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

Tuesday 27 November 2012

27 Nov 2012 – “ You Ain’t Seen Nothin' Yet ” (Bachman-Turner Overdrive, 1974)

27 Nov 2012 – “ You Ain’t Seen Nothin' Yet ” (Bachman-Turner Overdrive, 1974)

Ok. It’s not that the Greek deal is nothing. But then again, third strike. Eventually expected, or at least hoped for. Hence, lack of concrete follow-through. So, now it’s there. And now what? You Ain’t Seen Nothing Yet? What is there to see??? Pitch the markets some input, something concrete, something to feed off, something to see!
"You Ain't Seen Nothin' Yet" (Bunds 1,43% +2; Spain 5,51% -9; Stoxx 2538 -0,2%; EUR 1,293 -30)
While the US markets trended lower at open on Monday, on some profit-taking and on yet-to-be finalized Greece jitters, they eventually got back in shape and closed at their highs, even if still slightly negative for the Dow and the S&P (just a tick below its 50d average).
A Greek deal was secured overnight, with obviously everyone stretching to make ends meet. This, in turn, was duly noted in the overnight session, although markets ended mixed overall (Japan up a little, ASEA & Oz up to 1% higher) with China closing once more on the weak side. Shanghai down 1.3%, through the symbolic 2000-mark and at the lowest since 23 Jan 2009 (1990.7, just ahead of the Chinese New Year 2009), and Shenzhen even down over 3%. Still chewing on the implications of the new leaders’ reduced long-term growth targets (below 7.5%).
Note the divergences with the S&P closing at 832 (+69%) that 23 Jan 2009 and EStoxx 2148 (+19%), the Nikkei 7745 (+22%), KOSPI 1093 (+76%), China-depended Oz 3343 (+33%)… Ok, a last one: Foxconn 2.67 (3.85 today, +44%) and Apple then 88, yesterday 589 (+569%). CNY then 6.85, today 6.22. So the currency is not the main factor.
Ok, this is totally non-scientific with tons of other implications, I know. Still. Yes. There’s a lot of good things to be said about being the world’s manufacturer, but obviously, for plenty of reasons, it doesn’t make anyone richer – at least not in the Chinese equity market.

Again, not much of macro data at hand. French Consumers beating the odds with Confidence unchanged at 84 (fcst 83). Finnish Biz Confidence still sinking, down to -14 from -11, revised -12, a level unseen since the end of 2009. Lots of weak numbers from the North lately. Might as well explain the Finns harder stance towards supporting and footing the bill of weaker EZ sovereigns. It’s cold out there…

Risk On start of the European session, although the EUR spiked (much) higher (just above 1.30) in Asia after the Greek news before coming back to Earth.
Initial strong push lower of German Bund futures (from yesterday’s 142.45 down to 141.84 before regaining some Prussian composure). Likewise for equities with early morning short liquidations in futures ripping European equities nearly 1% higher, before giving back half the gains.
Still, half an hour into the cash session, Bunds were quoted 3bp wider (1.44%) with other EGBs 1-2 wider, Italy flat at 4.75% and Spain a tick tighter at 5.59%. Credit 3 ticks (2%) tighter. Commodities sluggishly mixed, with Oil up 0.75%, Copper +0.3% (despite the Chinese sell-off) and Gold flat, just below 1750. EUR eventually just a little better at 1.297 (up 10 pips from closing levels).
Greek bonds obviously on the rise.
To round up EZ–supportive news, the EU High Court validated the legality of the ESM. Given the weight of the contingent liability (as pointed out by Moody’s on France’s downgrade), it’s a wonder Core EGBs are still holding.
Then again, all this is more confirmation of expected actions and most already priced in, explaining why markets balanced out within an hour, waiting for the next lead.

Today’s auction supply was courtesy first of the Dutch with EUR 2.4bn Dutch 3 YRS at 0.129% (COB 0.135%). Had indicated up to EUR 3bn, but Dutch (tap) auctions tend to be a little tight-fisted and often cut off early. No sign of lack of demand, especially with a tighter price than in the close (with the Schatz out 2bp at that time).
Italy sold the targeted EUR 3.5bn 2 YRS Zeroes at 1.923% (last 2.397% in Oct), next to EUR 1bn in ILBs. Those CTZ printed at their tightest levels in over two year (CTZ jumped from 1.77% to 2.31% in Oct 2010, hitting their 7.81% post-EUR introduction high one year later in Nov 2011).
Finally, slightly over the targeted EUR 4bn were sold in Spanish 3 & 6m bills at 1.254% and 1.669% (last 1.415% and 2.023% one month ago). Ok, we’re still miles away from the pre-crisis and pre-pre-crisis lows (2012 low in 6m was 0.76% in Feb and were in the 0.50% mid 2010), but have now more than halved from the highs. Glass perspective – either half full or half empty.
Having failed to settle its own rating question after last weeks’ France downgrade, the EFSF decided to relay its 3 YRS project by a 1-year “benchmark”, raising its biggest ever deal with EUR 7 YRS 12m at 0.22% (compared to 6m bills raised at -0.0053% one week ago).

Tomorrow will see additional EUR 3bn in German 5 YRS (COB 0.45%. Last 0.42% early Nov and 0.53% mid Oct), next to EUR 7.5bn in Italian 6m bills (last 1.347% one month ago).
We will close the week with EUR 3bn each of on-the-run 5 and 10 YRS in Italy (last 3.80% end of Oct, respectively 4.81% - for off-the-run 10s- mid Nov and 4.92% last month). Last month’s on-the-run auction had been for EUR 7bn.

OECD on the cautious side for everyone. Yes. Ok. Sure… Oh, and the ECB ought to cut rates. Oh. Yes. Sure.

End of morning gradually sliding back to closing levels with Bunds only marginally wider and most of the EGB curve nearing unchanged again, as equities fell back to closing levels.
Midday on mid-morning levels. EGBs by and large unchanged with Bunds bearing the brunt of what remained of the morning ROn. Spain doing well on a Oct budget balance of EUR -43.4bn (from minus EUR 46.1bn in Sep), next to the well absorbed bills issue.
Bunds 1,43% (+2), OBLs 0,45% (+2) and BKOs 0,010% (+1,5). UST 1,66% (+2) .
Spanish 2s at 2,89% (-9), 10s at 5,52% (-8). 2-10 YRS spread 264bp (+2). Italian 2s at 1,80% (-1), 10s at 4,75% (unch). 2-10 YRS spread 295bp (+1)
Equities flat. Credit flattish. EUR flattish. Commodities, too.

US data on the positive side with Oct Durable Goods flat (fcst -0.7% after +9.9%, rev. 9.2%), ex Trans even up 1.5% (fcst -0.5% after +2%, rev. +1.7%). Capital Goods up 1.7% (fcst -0.5% after flat, rev. -0.4%). Case Shiller up 0.39% YoY (fcst +0.4% after +0.49, rev. +0.42%).
US cash open about flat 15 min into the session, flooring dipping EZ equities.
Add US Consumer Confidence rising to 73.7 (fcst 73 after 72.2, rev. higher to 73.1) to balance  House prices rising only 0.2 in Sep (fcst +0.4 after +0.7%, rev. lower to +0.5%) to have Risk balanced out. Richmond FED +9 (fcst MINUS 9 after -7).

Pfff… So… Ah… European equities just down a little, little. EGBs a little, little softer – mainly out of principle, rather than conviction. 3 days of supply all along the curve in the US a reason to remain on the safe side for the moment. Soft Core tigther in Hard-Soft compression, with Spain pushing from behind (-9 across the curve).
Bunds closed at 1,43% (+2), OBLs at 0,45% (+3) and BKOs 0,012% (+1,7). UST at 1,65% (+1) COB.
Spanish 2s at 2,88% (-10), 10s at 5,51% (-9). 2-10 YRS spread 263bp (+1). Italian 2s at 1,78% (-3), 10s at 4,72% (-3). 2-10 YRS spread 294bp (unch)
EUR eventually retreating a little. Commodities still yawn!

Take-away: Ok. It’s not that the Greek deal is nothing. But then again, third strike. Eventually expected, or at least hoped for. Hence, lack of concrete follow-through. So, now it’s there. And now what? You Ain’t Seen Nothing Yet? What is there to see??? Pitch the markets some input, something concrete, something to feed off, something to see!
Outlook: Ah. Pfff… Let’s wait for further details on the Greek buy-back. US New Home sales.
Otherwise, as mentioned last week: All is good, unless, that is, if not… (paste any given possible worry or fundamental flaw) resurfaces…

European 50 & 100d averages: EStoxx 2510/2450, DAX 7272/7078, CAC 3447/3407, MIB 15575/15065, IBEX 7837/7474.
US 50, 100 & 200d averages: INDU 13245/13132/12993, S&P 1426/1407/1384, NASDAQ 3038/3018/2986 with AAPL 100/200d at 626/598.
EUR: 50d 1.291, 100d 1.267& 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 .

Again quite some traffic in New Issues land: Next to the EUR 7bn (increased from initially EUR 5bn) 12m at 0.22% for the EFSF, French BPCE raised EUR 1.75bn 2 YRS FRN at 3mE +50 (after last week’s BNPP deal at 3mE +43), German Land NRW raised EUR 1.5bn 5 YRS at MS +7, Credit Mutuel Arkea raised yet another 2 YRS FRN for EUR 750m at 3mE +45. Corporate ware from Vivendi with EUR 700m long 7 YRS at MS +130, next to carmakers VW with EUR 300m 3 YRS at MS+40 and Renault with a EUR 250m increase of the outstanding Sep 2017 benchmark at MS +396  or 4.825%. Finally, Periphery issuers were represented by Portuguese Caixa Geral with EUR 500m 3 YRS at 5.75%.

Closing levels:
10 YRS Yields: Germany 1,43% (+2); Luxembourg 1,55% (+1); Netherlands 1,67% (+1); Finland 1,67% (+1); Swaps 1,73% (+1); EU 1,77% (+1), Austria 1,80% (-2); EIB 1,94% (+1); EFSF 2,06% (+1); France 2,12% (-2); Belgium 2,25% (-2); Italy 4,72% (-3); Spain 5,51% (-9).

10 YRS Spreads: Luxembourg 12bp (-1); Netherlands 24bp (-1); Finland 24bp (-1); Swaps 30bp (-1); EU 34bp (-1); Austria 37bp (-4); EIB 51bp (-1); EFSF 63bp (-1); France 69bp (-4); Belgium 82bp (-4); Italy 329bp (-5); Spain 408bp (-11).

EUR swap curve 2-5 YRS 47bp (unch); 5-10 YRS 83bp (unch) 10-30 YRS 62bp (unch).
2 YRS German BKOs closed 0,012% (+1,7) and 5 YRS OBLs 0,45% (+3).

Main -1 to 124 (-0,8% tighter); Financials -3 to 163 (-1,8% tighter); Cross -8 to 503 (-1,6% tighter).
Stoxx Futures at 2538 / -0,2% (from 2542) with S&P minis at 1402 (+0,4% from 1397, at European close).
VIX index at 15,3 after 15,8 yesterday same time.

Oil 87,1/109,6 (WTI/Brent) from 87,4/110,4 (-0,3%/-0,7%). Gold at 1745 after 1749 (-0,3%). Copper unchanged at 353 from 353. CRB at EU COB 298,0 from 299,0 (-0,3%).
BDIY, still on the rise, but really running out of steam, up 3 ticks to 1097, from yesterday’s +4 ticks. Target 1162-high seen in July, post-Chinese New Year slide.

EUR 1,293 from 1,296

Greek guesstimate: Greek bonds initial unchanged, then firmer with 2023s closing 16.25% (-12.5) and 13.00% (down 50bp) unchanged for 2042s. Nearing last week(s tightest levels, as buy-back conditions are said to be Friday’s close. But, hell; who really knows what Friday’s close is for good with bonds quoted 1 to 2 points bid-offer???

All levels COB 17:30 CET

Fast-forward Macro and Events:
European end of month data drought.
Need to see whether housing will really turn around the economy.
Govie supply: Wed EUR 3bn OBLs in Germany & Italian bills. Thu Italian bonds.
US Wed $35bn 5 YRS and Thu $29bn 7 YRS

EC: Wed M3; Thu Biz Climate and Consumer Conf; Fri CPI
GE: Wed CPI fcst 2% after 2.1%; Thu Unemployment; Fri Retail Sales
FR: Wed Unemployment; Fri PPI and Consumer Spending
Italy: Thu Biz Conf; Fri Unemployment, CPI & PPI
Spain: Wed Retail Sales fcst -10.7% after -10.9%; Thu Housing Permits; Fri CPI
US: Wed New Home Sales & Beige Book; Thu Q3 GDP 2nd revision, Claims, Pending Home Sales; Fri Personal Income & Spending, NAPM and Chicago PM.

Click link under title or below for today’s musical support:

I ain't seen nothin' yet
I'll wait, I'll wait, I'll wait
If you want to show me what I ain't seen, where I ain't been

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