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 21 November 2012

21 Nov 2012 – “ Rise To The Occasion” (Climie Fisher, 1987)

21 Nov 2012 – “ Rise To The Occasion” (Climie Fisher, 1987)
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Greece? Sorry, what’s with Greece? French downgrade. Unexpected, but then again not that much. So what? Fiscal Cliff? As no one speaks about it, it can be ignored. Risk? If it doesn’t fall, it has to rise.
"Rise To The Occasion" (Bunds 1,43% +2; Spain 5,7% -9; Stoxx 2518 +0,4%; EUR 1,282 +10)
The US closed Tuesday in rather decent manner after all, namely unchanged, recovering from a post-European close near 1% sell-off on Bernanke comments.
Big overnight news is that Greece’s monies are still hinging on “technical factors” that the Eurogroup was unable to bridge (despite earlier assertions) with a new meeting now scheduled for next Monday 26 November. A pat on the Greek shoulder for the effort, but no cash (yet).
Asia mixed, but holding up rather decently for the late closers, mainly China, as Europe didn’t sink right away. Japan up some 0.75%, China a good 1% (with Shanghai once more trading below the 2000-handle for a moment). Singapore flat. Korea, Taiwan, Oz down.
Hmm… Greece. France. Fitch on France (AAA neg since Dec 2011, but will seemingly review only next year)? EZ muddle. Rating agency on everyone else? DBRS on Spain?

No data outside Dutch housing prices stabilizing at -7.8% YoY. Big impact on Dutch wealth, though, next to banks’ balance sheets.
Bank of Spain once more far more cautious than the government, seeing bleaker upcoming quarters and this year’s budget figures at a risk. Who needs enemies with such friends?
Light Risk Off half an hour into the session. Equity futures recovering from their early morning, Pavlovian knee-jerk, trading somehow -0.5% to COB (with the US having pretty much closed bang where they were at 17:30 CET).
Germany unchanged at 1.41% ahead of the auction, most other EGBs 1bp tighter. Italy out by 3 and Spain by 1 to 4.88% and 5.80% after yesterday’s mostly unwarranted 5 and respectively 9 bp tightening in “ROn” folly.
EUR down to 1.276 with Commodities about 0.5% softer, too.

EUR 4bn 10 YRS Bund increase a formality at 1.40% (COB 1.415%. Last 1.56% and 1.52% end of Oct and Sep, before that 1.42% early Sep and Aug and an all-time low at 1.31% mid-July). Bids for EUR 4.9bn. EUR 747m retained for market interventions. Should be the last increase before launching a new 10 YRS Jan 2011.
EUR 2bn Portuguese bills with EUR 300m 3m at 1.936% (up from last 1.37%), EUR 500m 6m at 2.169% (up from 1.8%) and EUR 1.2bn 12m at 2.99% (up from 2.97%).

Final auction action for the week out of Spain tomorrow with up to EUR 3.5bn in 3.75% Oct 2015 (COB 3.685%), 5.00% Jul 2017 (COB 4.55%) and 5.50% Apr 2021 (COB 5.59%).
Last 3 YRS auctions 3.66% 2 weeks ago, 3.23% one month ago; 5 YRS 4.68% & 4.77%.

Lots of handwringing from the different players on the Greek subject, but nothing concrete (Duh!). German stand: time and discipline. And no haircut. Folding after less than 12 hours is not a feat compared to past discussions, but solutions seem to be scarce and firm stands conflict (rather OSI for IMF; 2 YRS extension for the EZ, looking into other ways to lower borrowing costs). Broke is broke, even if no one wants to admit it. Can dribbling to continue. Which seems fair enough for market participants – with everyone lulled in the firm belief that things will get settled in the eleventh hour, as usual.
EU budget, btw, still another sore and unsolved subject.

Mid- / late-morning stability with everything about unchanged, across the screens. Spain doing fine (2/4) tighter, Italy 3 wider. Credit out a single tick. EUR back to shy of 1.28. Oil back up 1% from morning lows.
Spanish regions now given a deadline of 03 Dec to apply for funds. Officially 9 regions have asked for “only” EUR 12.6bn (Catalonia, Castilla-La Mancha, Canary Islands, Murcia, Valencia, Andalusia, Asturias, Balearic Islands, Cantabria). Used to have more at the last count, but some demand might not have been formalized, as announced. 2013 figures both for Regions as for the state by the end of the year. Any OMT deadline, before shelving the product?
In the meantime, a good BONO performance, keeping up with yesterday’s drive. No special trigger seen, though. More buyers than sellers?

EGBs a tick softer. Spain getting squeezed. Most indicators about unchanged, although Equities ticking into positive territory and Credit a tick tighter, for choice.
Certainly not Risk Off
Bunds 1,42% (+1), OBLs 0,42% (+1), BKOs -0,002% (unch). UST at 1,67% (+2)
Spanish 2s 3,10% (-7), 10s at 5,70% (-9). Spanish 2-10s 260bp (-2).
Italian 2s at 1,99% (unch), 10s at 4,84% (-1). Italian 2-10s 286bp (unch).
EUR back to 1.281, where left at COB yesterday and before.
Waiting for US data dump ahead of what could be an extended period of lesser US activity / presence (Thanksgiving & Black Friday & weekend).

Some lunch Risk willingness in stocks again with yesterday’s highs re-traded.

Schaueble on the ticker on Greek support. Certainly all very willing. Odd to have a pitch with solutions that could be different, depending on who’s ready to sponsor (lower rates, buy-back, EFSF support). ECB SMP gains visibly tempting for some, but not for others. Seems like a piecemeal approach after all coordination failed. Of course, the mantra Greece ought to be saved is the common link.

US jobless claims on forecast at +410k (after +439k, rev. +451k). Continuous Claims actually dipping after revision to 3337k after 3367 (fcst 3345 after 3334k). US PMI at 52.4 above consensus of 51 after 51.3 (rev. 51). Quite post-Sandy reconstruction-driven, as of Markit.
US cash open rather close to home, slightly better pushing European peers a bit higher still.
University of Michigan Confidence a miss at 82.7 (fcst 84.5 after 84.9). Leading indicators +0.2% (fcst +0.1% after 0.6%, rev. +0.5%).

European equities keen to keep their highs with the US more undecided and drifting close to closing levels. Risk On. In Europe. Greece? Sorry, what? Europe closing near its highs. Estoxx & CAC back over 50d average, others following. Credit once more strong (a good 2% tighter).
EGBs drifting wider with no special discernment. France in sync with everyone else. ALL spreads stable. Schätze back into positive yield environment.
Periphery on the ramp, maybe because everyone’s so keen to help Greece. Greek 2042 closing on their price highs. Note Italian 2s back through 2%.
Bunds closed at 1,43% (+2), OBLs at 0,44% (+2) and BKOs 0,007% (+1) with UST at 1,69% (+4)
Spanish 2s at 3,09% (-8), 10s at 5,70% (-9). Spanish 2-10s 261bp (-1).
Italian 2s at 1,95% (-4), 10s at 4,84% (-1). Italian 2-10s 289bp (+3).
Commodities rather drifting sideways. Certainly dependent of Middle East news. Copper weaker. EUR finally up 10 pips on the day (but from 1.274 overnight).

Take-away: Greece? Sorry, what’s with Greece? French downgrade. Unexpected, but then again not that much. So what? Fiscal Cliff? As no one speaks about it, it can be ignored. Risk? If it doesn’t fall, it has to rise.

Outlook: Tomorrow is PMI day. Germany Manu fcst 46 after 46 Services fcst 48.3 after  48.4. France Manu fcst 44 after 43.7, Services fcst 45 after 44.6. EZ Comp / Manu / Services PMI last 45.7, fcst 45.5 after 45.4 and 46 unch, next to EZ Consumer Confidence fcst -25.5 after -25.7. And a Spanish auction on levels squeezed one day too early (9 tighter across the curve).

European 50d & 100d: EStoxx 2512/2439(50d/100d), DAX 7281/7047, CAC 3450/3396, MIB 1568/15011, IBEX 7853/7435.
US 100d& 200dfor INDU 13127/12992, SPX 1405/1383 and NASDAQ 3016/2985, as Apple-challenged (200d 596).
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 still ticking with Bord Gais Eireann, the Irish Gas utility, raising EUR 500m 5 YRS at MS +275 (backed by EUR 5bn books), in the line of the ESB deal 7 YRS MS +320 2 weeks ago. Add a EUR 1bn 7 YRS for BPCE in covered bond format at MS +48. Land Brandenburg in EUR 500m 5 YRS FRN exercise at 3mE +4.

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

Closing levels:
10 YRS Yields: Germany 1,43% (+2); Luxembourg 1,56% (+2); Netherlands 1,70% (+3); Finland 1,70% (+2); Swaps 1,74% (+2); EU 1,79% (+2), Austria 1,86% (+2); EIB 1,95% (+2); EFSF 2,08% (+2); France 2,17% (+2); Belgium 2,34% (+2); Italy 4,84% (-1); Spain 5,70% (-9).

10 YRS Spreads: Luxembourg 13bp (unch); Netherlands 27bp (+1); Finland 27bp (unch); Swaps 31bp (unch); EU 36bp (unch); Austria 43bp (unch); EIB 52bp (unch); EFSF 65bp (unch); France 74bp (unch); Belgium 91bp (unch); Italy 341bp (-3); Spain 427bp (-11).

EUR swap curve 2-5 YRS 49bp (+1,0); 5-10 YRS 83bp (unch) 10-30 YRS 60bp (-1,0).
2 YRS German BKOs closed 0,007% (+1) and 5 YRS OBLs 0,44% (+2).

Main -2 to 126 (-1,6% tighter); Financials -5 to 166 (-2,9% tighter); Cross -12 to 510 (-2,3% tighter).
Stoxx Futures at 2518 / +0,4% (from 2509) with S&P minis at 1387 (+0,2% from 1384, at European close).
VIX index at 14,9 after 15,4 yesterday same time.

Oil 87,5/110,8 (WTI/Brent) from 87,4/110,2 (+0,1%/+0,5%). Gold at 1728 after 1731 (-0,2%). Copper at 349 from 353 (-1,1%). CRB at EU COB 297,0 from 298,0 (-0,3%).
BDIY, up again, +7 to 1073 (+0.1). Target is now the 1162-high seen in July, post-Chinese New year slide.

EUR 1,282 from 1,281

Greek guesstimate: Greek bonds 16.75% (-25) for 2023s and 14.00% for 2042s. No positive outcome, but, hell, all seem so keen to make it happen. And if someone pops up paying 35%, hey hey hey. Post spring-slide high.

All levels COB 17:30 CET

Fast-forward Macro and Events:
Tomorrow is PMI day, generally seen juuust a little better everywhere.
EUR 3.5bn 2015 2017 & 2021 BONOs
Talking of which, elections in Catalonia will take place coming Sunday.

EZ: Thu 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: Thu PMI Manu fcst 46 after 46 Services fcst 48.3 after  48.4; Fri 23 Final GDP, IFO Nov Biz Climate fcst 99.5 after last, Current fcst 106.3 after 107.3, Expectations fcst 93 after 93.2
FR: Thu PMI Manu fcst 44 after 43.7, Services fcst 45 after 44.6; Fri Biz Conffcst 87 after 85
Italy: Fri Retail Sales last +0.% MoM
Spain: Fri PPI
US: No more data until next Monday 26 Nov (Dallas and Chicago Fed indices) and then Durable Goods, Case Schiller, Consumer Confidence and Beige Book  on Tuesday 27 Nov.

Click link under title or below for today’s musical support:
If it doesn’t fall…


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

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