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, 18 October 2012

18 Oct 2012 – “ Space Oddity (Major Tom) ” (David Bowie, 1969)

18 Oct 2012 – “ Space Oddity (Major Tom) ” (David Bowie, 1969)
Music Link

No follow-up traction to the upside in the US, essentially because IBM weighted down indices with INDU closing just about flat, as did the NASDAQ, and the S&P eking out 0.4%. Had a noon dip in the US, which was neatly recovered, and the US closed near their highs.
Cyprus buried by S&P, lowered to B with negative watch from BB. Bailout #6 lining up and probably to be discussed as side-subject during the EU summit, which was stressed not to be an EZ (easy?) summit.
Other less palatable news of further strikes in the Periphery; the Greece situation remains totally unclear (although the basic assumption is that it won’t be let down)(then again, it might be a page taken from Mariano’s play book: just keep dragging things until somehow support is propped up by fed-up peers), as well as pre-pitches from all EU players with regards to their (high) expectations (from others). So, as things seem so settled these days, everyone’s back to his own agenda. Had S&P following-up on its sovereign rating action and downgrading Spanish regions and Cities (Barcelona & Madrid BBB-; Andalusia, Aragon, Canaries, Galicia, Madrid all BBB-. All with negative outlook. Special-status regions Basque Country, Navarra and Bizkaia BBB+, negative).
Chinese data well-telegraphed in advance, but still a hint better than expected (good for a +1.5% average close) with 3Q GDP slowing to 7.4% (from 7.6%) YoY, QoQ slightly better at +2.2% (fcst +2% after +1.8%, revised +2%). GDP slowest since Q1/2009. Sep Industrial Production rising to +9.2% (fcst +9% after 8.9%) and Retail Sales at +14.2% (fcst +13.2% unchanged). Biz Climate dipping for the 6th consecutive month to 122.8 (late high was 138 in Dec 2011), Q3/2011 levels. Controlled slow down, obviously.

Ok, taking a breather. Pre-market more buoyant, but morning quotes after cash open slightly more defensive, although Bunds eventually quoted unchanged after ticking up 40cts from Eurex open and equities just slightly negative (with EStoxx dipping 20 ticks from early pre-open levels).
Bunds 1.63% (UST still lagging at 1.80%). EGBs flat. Periphery giving back some of yesterday’s gains (Italy 17 tighter, Spain double that and 34 tighter) with Italy at 4.79% (316 to Bunds, +3) and Spain at 5.49% (386 to Bunds, +5), ahead of the morning’s BONO auction. EUR swap curve flat, after yesterday’s steepening move.
EUR slightly lower, just under 1.31. Commodities roughly flat.

Ongoing live testing of Spain’s stress scenarios (and future viability of the bad bank): Bad loans rising 3% to EUR 178.6bn in August (10.5% of outstanding, from 10.1%). Lending down 1.1% MoM, 5% YoY.
Dutch Consumer Conf down to -32 (fcst -27 after -29), back to Summer levels. No further noteworthy macro data.

Spain’s auction at tightest levels in 6 months totalling EUR 4.6bn (announced was EUR 4.5bn, but the Tesoro restricted itself on over-allocating) pretty evenly split in EUR 1.64bn 4.000% Jul 2015 at 3.227% (COB 3.19% & 3.26% ahead of the auction), EUR 1.46bn 4.250% Oct 2016 at 3.977% (COB 3.95%; pre-auction 4.01%) and EUR 1.51bn 10 YRS 5.85% Jan 2022 at 5.458% (COB 5.44%; pre-auction 5.475%). Limited tails of 2-3bp compared to earlier auctions. Bid to cover ratios not overly exciting and falling, but then again so are the yields.
Wow! A “normal” auction!!! No wild overbidding. No wild overselling. Prices in line with “spot reality”. Obviously levels lower from previous auctions as 10s were sold at 5.666% a month ago, so that’s 20bp lower. Normality kicking in.
Then again, is that all?
French supply totalling for just under EUR 8bn with EUR 1bn BTAN Sep 2014 at 0.19% (COB 0.19%, pre-auction 0.20%), EUR 1.45bn Jul 2015 at 0.34% (COB 0.345%; pre-auction 0.35%), EUR 795m Jul 2016 at 0.61% (COB 0.605%; pre-auction 0.61%) and EUR 4.7bn Jul 2017 at 0.92% (COB 0.93%; pre-auction 0.93%). Good B/C. Limited tails. Non-event. Had as well EUR 2.1bn new OATi 0.1% 2021 (ILB) sold at -0.04% (vs. interpolated nominal of 1.96%, hence 2.00% break-even).
EUR 500m Irish 3m bills at unchanged 0.70% (last 0.70% in Sep): a bargain for Ireland compared to Italy (0.765%), Spain (1.20%) or Portugal (1.37%).

Some post-auction relief in Spain with 10s snapping nearly 10 bp tighter, putting all auction paper 7bp in the money. Well. Nice. Bueno.

Not much going on over lunch outside Periphery drifting a little wider and equities a touch lower. Hard and Soft Core EGBs turning back flat to yesterday’s close from a little softer at open.
Bunds 1,63% (unch), OBLs 0,64% (+1), BKOs 0,103% (+0,8). UST 1,81% (+3)
Spanish 2s 2,73% (-1), 10s at 5,38% (-6). Spanish 2-10s 265bp (-5).
Italian 2s at 2,11% (+13), 10s at 4,78% (+2). Italian 2-10s 266bp (-12).
Commodities drifting sideways, as is the EUR just above / on 1.31.

Pre-EU summit claims confirm that this won’t be a smooth ride with Hollande going for “Summit Decision is about Banking Union”, which is certainly not as such on the agenda of both the non-EZ as well as the less troubled Hard Core nations. Would look like a Good Cop / Bad Cop act, if it wasn’t clear that the players actually mean what they are saying.

US Claims headlines disappointing after the latest series of positive news, clocking in at 388K (fcst 365k after 339k, revised 342k), with Continuous claims split at better 3252k (fcst 3275k after 3273k, revised higher to 3281k).
Leading to a bit of Risk Off in equities (after a 4% rise since Friday), as well as in Credit.

Spanish House prices still sliding at -2.4% for Q3, after -2.5% in Q2. Slightly better than expected, but still down 9.3% YoY.

Further mixed figures with Philly Fed at 5.7 beating consensus at +1 after -1.9 (all these FED data sets seem to be surprising either way these days) and Leading Indicators looking good at +0.6% vs. +0.2% fcst, but with prior data revised lower to -0.4% from -0.1%. About neutral.

Sideways to slightly negative US cash open. Mood stalling? Air too thin up here?

Slightly better Risk close, as soon as INDU ticked back to unchanged, but with Credit decoupling from equities and Spanish relief and trading on the heavier side. Upcoming CDS naked-short regulation kicking in 01 Nov, coupled with the last days squeeze might have taken a toll open protection buyers and triggered stops. On the Core front it seems that some extra-long buying supported EGBs overall and flattened the curves. Another good Spanish close, Italy treading water, though, and mostly heavy on the short end throughout the day with no notable news (Position unwinding against Spain, maybe?).
Bunds closed at 1,63% (unch), OBLs at 0,64% (+1) and BKOs 0,106% (+1,1) with UST at 1,81% (+3)
Spanish 2s at 2,68% (-6), 10s at 5,32% (-12). Spanish 2-10s 265bp (-5).
Italian 2s at 2,06% (+8), 10s at 4,76% (unch). Italian 2-10s 271bp (-7).
Commodities drifting with a negative bias. On the heavier side, but nothing outrageous.

Take-away of today: The first “decent” Spanish auction in ages, decent being just normal, if not even boring. While this is certainly not the end of the crisis, as hailed here and there and certainly more until tomorrow evening, it certainly is a change from the hysterical and bi-polar attitude experienced this year.
Give me that for 3 months and then we’ll talk about calm, but as Spanish yields tumbled 34bp yesterday, after some sideways movement on Tue, a 20bp widening on Mon after sliding 15 on Friday – and the whole thing without notable advances on or application of bail-outs, OMT or other crutches, just some mental hypnosis trick “All will be well! Believe me…", I’d like to remain on the cautious side.

Microsoft and AMD figures later. Tomorrow will be minor on data, once more. German PPI fcst +0.3% after +0.5%. Italian Indu Orders and Sales (last -4.9% and -5.3% YoY nsa). Sole US number will be Existing Homes sales fcst 4.74m after 4.82m, -1.8% MoM after +7.8%, ahead of next week’s New Home Sales (for all that explosive construction).
Ahead of the 25th anniversary of the class of ’87 crash: 22.6% would be over 3.000 points and take us down to 10,492. But that’s just my fingers playing wild on the HP12.

Raise a glass on today’s initially sole EUR New Issue: Campari EUR 400m 7 YRS at MS +325. Early announcements were for EUR 350m up to 25bp wider. Investor Thirst. 7 YRS Italy around MS +260. Had BankInter later selling EUR 500m 3 YRS CH (Spanish mortgage-backed covered bonds) at MS +335 (Spain 3 YRS curve MS +250) and the EIB increasing a March 2018 deal by EUR 650m at MS -1. Low traffic week.

Closing levels:
10 YRS Yields: Germany 1,63% (unch); Luxembourg 1,69% (-2); Netherlands 1,85% (
unch); Finland 1,87% (unch); Swaps 1,85% (-3); EU 1,95% (-2), Austria 2,03% (-1); EIB 2,16% (-3); France 2,24% (-1); EFSF 2,26% (-2); Belgium 2,40% (-1); Italy 4,76% (unch); Spain 5,32% (-12).

10 YRS Spreads: Luxembourg 6bp (-2); Netherlands 22bp (
unch); Finland 24bp (+0); Swaps 22bp (-3); EU 32bp (-2); Austria 40bp (-1); EIB 53bp (-3); France 61bp (-1); EFSF 63bp (-2); Belgium 77bp (-1); Italy 313bp (unch); Spain 369bp (-12).

EUR swap curve 2-5 YRS 52bp (
unch); 5-10 YRS 82bp (-2,0) 10-30 YRS 60bp (-2,0).
2 YRS German BKOs closed 0,106% (+1,1) and 5 YRS OBLs 0,64% (+1).

Main at 118 from 116 (1,7% wider); Financials at 158 after 153 (3,3% wider). SovX at 108 (+2). Cross at 482 (+7).
Stoxx Futures at 2575 / +0,4% (from 2566) with S&P minis at 1455 (unchanged, at European close).
VIX index at 15,1 unchanged from yesterday same time.

Oil 91,7/112,6 (WTI/Brent) from 91,8/113,1 (-0,1%/-0,5%). Gold at 1745 after 1751 (-0,4%). Copper at 374 from 374 (unch). CRB at EU COB 308,0 from 306,0 (+0,7%).
BDY stopped by the 4th digit, fixing down 1% to 989 after 999.

EUR 1,310 from 1,312

Greek guesstimate: 25bp tighter in belated tightening on underlying hope that someone will manage to muddle through the discussions. 17.00% and 14.75% for 2023s and 2042s. Post-PSI digestion highs.

All levels COB 17:30 CET

Upcoming Macro Data:
Still doesn’t make for an exciting reading. European data mostly minor. Next week will see Flash PMI data all around, starting Wednesday. US Q3 figures next Friday. No noteworthy US data until Wed.
Trading will remain rather technical, subject to Periphery rumours and jitters.

GE: Fri PPI fcst +0.3% after last +0.5% MoM / +1.6% YoY, Wed Mfg PMI fcst 48 after 74.4, Services fcst 50 after 49.7, IFO Biz Climate fcst 101.6 after 101.4, Current was 110.3, Expectations 93.2
FR:  Tue Production Outlook and Biz Conf (was 90); Wed PMI Mfg prior 42.7, Services prior 45; Jobless Claims; Fri Cons Conf
Italy: Fri Indu Orders (last -4.9 YoY), Sales (last -5.3% YoY); Wed Consumer Conf prior 86.2; Thu Retail Sales
Spain: Thu Q3 House Prices (last -2.5%, QoQ, -8.3% YoY); Mon Mortgages; Thu PPI; Fri Unemployment
US: Fri Home Sales // US Q3 Fri 26 Oct. Mon nothing. Tue Richmond Fed. Wed New Home Sales & FED. Thu Durable Goods, Claims & Pending Home Sales. Fri GDP & UoM Conf.

Click link under title or below for today’s musical support:
This is ground control to major Tom, you've really made the grade
And the papers want to know whose shirts you wear
Now it's time to leave the capsule if you dare

Music Link

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