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

Saturday 20 October 2012

Shuffle Rewind 15-19 Oct " Lucy In The Sky with Diamonds " (The Beatles, 1967)

Shuffle Rewind 15-19 Oct " Lucy In The Sky with Diamonds " (The Beatles, 1967)
Music Link

This week in review (compared to Fri 12 Oct COB):
Click on day for related post, on title for song.

Last week was mostly boring and worth a “Sleeping Satellite” with Friday 12 Oct being "Sleepy Time Time" (Bunds 1,45% -6; Spain 5,6% -15; Stoxx 2465% -0,7%; EUR 1,294), despite Spain getting squeezed ahead of the weekend.
This week was more spaced out with bouts of pessimism followed by Spain and equities ripping higher on what one should honestly consider as being no news, at least nothing major nor new. So we’ll dedicate the week to the Fab Fours’ song, which title’s abbreviation (and associated clip) urban legends have always linked to substance abuse (confirmed since by Sir Paul). Just be careful when coming down…

Another round of Spain whip-lashing. After Friday’s pre-weekend squeeze (One never knows, the bail-out demand might just be around the corner), Monday was more down to Earth. A "Blue Monday" (Bunds 1,47% +2; Spain 5,8% +20; Stoxx 2480% +0,6%; EUR 1,294), as that bail-out demand didn’t materialize… Tuesday was the wildest day in Risk, as European equities just took off on nothing concrete in 3 stages. One of the trigger was some German mumbling about being supportive of Spain, later corrected. Still, better, higher, higher. Squeeze. "Wild Is The Wind" (Bunds 1,55% +8; Spain 5,78% -2; Stoxx 2545% +2,6%; EUR 1,304). Wednesday was a blast in Spain, as Moody’s announced it wouldn’t junk the rating (yet). Not that this was really the biggest worry around, but eventually the relief, or the addition of relief factors, triggered one of the biggest squeezes witnessed lately in BONOs. Then again, having pre-empted good news the day before, equities only enjoyed so much more improvement, but what a "Rocket Ride" (Bunds 1,63% +8; Spain 5,44% -34; Stoxx 2566% +0,8%; EUR 1,312) for Spain. Following up on this, Thursday saw for the first time in ages a “normal” Spanish auction. Just fine. Rather textbook like. Still the mood felt a little drifty for most of the day, as if floating around in a "Space Oddity" (Bunds 1,63% +0; Spain 5,32% -12; Stoxx 2575% +0,4%; EUR 1,31). Eventually another positive close for Risk, although Credit remained heavy and US closed soft. Hence Friday got off to an ok start, but a softer close. Too much "Space Truckin'" (Bunds 1,6% -3; Spain 5,35% +3; Stoxx 2536% -1,5%; EUR 1,302) just gets you dizzy. Dismal US Friday close to end the week with INDU down 1.5% (crossing 50s at 13.353), S&P 1.6% (crossing 50d at 1433.5) and NASDAQ 2.2%.

Well, a good week for Risk and a cheery week for Spain. 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…

Very defensive Core EGB action with Bunds (and UST) softer by 15bp on the week, suffering from equity and Periphery strength and recouping just so much at the end of the week to close slightly tighter than the mid-week highs.
Risk On torsion picture with other Hard Core and swaps out by about 10, France & Austria (back over 2%) slightly less (and giving back just half of last week’s tightening), Belgium just a couple after hitting historic lows in 10s at 2.32%.
EFSF best performer on the week and closing in on OAT levels (Spread down to 3 from 11 last week).

So the BIG news for Periphery paper was that Moody’s did NOT junk Spain (yet), leading to a HUGE squeeze in BONOs (-34 bp on Tuesday)(after trading off 20bp on Monday, as no Spailout had taken place), ahead of Thursday’s auction, which seemed to be just fine, balanced, non-hysterical, realistic prices near actual trading rates.
I remain wary about any change in DBRS' view on Spain, as a single notch downgrade (still well above the Big 3 raters), would kick Spanish debt in a lower ECB bucket and increase haircut by 5% on tons of LTRO ware, pulling billions in liquidity.
Big Winner of course Spain, which closed tighter by 25bp on the week, having had to recoup a 20bp trashing (out to 5.80%) on Monday. Were levels below 5.50% to hold for a while, it would certainly mark a change, as this mark was the upper range hit several times, before things went totally loose. Spread to Bunds now squarely below 400 (+375, down 40 on the week).
Italy doing fine, tagging along Spain and down 20bp on the week. Note that Italian 2s remain stubbornly stuck over 2%.

EUR swap curve steepening to 135 from 128, but some ultra-long end action starting Thursday supported both the 10 YRS area and flattened 10-30s.

Rangy and jumpy equity world: last week -2.4%, prior +3% after -4.5%... This week still up 2.9% (although nearly 2% off highs) with the US solely trading up 0.8% (at European close Fri).
Credit still on a tightening bias (maybe triggered by naked CDS regulation starting next month), after a flat prior week. Here as well, we got some volatility with regular over- and then undershooting compared to equities. Main 4% tighter, Financials even over 8%, although closing off tightest levels after Friday afternoon.

Commodities once more a relative haven of stability, mixed on the week in diminishing volatility. Overall CRB about unchanged for the third week in a row. Oil flat until Friday (WTI better, Brent worse). Gold a little fickle lately (-2%). Copper down 1%. EUR up again on the week, but off highs.
BDY trucking ahead with another 9% added.

New Issue supply was on the lighter side this week with EUR 14.4bn in 17 deals (after last week’s EUR 18bn in 22), of which nearly half courtesy of the new EFSF 5 YRS deal for EUR 5.9bn. Add another EUR 1.6bn+ for SSA and LRG issues, mainly in 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) after last week’s EUR 5.5bn. Better Periphery conditions mean as well an end to yield hunting / shopping…

On the week (compared to Fri 12 Oct COB):
10 YRS Yields: Germany 1,60% (+15); Luxembourg 1,68% (+11); Netherlands 1,82% (+12); Finland 1,84% (+13); Swaps 1,84% (+10); EU 1,93% (+6); Austria 2,02% (+7); EIB 2,14% (+3); France 2,21% (+6); EFSF 2,24% (-2); Belgium 2,40% (+3); Italy 4,77% (-20); Spain 5,35% (-25).

10 YRS Spreads: Luxembourg 8bp (-4); Netherlands 22bp (-3); Finland 24bp (-2); Swaps 24bp (-5); EU 33bp (-9); Austria 42bp (-8); EIB 54bp (-11); France 61bp (-9); EFSF 64bp (-17); Belgium 80bp (-12); Italy 317bp (-35); Spain 375bp (-40).

EUR swap curve 2-5 YRS 52bp (+6,0); 5-10 YRS 83bp (+1,0) 10-30 YRS 58bp (-2,0).
2 YRS German BKOs closed 0,112% (+7) and 5 YRS OBLs 0,63% (+13), on the week. with UST at 1,79% (+15)
Swiss 2-years flat on the week at -0.20% (unch).

Main at 122 from 127 (3,9% tighter); Financials at 163 after 178 (8,4% tighter ). Cross at 495 from 540.
SovX at 106 from 135, but will stop monitoring this one, as it is becoming rather virtual…
Stoxx Futures at 2536 / +2,9% from 2465 with S&P minis at 1438 / +0,8% from 1426, at European COB last week.
VIX index at 15,7 after 15,6 last week. Ticking higher.

Oil 91,8/112,0 (WTI/Brent) from 91,9/114,3 (-0,1%/-2,1%). Gold at 1726 after 1762 (-2,0%). Copper at 367 from 371 (-1,1%) . CRB closes 309,0 from 309,0 (unchanged).
BDY finally hurdled the 4-digit mark on Friday, up 9.1% to 1010 from 926 on the week. First time over the 1k-mark since end of July. Xmas is coming; iPhones need to be delivered… Summer rebound peak had been 1162 early July (15% away). Feb low of 647 (36% away). Sep low was 661.

EUR 1,302 after 1,294 last Friday

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 100bp to 16.25% for 2023s and down even 125bp to 14.25% for 2042s over the week. New highs. Traded 19.25% and 18% 3 weeks ago. SOMEHOW.GREECE.WILL.BE.SAVED. Somehow

All levels Friday 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.

GE: Fri PPI fcst +0.3% after last +0.5% MoM / +1.6% YoY, 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: Fri Indu Orders (last -4.9 YoY), Sales (last -5.3% YoY); 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: Fri Home Sales // US Q3 Fri 26 Oct. 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 this week’s musical support:
Follow her down to a bridge by a fountain
Where rocking horse people eat marshmallow pies
Everyone smiles as you drift past the flowers
That grow so incredibly high

Just be careful when coming down…
Music Link


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