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 22 October 2012

22 Oct 2012 – “ Hurricane Heart Attack ” (The Warlocks, 2002)

22 Oct 2012 – “  Hurricane Heart Attack  ” (The Warlocks, 2002)
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Considering the weaker European close and especially the dismal US close on Friday with INDU down 1.5% (crossing 50s at 13.353), S&P 1.6% (crossing 50d at 1433.5) and NASDAQ 2.2%, the Asian start of the week was rather on the optimistic side (Japan about flat, China slightly up, Korea and Oz lower).
Not much in terms of weekend news: Analysis of the EU summit tends to stress the differences rather than attained consensus. Spain’s regional elections yielded the expected results, as polled beforehand, with Rajoy’s own stronghold on Galicia confirmed, which will be sold as “See, my measures work”, while the Basque Country independent stance is historic anyway. Question is whether this will trigger a more aggressive wording of Catalan demands. Finally, Greece is still “about 90% done on the Troika haggling”, meaning, considering political overshoot, we haven’t move a iota. Had a German paper reporting over the weekend that the German FM was considering Greece to buy back some of its (still highly discounted debt) with EU / EZ support, in order to profit from the 1:4 leverage (moving 1:3 given the rally of the last 3 weeks).
In a week that will remain light on fundamental or macro news (with Monday sticking out with about nada), early pre-market quotes were rather on the Risk flat side (lulled by Asian stability), followed by some downside adjustments.
Opening levels confirmed sideways with Bunds unchanged at 1.60% (in line with unchanged UST quotes, which didn’t manage to hold onto Fri evening gains down to 1.76%). Periphery 1-2 bp firmer at open, having gone slightly softer on Fri afternoon. Curve about unchanged. Other EGB’s flat to a tick better. Equities and Risk about flat to Fri close. Commodities 1% softer, slightly more in Oil, as the US slide came after European COB. EUR about unchanged on low to mid 30.

Spanish mortgages dipping again, after a spring / early summer respite, down 28.5% YoY after -17.5% with capital loaned down 33.2% after -27.4% (but then again, last week’s data showed record bad loans at 10.5%).

Getting some mid-morning upside traction in Risk with equities trying to wring out up to 0.75% on no discernible reason. Bunds and EGBs still on the softer side and yielding to ROn pressure by widening 1 bp, although Spain, in turn, rapidly pared early gains to drift 4-6bp wider. Surprising.

Second revision of Eurostat’s 2011 government deficits shows EZ debt ratios revised to 87.3% (from 87.2% in April) with deficits remaining at 4.1% (Eurostat October data here) (April here)
Belgium -3.7%/ 98.0% (from -3.7 / 97.8 estimates), France -5.2% / 86.0% (from -5.2 / 85.8), Germany -0.8% / 80.5% (from -1.0 / 81.2), Ireland -13.4% / 106.4% (from -13.1 / 108.2), Italy -3.9% / 120.7% (from -3.9 / 120.1), Greece -9.4% / 170.6% (from -9.1% / 165.3), Netherlands -4.5% / 65.5% (from -4.7 / 65.2), Portugal -4.4% / 108.1% (from -4.2 / 107.8), Spain -9.4%/ 69.3% (from -8.5 / 68.5).
So for choices, deficits revised a little wider and debt/GDP ratios mainly higher, with the notable exception of Germany.

Interesting side by side observations:
Debt numbers by and large in line with earlier estimates, although a 0.5% error adds an impressive EUR 9.5bn to the Italian debt load.
GDP disparities (for the bigger countries) to Germany increasing 2011 estimates by EUR 21.8bn (+0.8%), Ireland by EUR 2.6bn (+1.6%) for the good guys, Spain GDP taken down by EUR 10bn (-0.9%), Greece by EUR 6.5bn (-3% !), France EUR 4bn (-0.2%, given the size) and Finland off by EUR 2.2bn (1.1%).
Deficit disparities ranging from German easing deficit estimates by EUR 5.6bn (-21.6%) and the Netherlands by EUR 1.1bn (-3.9%), but sharp increases in Spain with EUR 9bn added (+9.9%).

Auction supply restricted to the weekly French BTFs with EUR 3.8bn 3m at -0.027% (from -0.023% last week), EUR 1.8bn 6m at -0.011% (from -0.007%) and EUR 1.4bn 12m at +0.022% (from +0.016%). Non-event.
As mentioned on Friday, the EUR 18bn of BTP Italia were a great success (with domestic institutional accounts piling on the closing days of the subscription), pushing funding completion of the Treasury to about a more relaxing 84%. This should leave the calendar for the rest of the year about unchanged from announced with no special rush to catch up or increase auction sizes into the closing months.
As expected, we saw Spanish government-guaranteed development bank ICO in the market with a 5 YRS deal initially indicated at 65 over the Spanish curve, the lately accepted spread for this issuer, but just so. No flier, although eventually EUR 1bn rounded-up.  Already struggled for its latest benchmark attempt, raising EUR 600m 3.5 YRS on 10 Sep at SPGB +65 / MS + 410. Won’t learn.

On tomorrow’s government supply side, we’ll have Spanish 3 and 6m bills (last 1.203% and 2.213% one month ago) for EUR 3.5bn, as well as a rare Finnish auction in 10 YRS (COB 1.855%) and 30 YRS (COB 2.61%).
EU as well in the market for closing tomorrow with an expected EUR 3bn 15 YRS deal, which is a size, on an initial price pitch of high 30s over swaps (EU 2022 trades about high 10s over swaps, 2026s around 30 over).

Mild Risk On at mid-day with Bunds another tick of initial levels (alongside USTs) with equities up about 0.5%.
Periphery mixed with long Italians better and Spain softer (across the curve). Other EGBs softer, too, with the SoftCore holding a little better, for choice. Credit unchanged.
Bunds 1,62% (+2), OBLs 0,65% (+2), BKOs 0,122% (+1,1). UST 1,81% (+2)
Spanish 2s 2,78% (+7) and 10s 5,39% (+4). Spanish 2-10s 261bp (-3).
Italian 2s 2,08% (+1), and 10s 4,75% (-2). Italian 2-10s 267bp (-3).
Commodities still on lower levels (compared to Friday EU COB). EUR up to 1.307 from morning 1.304.

Real Economy Bellwether Caterpillar Q3 profits and future outlook a bit of a dampener on equity traction, but unable to turn around safe haven weakness in Bunds and USTs.
No US figures before cash open, which was eventually negative, stayed that way and brought the Estoxx back to flat and then into slightly negative territory, as well. Here again, only a limited save haven reaction.

Hollande on the ticker to counter whatever Merkel might have said, in order to maintain some mésentente cordiale. Ireland is, of course, special; Greece ought to be helped, as Spain. Everyone ought to be helped.
Interesting credit rating agency project being set-up by China's Dagong, Russian RusRating JSC and US Egan-Jones to form the “Universal Credit Rating Group”. Given EJ past approach, this won’t be of any help for EZ sovereigns, though.
The Bundesbank expects German growth to slow down in Q4, or even to shrink (after an increased Q3, though).

Eventually, another Risk Off close, despite the more upbeat morning, as US gravity is pulling Europe lower. Had some acceleration of Spanish widening in the late afternoon. Still, Bunds and Core EGBs just moving reluctantly tighter. Italy brought back by Spain. Credit only marginally wider, though.
Bunds closed at 1,62% (+2), OBLs at 0,64% (+1) and BKOs 0,120% (+0,8) with UST at 1,79% (unch)
Spanish 2s at 2,85% (+14), 10s at 5,48% (+13). Spanish 2-10s 263bp (-1).
Italian 2s at 2,08% (+1), 10s at 4,76% (-1). Italian 2-10s 269bp (-1).
Commodities feeling heavy, too. Gold steady at 1725. EUR eventually steady at 1.306.

Take-away: Mostly boring. European equity resilience seems surprising, given the otherwise gloomier mood. No news still played out as being good news and even catch-up to US levels seems a doubtful explanation (INDU up 8.9% YTD, S&P 13.75%, EStoxx 9.3%, DAX a staggering +24.2%, CAC 10.3%, Italy +5.2% and Spain -8.1%). Beats me.

New Issues: Next to the ICO deal, we had UniCredit issuing EUR 1.25bn 10 YRS LT2 paper at MS +510, which next to the 5 upfront on the spread seems surprising as level, having issued EUR 1bn senior 3 YRS early Sep at +390 (albeit worth +240s nowadays). Not sure I understand, outside the lack of similar ware and a 500plus headline spread (Senior rating Baa2/BBB+/A- versus Baa3/BBB/BBB+).
ICO Jul 2017 EUR 1bn Spain +65 / about MS +400. EAA, the WestLB defeasance structure, guaranteed by the Land NRW, EUR 500m 5 YRS FRN at 6mE+ 7.5bp.

Don’t hesitate to exchange with the author. All comments, suggestions, rants are welcome.

Closing levels:
10 YRS Yields: Germany 1,62% (+2); Luxembourg 1,69% (+1); Netherlands 1,84% (+2); Finland 1,86% (+2); Swaps 1,86% (+2); EU 1,95% (+2), Austria 2,03% (+1); EIB 2,16% (+2); France 2,22% (+1); EFSF 2,27% (+3); Belgium 2,43% (+3); Italy 4,76% (-1); Spain 5,48% (+13).

10 YRS Spreads: Luxembourg 7bp (-1); Netherlands 22bp (unch); Finland 24bp (unch); Swaps 24bp (unch); EU 33bp (unch); Austria 41bp (-1); EIB 54bp (unch); France 60bp (-1); EFSF 65bp (+1); Belgium 81bp (+1); Italy 314bp (-3); Spain 386bp (+11).

EUR swap curve 2-5 YRS 52bp (unch); 5-10 YRS 82bp (-1,0) 10-30 YRS 56bp (-2,0).
2 YRS German BKOs closed 0,120% (+0,8) and 5 YRS OBLs 0,64% (+1).

Main at 123 from 122 (0,8% wider); Financials at 164 after 163 (0,6% wider). Cross at 500 from 495.
Stoxx Futures at 2527 / -0,4% (from 2536) with S&P minis at 1423 (-1,0% from 1438, at European close).
Note the VIX index pushing to 17,2 after 15,7 on Friday same time.

Oil 89,8/110,0 (WTI/Brent) from 91,8/112,0 (-2,2%/-1,7%). Gold at 1725 after 1726 (-0,1%). Copper at 362 from 367 (-1,4%). CRB at EU COB 306,0 from 309,0 (-1,0%).
BDY moving away from the 4-digit mark and fixing higher again at 1037 from 1010 (+2.7%).

EUR 1,306 from 1,302

Greek guesstimate: Stunning. There’s such certainty that things will eventually be fixed that Greek bonds have become the hottest thing in town. 16.25% (unchanged) for 2023s and down another 25bp to 14.00% for 2042s. New highs. Wolfgang, danke.

All levels COB 17:30 CET

Upcoming Macro Data:
Still doesn’t make for an exciting reading. European data mostly minor. 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. US supply with USD 35bn 2s tomorrow, followed by USD 35bn 5s and USD 29bn 7 YRS thereafter.

EZ: Consumer Conf fcst -25.9 (unch).
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 fcst -50 (after -52) 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:
Not sure the title really fits for today, but it’s bound to happen at some stage. Anyhow, I like the song…
Music Link


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