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 27 October 2012

Shuffle Rewind 22-26 Oct " Road To Nowhere " (Talking Heads, 1985)

Shuffle Rewind 22-26 Oct " Road To Nowhere " (Talking Heads, 1985)
Music Link

This week in review (compared to Fri 19 Oct COB):
Click on day for related post, on title for song.

The week ending 19 Oct had been seriously spacy, very optimistic, flying high in thin air. It seemed many thought about Lucy In The Sky with Diamonds", skipping news that tended to be on the bad side and hailing days with no news at all, as being good days. The whole thing kinda ended last Friday 19 Oct with a last dizzy trip of  “Space Truckin'" (Bunds 1,6% -3; Spain 5,35% +3; Stoxx 2536% -1,5%; EUR 1,302) that wasn’t good for European Risk and plainly bad for the US.
Monday 22 Oct wasn’t that bad, at least initially. Despite nothing really positive in the news, the morning was hailed as good and Risk was upbeat, trying to unwind from US gravity – until the US opened with negative real economy news. The day was mostly boring, but the come down was hard as a "Hurricane Heart Attack" (Bunds 1,62% +2; Spain 5,48% +13; Stoxx 2527% -0,4%; EUR 1,306) and Spain suddenly snapped wider. While the US managed to wring out an about flat close, courtesy of renewed “Apple will fix it”-hopes, Tuesday morning still felt hung-over and Risk went rapidly on the slide: Spain, despite an okay bill auction, but who cares?, remained under pressure. Equities remained under pressure. Credit, too. Pressure morphed to a Risk sell-off in the course of the day with a very weak US open adding to the gloom. Was this already "Lights Out" (Bunds 1,58% -4; Spain 5,6% +12; Stoxx 2475% -2,1%; EUR 1,296)? Then again, markets went up the previous week seamlessly with no trigger and thus had room to slide the same way. Eventually, only down some 2.5% since Friday’s close at that point, there was room for more… And yet lights remained flickering in Europe during most of Wednesday’s session: After ticking up on Chinese PMI and then trading down on dismal European PMI figures, markets felt that “enough was enough” and went for the upside. Still, somehow, one has to come back to "Planet Earth" (Bunds 1,57% -1; Spain 5,55% -5; Stoxx 2485% +0,4%; EUR 1,296). Again, Thursday started with (an eventually failed) upside attempt in Risk, despite no fundamentally better news or so. But somehow, things petered out and the close was soggy and bad-spirited, certainly in need of "Karma Police" (Bunds 1,57% +0; Spain 5,59% +4; Stoxx 2481% -0,2%; EUR 1,295). Bad Karma day, ending with Apple losing some seeds and disappointing. Hence a Friday open that was more on the defensive side, although in controlled manner. The day closed about ok, mainly thanks to government-spending boosting US Q3 GDP, but we’ll still call it "Doom and Gloom" (Bunds 1,54% -3; Spain 5,57% -2; Stoxx 2494% +0,5%; EUR 1,294), because other news were bleak and because we like the song. Eventually, US equities just closed flat. Not impressive after these growth numbers... Gloom. Going nowhere...

Uhhhh. It just couldn’t last. Risk had been pushed higher and higher in anticipation, but a combination of reality-check, rather unsettling Q3 earnings and renewed Spanish jitters just made players come down hard from their previous week’s high flying exercise.
Well, I had voiced my surprise of the market’s resilience and complacency in an environment with nothing fundamentally new nor changed (from last week: “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…”), so this week’s action seems more understandable to me.

Nothing new. Spailout OMT still not in play. Greece, haggling not over. Earnings rather bad. PMIs dismal. Central Banks on hold, as everything is on the table, at least for the moment.

Core EGB felt heavy last week and felt heavy for most of this week, too. If it weren’t for the equity correction, where would we be?
Ok, the auction went fine in Germany, but that’s about it.  Germany down 6 on the week (after softening 15bp last week) is no trail-blazer. Obviously the US save-haven (3 tighter from 1.79%) bid has gone softer, too, which explains the feeling of the Hard Core trying to accelerate with the brakes still on. Chances are that if Risk Off continues, there’ll be a lurch forward.
Same pictures for the Hard Core, recouping about half the previous week’s losses.
Agencies still in catch up mode with the EFSF (best performer last week) still tightening and now through France (-7 after +3) and this week the EIB on the run (-9), trying to tackle the 2%-mark.

Last week, BONOs were all the rage, because Moody’s didn’t junk them. Ah?! Back to reality. Spailout still holding out. Spanish regions junked and with no access to the market anymore. End of the Spanish honeymoon: Low was hit in 10s Thursday 10 days ago at 5.32%, +3bp last Friday, +13bp to open the week, another 12bp on Tue, the sole correction of the week on Wednesday (which had an unwarranted Risk On spirit) with BONOs tightening back 5bp to 5.55%, pretty much lost back on Thu to 5.59% and softening further on Fri morning, before reverting and ending the week at 5.57%, 22 bp wider.
Performance since final Summer weakness had us close at 6.86% end of Aug. 5.61% (-125) by Fri 07 Sep, 5.76% 14 Sep, 5.73% 21 Sep, 5.91% 28 Sep, 5.67% 05 Oct, 5.60% 12 Oct and especially 5.35% at the end of last week.
We stressed the importance of the 5.50%-mark last week, as being the level that used to be the upper end of Spanish stress, before things went overboard. Very obviously, that level remains key and this week has confirmed that it might become the floor to break.
The 375bp spread to Germany, down 40bp last week (on 15bp softer Bunds and 25bp firmer BONOs) has vanished and we’re back above 400.
Italy tightened by 20bp last week (piggybacking Spain’s 25bp) and widened 12 this week. Bit of outperformance, but it is an illusion to think that Italy’s case is different from Spain’s. Maybe better, but it won’t be able to leave the Periphery orbit.

EUR swap curve just slightly tighter over the week, with 2-10s at 133 from 135. Flattening rather evenly spread with 2 bp on 2-5s and 1bp in 5-10s as well as 10-30s.

Credit giving back last week’s performance (4% in Main, 8% in Financials), and some, with the main ending at +7 (5.7% wider) and Financials at +12 (7.4% wider). Cross well back over the 500-mark (
at 535), through which it closed symbolically last week  (+40 or 8.1%).

Equities on a slide: last Fri -1.5%, Mon -0.4%, Tue -2.1%, Wed +0.4%, Thu -0.2%... Friday eventually +0.5%. Fickle and nervous rebounds, but never lasting long. Closing the week down 1.7% from last Friday- thanks to the US GDP.

EStoxx trying to stick around 50d average right on 2503 (through), as for the DAX 7227 (on it), CAC 3459 (through), MIB 15622 (through) & IBEX 7771 (on it).
To complete average levels: 100d for INDU 13087 and SPX 1397, hence not that far. NASDAQ 100d 3007 (through) and 200d 2975, Apple-challenged (200d 588).
Technical markets in absence of fundamentals (few again next week).

Commodities got trashed, essentially at the beginning of the week: Oil, especially with WTI down 6.3% (with an inventory overhang). Growth slow-down jitters taking its toll on Copper (-3.3%) like on the broader CRB (-3.6%). Gold doing about ok in that environment. Had a brief stint below 1700, but eventually hung in there (-0.7% on the week).

Small week in New Issues with the EU sticking out with its EUR 3bn 15 YRS. Total of EUR 10.8bn in 14 EUR deals. Spain delivering EUR 1bn ICO 5 YRS (struggling at SPGB +65, half-placed domestically, some with the leads), but pulling a Madrid 2020 increase, despite initial talks of an 8% area yield. Italy faring better with EUR 1.25bn 10 YRS LT2 for UniCredit (stunning) and EUR 750m for UBI in 3 YRS. Some EUR 1.25bn for German SSA names, EUR 1.8bn for German, French and Dutch corporates. Standard Chart well accepted with a EUR 1.25bn 5 YRS senior deal.

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

Taking next week off, so you’ll need to loop this month’s songs, if you need.

On the week (compared to Fri 19 Oct COB):
10 YRS Yields: Germany 1,54% (-6); Luxembourg 1,64% (-4); Finland 1,76% (-8); Netherlands 1,78% (-4); Swaps 1,81% (-3); EU 1,89% (-4); Austria 2,01% (-1); EIB 2,05% (-9); EFSF 2,18% (-6); France 2,25% (+4); Belgium 2,45% (+5); Italy 4,89% (+12); Spain 5,57% (+22).

10 YRS Spreads: Luxembourg 10bp (+2); Finland 22bp (-2); Netherlands 24bp (+2); Swaps 27bp (+3); EU 35bp (+2);  Austria 47bp (+5); EIB 51bp (-14); EFSF 64bp (unch); France 71bp (+10); Belgium 91bp (+11); Italy 335bp (+18); Spain 403bp (+28).

EUR swap curve 2-5 YRS 51bp (-1,0); 5-10 YRS 82bp (-1,0) 10-30 YRS 58bp (unch).
2 YRS German BKOs closed 0,048% (-6) and 5 YRS OBLs 0,54% (-9), on the week. with UST at 1,77% (-2)
Swiss 2-years tightening to -0.215% from -0.20%, but underperforming German Sch├Ątze.

Main at 129 from 122 (5,7% wider); Financials at 175 after 163 (7,4% wider). Cross at 535 from 495 (8.1% wider).
Stoxx Futures at 2494 / -1,7% from 2536 with S&P minis at 1403 / -2,4% from 1438, at European COB last week.
VIX index at 18,5 after 15,7 last week.

Oil 86,1/109,3 (WTI/Brent) from 91,8/112,0 (-6,3%/-2,4%). Gold at 1714 after 1726 (-0,7%). Copper at 355 from 367 (-3,3%) . CRB closes 298,0 from 309,0 (-3,6%).
BDY finally overcame the 4-digit mark last Friday, up 9.1% to 1010 on the week. Action more subdued this week and closing at 1049 (up 3.9%), although we had an impressive 6.9% spike to 1109 on Tuesday.
Summer rebound peak had been 1162 early July (10.8% away). Feb low of 647 (38% away). Sep low was 661.

EUR 1,294 after 1,302 last Friday

Greek guesstimate: Closing the week at 17% and 15% (in yield) in 2023s and 2042s, up 75bp. SOMEHOW.GREECE.WILL.BE.SAVED.-credo seems to lose a little steam here, especially after last weeks’ furious progression. The discussions and haggling seem to drag on, Spanish-style, with nothing concrete popping up – outside the general view that things won’t be manageable without more cash.

All levels Friday COB 17:30 CET

Upcoming Macro Data:
End of month. Low numbers supply. Final PMIs on Friday. Of course, US NFP on Friday after last month’s buzz.

Note that parts of Europe will be closed for the Thu 01 Nov All Saints holiday, leading to patchy liquidity, probably bridged into the weekend. Most business will thus be squashed into the first 3 days with some recurrent long end supply.
French EUR 7.5bn OAT auction (2019, 2022, 2035) pushed forward to Wednesday (from normally Thu), coinciding with EUR 2bn 30 YRS Bunds, so beware of the long end. Will have Belgium as well auctioning some EUR 3.5bn in 2032 and 2035 OLOs, next to 5 and 10 YRS on Monday. Italy in for EUR 4bn 5s and EUR 3bn 10s on Tue. No supply Thu and Fri.

Trading will remain rather technical, subject to Periphery rumours and jitters.

EZ: Tue Biz Climate Indicators
GE: Mon CPI fcst +2% after 2.1% Tue Unemployment fcst 6.9% after 6.8%, Retail Sales fcst +0.5% after rev. +0.1% MoM. Fri MfG PMI 45.7
FR: Wed PPI fcst +2.5% after rev. 2.5% YoY, Cons Spending fcst -0.1% after -0.8% MoM. Fri MfG PMI 43.5
Italy: Wed Unemployment last 10.7%, CPI last 3.4% YoY, PPI last 3% YoY. Fri MfG PMI 45.7, Budget
Spain: Mon Retail Sales last -2.1% YoY. Tue GDP fcst -0.4% QoQ after -0.4% / -1.7% YoY. Wed Housing Permits. Fri PMI
US: Mon Personal Income and Spending fcst +0.4% after +0.1% and +0.6% after +0.5%. Tue Case Shiller House PX. Cons Conf fcst 72 after 70.3. Wed NAPM, Chicago PM. Thu Claims. Final PMI. ISM. Construction spending.
Ch: Thu final PMIs

Click link under title or below for today’s musical support:
Going nowhere...
Music Link


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

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