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

Monday 8 October 2012

08 Oct 2012 – “ Won't Get Fooled Again ” (The Who, 1971)

08 Oct 2012 – “ Won't Get Fooled Again ” (The Who, 1971)

Eventually the US markets closed on a softer note on Friday evening, following the surprisingly high NFP report, judging in line with our view that, while jobs were obviously created, their quality and lasting effect were probably overstated. INDU just about positive, S&P just about negative and NASDAQ down. Columbus Day today will have the bond market closed, knowing that USTs didn’t take any solace of the equity slide and closed at the 1.74% high of the day; end of Sep levels. Highest lately had been brushes with 1.88% mid Sep, following QE3 release.
Japan closed. China reopening on a weak note after its week-long holiday, skipping out on last week’s 3% European and 2% US rise (at European close on Friday), despite a Services PMI reading rising to 54.3 after 52. The IMF is set to reduce 2012 growth forecast for China to 7.7% from 8.2%. Asian growth (ex Japan & India) to fall to 7.2% this year from 8.3% in 2011.

Weekend news snippets had ECB’s Asmussen repeating opposition to Greek OSI and stressing conditionality of OMT. Had some Greek 2020 forecasts of debt/GDP hitting 140% in the German press, far from the Troika-targeted 120%. Moody doubts Portugal’s 2013 capital markets access, despite last week’s exchange exercise. One of the bits of the ECB press conference that went slightly under was Draghi’s comments that the OMT would only work for “new” cases of support-needs, hence excluding Portugal and Ireland, who would have to submit new demands and work under a new MOU, should they wish to profit from the ECB’s largesse. The Canary Islands will become the 6th region to ask for assistance under Spain’s regional programme with EUR 757m (Count so far: Catalonia EUR 5.023m, Andalucía EUR 4.900m, Valencia EUR 4.500m, Castilla-La Mancha EUR 800m and Murcia EUR 527m, add the Canaries and we’re past the EUR 16.5bn mark, out of planned EUR 18bn). It remains that in official communication, Andalucia is skipped (for the moment). Details on the loans emerge as being 10 YRS, with a 2-year grace period, at Tesoro costs +30.

Classical Risk Off European open, EGB credit torsion and weaker equities.
BUNDs down 4bp to 1.48%, back through 1.50%, taking the Hard Core gang lower, too. Soft Core a little firmer. Periphery 3-5 wider depending on curve point, hence Italy once more stuck above the 5%-mark at 5.07% and Spain back to 5.70% (after Friday’s pretty much trigger-less 20bp-plus rally.
(Closed) UST stuck at NY closing level of 1.74% (hence a 7 bp underperformance to BUNDs).
European equities down 1% (that one percentage point gained between morning quotes on Friday and the afternoon squeeze). Credit wider by 2-4 points, about 2%. Commodities on the weaker side with Oil down 1% on average, Copper down 1.5% and Gold below 1770 (-0.75%). EUR back through 1.30.

Data front will remain light for the week, so there will be a need to watch out ECOFIN statements, ahead of next week’s wider European Council meeting (18-19 Oct), as well as G7/20 meeting in Tokyo, and all other possible political / regional news.
German trade better than expected with Aug Exports up 2.4% (fcst -0.6% after revised +0.4%) and Imports up 0.3% (fcst +0.2% after +0.3%, revised sharply lower from +0.9%). French business sentiment a tick better than forecast, but down to 92 (fcst 91 after 93), which is surprising given the late repeated rounds of business bashing and tax increases by the French government. Seems over-optimistic. Then again this cycle’s low was at 90 in July. Sentix EZ sentiment indicator at -22.2 missing expectations of a rebound to -20.9 after -23.2.  German IP about in line with -0.5% MoM for Aug (fcst -0.6% after +1.3%, revised +1.2%) sa. YoY nsa -1.4% after -1.3%.

Never mind the mood. Periphery recovering some steam by mid-morning with Spanish 10s erasing losses and tightening. Short end still a little wobbly, though. Italy eventually unchanged. Bunds backing up 20 cts from their highs.

Auction supply limited to German and French bills. Germany issued EUR 4bn 6m bills at -0.022% (after -0.015% in Sep). Good B/C at 2.3. Weekly French auction for a total of EUR 8bn with EUR 3.8bn 3m at -0.018% (after -0.017%), EUR 1.6bn 6m at -0.010% (after -0.009%) and EUR 1.6bn 12m at +0.018% (after +0.025%). Tick better. Eventless. As usual.

Will see EUR 1bn 6m Greek bills tomorrow (last 4.54% in Oct) as well as up to EUR 2.5bn 2018 out of the Netherlands (COB 0.87%. Issued 03 Jul at 1.305%. Absolute low at 0.73% hit early Aug. Late high was 1.03% early Sep).

Mid-day bottoming out levels, ahead of mixed US session (equities open, bonds closed). Weaker Italian. Uneven Spain.
Bunds 1,49% (-3), OBLs 0,55% (-2), BKOs 0,047% (-0,8)
Spanish 2s 3,04% (-1), 10s 5,63% (-4). Spanish 2-10s 258bp (-3). 
Italian 2s 2,21% (+5), 10s 5,05% (+1). Italian 2-10s 283bp (-5).
Equities bottoming at -1%. Credit unchanged from opening quotes, hence a tick or two softer. EUR 1.295

No further support from US cash equities opening plainly heavy and rapidly in negative territory (-0.4%). Some Apple fatigue with again Chinese strikes, succumbing to natural gravity laws, now nearly down 10% from the tree top.

Spain unable to manage to hold onto the noon performance in 10s with the short end drifting softer (+6) and 10s back to slightly wider levels than Friday close (+3).

Oh, and the ESM was officially declared as “in business,” as of this afternoon… with EUR a EUR 200bn capacity. Head of ESM Regling pitching further leverage capacity via First Loss guarantees.
No really crispy news coming out of the ECOFIN: Schaueble saying Spain doesn’t need support; Italy that it has no “current” plan to ask for aid; Luxembourg that one should go easy on Greece (if doing so doesn’t require a big effort); while the Dutch don’t see this that way. Yada yada yada. On bank recaps, Schaueble asks for bank oversight first, which Germany kinda blocks… Oh, and tomorrow’s Greece visit of Merkel is, of course, not to be confused with a Troika stint…

Not much else. Some correction of Friday’s Bull trap. Bunds gaining part of Friday’s losses. Spain shedding just a bit of Friday’s squeeze.
Bunds closed at 1,47% (-5), OBLs at 0,53% (-3) and BKOs 0,039% (-1,6). UST closed (Fri 1.74% level).
Spanish 2s at 3,12% (+7), 10s at 5,70% (+3). Spanish 2-10s 258bp (-3).
Italian 2s at 2,23% (+7), 10s at 5,06% (+2). Italian 2-10s 283bp (-5).
Lacklustre commodities. Copper soft (-1.8). EUR off lows at 1.297.

Doubtful whether any fireworks will come out of the ECOFIN meeting. Seems to be more about maintaining the relative market quietness and status-quo. Tomorrow another low-key data day. 

Rather brisk start of the week in New Issues with plenty of Periphery and /or senior financial debt finding seemingly rapid cash: ENEL double-trancher with EUR 1bn Apr 2018 at MS +270 and EUR 1bn Apr 2023 at MS +320 (Both tranches priced slightly through BTPs), Intesa senior EUR 1.5bn 7 YRS at MS +315, Air Liquide (as SRI issued) with EUR 500m 9 YRS at MS +57, F Van Lanschot senior EUR 500 4 YRS at MS +225, Land Lower Saxony EUR 500m 3 YRS FRN at 3mE flat, Volvo EUR 200m 18m FRN 3mE +55.
UniCredit Austria senior 5 YRS announced around at MS +150, but so far failed to materialize / slightly postponed. Likewise, Banco Popolare (low BBB) senior Apr 2016 around MS +390 not closed at this stage and eventually pulled.

Closing levels:
10 YRS Yields: Germany 1,47% (-5); Luxembourg 1,58% (-6); Netherlands 1,74% (-4); Swaps 1,75% (-5); Finland 1,76% (-5); EU 1,90% (-6), Austria 2,03% (-1); EIB 2,18% (-6); France 2,27% (-1); EFSF 2,34% (-6); Belgium 2,45% (-1); Italy 5,06% (+2); Spain 5,70% (+3).

10 YRS Spreads: Luxembourg 11bp (-1); Netherlands 27bp (+1); Swaps 28bp (unch); Finland 29bp (unch); EU 43bp (-1); Austria 56bp (+4); EIB 71bp (-1); France 80bp (+4); EFSF 87bp (-1); Belgium 98bp (+4); Italy 359bp (+7); Spain 423bp (+8).

EUR swap curve 2-5 YRS 48bp (-2,0); 5-10 YRS 83bp (unch) 10-30 YRS 59bp (-1,0).
2 YRS German BKOs closed 0,039% (-1,6) and 5 YRS OBLs 0,53% (-3).

Main at 129 from 126 (2,4% wider); Financials at 182 after 178 (2,2% wider). SovX at 136 (-2). Cross at 540 (+9).
Stoxx Futures at 2499 / -1,0% (from 2525) with S&P minis at 1451 (-0,8% from 1463, at European close).
VIX index at 15,1 after 14,3 yesterday same time.

Oil 89,6/111,9 (WTI/Brent) from 90,2/111,8 (-0,6%/+0,1%). Gold at 1777 after 1782 (-0,3%). Copper at 372 from 379 (-1,8%). CRB at EU COB 308,0 from 310,0 (-0,6%).
Baltic Dry up 8 to 883 (+0.9%) 30 points to 875 (3.6%).

EUR 1,297 from 1,305

Greek bonds guesstimates: Greece 2023s stable at 18% and 2042s flat at 16.5%.

All levels COB 17:30 CET

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

EZ: Thu 11 ECB monthly; Fri 12 EZ IP (last +0.6 MoM)
GE: Thu Final CPI 2.1%
FR: Wed IP fcst -0.3% (last +0.2% MoM), MfG fcst -0.7% (after +0.9%); Fri CPI 2.4%
Italy: Tue Q2 Deficit; Wed IP fcst -0.5% (last -0.2%); Fri Final CPI 3.4%
Spain: Tue House Transactions (last -2.5%); Fri Final CPI 3.5%
US: 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:
But the world looks just the same
And history ain't changed

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