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 15 November 2012

15 Nov 2012 – “ Are You Gonna Go My Way? ” (Lenny Kravitz, 1993)

15 Nov 2012 – “ Are You Gonna Go My Way? ” (Lenny Kravitz, 1993)

The US crashing close yesterday was cushioned in Europe by better than expected (backward-looking) GDP figures in Germany and France. EZ in recession nevertheless. Limited fall-out, albeit lower (equity) levels tested. Periphery okay’ish, then good on better Italian GDP. Spain tag along with limited own dynamics, mainly trailing Risk assessment. EGBs difficult to move lower from here. Watching the US. Someone. Please. Show the way.
"Are You Gonna Go My Way? " (Bunds 1,34% +0; Spain 5,89% -3; Stoxx 2459% -0,6%; EUR 1,279 +50)
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. Wasn’t that a comfortable Copy-Paste from yesterday??? Ok. Never mind. We didn’t even have a morning rebound yesterday. The rest remains valid. It is the fifth sixth day in a row that we get such a bump and a sell-off into the close. FED YellenÜber-dove minutes pitching ZIRP until 2016 – or indefinitely. US equities down 1.4%. NASDAQ now in “correction”-territory (-11.1% from 05 Oct top, post-Lehman high).
Asia down a good 1%-1.25% on the back of the US – with the exception of Japan ripping 2% higher on new elections / JPY weakness (81 against 79.5 yesterday morning). Why bother with all these QE attempts? Just announce new elections. Much more efficient!
Note Shanghai nearing its 2.004-low (26Sep) fast. A test below the 2000-line (1.990 on 23 Jan 2009) is thus just a cough away.

Q3 GDP figures were surprising by their resilience in France, squeezing out 0.2% QoQ (fcst flat after flat, revised -0.1%) for +0.2% YoY (after rev. +0.1%), and in Germany, too, at +0.2% QoQ (fcst +0.1% after +0.3%) for +0.9% YoY. (nsa YoY only at +0.4%, though). Italy, too, did, better than expected in Q3 with QoQ at -0.2% (fcst -0.5% after rev. -0.7%), -2.4% YoY unchanged after upwards revision. Spain confirmed at -0.3% / -1.6%.
Note that outside the biggest four economies, weakness is spreading in the AAA-area with Finland (-1% YoY), Austria (-0.1% after rev. +0.1%), for a first dip since 2008, and especially the Netherlands (Fifth biggest) crashing -1.1% QoQ, a point worse than consensus / -1.6% YoY.
French and German resilience should not be over-stated, as all past summer data did surprise as being rather more resilient than expected (including in the Periphery), so are thus the GDP numbers. However, latest forward-looking data and next week’s PMIs might actually show that the summer was indeed more like the little hill-top you climb on a roller-coaster - before the final dip.
Final EZ Q3 GDP less a kicker and on forecast at -0.1% after -0.2% QoQ and -0.6% after rev. -0.4%, and hence formally entering into recession. Oct CPI at +0.2% after +0.7% and thus 2.5% unchanged YoY.
ECB forecasters’ survey shows 2012 Growth revised to -0.5% (from -0.3%), 2013 halved to +0.3% (from +0.6%). 2013% CPI +1.9% (from +1.7%). 2013 Unemployment raised to 11.6% from (11.4%).

Europe duly opening in the red given the US lead, with pre-open futures down 0.75%-1% from COB, but definitively in rebound mood, as the US fall out is cushioned by the GDP figures.
Half an hour into the session, EGBs were eventually unchanged after a tentative tick-up in Bunds at open. Bunds 1.34% unchanged. UST 1.60% unchanged. Soft Core a tick better, having closed a little soft yesterday. Italy unchanged across the curve with 10s at 4.96%. Spain a bit softer with 2s out by 5 to 3.25% and 10s at 5.93% (+1).
Equities down 0.5% from COB. Credit unchanged to a touch weaker. Commodities eventually just drifting side-ways with Oil surprisingly stable (+0.5%), despite Middle-East tensions. EUR 10 pips better at 1.275.

REU Rehn on the ticker. More brinkmanship on Greece (but without touching the debt principal…).
Yesterday’s EU pat on Spain’s shoulder was seemingly not yet seen as an invitation to Spailout. Spanish press reports that the government might check an “IMF-only” aid. If confirmed, THIS, in my eyes, would be a major slap to Germany’s and the ECB’s, as well as the EU’s face: Basically, it would mean that Spain is demanding solidarity, only in an uni-directional way, without being willing to give up any single bit of sovereignty (a subject dear to Germany). Of course, this news was denied later in the morning. And no Spanish decision has yet been made, anyway.

French auction with EUR 2.5bn 2 YRS Sep 2012 at 0.10% (COB 0.115%, last 0.12% in Oct), EUR 2.1bn OAT Apr 2015 at 0.16% (COB 0.19%) and EUR 2.8bn 5 YRS BTANs Jul 2017 at 0.76% (COB 0.775%, last 0.92%). Good bid to covers. Record lows.
Ireland issued EUR 500m 3m bills at 0.55% (last 0.70% last month) (with the help of Fitch raising its BBB+ outlook to stable from negative last night).

Having duly reacted to the US close, happily reacted to initial French and German GDP figures, re-thought the matter and listened to the various pep talks that the worst was now over, market settled midday between low open and morning highs in slight-only Risk Off-mode: Equities down 0.5%, Bunds a bit firmer, Spain a bit wider.
EUR movements are interesting as they seem growingly disconnecting from being a short-term ROff indicator. Fiscal Cliff & Co.

By noon, Bunds were back to 1,35% (+1), OBLs 0,37% (unch), BKOs -0,033% (unch) with UST at 1,61% (+1).
Spanish 2s 3,23% (+3), 10s 5,90% (-2). Spanish 2-10s 267bp (-5).
Italian 2s 2,09% (-2), 10s 4,93% (-3). Italian 2-10s 284bp (unch).
EUR 1.276. Commodities still up 0.5%. Gold a touch lower. Credit flat. Equities down 0.5%.
Waiting for US input. Once more… In the meantime, Periphery bonds recouped losses and started performing, leading to some odd ROff in equities, ROn in Periphery, slightly softer Core EGBs. Odd picture. Spain, again, forcefully pretending it hasn’t made any decisionon Spailout.

US figures disappointing with CPI ex at +0.2% (fcst unchanged) +0.1% and YoY at +2.2% (fcst +2.1% after 2%). Empire MfG was better than expected at -5.22 (fcst -8 after -6.16). However, the worst miss were Jobless Claims at rising to 439k (fcst +375k after 355k, rev. 361). Continuous claims at 3334k (fcst 3181k after 3127k, rev. 3163k). Sandy, obviously, DID have an impact.
Did push down European equities nearly half a percentage point lower, before recovering from the shock.
US hesitant cash open on flat levels still revealing European equities still outperforming the US a good half percentage point.
Surprising resilience…As if the fact that US equities were not tanking right away at open was sufficient to catch some more European risk.
Readying for yet another attempt to ramp up Risk in the second half of the European session, before plunging in the second half of the US session?

Europe on the slide, as soon as US equities turned negative and retested yesterday’s (closing) lows, with Philly Fed at -10.7 (fcst +2 after 5.7) the last (short-lived) nail in market composure’s coffin. Rebound and then back into lock-step, tick for tick. Who’s leading who? Europe the US with the latter taking a lead from Europe taking a lead from the US? Fiscal Cliff versus Periphery woes. EUR now taking strength from US equity weakness.

Odd day again. EGB sluggishness, despite lower equities and (much) softer Credit (, which had been quite resilient yesterday, though). Periphery having a good day on their own with the exact trigger quite unclear (More buyers than sellers?)(Duh!).
European equities eventually quite resilient at -0.6% with the US at LOD for a second time around European close (INDU -1.2% from Wednesday European close).
Bunds closed at 1,34% (unch), OBLs at 0,36% (-1) and BKOs -0,041% (-0,8) with UST at 1,59% (-1).
Spanish 2s at 3,22% (+2), 10s at 5,89% (-3). Spanish 2-10s 266bp (-6).
Italian 2s at 2,07% (-4), 10s at 4,89% (-7). Italian 2-10s 282bp (-2).
Yesterday’s Italian auction paper still under water, though, at 2.71%, 4.85% and 5.36% against (Auction levels of 2.64%, 4.81% and 5.33%. Closed at 2.75%, 4.90% and 5.39% yesterday).
EUR getting stronger at 1.279. Commodity price action very controlled, again, given ME tensions. Brent up 1.5%. Flight-t-quality Gold dim at best. Surprising.
All very puzzling, if you ask me.

Take-away: The US crashing close yesterday was cushioned in Europe by better than expected (backward-looking) GDP figures in Germany and France. EZ in recession nevertheless. Limited fall-out, albeit lower (equity) levels tested. Periphery okay’ish, then good on better Italian GDP. Spain tag along with limited own dynamics, mainly trailing Risk assessment. EGBs difficult to move lower from here. Watching the US. Someone. Please. Show the way.

Outlook for tomorrow: More of the same? No real European data. US Industrial Production fcst +0.2% after +0.4% and Capacity Utilization fcst 78.3% unchanged. US close. Fiscal Cliff. Spailout & Grexit.

European 50d & 100d: EStoxx 2517/2431 (50d/100d), DAX 7293/7033, CAC 3459/3387, MIB 15721/14958, IBEX 7867/7408.
US 100d& 200d for INDU 13123/12993, SPX 1404/1382 and NASDAQ 3016/2984, as Apple-challenged (200d 595).
EUR: 100d 1.265 & 200d 1.281. 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 mixed bag with Xstrata warmly received, showing that the commodities story is not over yet, issuing EUR 1.25bn May 2016 at MS +100 and EUR 1bn 6 YRS at MS +140. French La Poste rose EUR 750m 12 YRS at MS +90, while Italian Iccrea Banca managed to get EUR 350m 2 YRS senior going at MS +370.

Closing levels:
10 YRS Yields: Germany 1,34% (unch); Luxembourg 1,47% (unch); Netherlands 1,61% (+1); Finland 1,62% (+1); Swaps 1,67% (+1); EU 1,71% (unch), Austria 1,77% (-1); EIB 1,87% (unch); EFSF 1,99% (unch); France 2,08% (-1); Belgium 2,25% (-2); Italy 4,89% (-7); Spain 5,89% (-3).

10 YRS Spreads: Luxembourg 13bp (unch); Netherlands 27bp (+1); Finland 28bp (+1); Swaps 33bp (+1); EU 37bp (unch); Austria 43bp (-1); EIB 53bp (unch); EFSF 65bp (unch); France 74bp (-1); Belgium 91bp (-2); Italy 355bp (-7); Spain 455bp (-3).

EUR swap curve 2-5 YRS 46bp (+1,0); 5-10 YRS 82bp (unch) 10-30 YRS 60bp (unch).
2 YRS German BKOs closed -0,041% (-0,8) and 5 YRS OBLs 0,36% (-1).

Main +5 to 136 (3,8% wider); Financials +4 to 186 (2,2% wider); Cross +25 to 561 (4,7% wider).
Stoxx Futures at 2459 / -0,6% (from 2475) with S&P minis at 1349 (-1,2% from 1366, at European close).
VIX index at 18,0 after 16,9 yesterday same time.

Oil 86,1/110,8 (WTI/Brent) from 86,0/109,3 (+0,1%/+1,3%). Gold at 1716 after 1729 (-0,8%). Copper unchanged at 346. CRB COB 294,0 from 292,0 (+0,7%) at EU.
BDIY, up 13 to 1024 (+1.3%)
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 1,279 from 1,274

Greek guesstimate: Greek bonds unchanged at 17.50% for 2023s and 14.75% for 2042s.

All levels COB 17:30 CET

Fast-forward Macro and Events:
US IP on Friday.
Be warned that there isn’t much in terms of European data until next week’s Thursday, which will be PMI day. Wednesday crowded data dump ahead of Thu 22 Thanksgiving holiday.

EZ: Fri Cars last -10.8%; Mon 19 Construction; Thu 22 Comp / Manu / Services PMI last 45.7, fcst 45.5 after 45.4 and 46 unch, EZ Consumer Conf fcst -25.5 after -25.7
GE: Tue PPI; Thu 22 PMI Manu last 46 Services 48.4; Fri 23 Final GDP, IFO Nov Biz Climate last 100, Current last 107.3, Expectations last 93.2
FR: Thu 22 PMI Manu last 43.7, Services last 44.6; Fri 23 Biz Conf last 85
Italy: Mon 19 Sep Indu Orders last +0.7% MoM & Sales last +2.9% MoM; Fri 23 Retail Sales last +0.% MoM
Spain: Wed 21 Trade; Fri 23 PPI
US: Fri Oct Industrial Production fcst +0.2% after +0.4%, Utilization fcst 78.3% unchanged; Mon 19 Home Sales; Tue 20 Housing Starts and Permits; Wed 21 PMI, Claims, U Michigan, Leading Indicators. Wed 22Thanksgiving

Click link under title or below for today’s musical support:
Hmmm… So who’s leading whom and where to?????

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