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 14 November 2012

14 Nov 2012 – “ Way Down ” (Elvis Presley, 1977)

14 Nov 2012 – “ Way Down ” (Elvis Presley, 1977)

See-sawing – and still looking for direction. Open weaker, in line with the US close. Some exuberance ahead of the Italian auction, despite negative figures. Awakening that nothing was justifying this. Re-correction while awaiting the US take of things. With the US opening flattish plus, Europe had a light lift and started tagging along, tick for tick, stuck in a loop. Some more European gloomy news to end the day. Way Down. For the moment mostly an equity move. And cut.

"Way Down" (Bunds 1,34% unch; Spain 5,92% +9; Stoxx 2475% -0,8%; EUR 1,274 +20)

As somehow to be expected, the US markets closed down, as the rally during the EU afternoon session just fizzled out and with the last trading hour pushing indices back into negative territory. It is the fifth day in a row that we get a such a bump and a sell-off into the close. FED Yellen Über-dove pitching ZIRP until 2016 – or indefinitely. After hours CISCO figures better than expected, though, giving futures a bit of an up-leg.
Asia closed flattish plus, with the plus stemming from a rather tame European open, as well as the formal announcement of the new Chinese leaders. Not much in overnight news. Umpteenth new elections in Japan. Spain on general strike. Greece still a puzzle.

Light macro data: French CPI confirmed at 2.1%. Dutch Sep Retail Sales -0.1% after +0.9% MoM and Finnish ones at -0.6%, although previous figures were revised from -0.9% to +0.8%.

Lather, Rinse, Repeat at European open. Unsurprisingly, equities down about 0.30%. Bunds ticking up a little, though, at 1.35% (+1, in line with UST at 1.62 +1) with most other EGBs pat and the Periphery extending yesterday afternoon’s tightening, opening 3-4 bp tighter with 10s at 4.93% and 5.79%, respectively, ahead of the Italian auction.
Credit on a slightly better footing. Commodities flat. EUR a tick better.

Equities eventually back up to closing levels by mid-morning, ahead of the Italian auction results, putting some pressure on EGBs.
Lagarde smoothing the latest spat and supportive (..) for Greek efforts, but looking for a “real” fix (ECB OSI? In your dreams!). Ok, brinkmanship to continue.
Market reacting cool on worse than expected EZ Sep Industrial Production at -2.5% MoM sa (fcst -2% after +0.6%, rev. +0.9%) / -2.3% YoY (fcst -2.2% after -2.9%, revised quite higher to -1.3%). Then again, it’s on everyone’s mind that the summer wasn’t that bad after all, but that Q4 will be heavy.
Portuguese Q3 GP a miss at -0.8% QoQ / -3.4% YoY (fcst -0.6% after -1.1% / -3.2%). Greek GDP down -7.2% from -6.3% (and here goes the sustainability issue again…). Portuguese unemployment steadily creeping up with Q3 at 15.8% (from 15% and 12.8% one year ago).

EUR 5bn new German 2 YRS 0.000% 12 Dec 2014 sold at -0.020% (about 1bp over the outstanding Sep 2014). COB was -0.030% / outstanding +0.6bp. EUR 678m retained for market interventions. BD 1.9. Fair result. First negative yield auction since July at -0.6%. 2 YRS had then widened up to 0.07% at last month’s auction. DE0001137404.
Sorry for having always signalled that Italian auction for Thursday. Unforgiveable given the clout. My bad.
Initial opening quotes were at 2.77%, 4.90% and 5.38%, before being tightened in with the rest of the Italian curve.
The targeted EUR 3.5bn in on-the-run 3 YRS 4.500% Jul 2015 were sold at 2.64% (last 2.86%). Outworldly good price, but sluggish bid-to-cover. Still, lowest level in over 2 YRS.
Were sold as well EUR 816m 4.75% Aug 2023 at 4.81% and EUR 683m 5.25% Nov 2029 bonds at 5.33%, so just the targeted EUR 1.5bn. Here as well, BC of 1.5. far from spectacular for Periphery bonds.
As all issues were quoted much wider in the morning and still wider in the aftermath of the auction, one question pops up: Who’s the generous sponsor? This nagging question eventually put a lid on the performance. Spanish syndrome.

France with EUR 7.5bn 2 YRS Sep 2012 (COB 0.115%), OAT Apr 2015 (COB 0.19%) and 5 YRS BTANs Jul 2017 (COB 0.775%) and Ireland with EUR 500m 3m bills (0.70% last month) tomorrow.

Somehow, the Italian auction and the negative German auction shifted the mood back to gloom and Risk rapidly tanked and went negative again by noon, retesting morning lows. Periphery just holding on a bit of gains, but off the morning tightest levels. Mood as well dimmed by German SPOX confirming that the Greek situation hasn’t yet changed from Germany’s point of view, i.e. solution by end of the month and that “all are working to keep Greece in the EZ” (thus implying that Grexit is still possible).
Midday picture eventually about unchanged from close. Largely an equity spin morning: down up flat up down flat down 0.4% … Credit unchanged.
EGBs back to mostly unchanged from initial softness – across quality buckets and curve. Periphery giving back most gains with just Italy clinging to some 2bp.
Bunds 1,35% (+1), OBLs 0,38% (+1), (old) BKOs -0,033% (+0,3). UST at 1,62% (+1).
Spanish 2s 3,16% (unch), 10s at 5,83% (unch). Spanish 2-10s 267bp (unch).
Italian 2s 2,09% (-1), 10s 4,93% (-3). Italian 2-10s 284bp (-2).
Commodities mostly flat. EUR 1.274

US figures were a miss to start the afternoon: PPI surprisingly down 0.2% MoM (fcst +0.2% after +1.1%) / 2.3% YoY (fcst +2.6% after 2.1%), same on Ex basis; Retail Sales dipping 0.3% (fcst -0.2% after rev. +1.3%), ex Auto & Gas -0.3% (fcst +0.4%, after +rev. 1%).
US cash open juuusssst about positive, but unable to fill yesterday’s last downside hour.
US Business inventories rising 0.7% (fcst +0.6 unch) with no immediate impact. Europe in full sync, tick for tick, waiting for EU announcements regarding the excessive deficit procedure against Spain. Eventually that one was like “fine for this year, we pretend to believe for next year, but we doubt 2014 figures”. Not BONO supportive. Oh, and Greek financing issues remain open. Oh, and Ireland is cutting is growth outlook, too. Middle-East tensions flaring up again, adding to the gloom.
EGB supportive. European Risk hitting LOD at -1% some 30 minutes before the close and unable to really bounce back much more than 0.30%. Still about 1% from yesterday’s lows and 1.3% from Friday noon’s sell-off… S&P now seriously pushing away from its 200d average.

Equity Risk Off. Credit just a little wider to share the pain. EGBs flat at best with no real spill-over from the Spanish afternoon weakness (+14bp from the tightest morning levels). Odd.
Bunds closed at 1,34% (unch), OBLs at 0,37% (unch) and BKOs -0,033% (+0,3) and the new BKOs at -0.024%. UST marginally better at 1,60% (-1).
Spanish 2s at 3,20% (+4), 10s at 5,92% (+9). Spanish 2-10s 272bp (+4).
Italian 2s at 2,11% (+1), 10s at 4,96% (unch). Italian 2-10s 284bp (-2).
Italian auction paper under water at 2.75%, 4.90% and 5.39% against auction levels of 2.64%, 4.81% and 5.33%.
EUR eventually stable at 1.274 and closing above yesterday. Commodity price action very controlled, given ME tensions. Surprising.

Take-away: See-sawing – and still looking for direction. Open weaker, in line with the US close. Some exuberance ahead of the Italian auction, despite negative figures. Awakening that nothing was justifying this. Re-correction while awaiting the US take of things. With the US opening flattish plus, Europe had a light lift and started tagging along, tick for tick, stuck in a loop. Some more European gloomy news to end the day. Way Down. For the moment mostly an equity move. And cut.

Outlook for tomorrow: More of the same? Q3 GDP Day in Europe (EZ -0.1%, Germany fcst +0.1%, France flat, Italy -0.5%, Spain -0.3%) with GE, FR and SP data published before / at market open. Other EZ states, too. EZ CPI expected uneventfully at +0.2% MoM/+2.5% YoY. Nothing else. ECB report. US CPI, Empire MfG and Claims.
Markets will be played by feeling – again… – or leaks on Greece, Spain, EZ…

European 50d & 100d: EStoxx 2517/2428 (50d/100d), DAX 7290/7012, CAC 3459/3383, MIB 15718/14935, IBEX 7863/7398.
US 100d& 200d for INDU 13123/12993, SPX 1404/1382 and NASDAQ 3016/2984, as Apple-challenged (200d 595).
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.

New Issues “restricted” to EUR 1bn 10 YRS covered bonds at MS +33 for Norwegian DNB Boligkreditt, EUR 1bn 7 YRS for JP Morgan at MS +75 and EUR 750m Jan 2020 for Daimler at MS +58.

Closing levels:
10 YRS Yields: Germany 1,34% (unch); Luxembourg 1,47% (unch); Netherlands 1,60% (unch); Finland 1,61% (-1); Swaps 1,66% (unch); EU 1,71% (unch), Austria 1,78% (+3); EIB 1,87% (unch); EFSF 1,99% (unch); France 2,09% (+2); Belgium 2,27% (+2); Italy 4,96% (unch); Spain 5,92% (+9).

10 YRS Spreads: Luxembourg 13bp (unch); Netherlands 26bp (unch); Finland 27bp (-1); Swaps 32bp (unch); EU 37bp (unch); Austria 44bp (+3); EIB 53bp (unch); EFSF 65bp (unch); France 75bp (+2); Belgium 93bp (+2); Italy 362bp (unch); Spain 458bp (+9).

EUR swap curve 2-5 YRS 45bp (-1,0); 5-10 YRS 82bp (unch) 10-30 YRS 60bp (unch).
2 YRS German BKOs closed -0,033% (+0,3) and 5 YRS OBLs 0,37% (unch).

Main unchanged at 131; Financials +2 to 182 (1,1% wider); Cross -2 to 536 (-0,4% tighter).
Stoxx Futures at 2475 / -0,8% (from 2494) with S&P minis at 1366 (-1,4% from 1385, at European close).
VIX index at 16,9 after 16,2 yesterday same time.

Oil 86,0/109,3 (WTI/Brent) from 85,8/108,4 (+0,2%/+0,8%). Gold at 1729 after 1730 (-0,1%). Copper at 346 from 349 (-0,9%). CRB once more unchanged at 292 EU COB.
There it goes again: BDIY, up once more 2.6% to 1011.
Intermediate 2012 highs after Chinese New Year and a 10-year low at 647 early Feb were 1165 early May, before dipping to 872 in June, rising back to 1162, retesting lows at 661 mid-Sep, re-testing highs at 1109 before sliding back to 916 in the last down-leg.

EUR 1,274 from 1,272

Greek guesstimate: Greek bonds still more than steady despite all unknowns noon, closing again 25bp tighter: 17.50% for 2023s and 14.75% for 2042s.

All levels COB 17:30 CET

Fast-forward Macro and Events:
Preliminary European Q3 GDP figures on Thursday. US IP on Friday.
Next week is PMI week.

EZ: Thu 3Q GDP estimate fcst -0.2%, ECB monthly report, CPI fcst 2.5%; Fri Cars; Mon 19 Construction; Thu 22 PMI
GE: Thu Q3 GDP fcst +0.1% after +0.3% QoQ; Tue 20 PPI; Thu 22 PMI; Fri 23 GDP
FR: Thu Q3 GDP fcst flat unch; Thu 22 PMI; Fri 23 Biz Conf
Italy: Thu Q3 GDP fcst -0.5% after -0.8%; Mon 19 IP; Fri 23 Retail Sales
Spain: Thu Q3 GDP fcst -0.3% unch; Wed 21 Trade; Fri 23 PPI
US: Thu CPI, Empire MfG, Philly FED & Claims; Fri IP and Capacity Utilization.

Click link under title or below for today’s musical support:
The King’s farewell record… Fitting.

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