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

Tuesday 23 October 2012

23 Oct 2012 – “ Lights Out ” (UFO, 1977)

23 Oct 2012 – “  Lights Out  ” (UFO, 1977)
Music Link

There’s that thing about Apple that makes you go “Hmm”. Almighty. Managed to turn around the US equity market that had drifted lower and lower, even after the European close, to have the indices close about flat. Ok, there’s an iPad mini presentation probably today (which is no news), but does this counter the real economy outlook of CAT? Whatever. Had a last hour straight rise of 0.75% to close the session (spot on 50d average at 1434 for the S&P and a shade lower than 13555 for INDU). All is good. Better. Ok, not that bad. Asia mostly red, though, with China down 1%. Japan still resilient at flat. Same for Oz.
Presidential debate not a big market play. Had Moody’s trashing Spanish regions with some cut from Junk to Deep Junk, among which Catalonia (about 20% of GDP), down to Ba1, Andalucia (now Ba3, as are Castilla-La Mancha or Murcia). Happens to be the Regional Bail-out demanders. Same as for Spailout: Damned if you do, damned if you don’t.

European open about tame, but certainly less buoyant than yesterday, when morning action (after the dismal US close) seemed astonishing. Slight Risk Off with Bunds tightening in a tick to 1.61% (unlike USTs at 1.80%) and the Periphery 2-3 wider, across the curve. EGBs mixed around closing levels. Swaps and curve unchanged. Equities a touch below COB, credit still about stable. Commodities still on the defensive, down 0.5% to 1%, across the products. EUR drifting sideways on yesterday’s levels in the low to mid 30s.

French sentiment data all gloom and doom, after a lighter summer, with own-company production outlook seen at -8 (from -5), Production Outlook at -56 (fcst -50 after -52) and the more important Biz Confidence sliding to a mere 85 (fcst 90 unchanged), a level last seen in Q3/2009 and the lowest since June 2011.

Bank of Spain on the ticker, as usual lately, confronting the Spanish government with unpalatable analyses about falling tax receipts and a very ambitious 2013 budget, given further falling demand. Q3 GD P estimate at -0.4% QoQ / -1.7% YoY after -0.43 and -0.34%. Fifth quarter of decreasing growth. Knowing that the BoS points out some front-loaded spending before the Sep VAT increase.

Auction supply from Spain for the targeted EUR 3.5bn split in EUR 967m 3m at 1.415% (last 1.203%) and EUR 2.56bn 6m bills at 2.023% (last 2.213%, one month ago). B/C ratios slightly increased to 4.32 and 1.99 from and 3.3 and 1.8. Seems well controlled.
Rare, and hence quite overpaid, Finnish auction for EUR 1bn 10 YRS at 1.806% (COB 1.855%) and EUR 501m 30 YRS at 2.588% (COB 2.61%), having started the morning anyway about 1bp better each on ROn. B/C 1.8 for both.
The EU, which started marketing an expected EUR 3bn 15 YRS deal yesterday afternoon on an initial price pitch of high 30s over swaps (EU 2022 about high 10s over swaps, 2026s around 30 over), closed the deal at MS +36, after refining price talks to +35-38 once books oversubscribed. Final books nearing EUR 5bn, although the final pricing reflected either weaker “euro-optimism” or some price sensitive larger orders.
Only auction tomorrow will be a EUR 4bn reopening of the 10 YRS “Bad Karma” Bund (Last 1.52% on 26 Sep, but a fail with then solely EUR 3.9bn of bids for EUR 5bn, and the BuBa loading up on EUR 1.8bn, and a previous inaugural launch, which failed as well at 1.42%, but again with EUR 3.9bn bids for earmarked EUR 5bn in sales). COB 1.575%

Getting further Risk Off action during the course of the morning with EStoxx down 0.75% and Spain weakening by 6bp, creeping over the 5.50%-mark, which, while not set in stone, used to be the “former” upper band of Spanish market unease. Short end 10 wider and approaching the 3% barrier.
Lunch time, heavy, difficult to digest, morphing into some real sell-off with equities losing a further 1% over entrée, main course and desert.

NY pre-open, with no data (and even then
only minor) to chew on until 16 CET / 10 NY, no better.
Bunds 1,58% (-4), OBLs 0,61% (-3), BKOs 0,109% (-1,1). UST 1,76% (-3)
Spanish 2s 2,99% (+14) and 10s at 5,56% (+8). Spanish 2-10s 257bp (-6).
Italian 2s 2,14% (+6) and 10s at 4,82% (+6). Italian 2-10s 268bp (-1).
Equities down 1.75%. Credit, initially more stable, wider by 3 to 4% with XO back over the 500-mark.
Commodities sliding with WTI down 3% from European COB. EUR back through 1.30.

Spain trying to wiggle through on deficit numbers, blending accounting standards with down-to-earth numbers, stressing that deficit will be contained to 6.3% (despite adverse BoS calls), excluding Bank Aid, in which case it’s rather a 7.3% number.

US cash open unsurprisingly bleak with futures having trailed Europe throughout the morning, gapping down nearly 1.5% from the (unexpected good close) and still about 0.70% below yesterday’s lows. Ouch. 50d averages of course now far away at 13355 and 1434 and we’ve now dropped halfway to meet 100d averages at 13061 and 1393). Hmm… Hurricane Heart Attack, after all…
Richmond FED Mfg Index missing estimates of 5 (after 4) with a negative 7 print.
EZ Consumer Confidence slightly better at -25.6 after -25.9 fcst (unchanged).

Not much else. ECB’s Coeuré on OMT buying-stop in case of breach of conditions and that the OMT wasn’t meant to subsidize rates. Late ECB comments (as well as this morning’s by Schaueble) getting tougher and sterner on the late complacency and lack of action since the OMT announcement has brought back some calm.

Spain 10s (and the short end, too) slipping gradually. If we bridge 5.75%, we’ll slip to 6%, if we trade 6% we’ll be at 6.50% in a rush. In the meantime, BONOs are back just over 400 to Bunds. Still surprised by safe-haven heaviness, as one could have expected are sharper reaction (after the last day’s hammering) of Bunds and USTs.
Bunds closed at 1,58% (-4), OBLs at 0,60% (-4) and BKOs 0,104% (-1,6) with UST at 1,76% (-3)
Spanish 2s at 2,99% (+14), 10s at 5,60% (+12). Spanish 2-10s 261bp (-2).
Italian 2s at 2,20% (+12), 10s at 4,86% (+10). Italian 2-10s 266bp (-3).
Equities down over 2%, Credit wider by 4%. Oil and Copper heavy. Gold heavy. EUR down 100 pips, but here as well, the reaction to Risk Off seems less aggressive than previously.

Take-away: Uuuhh. Yesterday a heart attack and today Lights Out? Then again, markets went up seamlessly with no trigger and can thus slide the same way. Eventually, we’re only down some 2.5% since Friday’s close… AAPL will need to come up with a helluva surprise mini iPad that does the cooking and bring the kids to school to turn around things overnight. Spain situation still by far not settled enough to last without some real interventions / decisions.

Tomorrow is PMI day all around! China last 47.9. EZ Composite PMI fcst 46.5 after 46.1 German PMI Mfg fcst 48 after 47.4 and Services 50 after 49.7. German IFO to boot with Biz Climate fcst 101.6 after 101.4, Current 110 after 110.3, Expectations 93.6 after 93.2. French PMI Mfg fcst 44 after 42.7 and (more important) Services fcst 45.4 after 45. So, rebound seen everywhere. Will it be the case?
US New Home Sales will need to prove that the Construction is actually sold. US PMI fcst 51.5 after 51.5. FED shouldn’t surprise, unless stopping short of saying “Guys, QE3 won’t work. We need to test something new asap…”, which would trigger a serious sell-off.

Mixed New Issue supply: Next to the a.m. EUR 3bn 1 YRS EU at MS +36 (yield 2.621%, Bund +61), we saw Standard Chartered for EUR 1.25bn 5 YRS at MS +75 in senior, UBI Banca for EUR 750m 3 YRS at MS +315, next to corporates Nederlandse Gasunie for EUR 500m in 3 YRS at MS +25 (0.908%) (…) and unrated German retailer Otto Group for EUR 300m 7 YRS at 4.000% / MS+260, from initial talks 25bp higher. German City-State Hambourg increased a Sep 2020 issue by EUR 250m at MS +8.
Finally, Communidad de Madrid (freshly reaffirmed at Baa3 by Moody’s) announced an increase of its Mar 2020 issue on initial levels around 8.000% (Spain +275bp) – which was eventually pulled.

Closing levels:
10 YRS Yields: Germany 1,58% (-4); Luxembourg 1,67% (-2); Netherlands 1,80% (-4); Finland 1,81% (-5); Swaps 1,84% (-2); EU 1,92% (-3), Austria 2,03% (unch); EIB 2,12% (-4); France 2,23% (+1); EFSF 2,23% (-4); Belgium 2,45% (+2); Italy 4,86% (+10); Spain 5,60% (+12).

10 YRS Spreads: Luxembourg 9bp (+2); Netherlands 22bp (unch); Finland 23bp (-1); Swaps 26bp (+2); EU 34bp (+1); Austria 45bp (+4); EIB 54bp (unch); France 65bp (+5); EFSF 65bp (+0); Belgium 87bp (+6); Italy 328bp (+14); Spain 402bp (+16).

EUR swap curve 2-5 YRS 51bp (-1,0); 5-10 YRS 82bp (unch) 10-30 YRS 57bp (+1,0).
2 YRS German BKOs closed 0,104% (-1,6) and 5 YRS OBLs 0,60% (-4).

Main at 128 from 123 (4,1% wider); Financials at 171 after 164 (4,3% wider). Cross at 516 from 500.
Stoxx Futures at 2475 / -2,1% (from 2527) with S&P minis at 1407 (-1,1% from 1423, at European close).
VIX index at 19,2 after 17,2 yesterday same time.

Oil 86,2/107,7 (WTI/Brent) from 89,8/110,0 (-4,0%/-2,1%). Gold at 1709 after 1725 (-1,0%). Copper at 356 from 362 (-1,7%). CRB at EU COB 304,0 from 306,0 (-0,7%).
BDY on steroids and shooting up 6.9% to 1109 from 1037. Biggest gain in over 2 years.

EUR 1,296 from 1,306

Greek guesstimate: Greek bonds getting softer in the general Risk Off environment – and as obviously things don’t move on. 2023s widening to 16.75% (from 16.25%) and 2042s to 14.75% (from 14.0%), both down over 100 ticks.

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 tomorrow. 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 5s tomorrow and USD 29bn 7 YRS on Thursday.

EZ: Wed Comp PMI fcst 46.5 after 46.1, Mfg fcst 46.5 after 46.1, Services fcst 46.4 after 46.1.
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: Wed PMI Mfg fcst44 after 42.7, Services fcst 45.4 after 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: Wed Sep New Home Sales fcst 385k after 373k & FED. Thu Durable Goods fcst +7.5% after -13.2%, Claims & Pending Home Sales. Fri GDP & UoM Conf.

Click link under title or below for today’s musical support:

Hmm… Hurricane Heart Attack, after all… Lights Out today?

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