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 28 November 2012

28 Nov 2012 – “ I Thank You ” (ZZ Top, 1979)

28 Nov 2012 – “ I Thank You ” (ZZ Top, 1979)

Once more, not much own stuff to chew on Europe’s own. Drifting. EGBs very strong on (relative) equity weakness. Periphery starting to glow like the ZZ Top Eliminator. In absence of any strong lead, need to start thanking everyone for input and support (Mario, Ben, Angie, Chrissie… Anyone working on the Fiscal Cliff. Mariano & Mario. Wolfie...). New paradigm put into practice: nothing will ever be weak again, nothing. And watch out for FC Ping-Pong! And I Thank You!
"I Thank You" (Bunds 1,37% -6; Spain 5,31% -20; Stoxx 2547 +0,4%; EUR 1,293 unch)
Yeah, that Fiscal Cliff-thing was bound to pop up, in absence of anything else out there and so it did yesterday, once Europe well home. Markets were in corrective mood anyway and once the lack of advance bemoaned by the Senate majority leader, we witnessed a 0.5% drop, 0.3% rebound and final 0.4% drop with the INDU closing weakest (-0.7% against S&P’s -0.5%, but back below the 1400-mark, and the NASDAQ a mere -0.3%). Nothing life threatening eventually and a fall-out much more limited than the 2.9% drop on 07 Nov, which was then followed by a further 3% decline before bottoming out and the rebounding on 16 Nov.
Asia subsequently lower with Japan down 1.3% (on a Yen that finally stopped weakening), China still drifting lower (1% in Shanghai, but with Shenzhen getting slammed ever stronger) and the rest of Asia merely giving back yesterday’s gains.
Up to here, nothing seems to burn too much (although Mainland China looks definitively bleak, chart-wise, the larger CSI being now on right on 38.2%-mark of the Nov 2008 low – Aug 2009 high. A break would then take us back the Aug 2008 lows at 1607, for Fibonacci fans. That’s a 25%-slide…

Spanish Retail Oct still depressed at -9.7% MoM sa / 8.4% YoY (from rev. -11% / -12.7%). Slightly better, but off such lows, who would care?
Yesterday evening saw the publication of French Unemployment figures above forecast with now over 3.1m jobseekers, a net change of over 45k (fcst +28.6k). Never had that many since April 1998… Up from a low point of 1.98m in Feb 2008.

Bit of a Risk Off start into the day, shown mainly by EGBs performing against equities and a weaker EUR.
Bunds 1.40% (-3), alongside USTs at 1.62 (-3, as well). 5 YRS OBLs likewise 3 tighter to 0.42%, ahead of the (smaller) auction later in the morning with Schätze back to the ZIRP-mark of 0.000%. Not adverse spill-over into the Periphery with Italy flat and Spain managing to squeeze through the 5.50%-mark at 5.49% (-2).
Credit the one tick or two wider it gained yesterday (against equities 0.2% correction). Equities down 0.2%, outperforming slightly the US close, bouncing off on about yesterday’s lows and Friday morning levels. Fiscal Cliff? Bah. I saw you comin’.
Commodities just a tad lighter with the EUR unchanged at 1.293.

EZ M3, and who would care normally, surging (and there goes your rate cut) 3.9% YoY (fcst 2.8% after rev. 2.6%). Bit of a shocker! Oct Private Sector Loan production still dipping on all counts, but for Home Purchases.

Still, a hiccup that pushed equities down to -0.5% and, in turn, EGBs further tighter.

Additional EUR 3bn were sold in German 5 YRS at 0.41% (COB 0.45%. Last auctions were at 0.42% early Nov and 0.53% mid Oct). Short of EUR 500m retained for market intervention. B/C on the higher side, knowing that never such a small auction size had been targeted before.
EUR 7.5bn in Italian 6m bills sold at 0.919% (last 1.347% one month ago). This is the first time Italian 6m bills were sold below 1% since Aug 2010. All is good! All time lows were around 0.55% between Jul 2009 and Mar 2010. All is good!

We will close government supply for November tomorrow with EUR 3bn each of on-the-run 5 YRS (COB 3.385%, last 3.80% last month) and 10 YRS (COB 4.585%, last 4.81% - for off-the-runs - mid Nov and 4.92% one month ago). Last month’s on-the-run auction had been for EUR 7bn.
Too bad the market squeezed over 10bp tighter during the afternoon. Won’t help Primary Dealers, but, hey…

German CPI as expected at +2.0% YoY / -0.1% MoM (after +2.1% / +0.1%), EU harmonized.
Spanish Bank Bailout on its way with EUR 37bn needed, next to some private / retail burden-sharing, asset-shedding, branch-shedding, job-shedding… Bad Bank still seemingly state-owned, as private interests stepping up (on their own) seem rather light. Still, Spain muddling through for the moment, good back-wind, and not even “OMT? We’re still thinking…” mumbled lately and obviously not asked anymore. For the moment. Thanks who? Thanks Mario!

Midday picture still showing a strong EGB backdrop, through the curve, with Spain especially strong.
Bunds 1,39% (-4), OBLs 0,41% (-4), BKOs -0,007% (-2). UST at 1,62% (-3) COB.
Spanish 2s at 2,76% (-12), 10s at 5,42% (-9). 2-10 YRS spread 266bp (+3). Italian 2s at 1,74% (-4), 10s at 4,66% (-6). 2-10 YRS spread 292bp (-2).
Equities down a quarter. Credit +2/4 (1.6-2.5%). Commodities down a small 0.5%. EUR 1.29 figure. And now?

Not much going on. Drifting.
Noting the increasingly strong bids for bonds, nearing once more historic lows for swaps printed 2 weeks ago (14 Nov). Belgium hitting new lows at 2.20%. France (Downgrade? What downgrade?) on its lows at 2.055%. 10 YRS EFSF quoted below 2%. Austria at 1.75%...
Spain re-entering the rarely broken 5.00-5.50%-area, as Italy is in the similarly symbolic 4.50-4.75% area, that is Spring 2011 levels. Likewise with Italian 5s now around 3.50% with the historic (short-lived) low just above 2.50%, but with 3% rather a floor and a 5-year average at 3.90%. Thanks who? Thanks Mario!
All is Good!

Some wild activity in Precious Metals with Gold down 2% since the arrival of US accounts, Silver and Platinum following, weighting on Oil and Copper.

US cash open down 0.5% from US close, -0.75% from European COB, pulling European Risk lower and confirming EGB action. Not that very specific reasons seem to abound here.
New Home Sales missing (Thank you, Sandy) 390k estimates with 368k after 389k revised lower to 369k, -03% after revised +0.8% MoM. Eventually static.
Had a nice round of Fiscal Cliff Ping-Pong, just right in time to keep the US from sinking too low, triggering a rebound to about closing levels in Europe – and supporting the ROn mood in the Periphery. Good old classic. If there’s nothing to break the squeeze, step aside: awesome parallel shift in both curves.

Baroso and Co. trying to gate-crash Nordic willingness to help out Greece to re-re-re-pitch Common Bonds (Nein!), at least Bills (Nein! Nein! Nein!) (Germany is already to forego some EUR 730m million in ”revenues” next year on Greece. Note the elegant way avoiding the “haircut” word…) under the moniker of “Launching a debate on a deep and genuine Economic and Monetary Union”. Ok, before Treaty changes go through, there will be plenty of time to finish the EU budget discussion… Not tomorrow’s business.

Never mind the 1% equity rebound in an hour to close up over a quarter (fickle shorts), EGBs steaming ahead (outperforming UST with a 5 YRS auction later) and barely correcting in the close. That is for ALL. Soft Core compressed to historic lows.
Bunds closed at 1,37% (-6), OBLs at 0,39% (-6) and BKOs -0,012% (-2,5). UST at 1,62% (-3) COB.
Spanish 2s at 2,69% (-19), 10s at 5,31% (-20). 2-10 YRS spread 263bp (unch). Italian 2s at 1,66% (-12), 10s at 4,59% (-13). 2-10 YRS spread 292bp (-2).
Nearly unchanged curves in the Periphery. Note Spain back through 400 to Bunds! And nearing its late lows around 5.25% of 19 Oct.
EUR closing unchanged, in absence of a better idea. Commodities still shaken by Precious Metals (Gold down $25, -1.6%), but recovering from their LOD.

Take-away: Once more, not much own stuff to chew on Europe’s own. Drifting. EGBs very strong on (relative) equity weakness. Periphery starting to glow like the ZZ Top Eliminator. In absence of any strong lead, need to start thanking everyone for input and support (Mario, Ben, Angie, Chrissie… Anyone working on the Fiscal Cliff. Mariano & Mario. Wolfie...). New paradigm put into practice: nothing will ever be weak again, nothing. And watch out for FC Ping-Pong! And I Thank You!

Outlook: Drifting and thankful for anything happening. EZ Confidence numbers tomorrow. German Unemployment (fcst unchanged 6.9%). Italian auction at latest lows. US Q3 GDP revision, Claims fcst +390k after 410k, Pending Home Sales fcst +1% MoM after +0.3%. Any shifts to be blamed on Sandy (Thanks) and everyone would be thankful for Fiscal Cliff resolution.

European 50 & 100d averages: EStoxx 2509/2453, DAX 7272/7087, CAC 3446/3411, MIB 15563/15082, IBEX 7833/7486.
US 50, 100 & 200d averages: INDU 13232/13131/12993, S&P 1424/1408/1384, NASDAQ 3034/3018/2986 with AAPL 100/200d at 626/599.
EUR: 50d 1.290, 100d 1.269 & 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 .

The New Issues activity remained sustained, as well as diversified, with AT&T raising EUR 1bn 8 YRS at MS +80, Italians Lottomatica EUR 500m March 2020s at MS +235 and Finmeccanica EUR 600m 5 YRS at MS +365, Allied Irish for an Irish-jurisdiction 3 YRS covered bond of EUR 500m at MS +270. Swedbank with EUR 500m 10YRS nc5 LT2 at MS +215 on the financial sub side. Land Hessen-guaranteed WIBank sold an inaugural EUR 500 10 YRS benchmark at MS +17.
Forgot to mention yesterday’s IPIC (International Petroleum Investment Co) 3-tranche deal with, next to USD 750m 3 YRS at MS +135, saw EUR 800m May 2018 sold at MS+145 and EUR 850m May 2023s at MS +195.

Closing levels:
10 YRS Yields: Germany 1,37% (-6); Luxembourg 1,49% (-6); Netherlands 1,60% (-7); Finland 1,60% (-7); Swaps 1,68% (-5); EU 1,71% (-6), Austria 1,74% (-6); EIB 1,88% (-6); EFSF 2,00% (-6); France 2,05% (-7); Belgium 2,20% (-5); Italy 4,59% (-13); Spain 5,31% (-20).

10 YRS Spreads: Luxembourg 12bp (unch); Netherlands 23bp (-1); Finland 23bp (-1); Swaps 31bp (+1); EU 34bp (unch); Austria 37bp (unch); EIB 51bp (unch); EFSF 63bp (unch); France 68bp (-1); Belgium 83bp (+1); Italy 322bp (-7); Spain 394bp (-14).

EUR swap curve 2-5 YRS 45bp (-2,0); 5-10 YRS 82bp (-1,0) 10-30 YRS 63bp (+1,0).
2 YRS German BKOs closed -0,012% (-2,5) and 5 YRS OBLs 0,39% (-6).

Main +1 to 125 (0,8% wider); Financials +3 to 166 (1,8% wider); Cross +5 to 508 (1,0% wider).
Stoxx Futures at 2547 / +0,4% (from 2538) with S&P minis at 1399 (-0,2% from 1402, at European close).
VIX index at 16,1 after 15,3 yesterday same time.

Oil 86,4/109,1 (WTI/Brent) from 87,1/109,6 (-0,8%/-0,5%). Gold at 1717 after 1745 (-1,6%). Copper eventually unchanged at 353. CRB at EU COB unchanged at 298.
BDIY, still on the rise, slowly but steadily, up 7 ticks to 1104. Target 1162-high seen in July, post-Chinese New Year slide (5.25% away).

EUR 1,293 from 1,293

Greek guesstimate: Greek bonds closing unchanged in 2023s at 16.25% and 12.75% (-25) for 2042s. Twisted. Where Friday closing prices meant to be the bid, the offer or the mid in a lately- EUR 1m-a-day-average-turnover market???

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: Thu Italian bonds.
US Thu $29bn 7 YRS

EC: Thu Biz Climate and Consumer Conf; Fri CPI
GE: Thu Unemployment; Fri Retail Sales
FR: Fri PPI and Consumer Spending
Italy: Thu Biz Conf; Fri Unemployment, CPI & PPI
Spain: Thu Housing Permits; Fri CPI
US: Thu Q3 GDP revision 2, Claims, Pending Home Sales; Fri Personal Income & Spending, NAPM and Chicago PM.

Click link under title or below for today’s musical support:
You didn't have to squeeze me but you did
But you did but you did
And I thank you.

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