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 5 October 2012

05 Oct 2012 – “ Let’s Work Together ” (Canned Heat, 1970)

05 Oct 2012 – “ Let’s Work Together ” (Canned Heat, 1970)

What can be said? Rinse, repeat, rinse, repeat. The US closed pretty much unharmed by closing jitters in Europe, although never managed to regain the levels reached at open, following better than expected US factory orders. Had a closing push up of 0.1% to close on broad average up 0.60%. Asian session broadly positive, in line, but far from euphoric. Comfortable end of the week that saw Japan treading water, China closed, Australia positive celebrating its rate cut. Expectations that the Golden Week hasn’t been big in terms of consumption. Then again, when seeing the traffic jam pictures, it is difficult to imagine how people were to spend their money…

European markets repeating yesterday’s slightly positive exercise in the opening hour.
Bunds out by 2 to 1.46%, caught in a sideways range, as are UST compared to the European close. EGB curve roughly unchanged. Periphery tighter by 2, after yesterday’s afternoon widening. Equities up a small 0.50% with Credit a tick tighter. Rinse, repeat. Rinse, repeat.
Commodities in better shape with Oil up 2.5% from yesterday. EUR stuck at 1.30.

Spanish Aug Industrial Output mixed with adjusted figures better than expected at -3.2% (fcst -5.5% after -5.4% revised -5.5%), but NSA tanking 3.1% (after -2.7%). Nothing else to expect until noon figures of German Factory Orders and early afternoon US NFP.
So where’s the next news? No news is good news?!
With not much happening, markets fared positively during the morning with Spain trading 10 tighter throughout the curve, with Italy tagging along. Equities adding a little and Credit, too.
Note that Belgium 10s traded again below the 100 to BUND mark.

Everyone basking into the market truce provided by Super Mario. And taking some easy time off… 

Periphery tightening (with Portugal going through the roof) coming on the back of comments from “sources” (Why wouldn’t have that been presented yesterday during the ECB conference?) OMT buying, if there was, would be massive for the first 2 months with a break thereafter to asses the impact. Oh, and with BuBa support. Hmmm… Believe me, it will be enough… I would have rather had that news from someone credible on ECB level. And not having the German CSU kicking and screaming the BuBa needs veto possibilities. Not sure that won’t be set straight at some time.
Note the irony of the looping world we live in as Greece thinks it has the EUR 900m needed to pay its initial share into the ESM ramp-up. And the EU on massive back-pedalling on the practical timing of the bank recaps.

German Factory Order at noon a further confirmation of a slow down of Europe’s locomotive with Aug at -1.3% (fcst -0.5% after +0.5% revised +0.3%). YoY picture at -4.8% (fcst -4.3% after -4.5%, revised -4.6%). Yes, Q3 growth will be confirmed as a damp squib.

Mid-day levels in Risk On bias. Softer Bunds, Strong Periphery, ok Soft Core.
Bunds 1,48% (+4), OBLs 0,54% (+3), BKOs 0,049% (+1) with UST 1,68% (+4)
Spanish 2s 3,16% (-13), 10s 5,74% (-14). Spanish 2-10s 258bp (-1).
Italian 2s 2,17% (-9), 10s 5,04% (-9). Italian 2-10s 287bp (unch).
Portuguese 5s tighter by 50bp!
Equities up 1% plus. Credit 3% tighter. Oil holding its 2% gains since yesterday. Gold stuck around $1790.

US Non Farm Payrolls to close the week at +114k (fcst +115k, but prior data revised to +142k from +96k, July even to +181k from +141), although Private Payrolls a miss at +104k (fcst 130k after 103k revised 97k) and Manufacturing at -16k (fcst 0 after -15k, revised lower to -22k). Headline unemployment rate dropping to 7.8% (fcst 8.2% after 8.1%), last seen in Jan 2009. Handy a month before elections. All-across puzzlement on the HUGE surge of 857k with an equivalent surge in part-time jobs. Headline figure thus good, quality of it up for discussion (full report link).
All is good! Equity spike of 0.50% and UST4bp softer to 1.72% & Bunds hitting 1.50% (+2).

US equities cash open about +0.50%, supporting European levels. UST 1.72%. But not much more… That BLS report is puzzling. And does this mean that the FED will lift the foot on QE3???

Friday afternoon Periphery squeeze barn stomp with BONOs doubling down their morning performance to over 20bp. Markets keeping their levels, rather directionless to slide into the weekend.
Fair equity performance, closing a week that mainly recovered from last Friday’s bashing on Monday (+1.8%), then drifted sideways with a lower bias every day until today’s close. Credit once more slightly over the top and outperforming equities, before going back in line. Strong financials. 
Weak Bund session, in line with USTs. Hard Core holding a little better, Soft Core stable. Some weakness in the middle part of the EUR curve.
Bunds closed at 1,52% (+8), OBLs at 0,57% (+6) and BKOs 0,055% (+1,6) with UST at 1,71% (+7)
Spanish 2s at 3,05% (-24), 10s at 5,67% (-21). Spanish 2-10s 261bp (+2).
Italian 2s at 2,16% (-10), 10s at 5,04% (-9). Italian 2-10s 288bp (+1).
Not much on the commodities front. Oil still ok, but less strong than in the morning. Gold running a little out of steam, too. EUR stronger, having tested 1.30 after the NFP and, as not broken, squeezed out to 1.3075.

Not much on Monday. German Industrial Production & trade data. US Columbus Day (bonds closed).

After Wednesday’s and Thursday’s quasi primary hiatus, two benchmarks were printed for Periphery issuers with EUR 1.2bn long 7 YRS for Telefonica at MS +330 and EUR 500m 3 YRS at MS +320 for Mediobanca.

Closing levels:
New French Oct 2022 ref (was Apr 22 +11)
10 YRS Yields: Germany 1,52% (+8); Luxembourg 1,64% (+6); Netherlands 1,78% (+6); Swaps 1,80% (+4); Finland 1,81% (+6); EU 1,96% (+5), Austria 2,04% (+2); EIB 2,24% (+5); France 2,28% (unch); EFSF 2,40% (+5); Belgium 2,46% (-3); Italy 5,04% (-9); Spain 5,67% (-21).

10 YRS Spreads: Luxembourg 12bp (-2); Netherlands 26bp (-2); Swaps 28bp (-4); Finland 29bp (-2); EU 44bp (-3); Austria 52bp (-6); EIB 72bp (-3); France 76bp (-8); EFSF 88bp (-3); Belgium 94bp (-11); Italy 352bp (-17); Spain 415bp (-29).

EUR swap curve 2-5 YRS 50bp (+3,0); 5-10 YRS 83bp (+1,0) 10-30 YRS 60bp (+1,0).
2 YRS German BKOs closed 0,055% (+1,6) and 5 YRS OBLs 0,57% (+6).

Main at 126 from 129 (2,3% tighter); Financials at 178 after 187 (4,8% tighter ). SovX at 138 (-5). Cross at 531 (-15).
Stoxx Futures at 2525 / +1,9% (from 2479) with S&P minis at 1463 (+0,8% from 1452, at European close).
VIX index at 14,3 after 15,3 yesterday same time.

Oil 90,2/111,8 (WTI/Brent) from 89,2/109,5 (+1,1%/+2,2%). Gold at 1782 after 1790 (-0,4%). Copper at 379 from 378 (+0,3%). CRB at EU COB 310,0 from 307,0 (+1,0%).
Baltic Dry up again 30 points to 875 (3.6%). Summer rebound peak had been 1162 early July (33% away). 32% rebound from 12 Sep low of 661. 912 thus mid-point.

EUR 1,305 from 1,299

Greek bonds guesstimates: Greece 2023s at 18% (from 19%) and 2042s at 16.5% (from 17%). Hmm. Ok. Highest close since end of March this year. All because Merkel volunteered to visit Greece????

All levels COB 17:30 CET

On the week (compared to Fri 28 Sep COB):

We spent the week ending the quarter mostly in the rain, in a wet and autumnally environment. Sad and heavy and closing Friday with a hopeful "After The Rain Has Fallen" (Bunds 1,44% -1; Spain 5,91% -1; Stoxx 2452% -2,0%; EUR 1,285). That was some foresight given that Monday hailed in more upbeat mood "Here Comes The Sun" (Bunds 1,46% +2; Spain 5,84% -7; Stoxx 2496% +1,8%; EUR 1,291). Still, things remained jumpy and nervous amid Spain, yes , no, bail-out hopes and Tuesday was more in a spirit of "Jump, Jive N' Wail" (Bunds 1,46% +0; Spain 5,72% -12; Stoxx 2490% -0,2%; EUR 1,295). Similar to the Chinese water torture, Wednesday was more a case of "Hit Me With Your Rhythm Stick" (Bunds 1,44% -2; Spain 5,79% +7; Stoxx 2485% -0,2%; EUR 1,291), while what could have been the big day with a Super Mario show on the screens on Thursday ended with an uninspiring "So What?" (Bunds 1,44% unch; Spain 5,88% +9; Stoxx 2479% -0,2%; EUR 1,299).
Eventually the week wasn’t that bad for Risk, so the change in song material was on spot. After the Rain. Here comes the Sun.
Once more we closed a trading week with the recurrent question “What’s next? Where can we move to WITHOUT support?” And this week brought not much more. OMT, QE, Spanish budget and Stress test figures are all out. Even the iPhone 5 is available. China was closed the whole week for traffic jams, hence less spending. The ECB meeting was mainly dull. Geopolitical risk seemed to have abated a little. Oil crashed, on US supply, but maybe also because tensions have cooled off. Or a mix of both. Gold is shining.

Good recovery of the Periphery after the armour provided by Draghi started to show some chinks with Spain widening 29bp in 2s to hit 3.36% and 18bp to flirt with the 6% at 5.91% to close last week. Italian 2s had widened 15bp to 2.33% and 10 YRS BTP 6bp to 5.16%. So things are better on paper this week, although most of the recovery is Friday action in an empty market. Having tightened down to 400 to Bunds 2 weeks ago, Spain had ticked 450 last week and eventually closes again near the lows at 415.
Hard and Soft Core EGBs roughly range-bound. Soft this afternoon. Not much to delve about. Note the good Belgium performance, cutting through and closing well below 100 to Bunds.
EUR swap curve roughly stable, until steepening today (2-10 133 after 128, 10-30 YRS 2 wider).

Having lost about 4.5% last week, European equities made back half of that, closing the week up 3%. Credit fared well after 2 weeks of purgatory (7% to 12% wider last week, 5% the week before) and managed to claw back at least some of last week’s losses with the Main over 7% tighter (from +7%) and Financials 13% tighter (from +12%), bringing us pretty much back to closing levels around 2 weeks ago (126 & 178, from 127 and 182 on21 Sep)

Commodities about flat on the week, notwithstanding the fact that Oil suffered some serious swings, trading off and than back up. Gold crawling higher. BDY on the rise.

New issue activity to start the quarter was appallingly uninspiring, compared to mid-Sep weeks of EUR 25bn and tons of Periphery supply. After last weeks EUR 11bn, this week only showed shy of EUR 7.5bn, of which EUR 2.5bn for the Czech Republic and Poland, as well as EUR 1bn of a German Joint-Länder deal. Rest scattered. Friday supply Periphery-heavy with Telefonica’s EUR 1.2bn

10 YRS Yields: Germany 1,52% (+8); Luxembourg 1,64% (+8); Netherlands 1,78% (+7); Swaps 1,80% (+7); Finland 1,81% (+9); EU 1,96% (+8); Austria 2,04% (+2); EIB 2,24% (+6); France 2,28% (+0); EFSF 2,40% (+3); Belgium 2,46% (-7); Italy 5,04% (-12); Spain 5,67% (-24).

10 YRS Spreads: Luxembourg 12bp (0); Netherlands 26bp (-1); Swaps 28bp (-1); Finland 29bp (+1); EU 44bp (+0); Austria 52bp (-6); EIB 72bp (+7); France 76bp (-8); EFSF 88bp (-5); Belgium 94bp (-15); Italy 352bp (-20); Spain 415bp (-32).

EUR swap curve 2-5 YRS 50bp (+2,0); 5-10 YRS 83bp (+3,0) 10-30 YRS 60bp (+2,0).
2 YRS German BKOs closed 0,055% (+3) and 5 YRS OBLs 0,57% (+5), on the week. with UST at 1,71% (+10)
Swiss 2-years ticking tighter to -0.18% (from -0.16%).

Main at 126 from 136 (7,4% tighter); Financials at 178 after 204 (12,7% tighter). SovX at 138 (-10). Cross at 531 from 568.
Stoxx Futures at 2525 / +3,0% from 2452 with S&P minis at 1463 / +2,2% from 1431, at European COB last week.
VIX index at 14,3 after 15,6 last week.

Oil 90,2/111,8 (WTI/Brent) from 91,8/111,9 (-1,8%/unch). Gold at 1782 after 1773 (+0,5%). Copper at 379 from 376 (+0,8%) . CRB closes 310,0 from 308,0 (+0,6%).
BDY up from last Friday to 875 from 766 (+14.2%). Summer rebound peak had been 1162 early July (33% away). Feb low of 647 26% away. Sep low was 661.

Greek bonds guesstimates: And another good week with 2023 yields tumbling down to 18% (from 19.25% last week and 20% the week before) and 2042s now at 16.5% (from 18%).

EUR 1,305 after 1,285 last Friday

All levels Friday COB 17:30 CET

Next Week:
Next week will be more appallingly empty on hard data.
Trading will remain rather technical, subject to Periphery rumours and jitters. Italian BTP auction Thu.

EZ: Mon Sentix Inv Confidence (last -23.2); Thu 11 ECB monthly; Fri 12 EZ IP (last +0.6 MoM)
GE: Mon German trade (last Ex +0.4%, Imp +0.7%), IP (last +1.3% MoM), Thu Final CPI 
FR: Mon Biz Sent (last 93); Wed IP (last +0.2% MoM); Fri CPI
Italy: Tue Q2 Deficit; Wed IP (last -0.2%); Fri Final CPI
Spain: Tue House Transactions; Fri Final CPI
US: Mon nothing. Tue not much. Wed Wholesale Inventories fcst +0.4% after +0.7%, Beige Book Thu Import Prices, Claims, Fri PPI, U Michigan Confidence
China : Mon Serv PMI (last 52)

Click link under title or below for today’s musical support:
Let’s hail today’s NFP figures, whether suspicious or not!

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