oct 2018 at 1.29% (COB 1.30%, unch ahead of auction) and EUR 1.8bn Apr 2041 at 3.17% (COB 3.19%, unch ahead of auction) (to be seen relatively to Austria’s 2044 on Monday at 2.88%). No discount here either. Low tails of 3 to 4 cts. B/C between 2.2 and 3.8.
Very benevolent markets, given the late economic proposals and ideas of the government.
Had France immediately tightening by 3bp, next to being supported by the aforementioned ROff move. Given the curve effect, spread to Bunds obviously wider, and back into the low 80s from mid 70s.

What’s best than to enter a pre-ECB meeting slot on an unchanged basis? Hence most indicators unchanged. Equities slightly down. Credit flat. France 3 tighter after a successful auction, Austria 2 tighter in the wake of its Soft Core peer. Italy about flat, slightly off on the short end. Spain wider after its less stellar auction performance, but eventually in rather dignified manner (have seen worse immediate reactions to auctions) with 2s out by 10 and 10s by 6. Auction paper settling between average and stop-out price at this morning’s slightly depleted levels. At least, for once Primary Dealers weren’t force to overbid on ongoing short-squeeze fears after having been squeezed out 25bp the day before, as happened so often over the last 6 months.
The fact that we don’t get nervous breakdowns (or, more seldom, euphoric highs) at each and every Periphery auction, the diminishing volatility, is probably in itself a sign that things are getting more cool-headed. The question whether Spain (and Italy) can afford these – mor stable levels – on the long run is obviously a different one.
But the OMT is there, offered, not yet taken… BoS Linde on the ticker, acknowledging budget targets are on the optimistic side, but that bail-out conditions ought to be “manageable” (in his personal opinion).

BOE unchanged. Mid-day levels just ahead of the ECB announcements, unsurprisingly unchanged:
Bunds 1,46% (+2), OBLs 0,53% (+1), BKOs 0,042% (+1,3). UST 1,63% (unch). Note softer Bunds.
Spanish 2s 3,24% (+3), 10s 5,84% (+5). Spanish 2-10s 259bp (+1).
Italian 2s 2,21% (+2), 10s 5,07% (-3). Italian 2-10s 286bp (-5). Note recovering Italians.
Equities up 0.25%. Credit 1 tick tighter. Commodities mixed, flattish overall with Gold 1789, trying to retake YTD highs at $1791. EUR 1.295.
No reaction whatsoever. So what?

US numbers, just ahead of the ECB press conference, with Claims at 367k (fcst 370k after 359k, revised 363k – so squared) with Continuous Claims higher than foreseen, but eventually stable at 3281k (fcst 3275k after 3271k, revised 3281k). Mixed to slightly negative. So what?

ECB Conf starting with unsurprising comments on growth concerns, inflation bla bla etc. solutions to transmission provided by the ECB via OMT and governments asked to do their job, yada yada within mandate etc. etc. EUR irreversible. Repeating the ECB would exit in case of non-compliance. Growth on the downside. Duh! Then again, can’t pull out a rabbit every month. CPI of 2.7% squarely explained by taxes and energy prices.
On Q&A: Rate setting wasn’t even discussed (here goes some pent-up wishful thinking). Squarely no OSI nor rescheduling in sight on Greek holdings (as seen as government financing)(here goes some more wishful thinking). ESM financing of legacy assets (to be haggled out by the stake holders). Conditionality strictly needed to keep moral hazard in check. No target rates disclosed, as what would be acceptable in case of OMT.
Yawn! Can’t always be a rainmaker and light fireworks every month. Take-aways? None really. So what?

And then again… Market reaction, ticking up down up down, but close to home, shows that eventually no one actually expected much more. Would have been nice, but doesn’t matter. Let’s surf some rumours, then. No rumour? Let’s stay put.
As stated above on the auction aftermath, there’s some immunization to (S)pain taking place. Will pick again sooner or later on some detail that will have been out in the light for weeks, but ignored by all and catapulted into the limelight by some paper picking it up…

US cash open ok, supported by positive US Aug Factory Orders at -5.2% (fcst -5.9% after +2.8%, revised +2.2%). Ok, on to tomorrow’s NFP.

Not much else. That the EU doubts the viability of Spain’s budget numbers is less a wonder than that it actually seems to state it. Bit of a let-down in the last half hour of the session. Boo! That Greece keeps trading tight is a mystery, too.

Bad case of unlucky timing with those EU doubts hitting Spanish bonds on the chin into the close and dragging Risk along (a little). France keeping 2bp on the nice auction results. Rest about unchanged. Curves unchanged. Italy falling prey to Spanish weakness.
Bunds closed at 1,44% (unch), OBLs at 0,51% (unch) and BKOs 0,039% (+1) with UST at 1,64% (+1)
Spanish 2s at 3,29% (+8), 10s at 5,88% (+9). Spanish 2-10s 259bp (+1).
Italian 2s at 2,26% (+7), 10s at 5,13% (+3). Italian 2-10s 287bp (-4).
Equities down just a little. Credit unchanged. Oil trying to creep back out of yesterday’s well. Gold took at new high at 1795. EUR tried and failed to break 1.30 for good, knowing that an ECB non-rate discussion is not enough at this stage to propel things higher.

Auction paper closing with SPGB Oct 2014 at 3.29% (auction average 3.282%) Oct 2015 at 3.95% (auction 3.956%) and EUR 1.28bn Jul 2007 at 4.78% (auction 4.766%). OAT 2022 closing at 2.275% (auction average 2.28%). Not much damage done on Spain, as levels already reached ahead of auction. Did someone yawn here?

No European data to spice up tomorrow. Germany Factory Orders fcst +0% after +0.5%. US NFP, of course.

New issue trickle with EUR 350m 5 YRS for Alstom at MS +143 and a EUR 250m FRN 2018 increase by the EIB at 3mE +11.

Closing levels:
New French Oct 2022 ref (was Apr 22 +11)
10 YRS Yields: Germany 1,44% (unch; Luxembourg 1,58% (unch); Netherlands 1,72% (unch); Finland 1,75% (+2); Swaps 1,76% (+1); EU 1,91% (+1), Austria 2,02% (unch); EIB 2,19% (unch); France 2,28% (-2); EFSF 2,35% (unch); Belgium 2,49% (-2); Italy 5,13% (+3); Spain 5,88% (+9).

10 YRS Spreads: Luxembourg 14bp (unch); Netherlands 28bp (unch); Finland 31bp (+2); Swaps 32bp (+1); EU 47bp (+1); Austria 58bp (unch); EIB 75bp (unch); France 84bp (-2); EFSF 91bp (unch); Belgium 105bp (-2); Italy 369bp (+3); Spain 444bp (+9).

EUR swap curve 2-5 YRS 47bp (-1,0); 5-10 YRS 82bp (unch) 10-30 YRS 59bp (unch).
2 YRS German BKOs closed 0,039% (+1) and 5 YRS OBLs 0,51% (unch).

Main unchanged at 129; Financials unchanged at 187. SovX at 143 from 146. Cross at 546 from 550.
Stoxx Futures at 2479 / -0,2% (from 2485) with S&P minis at 1452 (+0,5% from 1445, at European close).
VIX index at 15,3 after 15,2 yesterday same time.

Oil 89,2/109,5 (WTI/Brent) from 88,9/108,6 (+0,4%/+0,8%). Gold at 1790 after 1778 (+0,7%). Copper at 378 from 378 (unch). CRB at EU COB 307,0 from 311,0 (-1,3%).
Baltic Dry surging 5.9% to 845 from 798. Summer rebound peak had been 1162 early July. Fall rebound had initially stalled at 774. That has been taken for good.

EUR 1,299 from 1,291

Greek bonds guesstimates: Unchanged with Greece 2023s at 19% and 2042s at 17%. Odd, odd, odd… Odd… The more news pop up the Troika is haggling, the tighter it gets… Odd… No OSI. So what?

All levels COB 17:30 CET

Tomorrow and Next Week:
Hard data lacking in Europe to get things anywhere. German Factory orders tomorrow. Of course, US NFP.
Next week will once more be appallingly empty on hard data. Trading will remain rather technical, subject to Periphery rumours and jitters.

EZ: Mon 08 Sentix Inv Confidence (last -23.2); Thu 11 ECB monthly; Fri 12 EZ IP (last +0.6 MoM)
GE: Fri Fact Orders fcst 0% after 0.5%; Mon German trade (last Ex +0.4%, Imp +0.7%), IP (last +1.3% MoM), Thu Final CPI 
FR: done for the week; Mon Biz Sent (last 93); Wed IP (last +0.2% MoM); Fri CPI
Italy: done for the week; Tue Q2 Deficit; Wed IP (last -0.2%); Fri Final CPI
Spain: Fri Indu Output (last -5.4%); Tue House Transactions; Fri Final CPI
US: Thu evening FED minutes; Fri NFP fcst 115k after 96k, Rate 8.2% after 8.1%
China : Mon Serv PMI (last 52)

Click link under title or below for today’s musical support:
Will let everyone chew on the lyrics… But seems to have been today’s attitude. Seen this, done that…

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