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 7 November 2012

07 Nov 2012 – “ Pinball Wizard ” (The Who, 1969)

07 Nov 2012 – “ Pinball Wizard ” (The Who, 1969)
Music Link
 

Exuberant start (Who knows why?), flat lunch (made more sense…), dismal afternoon (to say the least). EGBs ramped up, as the reality of the last days’ figures kicked in. And suddenly everyone woke up and saw… and bonds were right. Tommy, "See Me, Feel Me".
"Pinball Wizard" (Bunds 1,38% -5; Spain 5,68% +4; Stoxx 2486 -1,8%; EUR 1,276)
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Interesting US “We’re now alone”-party just after the European close yesterday with equities suddenly up 0.75%, Gold surging $20, Silver 3%. Hmmm… These post-17:30 CET swings always make you look like a fool, once you just posted. Were due to rumours and counters. Whatever. Good US close. Obama now through. All rise.
Asian session by and large sideways.
Rather explosive 1%-plus surge in European equities to kick off the day. Credit Risk tightening sharply, too, at open, coming in by 3-4%.
Again EGB reaction to equity optimism rather muted with Bunds 2bp wider to 1.45% (in line with USTs at 1.71%, ahead of tonight’s auction). Other sovereigns flat to 1 wider. 10 YRS Italians and Spain 2-3 tighter with a flat short end.
Commodities on the ramp with Oil adding 2.5% since European COB, same for Gold (maintaining its $20 surge of last night). Copper up “only” 1%. EUR slightly firmer at 1.286.

Now back to reality (and we’re not talking the US fiscal cliff yet, which will pop up soon enough): Spanish IP tanking bad by 7% MoM sa in Sep (Forecast had been a smaller deterioration from -3.2% to -3.5%), YoY sa drop is a staggering -11.7% (after -3.1%). Finnish GDP still on a slow-mo (actually accelerating) slide, ticking down 0.6% in Aug.
EZ Retail sales about in line with MoM -0.2% (fcst -0.1% after +0.1%, rev. +0.2%) / -0.8% after revised -0.9% YoY.

Markets balancing out within the next hour with EGBs roughly all flat. Equities ticked a little lower from the opening levels, but without correcting the opening gap, then higher again in the course of the morning.

Additional EUR 4bn German OBLs easily sold at 0.42% (COB 0.435%) after 0.53% last month (0.61% in Sep and 0.31% in Aug). Bids for EUR 4.9bn (of which EUR 3bn at market). EUR 710m retained for market interventions. No tail. Good auction.

Slovakia getting good response to its 12 YRS with EUR 1.25bn at MS +150. Somehow a league on its own with its A2/A/A+ ratings. Nearest comp would be Belgium (Aa3/AA/AA) with Mar 2026 around 80 over swaps. Italian interpolated 12 YRS around 300 over. Poland’s 2024 (A2/A-/A-), launched early Oct at +143, around 115 over nowadays. Outstanding 2025s around MS +150. So quite generous a starting point.
The EFSF increased its May 2019 benchmark by EUR 1.5bn at MS +26.

Supply-highlight of the week will be Spain tomorrow with EUR 4.5bn of 3 YRS (last auction 3.227% on 18 Oct), a new 5 YRS 4.500% Jan 2018 benchmark and even venturing into a 2032 increase. COB Levels 3.69%, 4.67% and 6.34%, respectively. Results 10:45 CET.
Last auctions were 18 Oct for a combined EUR 4.61bn in 3, 4 and 10 YRS and 04 Oct for EUR 4bn 2, 3 and 5s.
3 YRS were auctioned 3.227% on 18 Oct, 3.228% on 04 Oct, 3.845% on 20 Sep and 3.676% on 06 Sep after being OMT’ed from 5.086% and 5.457% in July). So in any case, we’re backing up from the lows and coming back to immediate post OMT-announcement levels.

Another set of downbeat German figures (a risk pointed out yesterday) with German Sep IP tanking 1.8% MoM sa (fcst -0.7% after -0.5%, rev. -0.4%) with YOY nsa printing -1.2% (after revised -1.3%) instead of the expected 0.1%.
Unsurprising, but a downer on equity exuberance.

Midday picture far more down to earth with a bit of Risk On in EGBs (including the Periphery) and diminishing Risk appetite with equities up 0.50% and Credit 1.5% tighter (half this morning’s highs).
Bunds 1,40% (-3), OBLs 0,41% (-3), BKOs -0,022% (-0,8). UST at 1,67% (-2)
Spanish 2s at 3,00% (-2), 10s at 5,60% (-4). Spanish 2-10s 261bp (-1).
Italian 2s at 2,10% (-1), 10s at 4,87% (-2). Italian 2-10s 277bp (-1).
EUR back to low 1.28. Oil down 1% from morning levels.

Drastic change of mood thereafter with markets taking a plunge.
EU economic forecast revisions unsurprisingly with a lower bias: 2012 GDP now at -0.4% (-0.3%), 2013 down to +0.1% (from +1%). EZ debt/GDP to be 94.5% in 2013 and 94.3% in 2014.
And by and large things will be better in … 2014. [Link to full report]
Draghi speech in Frankfurt, but nothing crisp. Anyway there’s the Mario Show on the screens tomorrow anyway, so why spoil it? Oh, he did state the obvious, that Germany was starting to feel an impact. Not sure that was fresh news, though. Oh, and SMP, pfff… Feeling some back-pedalling here, too. [Link to speech]
Catalonia’s Mas again pitching a referendum on independence.

European equities hitting -1% (from over +1% high) after lunch, last seen Wednesday a week ago, before rebounding a little and then tanking again.
No US figures at all, except Oil inventories and the USD 24bn 10 YRS auction (after EU close) to steer things differently.
US cash open down 1.3% adding further pressure on European equities and taking Bunds down to 1.37%. Ding!

Merkel in usual German federalist and “need to obey rules” pitch before the EU Parliament.

Well, let’s call this a serious Risk Off day. EGBs on the ramp, although Bunds didn’t manage to hold onto their tightest levels (same as for the USTs, ahead of the auction) despite equities hitting new LODs. Still, OBL in best flight to quality drive (after its own auction) and Schätze doing great in negative territory. Periphery underperformance due to Equity / Credit ROff, but with no own negative dynamic at this stage.
Note that the whole EUR swap curve out to 9 YRS hit historical lows today (10s hit 1.66% early June and remains a little behind)!
Bunds closed at 1,38% (-5), OBLs at 0,38% (-6) and BKOs -0,041% (-2,7) with UST at 1,64% (-5)
Spanish 2s at 3,08% (+6), 10s at 5,68% (+4). Spanish 2-10s 260bp (-2). Italian 2s at 2,13% (+2), 10s at 4,90% (+1). Italian 2-10s 277bp (-1).
Oil dumped over 3% from this morning’s highs. Gold off high, but the shiniest thing out there (together with Coffee after a sleepless night). EUR back to early Sep levels at 1.276.

Take-away: Exuberant start (Who knows why?), flat lunch (made more sense…), dismal afternoon (to say the least). EGBs ramped up, as the reality of the last days’ figures kicked in. And suddenly everyone woke up and saw… and bonds were right. Tommy, "See Me, Feel Me".

Outlook for tomorrow: Spanish auction to be followed. Need to see whether and how the Greek managed to pass their austerity package in parliament. German trade figures (should saw falling exports). No further major EZ data. Mario Show in Frankfurt. US trade and Claims (fcst 366 after 363). Again light on hard data. Need to keep the whole rather conspirational “Things need to be kept together until the US election is over” in the back of one’s mind. Oh, and Chinese Communist congress, of course.
[Mistakenly wrote about Italian IP today, but that’s for Fri]

Need to grab those charts again: European equities still trading around 50ds average levels, today through, obviously: EStoxx 2513 (through), as for the DAX 7273 (through), CAC 3458 (through), MIB 15709 (through) & IBEX 7844 (through).
To complete average levels: 100d/200d for INDU 13123/12992 (through/just bounced off it for a couple of minutes and crashed through) and SPX 1403/1380 (above), hence not that far. NASDAQ 100d 3016 (through) and 200d 2983 (through), as Apple-challenged (200d 592) at EU COB. Uhhh…

Quite some traffic in New Issues. Obviously the start of the day felt better, but things went through nicely in the morning with the EFSF increasing Sep 2019 by EUR 1.5bn at MS +26, Slovakia printing EUR 1.25bn 12 YRS at MS +150 and the German Land of Hessen EUR 1bn 3.5 YRS FRN at 3m E flat for the SSA-side. SEB issuing yet again a Nordic senior financial deal with EUR 1bn 7 YRS at MS +72.
Corporates represented by Sanofi Aventis with EUR 750m 5 YRS at MS +18 (!) (a mere 1.05% in yield) and Dutch energy utility Enexis with EUR 500m 8 YRS at MS +55 (from an initial 70-75 talk).

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

Closing levels:
10 YRS Yields: Germany 1,38% (-5); Luxembourg 1,52% (-5); Netherlands 1,65% (-5); Finland 1,68% (-4); Swaps 1,70% (-6); EU 1,76% (-4), Austria 1,86% (-2); EIB 1,92% (-3); EFSF 2,04% (-3); France 2,17% (-3); Belgium 2,34% (-4); Italy 4,90% (+1); Spain 5,68% (+4).

10 YRS Spreads: Luxembourg 14bp (unch); Netherlands 27bp (unch); Finland 30bp (+1); Swaps 32bp (-1); EU 38bp (+1); Austria 48bp (+3); EIB 54bp (+2); EFSF 66bp (+2); France 79bp (+2); Belgium 96bp (+1); Italy 352bp (+6); Spain 430bp (+9).

EUR swap curve 2-5 YRS 47bp (-2,0); 5-10 YRS 83bp (-1,0) 10-30 YRS 56bp (+2,0).
2 YRS German BKOs closed -0,041% (-2,7) and 5 YRS OBLs 0,38% (-6).

Main +3 to 130 (2,4% wider); Financials +5 to 175 (2,9% wider); Cross +14 to 526 (2,7% wider).
Stoxx Futures at 2476 / -2,2% (from 2531) with S&P minis at 1392 (-1,9% from 1419, at European close).
VIX index at 18,7 after 17,9 yesterday same time.

Oil 85,3/108,0 (WTI/Brent) from 86,4/108,9 (-1,3%/-0,8%). Gold at 1710 after 1694 (+0,9%). Copper at 344 from 349 (-1,4%). CRB at EU COB 297,0 from 292,0 (+1,7%).
BDIY continuing its slide, down 3.3% today to 916. Now down 16% from the latest high at 1109 on 23 Oct.

EUR 1,276 from 1,281

Greek guesstimate: Greek bonds still clinging to the late gains with 2023s at 16.75% (-25) and 2042s at 14.5% (-25).
EU comments that a solution shall be found rapidly remain hilarious. Then again, tight market, few players. A couple of millions will lead the way (average turnover is EUR 5m/day).

All levels COB 17:30 CET

Fast-forward Macro and Events:
Not much exciting data. ECB, of course. Usual Core bills. Spanish bonds on Thursday, always good for some excitement. USD 16bn 30 YRS auction tomorrow.
Preliminary Q3 GDP figures next week.

EZ: Thu ECB; Tue ZEW Sentiment; Wed IP
GE: Thu Trade with Exports fcst -1.5% MoM after +2.5% and Imports fcst -0.4% after 0.4%; Fri CPI fcst unch 2.1% YoY; Tue 13 Nov ZEW; Thu Q3 GDP
FR: Fri Biz Sentiment (last 92), IP fcst -1% MoM /-0.1% YoY after +1.5% /-0.9%, MfG fcst -1.3% MoM/-0.1% after +1.8%/-0.4%;  Tue 13 Nov Q3 unemployment; Wed CPI; Thu Q3 GDP
Italy: Fri IP fcst -1.6% MoM/-4.7% YoY after +1.7% /-5.2%; Tue 13 Nov CPI & Gov Debt; Wed Q3 GDP
Spain: Mon 12 Nov House transactions; Tue CPI, Thu Q3 GDP
US: Thu Trade Balance, Claims; Fri U Michigan Conf, Wholesale Inventories, Import PX
China: Fri monthly data dump CPI, IP, Retail Sales; Sat Trade

Click link under title or below for today’s musical support:
And suddenly they saw the light – and played a mean pinball…
Music Link

http://www.aviewfrommyscreens.com

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

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