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 19 October 2012

19 Oct 2012 – “ Space Truckin' ” (Deep Purple, 1972)

19 Oct 2012 – “  Space Truckin' ” (Deep Purple, 1972)
Music Link

One click too far, seemingly... Soft & Tech have become the daily anvil lately. Ah, can’t remember how much the iPhone 5 was supposed to add to Q3 GDP anymore. 0.2-0.5%, or so?! US indices closed flattish negative (despite an attempt to hark back in the last hour) to plain negative for the NASDAQ on Google and AMD hangover. Asia closing the week mixed with mainly Japan and Oz slightly positive and everyone else softer, although not massively.
EU Summit yielding no big results, but then, no one seriously expected so either. Nice classical compromise on SSM (Bank Supervision): in place by next year, on paper, and effectively starting, hum, sometimes... Probably after German elections. That i,s if everyone’s behind it. And in absence of further conditions piling up.
Nothing new on Spain (“thinking”), nor Greece (“doing efforts”), who gets a pat on the back.

Sideways opening in Bunds (1.63%, unchanged) and most EGBs. EUR swap curve about unchanged.
Italy and Spain some 5 bp tighter throughout the curve with Spain within one bp of 5.25% and Italy squarely below 4.75% (4.70%). Italian 2s back on the 2%-mark.
Equities a shade lower than yesterday’s close. Credit out a tick. Commodities, probably the least volatile market these days, roughly flat. Gold has been quietly drifting lower over the week, shedding 2% over time. EUR back below the 31-handle at 1.307.

No real macro feed: German PPI in line with expectations at +0.3% after +0.5% MoM, YoY headline figure a tick higher than forecast at 1.7% (after +1.6%), but tame. Italian Indu Orders sliding to -9% YoY nsa (after -4.9%), but Sales recovering to -2.6% from -5.2%. Monthly sa data +0.7% (after +2.9%) and +2.9% after +1.3%. Summer was less bleak than expected, but Q3 will seemingly make up for that, as already relayed in plenty of data sets.
Next week’s data supply non-existent to light until PMI releases on Wednesday.

No auction supply today with next week light to uninspiring as well with a EUR 4bn 10 YRS Bund reopening slated for Wednesday and Italian 2 YRS zeroes on Friday. Finland will have one of its rare auctions in 10s and 30s on Tuesday, but the combined size of EUR 1.5bn shouldn't rock things.
Italy finalized a third BTP Italia retail-placement for an impressive EUR 18bn, after EUR 7.3bn and EUR 1.7bn earlier this year, showing that Italian savers can mobilize serious cash, when enticed (2.55% Oct 2016 ILB domestic CPI).
Expect to see Spanish government-guaranteed ICO to tap the short to medium end of the curve next week and the EU in 15 YRS.
New Issue supply was otherwise on the lighter side this week with EUR 14.4bn, of which nearly half courtesy of the new EFSF 5 YRS deal for EUR 5.9bn. Add another EUR1.6bn+ for SSA and LRG issuers, mainly increases. EUR 2.25bn for senior debt via BNPP, BPCE or Co-op UK. EUR 1.9bn for some mixed periphery supply for Iberdrola, Abertis, UniCredit OBG (covered bonds) or Bankinter CH (covered bonds).

Given the above–mentioned absence of hard facts or data in the first days of the upcoming week, markets will remain totally subject to rumours, headlines, headline risks, sentiment swings and further Q3 earnings or surprises.

Markets turned heavy by mid-morning, as sentiment kicked in that nothing has really changed for the better, in reality. Equities sliding 0.75% from early morning highs. Bunds getting some traction and Periphery bonds paring some of their gains. Slide morphing into Risk Off with specific reason or trigger, bare a hang-over or height dizziness after the nearly 5% drive upwards this week.

Cool to have all involved parties of last night’s EU party reappearing on the tickers right after 12 CET and stating that they all obtained / defended whatever they wanted (Merkel, Rajoy, Hollande, Barnier, later Monti…), which supports the idea that nothing has really advanced yesterday.
And, yes, any bailout demand by Spain will be taken in its best interest, but not yet… We certainly wouldn’t like to miss THAT information on a daily basis. That Spain doesn’t feel under pressure at actual levels is certainly less a result of an impressive turn-around in market sentiment, but of the (virtual) support provided by others.
As for the start of SSM, pay-outs to Greece are either a must or a (whished-for) possibility, depending on speaker (…). Oh, and with regards to the bank recap possibilities, everyone feels a winner, too. It’s just that the Germans categorically dismiss the idea. For Merkel, there won’t be any retroactive direct bank recap. Basta. And to make sure things won’t get rushed, there needs to be a resolution solution in place before that.
So much complacency…
Mid-day levels in ROff manner with the Periphery paring most morning gains and some flight into EGBs.
Bunds 1,61% (-2), OBLs 0,63% (-1), BKOs 0,106% (unch). UST 1,80% (-1)
Spanish 2s 2,71% (+3) and 10s at 5,32% (unch). Spanish 2-10s 260bp (-5).
Italian 2s 2,07% (+1) and 10s at 4,74% (-2). Italian 2-10s 267bp (-4).
Equities down about 1%. Credit unchanged.
Commodities about unchanged, although Copper futures on the slide. EUR 1.305

Balearic Islands to demand EUR 355m funding and, to round it up, Asturias, too, needs some EUR 262m, joining Catalonia, Andalucia, Valencia, Castilla-La-Mancha, the Canary Island and Murcia. Demand to the regional fund now at EUR 16.7bn (from earmarked EUR 18bn), Valencia has been attributed EUR 2.5bn from its initial EUR 3.5-4.5bn. Coincidental timing? Deputy PM Saenz on the tickers stating the need to check whether that fund should be extended (Again with the Lottery taking a loan with Spanish banks and the rest funded by a “private placement” of Spanish bonds with Spanish banks???? Talk of a never-ending loop here…).

US cash open 0.5% in the red and softening further. Sole eco numbers for the US with Existing Homes sales as expected at 4.75m (fcst 4.75m after 4.82m, revised 4.83m), -1.7% (fcst -1.6% MoM after +7.8%, rev.+8.1%), ahead of next week’s New Home Sales (for all that explosive construction needs to be sold at some stage). Non-event. Should have been a square beat to turn around the opening mood. Weighting further on European Risk with Credit drifting wider in the afternoon, having remained put until noon.

Risk Off close, certainly in equities and Credit and some profit taking in the Periphery to close the week.
Interesting to see Core EGBs’ only muted reaction to the fading Risk sentiment, though (Bunds and UST still +15 on the week).
Note as well Italian 2 YRS keep on failing to break lower than 2%.
Bunds closed at 1,60% (-3), OBLs at 0,63% (-1) and BKOs 0,112% (+0,5) with UST at 1,79% (-2)
Spanish 2s at 2,71% (+3), 10s at 5,35% (+3). Spanish 2-10s 264bp (-1).
Italian 2s at 2,07% (+1), 10s at 4,77% (+1). Italian 2-10s 270bp (-1).
Commodities still drifting, mainly sideways with a slight negative bias. Copper outlier and weak today (-1.9%). EUR volatility, as in the case of Cored EGBs, certainly restricted and the softer close  at 1.302 seems tame, given the ambient mood.

Take-away: Spacy week, though… Song pick of yesterday’s said it all. Somehow, things have spun out of control and the rocket started stalling and then drifting into the void… Poor Major Tom left the capsule too early.
Regional elections in Spain over the weekend in Galicia and the Basque Country. As Rajoy denies there’s any pressure to seek help, BONOs slide. Damned if you don’t; damned if you do…

Well, a good week for Risk nevertheless and a cheery week for Spain, although the week on week tightening was “only” of 25bp, as Wednesday’s squeeze (-34bp) had to correct Monday’s slide (+20bp)… It’s just that NOTHING really new happened to fundamentally tweak things for the better. The situation in Spain and Greece hasn’t changed. The EU summit didn’t yield a new super weapon to fight depression and the OMT remains unused, untested, untouched at this stage. Markets building momentum on last week’s reduced volatility (no shoes dropping), in rather complacent manner, building up on Risk Levels that have solely been obtained through massive Central Bank interventions and promises.
As Q3 earnings are published, a reality check will need to take place between levels attained on liquidity dope (All is good!) and where to climb from here on down to earth matters like earnings and profits. Or growth…

Outlook for Monday? Mood-driven, depending on tonight’s US close (50d average at 13354 and 1434), market players’ weekend quality in total absence of data and eventually Spanish regional elections.

New Issues reduced to a EUR 500m Sep 2025 increase by the EIB at MS +43. Had as well a EUR 600m Collectivités Territoriales de France (Joint French local authorities’ bundling project, but with disparate rating and no joint-liabilities or cross-guarantees) 10 YRS at MS +245, some 208bp over the French OAT put on track.

Don’t miss the Shuffle Rewind over the weekend.

Closing levels:
10 YRS Yields: Germany 1,60% (-3); Luxembourg 1,68% (-1); Netherlands 1,82% (-3); Finland 1,84% (-3); Swaps 1,84% (-1); EU 1,93% (-2), Austria 2,02% (-1); EIB 2,14% (-2); France 2,21% (-3); EFSF 2,24% (-2); Belgium 2,40% (+0); Italy 4,77% (+1); Spain 5,35% (+3).

10 YRS Spreads: Luxembourg 8bp (+2); Netherlands 22bp (unch); Finland 24bp (unch); Swaps 24bp (+2); EU 33bp (+1); Austria 42bp (+2); EIB 54bp (+1); France 61bp (+0); EFSF 64bp (+1); Belgium 80bp (+3); Italy 317bp (+4); Spain 375bp (+6).

EUR swap curve 2-5 YRS 52bp (unch); 5-10 YRS 83bp (+1,0) 10-30 YRS 58bp (-2,0).
2 YRS German BKOs closed 0,112% (+0,5) and 5 YRS OBLs 0,63% (-1).

Main at 122 from 118 (3,4% wider); Financials at 163 after 158 (3,2% wider). SovX at 106 (-2). Cross at 495 (+7).
Stoxx Futures at 2536 / -1,5% (from 2575) with S&P minis at 1438 (-1,2% from 1455, at European close).
VIX index at 15,7 after 15,1 yesterday same time.

Oil 91,8/112,0 (WTI/Brent) from 91,7/112,6 (+0,1%/-0,5%). Gold at 1726 after 1745 (-1,1%). Copper at 367 from 374 (-1,9%). CRB at EU COB 309,0 from 308,0 (+0,3%).
BDY stepped back yesterday to better hurdle the 4 digits today, up 2.1% to 1010 from 989. First time over the 1k-mark since end of July. Xmas is coming; iPhones need to be delivered…

EUR 1,302 from 1,310

Greek guesstimate: Stunning. There’s such certainty that things will eventually be fixed that Greek bonds have become the hottest thing in town. Down another 75bp to 16.25% for 2023s and down 50bp to 14.25% for 2042s. New 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. Auction supply low and mostly unexciting.

GE: 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: 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: 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:

Yep, it’s entertaining criss-crossing the universe… 
The answer is out there, somewhere, and is 42.
Music Link


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