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 22 November 2012

22 Nov 2012 – “ Free Bird ” (Lynyrd Skynyrd, 1974)

22 Nov 2012 – “ Free Bird ” (Lynyrd Skynyrd, 1974)

US closing fine, Asia closing fine. PMIs a tick better than expected. Fine. Spanish auction fine. Greek bonds fine. All fine. Slight Risk On. Fine. Fine, fine, fine… All is good. Free that Bird – or Eat it!
"Free Bird" (Bunds 1,43% +0; Spain 5,64% -6; Stoxx 2534 +0,6%; EUR 1,288 +60)
Uneventful close of a shortened pre-Thanksgiving session in the US.
Asian session mostly positive, given the limited Greece non-deal fall-out on Wednesday in Europe. Nikkei still galloping ahead, unstoppable, although challenges to the BOJ independence, growth and inflation rate targets of 3% totally etc. outwardly. But who cares? Nikkei +1.5% (+8.5% in 10 days).
Only worry child is China, despite better PMI data, still trading heavily near 4-year lows (the 2000-mark). HSBC Flash at 50.4 after 49.5 and finally above water.

French PMI at cash open showing a better than expected performance, clocking in at 46.1 in Services (more important in France) on a 45 forecast after 44.6. Manufacturing likewise better at 44.7 (fcst 44 after 43.7).
Flattish open, ahead of German and EZ PMIs. Equities slightly biased to the upside, in absence of dropping shoes, ticking up to be in line with the US close. No strong follow up to the Asian session (given the advance already taken lately). EGBs flat (Bunds 1.43%) to slightly firmer, same for the Periphery (Spain 3.08% in 2s and 5.67% -3 in 10s, ahead of the auction later in the morning, with auction papers quoted in line about 3 tighter than at Wednesday’s close). Credit still tightening, tick by tick by tick.
Commodities more or less where left Wednesday evening. EUR still firming up in the underlying ROn mood at 1.285.

German PMI split with Manufacturing over consensus at 46.8 (fcst 46 unchanged), but Services sluggish at 48 (fcst 48.3 after 48.4). Given the industry weight in Germany, that’ll do. EZ PMI split, too, with the Composite at 45.8 (fcst 45.7 unchanged), Manufacturing better at 46.2 (fcst 45.6 after 45.4), but Services at 45.7 (fcst 46 unchanged). Then again, given low expectations, this seems as good as it gets.
Composite at two-month high; Services at 40-month low; Manufacturing at 8-month high; Manufacturing Output at two-month high. Some bottoming-out that shouldn’t mask that Q4 will probably crystallize a serious GDP drop.

Final and most watched auction for this week out of Spain with nearly EUR 3.9bn sold, exceeding the targeted EUR 3.5bn, with  EUR 1.7bn 3.75% Oct 2015 at 3.617% (COB 3.66%), EUR 645m 5.00% Jul 2017 at 4.477% (COB 4.53%) and especially EUR 1.5bn 5.50% Apr 2021 at 5.517% (COB 5.57%). Bid to cover quite on the light side again and heavy tails (12.5 cts in 3s, 17.7 cts in 5s and 25cts in 2021s), but nice screen results.
[Sorry. Had a wrong input at COB yesterday night showing all bonds 10bp wider. Levels corrected]
Last 3 YRS auctions 3.66% 2 weeks ago, 3.23% one month ago; 5 YRS 4.68% & 4.77%.
This followed (astutely) leaked news that Spain had privately placed EUR 3.28bn 5 YRS recently at 4.792% (albeit, released after the auction, with its own social security fund - and thus not with some convinced real-money investor). No, no, no… Spain definitively not interested in putting an end to possible negative feedback loops. Muddling to make the whole country TBTF. Seems to work, though..

In the meantime, the hostage-taking strategy (Help me – or I’ll blow up!) seems to be working fine with Greek 2023s hitting 16% and 2042s 13.25% (both 75bp tighter).
It’s probably what Cyprus is up to as well when stating that differences with the Troika could be bridged – and then breached.
Should this go on, that would be a real reason for Core EGBs to remain under pressure with Germany and France as biggest paymasters on the frontline, as this could be interpreted as a de-facto ex post mutualisation of (past) debt.
Give it 25-30bbp more bp, let’s say above 1.75% in Bunds and 2.50% in France, and suddenly the tone might change.

Markets settled comfortably on late morning levels, in foreseeable absence of (most) of the US players during the afternoon session.
Midday levels show EGBs mostly unchanged, give or take. Periphery doing ok, albeit with Spain off tightest levels.
Bunds 1,44% (+1), OBLs at 0,44% (+0) and BKOs 0,005% (-0,2).
Spanish 2s at 3,04% (-5), 10s at 5,65% (-5). 2-10 YRS spread 261bp (+0).
Italian 2s at 1,90% (-5), 10s at 4,82% (-2). 2-10 YRS spread 292bp (+3).
Equities up 0.5%, Credit 2.5% tighter.
EUR happy to fly on its own, staging a solo Risk On chant to hit 1.288.
Commodities mostly unchanged.

Not much on the ticker. Quips of “united, we’ll manage” (on Greece), ahead of the (less manageable) EU Budget summit.

Drifting during the afternoon.


Mood barely dented by EZ Consumer Confidence sinking 26.9 (fcst -25.9 after -25.7), a new low in the on-going slide (Latest high -9.8 in Nov 2010. Negative high 20s take us back to Q2/2009).
Just closing the afternoon. Not much more. Having braved the odds so far, the Periphery tightened just a little more. EGBs mostly flat to a tick better after the confidence data. France a tick softer. A bit of steepening. Schätze trading a round zero.
Bunds closed at 1,43% (unch), OBLs at 0,44% (unch) and BKOs 0,000% (-0,7).
Spanish 2s at 3,02% (-7), 10s at 5,64% (-6). 2-10 YRS spread 262bp (+1).
Italian 2s at 1,86% (-9), 10s at 4,78% (-6). 2-10 YRS spread 292bp (+3).
Spanish auction paper for once even-keeled in the close at 3.615%, 4.47% and 5.525% (mid).
Commodities rather drifting sideways. EUR 1.288 (after hitting 1.29).

Take-away: US closing fine, Asia closing fine. PMIs a tick better than expected. Fine. Spanish auction fine. Greek bonds fine. All fine. Slight Risk On. Fine. Fine, fine, fine… All is good. Free that Bird – or Eat it!

Outlook: Final German GDP & IFO Nov Biz Climate fcst 99.5 after 100, Current fcst 106.3 after 107.3, Expectations fcst 93 after 93.2. French Biz Sentiment fcst 87 after 85, Outlook -53 after -56. Italian Retail Sales and Spanish PPI.

European 50 & 100d averages: EStoxx 2511/2441, DAX 7277/7053, CAC 3449/3398, MIB 15628/15020, IBEX 7849/7441.
US 100 & 200d averages: INDU 13130/12992, S&P 1406/1383, NASDAQ 3017/2985 with AAPL 100/200d at 626/597.
EUR: 100d 1.266 & 200d 1.280. Fibo retracement (of May 2011 1.494 & Jul 2012 1.204 down-leg) at 1.273 & 1.315, then 1.349 (50%).
Jul 2012 to Sep rebound levels: 1.231 – 1.247 – 1.261 – 1.274 – 1.291 -1.317 .

New Issues from Intesa SanPaolo in OBG format (covered bonds) for EUR 1.25bn 10 YRS at MS +200. Senior FRN ware with ING selling EUR 1.75bn 2 YRS at 3mE +49 and Aktia with EUR 200m 3 YRS at 3mE +113.

Closing levels:
10 YRS Yields: Germany 1,43% (unch); Luxembourg 1,55% (-1); Netherlands 1,69% (-1); Finland 1,68% (-2); Swaps 1,74% (unch); EU 1,78% (-1), Austria 1,86% (unch); EIB 1,95% (unch); EFSF 2,07% (-1); France 2,18% (+1); Belgium 2,33% (-1); Italy 4,78% (-6); Spain 5,64% (-6).

10 YRS Spreads: Luxembourg 12bp (-1); Netherlands 26bp (-1); Finland 25bp (-2); Swaps 31bp (unch); EU 35bp (-1); Austria 43bp (unch); EIB 52bp (unch); EFSF 64bp (-1); France 75bp (+1); Belgium 90bp (-1); Italy 335bp (-6); Spain 421bp (-6).

EUR swap curve 2-5 YRS 49bp (unch); 5-10 YRS 83bp (+1,0) 10-30 YRS 61bp (+1,0).
2 YRS German BKOs closed 0,000% (-0,7) and 5 YRS OBLs 0,44% (unch).

Main -3 to 123 (-2,4% tighter); Financials -4 to 162 (-2,4% tighter); Cross -5 to 505 (-1,0% tighter).
Stoxx Futures at 2534 / +0,6% (from 2518).

Oil 87,2/110,5 (WTI/Brent) from 87,5/110,8 (-0,2%/-0,2%). Gold at 1731 after 1728 (+0,2%). Copper at 351 from 349 (+0,6%). CRB closed in the US 298,0.
BDIY, up again, +11 to 1084. Target is now the 1162-high seen in July, post-Chinese New year slide.
EUR 1,288 from 1,282

Greek guesstimate: Greek bonds 16.25% (-50) for 2023s and 13.50% (-50) for 2042s, 25 bp off today’s tightest levels, but still on the ramp. Hey, everyone seems so keen to help…

All levels COB 17:30 CET

Fast-forward Macro and Events:
Elections in Catalonia will take place coming Sunday.

GE: 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: Fri Biz Conf fcst 87 after 85
Italy: Fri Retail Sales last +0.% MoM
Spain: Fri PPI
US: Monday Dallas and Chicago Fed indices). Tue Durable Goods, Case Schiller, Consumer Confidence and Beige Book

Click link under title or below for today’s musical support:
Free that bird!!!

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