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 8 November 2012

08 Nov 2012 – “ Bop 'Til You Drop ” (Rick Springfield, 1984)

08 Nov 2012 – “ Bop 'Til You Drop ” (Rick Springfield, 1984)
Music Link

Hmmm… Initial rebound after yesterday’s bashing was rather modest, settling on a bit better and awaiting US input. Spain overdid its auction, which looked just good in the sense of being able to say it sold a new bond for size – to its dealers. ECB, happy to have provided the idea of OMT to save the world from simple panic, now going pessimistic (in non-panicky way). It’s just soft out there… It’s the economy, Stupid! And it is weak.
"Bop 'Til You Drop " (Bunds 1,36% -2; Spain 5,84% +16; Stoxx 2479% +0,1%; EUR 1,275)
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So we closed Wednesday with the biggest drop in US equities in a year. If that isn’t a great start for Obama 2.0… Interesting price action with the INDU trying to rebound to its 200d average, just as Boehner started to speak; sending stocks back again 0.5% further lower into the close. INDU below luck 13k and S&P below 1400 with Apple now officially in a bear market. Fiscal cliff: bi-partisan agreement on raising taxes and lowering spending? Isn’t that what they call austerity in other parts of the world???
Asia soft, but not overly given the US bashing last night (roughly -1.5 to 2%). Chine Party Congress starting. Targeting doubling income over the next 10 YRS implies a 7% annual growth. Many would die for that, but it will realistically be slower than in the past 10 years.
Greece passed (in visibly tensed mood) its austerity package in Parliament yesterday (with several coalition members sacked thereafter for voting against). Still needs to pass budget on Saturday, though.

Now back to reality (once more): German Sep trade numbers worse than expected with Exports down 2.5% MoM (fcst -1.5% after +2.4%, rev. 2.3%) and Exports, too, a miss at -1.6% (fcst -0.4% after rev. +0.4%). No real surprise, though, given the latest series of German figures.
New Greek all-time Unemployment rate of 25.4% for August (up from 24.8%) and Youth UE at 58%.
No positive impact of the Greek vote on its bonds (+25 bp).

Initial European cash equity open spike around +1% (Why?), but a rather short-lived outperformance of the US closing levels and equity futures (+0.1-0.2% to European COB levels), rapidly settling for +0.5%, which is fair enough a rebound already. Maybe hoping for some Mario magic later. Credit opening a little tighter, too.
EGBs flat to a tick tighter (with USTs +3 compared to yesterday, digesting the auction). Periphery a little wider, unsurprisingly ahead of the Spanish auction.
Commodities still depressed with WTI at $85. Gold holding ok, eventually. EUR 1.276

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.

Spanish auction as supply-highlight of the week with the Spanish Treasury not resisting over-allotting bonds with EUR 4.76bn sold on a EUR 4.5bn target: EUR 992m 3 YRS at 3.66% (COB 3.69%) (last auction 3.227% on 18 Oct), EUR 3.04bn new 5 YRS 4.500% Jan 2018 benchmark at 4.68% (COB 4.67%) and venturing into a EUR 731m 2032 increase at 6.328% (COB 6.34%).
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, at 3.66%, we’re backing up from the lows and coming back to immediate post OMT-announcement levels.
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.
Auction prices showed a hefty tail in the new 5 YR, which was allocated up to 4.769% (thus 9 wider than average). Tails in 2s limited (1.8bp) and in 2032s at 3.6bp, probably more justifiable given the maturity.
Bit of a spontaneous indigestion with 2s widening 2bp and 10s 6bp, along side Italy harmed by BoI numbers on bad bank loans rising over 15% (although, next to deposits up 5.7%).

Spanish Treasury now through with its 2012 funding and keeping the auction pace to pre-fund next year.
As it happens, a similar statement out of Belgium, “unconcerned” by its 53.1% share of the Dexia recap (EUR 5.5bn), as targeted funding is done and an unchanged auction schedule will allow funding this. The guarantee mechanism has been adapted, too, lowering the Belgian and Luxembourg shares to respectively 51.41% (from 60.5%) and 3% and increasing France’s to 45.59% (from 36.5%) of EUR 85bn (down from EUR 90bn).

Had by noon CET Spain and Italy trading wider, up to 5% (+10) and 5.80% in 10s (+12), before regaining some composure. Spanish auction paper o the heavier side at 3.78% (+12), 4.79% (+11) and 6.40% (+7).
Had ESM Chief Regling saying the ESM would help Spanish banks refinance in “a couple of weeks” (…).
Statements about Greek decisions varying between “hopeful next week” (EU) and “not too soon” (Schaueble).

Again, a less exuberant midday picture than in the morning, but still on the positive side: equities still up some +0.5-0.7% (with US futures ticking back towards unchanged levels). Credit a tick tighter.
EGBs by and large flat with the Periphery still on the heavier side after the auction and maybe in belated reaction to yesterday’s rather stable behaviour (Italy widened just by 1, Spain by 4) in a seriously ROff environment.
Bunds 1,37% (-1), OBLs 0,37% (-1), BKOs -0,038% (+0,3). UST at 1,67% (+3)
Spanish 2s 3,18% (+10), 10s 5,81% (+13). Spanish 2-10s 263bp (+3).
Italian 2s 2,15% (+2), 10s 4,98% (+8). Italian 2-10s 284bp (+7).
EUR mid 1.27s, having tested a 1.272 low. Commodities stable on yesterday’s closing levels.

ECB and BOE unchanged – as expected.

US claims better than expected (but how reliable are NE numbers after last week???) at 355k (fcst was 363k) with Continuous Claims at 3127k (fcst 3257k after rev. 3262k).

ECB introduction bleak: no inflation – and now growth… Q&A unexciting. The ECB is there, the OMT is there for tail risk, the rest is up to the governments (…). And the weaker economy… Usual questions on Periphery and Greece ("
by and large done on Greece")and answers that the ECB is there for Stability and Monetary Transmission. Usual answers. Actually a non-funny and non-relaxed, if not tense Mario. Not an entertaining show today… [Introduction here, Q&A added later]

Some drift lower in Risk Appetite, but waiting for ECB goodies (or not) and for the US open, which was eventually +0.25% (good), but didn’t hold (less good). Still European Risk remaining in the green and the EGBs on stand-still. INDU attempt and failure to hit the 200d line sent it back to closing levels, and then through, dragging Europe lower, but still slightly outperforming and visibly unwilling to break lower, as long as the INDU won’t break yesterday’s lows at 12877.

Equities battled hard to eventually close unchanged, as was broadly Credit, too.
EGBs seemingly reluctant to tighten further (with USTs still wider than yesterday ahead of the 30 YRS auction), but somehow pushed by a weaker Periphery. Italy back on symbolic 5% and Spain soft. Need to see whether we’ll have a Friday short squeeze (OMT rumours, but fading) or whether we’ll hit 6%.
Auction paper heavy at 3.80%, 4.79% and 6.45% (from auction levels of 3.66%, 4.68% and6.33%).
Bunds closed at 1,36% (-2), OBLs at 0,37% (-1) and BKOs -0,030% (+1,1) with UST at 1,68% (+4).
Spanish 2s at 3,16% (+8), 10s at 5,84% (+16). Spanish 2-10s 268bp (+8).
Italian 2s at 2,15% (+2), 10s at 5,00% (+10). Italian 2-10s 285bp (+8).
Oil remains soft. Gold a little firmer. Copper stable. EUR stable (see chart levels below).

Had Greek bonds trashed (+125bp) throughout the day (at open), after Mario’s comments that the "ECB is by and large done on Greece” and finally because any Greek support and EZ conference call seems to get shifted away in time.

Take-away: Hmmm… Initial rebound after yesterday’s bashing was rather modest, settling on a bit better and awaiting US input. Spain overdid its auction, which looked just good in the sense of being able to say it sold a new bond for size – to its dealers. ECB, happy to have provided the idea of OMT to save the world from simple panic, now going pessimistic (in non-panicky way). It’s just soft out there… It’s the economy, Stupid! And it is weak.

Outlook for tomorrow: TGIF. Chinese data dump (CPI fcst +1.9% unch, IP fcst +9.4% after 9.2%, Retail Sales fcst +14.4% after 14.2%), which cannot but be positive, as coming during the Party Congress. Final German CPI at 2.1%, French Biz sentiment fcst 90 after 92 and Italian IP fcst -1.6% MoM  / -4.7% YoY after +1.7% / -5.2%. US Michigan Confidence fcst 83 after 82.6 and Wholesale Inventories fcst +0.4% after +0.5%. We’ll know how equities and the 30 YRS auction fared in the US. Then we'll see…

Need to grab those charts again: European equities still clinging near 50d average levels: EStoxx 2515 (through), as for the DAX 7280 (through), CAC 3460 (through), MIB 15718 (through) & IBEX 7854 (through).
To complete average levels: 100d/200d for INDU 13123/12992 (through/just bounced off it for a couple of minutes and crashed through), SPX 1403/1380 (above), hence not that far, and NASDAQ 3016/2982 (through), as Apple-challenged (200d 592), the latter now officially in a bear market.
EUR levels 100d 1.264 & 200d 1.282. Fibo retracement (of May 2011 1.494 & Jul 2012 1.204) at 1.273 (tested this morning) & 1.315. Jul 2012 to Sep rebound levels: 1.231 – 1.247 – 1.2611.274 – 1.291.

New Issues restricted to 2 servings of Carlsberg with a larger EUR 750m 10 YRS at MS +98 and a EUR 250m increase of an outstanding July 2019 issue at MS +80 (over EUR 3.5bn in orders). Alliander issued EUR 400m 10 YRS at MS +57 (in conjunction with a buy-back). Had an opportunistic safe-haven increase with EIB adding EUR 750m to an outstanding Mar 2020 at MS +11.

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

Closing levels:
10 YRS Yields: Germany 1,36% (-2); Luxembourg 1,52% (unch); Netherlands 1,62% (-3); Finland 1,65% (-3); Swaps 1,71% (+1); EU 1,76% (unch), Austria 1,84% (-2); EIB 1,92% (unch); EFSF 2,04% (unch); France 2,16% (-1); Belgium 2,33% (-1); Italy 5,00% (+10); Spain 5,84% (+16).

10 YRS Spreads: Luxembourg 16bp (+2); Netherlands 26bp (-1); Finland 29bp (-1); Swaps 35bp (+3); EU 40bp (+2); Austria 48bp (unch); EIB 56bp (+2); EFSF 68bp (+2); France 80bp (+1); Belgium 97bp (+1); Italy 364bp (+12); Spain 448bp (+18).

EUR swap curve 2-5 YRS 47bp (unch); 5-10 YRS 83bp (unch) 10-30 YRS 58bp (+2,0).
2 YRS German BKOs closed -0,030% (+1,1) and 5 YRS OBLs 0,37% (-1).

Main +1 to 131 (0,8% wider); Financials unch to 175; Cross +7 to 533 (1,3% wider).
Stoxx Futures at 2479 / +0,1% (from 2476) with S&P minis at 1386 (-0,4% from 1392, at European close).
VIX index at 18,4 after 18,7 yesterday same time.

Oil 84,5/106,4 (WTI/Brent) from 85,3/108,0 (-0,9%/-1,5%). Gold at 1723 after 1710 (+0,8%). Copper at 345 from 344 (+0,3%). CRB at EU COB 291,0 from 297,0 (-2,0%).
BDIY unchanged, for once, at 916. Down 16% from the latest high at 1109 on 23 Oct.

EUR 1,275 from 1,276

Greek guesstimate: Greek bonds having clung (and probably be traded up and squeezed over the last days) got trashed today, despite the vote, with 2023s at 18% from 16.75% and 2042s at 15.75% from 14.5% (+125). Obviously, Mario’s comment that the ECB has done all it could for Greece was not expected.

All levels COB 17:30 CET

Fast-forward Macro and Events:
Preliminary Q3 GDP figures next week.

EZ: Tue ZEW Sentiment; Wed IP
GE: Fri CPI final 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: Fri U Michigan Conf, Wholesale Inventories, Import PX Mon 12 Nov Veterans Day
China: Fri monthly data dump CPI, IP, Retail Sales; Sat Trade

Click link under title or below for today’s musical support:
Not sure I’m the biggest fan, but the title seemed fitting. Ah, 80s Pop with synth slap bass and electronic drums…
Music Link

http://www.aviewfrommyscreens.com

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

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