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 25 October 2012

25 Oct 2012 – “ Karma Police ” (Radiohead, 1997)

25 Oct 2012 – “  Karma Police  ” (Radiohead, 1997)
Music Link

And then? Not much to take away from US action after European close. Things just went quiet, the FED didn’t surprise either way and the close was soft, near lows, in reduced volatility and with lows not massively deep. 100d average not tested in INDU yesterday, but quite near (7 ticks), though. Same chart point  about 14 ticks away in S&P. Will depend on today’s European mood and earnings, although Amazon and, tataaaa, Apple numbers are for after today’s close. Asian session mixed, but not far away from prior day’s levels. Japan better on the umpteenth QE package being readied up. China soft, again.
Nothing major overnight, except some (usual) Greek back and forth on whether or not conditions have / will / were / ought to be met / re-negotiated / cancelled / discussed. But, yes, yes, we’re nearing understanding, it’s just EUR 1bn2 bn15bn away tomorrow / next week / in 2 years.

Quiet data front, so quiet. And when something pops up, it’s rather bleak. Had French unemployment numbers on the rise yesterday evening, hitting again new post-EZ accession highs at 3.058m, a number last seen that high in April 1999. Spanish PPI surprisingly contained (or not, given the state of the economy) and shrinking 0.1% (fcst +0.5% after +1.2%), but still +3.8% YoY (fcst 4.4% after 4.1%).

European cash open about unchanged overall. A little wobbly at start with equity futures trading higher in pre-market, then lower at open, then unchanged. No big swings, though. Staying close to home.
EGBs opening with a softer touch with Bunds 2 wider (1.59%), trailing UST that remained weak in the US session, despite softer equities and overnight (1.82% +3bp). Periphery, for choice, probably a tick better across the curve. Credit a tick wider.
Commodities about 0.5% better with the EUR just on / below 1.30.
Note that Gold brushed through 1700 in US trading, not that this level as such were really important outside the 12m highs 1785-1800 and lows 1535-1550.
Getting after an hour the now-accustomed European morning Risk On attempt since Tuesday: No shoes flying low, get higher, hope the US will follow. Equities pushing 0.6%, Spain and Italy tighter by 4 in 10s and Bunds out by 4 to 1.61% pivot. Spain now well back though the 400-mark to Bunds at +390.

EZ M3 falling to 2.7% YoY sa (fcst 3% after 2.9%, rev. 2.8%), 3m average 3% (fcst 3.1% after 3.2%, rev. 3.1%). Ok, it’s not yet the deflation Draghi was talking about as risk factor yesterday, but it’s reversing its rise up to 3.2% in July.

No government supply. Italy will sell “only” EUR 3bn 2 YRS zeros tomorrow (down from EUR 4bn last month), next to EUR 1bn ILB. Nice attempt to bluff “We’re so cool.” And to make sure bids will be supportive. Then again, average CTZ auction size has always been rather EUR 2.53bn. 25 Sep results were 2.532% for EUR 3.9bn.

UK Q3 GDP, let’s walk on the bright side for once, up 1% QoQ (above +0.6% fcst after -0.4%). Then again, you can only have the Queen’s jubilee and Olympics every so often (Ask the Greeks…) as well as the different QEs.

Upside Risk pressure receding somewhat at midday with Equities up 0.4%, Credit still about unchanged. Bunds harking back 1 bp or 2 from their widest levels, while Periphery bonds did the opposite. EUR curve about 1bp steeper in 2-5-10-30 on light ROn. Note that the EFSF 10 YRS bond now trades through France, which is a bit lagging these days (see last days’ reports that would tend to point out some upcoming struggles to make numbers meet).
Bunds 1,60% (+3), OBLs 0,60% (+2), BKOs 0,091% (+0,8). UST 1,83% (+4), ahead of the 7 YRS auction (the softest spot in the US curve at pre-open) later this evening.
Spanish 2s 2,96% (unch), 10s at 5,53% (-2). Spanish 2-10s 257bp (-2).
Italian 2s at 2,21% (unch), 10s at 4,81% (-2). Italian 2-10s 260bp (-2).
EUR still right on the 1.30-mark. Commodities still better bid, up 0.7%.

The Spanish Treasury has confirmed yesterday’s leaks / rumours that it will indeed front fund raising for those regions in need next year – of course, under strict conditionality… This will add up to the EUR 207bn BONO and bill supply pencilled in for next year and seriously brings back the contingent funding needs of Spain (ICO, FROB, FADE, regions, supplier financing and other public issuers that have barely made it back into the markets, if at all). Should be negative for spreads, unless it finally leads Spain to Spailout.
Was seen as this, as Risk On started to fade out with the US accounts coming in and the periphery shifted back to unchanged, ahead of US figures.
Talking of Regions, the question of Scottish independence while keeping EU membership is an interesting one, as already answered negatively by the Spanish FM – keen not to have that question raised in his own back-yard by the Catalans. NIMBY! The EU HAS mysterious ways. Like voting down (in non-binding manner) Luxembourg’s Mersch’s ECB board application, because he’s not a woman. Ok, non-binding and probably right about the question in itself. Hey, we need Lagarde back to Europe – and her Karma.

US data with Claims at +369k (fcst 370k after 388k, rev. 392k), Continuous Claims at 3254k (fcst 3260k from 3252k, rev. 3256k). Neutral. Durables Goods for Sep rising 9.9% (fcst +7.5% after -13.2%), ex Trans +2.0% (fcst +0.9% after -1.6%, rev.2.1%). Good, outside stronger prior revision. Capital Goods order 0% (fcst +0.8% after 1.1%, revised down to +0.2%). Rather bad. Chicago Fed at 0 (fcst -0.2 after -0.87, re. -1.17). Flat overall. Might point to some front-loading into Q3 that starts to peter out, though.
Fair US cash open at +0.5-0.70%, but Pending Home sales were a miss at +0.3% MoM (fcst +2.5% after -2.6%), up 8.5% YoY (fcst 17.4% after 9.6%). So finally Homes get built, but not sold??? Waiting for Apple results after close.

Not nice of Putin to say he could die listening to the EU-leaders talk and talk! Hey, the EU just got awarded the Peace Nobel price – and values punk rock as addition to musical diversity and freedom of speech. Karma Police Blame!
Okay, it might not always be effective, this is true. Especially under the leadership of karma-less HvR. But there’s always Mario and he speaks well. Karma-approved (even if some promises might be a bit hollow…).

Rumour doing rounds in the last 30 minutes of the European session that Fitch was to downgrade the US, leading to switches out of UST into Bunds (explaining the divergence), but the timing seems odd. Fiscal Cliff is known and everything else will be postponed to after the elections. Didn’t make much sense, but felt like an icy draft on Risk. Bad Karma.
European Risk Off close with equities down and the Periphery widening, especially on the shorter end. Credit not much changed, but off tighter levels. Spanish 10s back to over 400 to Bunds. Bunds had the hardest time to get going and it’s only that Fitch story that gave a shove first the first time in days.
Bunds closed at 1,57% (unch), OBLs at 0,58% (unch) and BKOs 0,079% (-0,4) with UST at 1,80% (+1)
Spanish 2s at 3,02% (+6), 10s at 5,59% (+4). Spanish 2-10s 257bp (-2).
Italian 2s at 2,26% (+5), 10s at 4,85% (+2). Italian 2-10s 259bp (-3).
Commodities about as stable as one could think. EUR, too, eventually.
SovX CDS index still tightening ahead of the naked short ban and thus totally out of the scope. Question is how much that ban and unwindings or squaring were responsible for the late Periphery rally. Index not worth tracking anymore.

European equities still somehow rangy with EStoxx trying to stick around 50d average right on 2503 (through). 50d levels: DAX 7224 (on it), CAC 3460 (through), MIB 15615 (above) & IBEX 7768 (above). But the picture since last Friday doesn’t really look that great: Friday high open to lows -1.9%, Mon mid-morning high to lows -1.3%, Tue mid-morning high to lows -2.8% (before rebounding), Wed mid-morning lows to highs +1.60% (before running out of steam) and today again mid-morning high to close -1.2%. Bad Karma.
To round up average levels: 100d for INDU 13080 and SPX 1396, hence not that far.

Take-away: Puh… Why don’t we just wait for Apple? They might pitch a maxi iPhone 6? Or so…
Otherwise, rather Bad Karma day. Flat start, bullish morning, refreshing afternoon. Nothing concrete or fundamental, so it’s a spiritual thing.

Outlook for tomorrow. Italian 2 YRS zeroes auction. German and French Consumer Confidence (fcst 5.9 unch and 84 after 85). French Biz survey. Italian Biz Confidence (fcst 88.7 after 88.3). Spanish Q3 unemployment expected to soar to 25% (from 24.6%). US Q3 GDP fcst +1.8% QoQ after 1.3%. Michigan U Confidence fcst 83 after 83.1. Apple earnings tonight.

Sole New Issue of the day was a pre-placed EUR 500m 7 YRS for low-IG EP Energy (US oil & NatGas), priced at 5.875% (MS +450).

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

Closing levels:
10 YRS Yields: Germany 1,57% (unch); Luxembourg 1,66% (+1); Finland 1,79% (-1); Netherlands 1,81% (+1); Swaps 1,86% (+3); EU 1,91% (unch), Austria 2,03% (+1); EIB 2,10% (-1); EFSF 2,20% (unch); France 2,25% (+1); Belgium 2,47% (unch); Italy 4,85% (+2); Spain 5,59% (+4).

10 YRS Spreads: Luxembourg 9bp (+1); Finland 22bp (-1); Netherlands 24bp (+1); Swaps 29bp (+3); EU 34bp (unch); Austria 46bp (+1); EIB 53bp (-1); EFSF 63bp (unch); France 68bp (+1); Belgium 90bp (unch); Italy 328bp (+2); Spain 402bp (+4).

EUR swap curve 2-5 YRS 52bp (+1,0); 5-10 YRS 84bp (+1,0) 10-30 YRS 59bp (+1,0).
2 YRS German BKOs closed 0,079% (-0,4) and 5 YRS OBLs 0,58% (unch).

Main at 128 +1 (0,8% wider); Financials at 171 +1 (0,6% wider). Cross at 528 +6. SovX still tightening ahead of the naked short ban and thus totally out of the scope.
Stoxx Futures at 2481 / -0,4% (from 2490) with S&P minis at 1408 (unch from European close).
VIX index at 18,0 after 18,4 yesterday same time.

Oil 85,5/107,9 (WTI/Brent) from 85,7/107,8 (-0,2%/unch). Gold at 1714 after 1703 (+0,7%). Copper at 356 from 356 (unch). CRB at EU COB 298,0 from 300,0 (-0,7%).
BDY down again after Tuesday’s surge, down to 1051 from 1088 (-3.4%).
EUR 1,295 from 1,296

Greek guesstimate: Greek bonds on stand-still and waiting for hard, concrete news; unchanged with 2023s at 16.75% and 2042s at 14.75%.

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: 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: Fri Biz Confidence 88.7 after 88.3, Wed Unemployment & CPI + PPI
Spain: Fri Unemployment fcst 25% after 24.6% Mon retail Sales Tue GDP & CPI
US: Fri GDP & UoM Conf.

Click link under title or below for today’s musical support:
A total Karma thing. Needs to be policed.
Music Link


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