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

Monday 12 November 2012

12 Nov 2012 – “ Show Me The Way ” (Peter Frampton, 1975)

12 Nov 2012 – “ Show Me The Way ” (Peter Frampton, 1975)

Rather quiet. Verdict still out, whether we’ll get a real rebound or whether the last days were already the dead cat bounce, before heading lower. Periphery on the soft side, but with restricted own dynamics and trailing general Risk sentiment. Waiting. For the US to show the way. Or something to happen.
"Show Me The Way" (Bunds 1,34% unch; Spain 5,88% +7; Stoxx 2473% -0,3%; EUR 1,271 unch)
Not much new over the weekend. US equities, having tried the upside at EU COB, failed to keep the drive and corrected back. The close was positive, but eventually juuuust so and the S&P confirmed again a close below its 200d average at 1381. Nothing major in terms of news over the weekend. Chinese trade data was good, with Exports on the rise, but again, with publication coinciding with the Chinese change of guards, anything else would have been less than flattering and unexpected (Imports +11.6%, fcst 10% after 9.9% and Imports up 3.4%; Imports unchanged at +2.4%, fcst +3.4%). New loans in China rather on the low side, though, with CNY 505bn (fcst 590 after 623) with actually very few prints near the 500-mark since 2010 (Sep 2011 470, July 493, Dec 2010 481). Odd. Japanese 3Q GDP dismal down 0.9% QoQ/-3.5% annualized.
Geek budget vote passed, visibly in more supportive manner (non-supportive MPs having already been expelled last week after the austerity package vote).
Asian equities mixed (Japan soft at -1% on GDP, Chinese indices up 0.5% and the rest of Asia slightly negative).

Nothing crisp in opening quotes in Europe. EGBs, including the Periphery, all by and large unchanged across the curve. Equities down 0.3%, in line with the US closing off its EU COB levels, and overnight slight uptick. Commodities unchanged. EUR unchanged. Slap, slap, slap… Even hitting the screen didn’t change the picture, all unchanged.
Bunds 1.34% / UST 1.61% / Italy 4.96% / Spain 5.81%. Lather, rinse, repeat. Lather, rinse, repeat. Wait.

German Wholesale Prices down -0.6% in Oct (after +1.3%), still up 4.6% YoY (after 4.2%). Spanish housing transactions up 0.9% YoY in Sep (after 3%), although MoM shows a continuous drop (-9.9% in urban properties, balanced by +6.7% in rural areas). Had some weekend reports of supportive voices for a more lenient treatment of evictions, which is socially appeasing, but won’t make the new Bad Bank’s life any easier in managing its stock.

A bit of downside test in equities, followed by light rebounds, but without being able to break into positive territory. Periphery under some slight pressure with Italy back to 5% in 10s and Spain widening by 5 to 5.86%, as some short end weakness (respectively +3 and +8) by mid-morning pushed out the wider end. Not much of a Bund reaction to that, though, although Austrian and Belgian 10s were pushed to new historic lows.

Auction supply restricted to German and French bills today with Germany issuing EUR 4bn 6m at -0.012% (after -0.022% last month), in good bid to cover (at a softer price), retaining EUR 480m for market interventions, followed by the weekly French bill auction for a total of EUR 6.6bn with EUR 4bn 3m at -0.014% (unchanged from last week), EUR 1.3bn 6m at -0.002% (after -0.007%) and EUR 1.3bn 12m at +0.019% (unchanged).
Rest of the week mostly uninspiring with the usual bills supply (Italy, Belgium, Greece) and up to EUR 3bn Dutch 10 YRS (COB Monday 1.605%) tomorrow.
EUR 5bn new German 2 YRS (not 5s, as mistakenly noted last week) on Wednesday and EUR 7.5bn 2, 3 and 5 YRS BTANs and OATs out of France on Thursday.
The Italian bond auction on Thursday will, of course, be of interest with EUR 3.5bn in on-the-run 3 YRS 4.500% Jul 2015 and, as for Spain, a slice end of long end supply with up to EUR 1.5bn in 4.75% Aug 2023 and 5.25% Nov 2029 bonds.

Mid-day levels unchanged with solely Credit tightening in a couple of ticks with equities still down about 0.25%, but off lows. Everything else unchanged. Sideways. Trailing. Lather, Rinse, Repeat. Waiting.
Bunds 1,34% (unch), OBLs at 0,37% (+1), BKOs -0,033% (+0,3). UST 1,61% (-1).
Spanish 2s 3,17% (+8), 10s 5,85% (+4). Spanish 2-10s 268bp (-4).
Italian 2s 2,13% (+2), 10s 5,00% (+3). Italian 2-10s 286bp (unch)
EUR unchanged from morning levels at 1.271, as were Commodities.

No US figures to start the afternoon in a probably lighter session due to Veterans’ Day.

Waiting for some sort of white smoke out of Brussels on Greece, knowing that with or without Troika this week’s redemption will be rolled – and for the rest, we’ll have to see later. Austerity package and budget passed, and duly acknowledged by everyone. A leaked Troika draft stating “very large risks” to the Greek programme isn’t obviously a stunning revelation, but as compliance has “perceptibly improved”, Greek demands for a two-year extension to meet budget targets should get a better spin in BXL. Then again, extra needs are seen as being EUR 14bn until the end of next year and a further 18bn for the following 2 years. Serious money.
While France’s FM Moscovici has already stated that any decision on Greece today ought to be neither neutral nor negative, Germany’s Schaueble laid down the “Bundestag approval” card. Situation clarified.

Spanish EcoM on ticker acknowledging Spain’s view of eco figures to be more positive than other forecasts, but that these figures aren’t set in stone (thus probably meaning that they’ll be updated in line with the others, hence lower). Appealing in the same call that budget deficit targets should be seen in the light of a European recession is probably another sign that some revelation that numbers don’t match will come rather sooner than later.

US cash open on unchanged to just slightly higher levels disappointing for and a slight drag on European peers. The US tipping a toe into the red then pushed Europe lower, although on trailing a tick-by-tick-basis.

Mild Risk Off close, trailing the US. No own impetus here. Hard Core EGBs flat, though. Soft Core a tick better with Austria and Belgium closing on new historic lows up to 10 years. EUR swap curve out to 9 YRS managed still on historic low.
Periphery soft, but nothing panicky here, although symbolic levels breached with Italy back over 5% and Spain getting ever nearer to 6% and past 450 to Bunds.
Bunds closed at 1,34% (unch), OBLs at 0,36% (unch) and BKOs -0,041% (-0,6) with UST at 1,61% (-1).
Spanish 2s at 3,19% (+10), 10s at 5,88% (+7). Spanish 2-10s 269bp (-3).
Italian 2s at 2,16% (+5), 10s at 5,02% (+5). Italian 2-10s 287bp (+1).
EUR stable. Commodities drifting. Someone, please show the way…

Take-away: Rather quiet. Verdict still out, whether we’ll get a real rebound or whether the last days were already the dead cat bounce, before heading lower. Periphery on the soft side, but with restricted own dynamics and trailing general Risk sentiment. Waiting. For the US to show the way. Or something to happen.

Outlook for tomorrow: Eurogroup FM call later on Greece. Will check German ZEW numbers with Current Assessment fcst +8.2 after 10 for Sep (and steady decline from April at 44, then 33, 21, 18 and 13) Sentiment fcst -10 after -11.5 (and before that -18, -26 and -19). EZ ZEW (last -1.4 for Sep from -3.8 in Aug and especially -21.2, -22.3 and -20.1 for this summer). Not much in terms of US hard numbers. More of the same.

European equities now seriously through 50d average levels: EStoxx 2516/2424 (50d/100d), DAX 7286/7002, CAC 3459/3379, MIB 15717/14914, IBEX 7859/7387.
US: 100d/200d for INDU 13124/12993, SPX 1403/1381 and NASDAQ 3017/2983, as Apple-challenged (200d 594).
EUR: 100d 1.2635 & 200d 1.2824. Fibo retracement (of May 2011 1.494 & Jul 2012 1.204 down-leg) at 1.273 & 1.315. Jul 2012 to Sep rebound levels: 1.231 – 1.247 – 1.2611.274 – 1.291.

Pretty good corporate New Issues traffic: IBM EUR 1bn 7 YRS at MS +20, BAT EUR 750m 2023s at MS +75, French RCI EUR 750m 2 YRS senior at MS +178, Irish ESB EUR 500m 7 YRS at MS +320 and Deutsche Bahn EUR 400m Feb 2023s at MS +38.

Closing levels:
10 YRS Yields: Germany 1,34% (unch); Luxembourg 1,48% (-1); Netherlands 1,61% (unch); Finland 1,62% (-1); Swaps 1,67% (-1); EU 1,72% (-1), Austria 1,78% (-2); EIB 1,88% (-1); EFSF 2,01% (+1); France 2,10% (-2); Belgium 2,27% (-3); Italy 5,02% (+5); Spain 5,88% (+7).

10 YRS Spreads: Luxembourg 14bp (-1); Netherlands 27bp (+0); Finland 28bp (-1); Swaps 33bp (-1); EU 38bp (-1); Austria 44bp (-2); EIB 54bp (-1); EFSF 67bp (+1); France 76bp (-2); Belgium 93bp (-3); Italy 368bp (+5); Spain 454bp (+7).

EUR swap curve 2-5 YRS 46bp (unch); 5-10 YRS 82bp (unch) 10-30 YRS 59bp (+1,0).
2 YRS German BKOs closed -0,041% (-0,6) and 5 YRS OBLs 0,36% (unch).

Main unchanged at 132; Financials +2 to 182 (1,1% wider); Cross +2 to 536 (0,4% wider).
Stoxx Futures at 2473 / -0,3% (from 2481) with S&P minis at 1374 (-0,6% from 1382, at European close).
VIX index at 17,7 after 18,0 yesterday same time.

Oil 85,9/109,5 (WTI/Brent) from 85,7/108,0 (+0,2%/+1,4%). Gold at 1731 after 1734 (-0,1%). Copper at 345 from 343 (+0,6%). CRB at EU COB unchanged at 292.
BDIY rebounding again 2.7% to 965.

EUR 1,271 from 1,271

Greek guesstimate: Greek bonds reacting positively to the budget vote and 25 bp tighter: 17.75% for 2023s and 2042s 25 at 15.25%.

All levels COB 17:30 CET

Fast-forward Macro and Events:
Looks patchy data-wise. ZEW tomorrow. EZ Industrial Production on Wednesday to get serious, as well as US Retail Sales and Biz Inventories. Preliminary European Q3 GDP figures next Thursday. US IP on Friday.

EZ: Tue ZEW Sentiment; Wed IP fcst -1.8% MoM after +0.6%; Thu 3Q GDP estimate fcst -0.2%, ECB monthly report, CPI fcst 2.5%; Fri Cars
GE: Tue ZEW Current fcst +8.2 after 10, Sentiment fcst -10 after -11.5; Thu Q3 GDP fcst +0.1% after +0.3% QoQ
FR: Tue Nov Q3 unemployment; Wed CPI fcst 2.1% after 2.2%; Thu Q3 GDP fcst flat unch
Italy: Tue Nov CPI final 2.8% &Gov Debt; Thu Q3 GDP fcst -0.5% after -0.8%
Spain: Tue Final CPI fcst 2.5%, Thu Q3 GDP fcst -0.3% unch
US: Wed PPI fcst +0.2% MoM after +1.1% Ex +0.2% after 0%, Retail Sales fcst -0.1% after +1.1%, Ex +0.3% after +0.9%, Biz Inventories fcst +0.4% after +0.6%; Thu CPI, Empire MfG, Philly FED & Claims; Fri IP and Capacity Utilization.

Click link under title or below for today’s musical support:
Well, I can see no reason
You're living on your nerves

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