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

Wednesday 24 October 2012

24 Oct 2012 – “ Planet Earth ” (Duran Duran, 1981)

24 Oct 2012 – “  Planet Earth  ” (Duran Duran, 1981)
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Yeah, Lights Out in US equities, although the NASDAQ managed to outperform the INDU by 1% and keeping losses below 1%. Still, INDU down 1.8% and S&P -1.4%, both now nearing 100d averages at 13061 (41 points or just 0.3% away) and 1393 (still 20 points or 1.4% away) with 50d averages now in need for upswings of 252 points (1.9%) and 21 points (+1.5%). Oh, and yes, there will be a midi iPad under the Xmas tree (-3.3%), but it won’t be a give-away.
Asian Risk session rather solid, given the negative US backdrop with losses mainly contained between 0.8% and 0.3%, supported by Private PMI reading in China ticking up to a 3m high of 49 (after 47.9 in Sep). Not exactly roaring, but a straw is a straw.
Had some overnight reports about Greece being given 2 more years to reach targets, later denied. Nothing out of Spain, although yesterday’s pulled Madrid issue (initially pitched around 8%), actually an increase, doesn’t bode well for the Regional Funds liquidity, as it might dry out rather sooner than later.

European initial quotes all on the surprisingly bullish side (up to +0.70 in equities in pre-cash futures), following the Chinese PMI release, but coming down in 2 stages after French and German PMI figures were published. While initially, Bunds gapped lower and Periphery bonds were marked tighter, 45 minutes into the cash session, things were brought back to mainly unchanged with Bunds put at 1.58% (and UST still +2 to 1.78%), equities roughly flat to a tick below COB and the Periphery on the heavier side, wider by 2 in Italy (4.88%) and up to 5 in Spain (5.65%). Commodities faring little better on Chinese hopes. EUR unchanged 1.296.

French PMI a miss in Mfg at 43.5 (fcst 44 after 42.7) (and the Peugeot bail-out won’t help things), but with (more important in France) Services ticking up to 45.2 (fcst 45.4 after 45). Still well below 50 readings and hovering on a low stand. Q4 GDP outlook looks bad and the government will need to think about where and how to puncture more taxes to hit objectives.
German PMI disappointing, too, with no rebound (as somehow priced in) with MfG squarely dipping to 4.7 (fcst 48 after 47.4) and Services sliding to 49.3 (fcst was 50 after 49.7).
Mood further dampened by German IFO institute readings of Biz Climate at 100 (fcst 101.6 after 101.4), Current Assessment sliding to 107.3 (fcst 110 after 110.3) and Expectations component flat at 93.2 (fcst 93.6 after 93.2). No rebound. None. Q4 will be a b*tch.
EZ PMI in the same vein with MfG sliding further to 45.3 (fcst uptick to 46.5 after 46.1) and Services just a touch better at 46.2 (fcst 46.4 after 46.1).
This is the German Coast Guard: What are you sinking?

Updated Eurostat Q2 debt figures show an overall increase to 90% of GDP (from 88.2% in Q1) with  France hurdling the 90%-barrier at 91 (after 89.1), Germany up to 82.8 (from 81.1),  Italy at 126.1 (after 123.7)  and Spain surging (in terms of progression) to 76 (from 72.9). In the bail-out club Ireland is now at 111.5 (from 108.5), Greece at 150.3 (from 136.9) and Portugal at 117.5 (from 112) with Cyprus the second-steepest progression on the EZ (after Greece) with debt now at 83.3 (from 75).
Top 5 debt increases compared to close 2011 (Monday’s figures) in percentage terms (omitting Luxembourg and Estonia) Slovakia +EUR 5.4bn (+18%), Cyprus +EUR 2.2bn (+16.9%), Spain +EUR 68.1bn (+9.3%), Portugal +EUR 13.4bn (7.3%) and Finland +EUR 6.8bn (+7.3%).
Winner in absolute terms, next to Spain in relative, is France, which added EUR 115.6bn to its debt load (+6.7%). Given the a.m. PMI figures and latest French data, which point to a weak Q4, this ought to keep the French government to think about spending too much of its own money on being nice to others…. At least, it ought to…

Today’s sole auction courtesy of the Finanzagentur with a EUR 4bn reopening of the 10 YRS “Bad Karma” Bund at 1.56% (from 1.575% at close and about 1.58% at open). Ok, finally the curse has been lifted and over EUR 5bn in bids supported the sales. 1 tick tail. BuBa market intervention retention of about 670m. Seen like this, a success…
As a reminder, the last auction was at 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 an inaugural launch early Sep, which failed as well at 1.42%, but again with EUR 3.9bn bids for earmarked EUR 5bn in sales).

Still, there’s just so much pain one can take before endorphins kick in and dull the spirit. By mid-morning, Risk adverseness had bottomed-out with equities even attempting a renewed rebound above closing levels. Lunchtime attack on the opening highs. No specific trigger.
Mid-day picture actually fairly relaxed (ahead of further earning releases), but with EGBs still on the tighter side, unchanged from levels that saw equities over 1% softer mid –morning. Equity rebound at +0.6% versus close and +1.3% from morning lows. Amazing. Credit unchanged. Periphery off widest levels (5.66% in Spanish 10s), but not massively so. Spanish 2s still over 3%-mark, though.
Bunds 1,56% (-2), OBLs 0,59% (-1), BKOs 0,091% (-1,3). UST 1,77% (+1)
Spanish 2s 3,00% (+1) and 10s at 5,61% (+1). Spanish 2-10s 261bp (unch).
Italian 2s at 2,24% (+4), 10s at 4,87% (+1). Italian 2-10s 263bp (-3).
EUR still soft. Commodities upticking, but just so.

Earnings before market open mainly on the slightly negative side, but for Dow Chemical and AT&T, as well as Lockheed and Boeing, flying high these days. No early figures.
Draghi in Bundestag charm attempt, but with nothing really crisp, at least upfront.

Andalusia spokesman on the ticker why Spanish regions need aid in general – and more aid in this particular case… As a.m. with regards to Madrid, Spanish regions have barely a market access anymore. And Andalusia had asked for up to EUR 4.9bn – not for the EUR 2.1bn the sovereign intends to send over.

US PMI at 51.3 (fcst 51.5 after 51.1). Same broken dreams of a sustained rebound, as with the European data, but at least not a miss. Good for 0.20% in European equities to a new HOD and pushing Bunds back to unchanged, especially as we had Greek declarations about all being good for an extension, later denied among others by Draghi.

US cash open positive, but not really moving anywhere from the initial 0.30% (and slightly over the top and rapidly corrected 0.75% for the NASDAQ). Risk loosing steam on Greek solution denials and Return to Earth. New Home Sales positive at first sight at +389k (fcst 385k after, 373k, but revised 368k). Looks good at 5.7% MoM, after revised -.3%, but nsa numbers are simply skimpy in absolute terms. Back to Earth.
Merkel trying to re-heat a softer domestic tax approach in order to entice German consumer spending.
Closing with European Risk nervously following US leads, trying to outlast, despite some US sliding around European close.

European Risk closing in recovery mode. Equities up 0.6%. Credit flattish, a tick better. Bunds holding ok after a positive auction, as all other EGBs actually. Good Periphery afternoon session with Spanish 2s back below the 3%-mark. 10s holding ok and closing tighter (and 10bp off their widest level).
Bunds closed at 1,57% (-1), OBLs at 0,58% (-2) and BKOs 0,083% (-2,1) with UST at 1,79% (3)
Spanish 2s at 2,96% (-3), 10s at 5,55% (-5). Spanish 2-10s 259bp (-2).
Italian 2s at 2,21% (+1), 10s at 4,83% (-3). Italian 2-10s 262bp (-4)
Commodities sideways mixed. Not much of an event. EUR eventually unchanged after testing the 29-30 range on both sides without follow-though.

Take-away: I might have missed something today behind my screens. The weakness after the US close and soft sentiment figures I understood. The mid-morning change in mind and subsequent rebound (except that we were lower than yesterday) seems a bit puzzling here. PMIs rather bad, the rest not good enough…

Not much in terms of macro supply in Europe tomorrow. No auction either. Need to watch US close (AAPL stable at European COB) and FED statements, although I doubt we’ll get anything but neutral comments as QE3 was solely unleashed last month and so short ahead of the elections.

New Issue traffic restricted to EUR 500m Deutsche Telekom 7 YRS at MS +65, EUR 500m Unibail-Rodamco Jun 2017 at MS+80, as well as yet another German Land FRN with EUR 500m Apr 2018 at 3mE+ 10 for Berlin. Nothing else.

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

Closing levels:
10 YRS Yields: Germany 1,57% (-1); Luxembourg 1,65% (-2); Netherlands 1,80% (unch); Finland 1,80% (-1); Swaps 1,83% (-1); EU 1,91% (-1), Austria 2,02% (-1); EIB 2,11% (-1); France 2,24% (+1); EFSF 2,20% (-3); Belgium 2,47% (+2); Italy 4,83% (-3); Spain 5,55% (-5).

10 YRS Spreads: Luxembourg 8bp (-1); Netherlands 23bp (+1); Finland 23bp (unch); Swaps 26bp (unch); EU 34bp (unch); Austria 45bp (unch); EIB 54bp (unch); France 67bp (+2); EFSF 63bp (-2); Belgium 90bp (+3); Italy 326bp (-2); Spain 398bp (-4).

EUR swap curve 2-5 YRS 51bp (unch); 5-10 YRS 83bp (+1,0) 10-30 YRS 58bp (+1,0).
2 YRS German BKOs closed 0,083% (-2,1) and 5 YRS OBLs 0,58% (-2).

Main at 127 from 128 (0,8% tighter); Financials at 170 after 171 (0,6% tighter). Cross at 522 from 516.
Stoxx Futures at 2485 / +0,4% (from 2475) with S&P minis at 1409 (+0,1% from 1407, at European close).
VIX index at 18,4 after 18,4 yesterday same time.

Oil 85,6/107,8 (WTI/Brent) from 86,2/107,7 (-0,7%/+0,0%). Gold at 1702 after 1709 (-0,4%). Copper at 356 from 356 (unch). CRB at EU COB 300,0 from 304,0 (-1,3%). 
BDY taking a breather to 1088 from 1109 (-1.9%), after yesterday’s biggest gain in over 2 years.

EUR 1,296 from 1,296

Greek guesstimate: Greek bonds un-amused by Risk Off for most of the day and widening up 50bp in the morning, but eventually closing stable despite announcements and denials. 2023s 16.75% (unch) and 2042s to 14.75% (unch).

All levels COB 17:30 CET

Upcoming Macro Data:
US Q3 figures on Friday.
Trading will remain rather technical, subject to Periphery rumours and jitters.
Auction supply low and mostly unexciting. US closing supply with USD 29bn 7 YRS tomorrow.

EZ: M3 fcst 3.1% after 3.2% Tue Biz Climate Indicators
GE: Fri Import Prices fcst 2.9% after 3.2% Mon CPI last 2% Tue Unemployment last 6.8% & Retail Sales last +0.1% MoM
FR: Fri Cons Conf fcst 84 after 85 Wed PPI last +2.5% YoY & Cons Spending last -0.8% MoM
Italy: Thu Retail Sales fcst -0.2% unch, Fri Biz Confidence 88.7 after 88.3, Wed Unemployment & CPI + PPI
Spain: Thu PPI fcst +4.4% after 4.1% YoY; Fri Unemployment fcst 25% after 24.6% Mon retail Sales Tue GDP & CPI
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:
Same song - nowadays...

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