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 29 November 2012

29 Nov 2012 – “ Sea of Love ” (The Honeydrippers, 1984)

29 Nov 2012 – “ Sea of Love ” (The Honeydrippers, 1984)

Looks like yesterday put into practice: Let’s thank everyone to turn around markets, when they sink. Nothing to break the barn stomp in Periphery bonds (but themselves). Italy brilliantly stuffed its primary dealer at a 2-year low. Core EGBs holding quite steady, given ROn in Risk and Periphery. Strong US GDP revision – but, as expected anyway. Given the actual level in Risk, good numbers are seen as given. Nothing weak, no more, never. Swimming in a Sea of (Risk) Love. Watch the Event / Headline risk on FC (& Greece. The math still seems quite odd…). Hard Periphery (especially Spain) slap-back in the afternoon, though.
"Sea Of Love" (Bunds 1,37% unch; Spain 5,32% +1; Stoxx 2579 +1,3%; EUR 1,298 +50)
Fiscal Cliff Ping-Pong, part II. First floored then pepped up, the INDU grabbed some 200 points from yesterday’s lows to close, along side the other indices, a healthy +0.8%. S&P back over the 1400-mark, and over its 100d average. NASDAQ likewise back over its 200d mark. The FED Beige Book noted an activity generally expanding at a measured pace from prior modest. All is Good!
All was good in Asia (generally up 1%), too, except for China, which after initially holding throughout the session, was dumped 1% in the closing hour. Tough love. See yesterday’s comments on Chinese index levels.
Europe, swimming in a Sea of Love, and nothing overnight.

Spanish housing still in the dumps with housing permits +23.2% MoM, but down 51.3% YoY. I guess, at some stage the base effects becomes such that counting in unit would be more representative.
German unemployment a positive surprise with +5k (fcst +16k after +19k), stable at 6.9%.
Italian Biz Confidence slightly better, too, at 88.5 (fcst 88 after 87.8).

Unsurprisingly, the day started on a stronger footing in (moderate) Risk On with European equities up 0.7% (matching the rise in US equities from closing levels). Adequate, although muted reaction in EGBs with Bunds a tick softer (1.38% +1, UST 1.63% +1). Not much of a reaction curve-wise, be it in Bunds or in swaps (on their all-time lows). EGBs in line, flat to a shade softer in the Hard Core.
Periphery tightening 3-3bp at open with BONOs at 5.30% and Italian 10s at 4.560% (ahead of the 5 YRS, opening at 3.335%, and 10 YRS auction later).
Credit snapping back yesterday’s widening and opening 3-6 tighter (-2.4%/-3.6%).
EUR 1.297 (from 1.293 close) and Commodities just about 0.4% stronger across the curve.

Good traction in Periphery bonds throughout the morning.

EZ Confidence numbers beating estimates, too (albeit on a low base): Services -11.9 (fcts -12.5 after -12.1), Biz Climate seen at -1.2 (fcst -1.6 unchanged), Industrial Confidence at -15.1 (fcst -17% after rev. -18.3) and overall Economic Confidence at 85.7 (fcst 84.5 unchanged, revised 84.3).
Last month would thus have been the through for the moment.

Closing this month government supply with EUR 3bn 5 YRS at 3.23% average yield (COB 3.385%, this morning’s open 3.335%. last 3.80% last month) and just shy of EUR 3bn 10 YRS at 4.45% (COB 4.585%, open 4.56%. 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.
Bid to cover reaaaaally modest at 1.2 for both. But then, as in late auctions, great prices, but 25bp tighter in 24 hours… Who reaaaaally wants to buy that stuff for real? Honestly?
10s back to mid-Dec 2010 levels. 5 YRS through the March 2012 lows and hitting, too, Dec 2010 levels. We had hit 2.60-lows in Oct 2010 before rapidly drifting to the 3.75%-4.00% area within 2 months. Not quite there yet for Spain…

Had hence a temporary break in the love for Italian bonds, although disappointment initially restricted. Cooled off Risk appetite marginally with equities entering lunch near their highs, 1% above yesterday’s closing levels.
Credit still strong, on early morning levels (-3/-6 ticks) with the Crossover back below the 500-mark.
Core EGBs 2 wider, Soft Core flat to a tick tighter. Periphery good looking, although slightly put off by the Italian auction results and 8bp wider than the tightest levels seen during in the morning (and in the last couple of months, as it is). Lows tested at 4.45% in BTPs and 5.15% in BONOs. Sea of Love!
Note that the correction in Periphery bonds didn’t really prop up Hard Core demand, as their tightening didn’t trigger massive sales either.
Bunds 1,39% (+2), OBLs 0,41% (+2), BKOs 0,007% (+2). UST 1,64% (+2) COB.
Spanish 2s at 2,63% (-6), 10s at 5,24% (-7). 2-10 YRS spread 262bp (-1).
Italian 2s at 1,67% (+1), 10s at 4,52% (-7). 2-10 YRS spread 285bp (-7).
EUR 1.299, having briefly flirted with the 30-handle, but just so. Oil up 1% throughout the morning. Rest about unchanged.

US figures to start the afternoon with quite a revision in US GDP, which was actually expected, taking Q3 to 2.7% (from 2% with forecasts of the revision to 2.8%). Personal Consumption obviously NOT the driver, as revised down to 1.4% (from 2%, fcst of revision 1.9%). Thanks for government spending! To round up figures, Claims came a tick over forecasts at 393k (fcst 390k after 410k revised 416k). Continuous Claims at 3287k (fcst 3325 after 3337, rev. 3357).

While the GDP revision remained good in absolute terms, expectations were a bit higher. Add claims falling less the expected and bonds got a leg up again, tightening back a little. Risk initially slightly refreshed, however only so slightly.

US cash gapping up 0.5%, leading Europe back higher in full sync. Pending Home Sales on the rise, up an unexpected 5.2% MoM (fcst 1% after rev. 04%), a staggering 18% on a YoY basis (fcst 8.9% after rev. 8.7%). Can’t be Sandy, can it?
 EGBs put, although the softening in Periphery bonds continued with Spain erasing all morning gains and Italy back over the 4.50%-mark.

Cherry topping the Sea of Love cup cake: S&P affirming China’s AA-, given the “exceptional” growth outlook (Might finally give Shanghai some wings to end the month tomorrow). Worth a good quarter point extra boost in equities. Ding! Same player schmoozes again.
It remained that Spain is NOT China and that it remained on the weakish side into the close.
Which can’t be said of long Greeks, still soaring, given that the buy-back price discussion remains seemingly open and hitting a new price high of 28.5% of par (12.5% yield), up from 25.75% (13.5% yield) on Friday, while the 2023s seem stuck at 16.25% (about 35% of par).

European equities closing HOD (+1.3%), about 1% away from March highs. Credit 2.5% tighter (10 ticks from March lows) with Financials even down to 159 (4.2% tighter).
Core EGBs remain decoupled from the ROn environment and closed unchanged. Maybe driven by the weakness of the Periphery short end? Italian 2s hitting 1.57% in the morning, before being ripped back to 1.80% and recovering a little. Similar picture in short BONOs, down to 2.52%, back to 2.79%, before regaining some 3bps. Tough Love, here!
Bunds closed at 1,37% (unch), OBLs at 0,40% (+1) and BKOs 0,005% (+1,7). UST at 1,63% (+1) COB.
Spanish 2s at 2,76% (+7), 10s at 5,32% (+1). 2-10 YRS spread 256bp (-7)
Italian 2s at 1,76% (+10), 10s at 4,56% (-3). 2-10 YRS spread 280bp (-12).
EUR stuck and closing below 1.30. Good drive in Oil (+2%). Copper (China) +2%, too. Gold still rather sideways, after being slammed lately. Gold? Who wants Gold?

Take-away: Looks like yesterday put into practice: Let’s thank everyone to turn around markets, when they sink (Good timing yesterday). Nothing to break the barn stomp in Periphery bonds (but themselves), so people might as well side-step going short into strength. Italy brilliantly stuffed its primary dealer at a 2-year low, but then, they hadn’t to bid that aggressively. Core EGBs holding quite steady, given ROn in Risk and Periphery. Strong US GDP revision – but, as expected anyway, meeting some yawning folks. Given the actual level in Risk, good numbers are seen as given. Nothing weak, no more, never. Swimming in a Sea of (Risk) Love. Watch the Event / Headline risk on FC (& Greece. The math still seems quite odd… Must be missing some Greek numbers in the equation). Hard Periphery (especially Spain) slap-back in the afternoon, though.

Outlook: German Oct Retail Sales expected to fall 0.4% after rev. 0.8% MoM, as is French Consumer Spending (fcst -0.2% after +0.1% MoM) with PPI put at 2.9% YoY. EZ Unemployment figures should rise to 11.7% from 11.6%. Italian and Spanish CPI. A sad reminder. Closing the month with US Personal Income expected to grow 0.2% MoM, flay YoY, NAPM at 47 after 43.3 and Chicago PM rising above the 50-mark to 50.5 from just below 49.9.

European 50 & 100d averages: EStoxx 2509/2456, DAX 7271/7096, CAC 3446/3414, MIB 15550/15098, IBEX 7828/7496.
US 50, 100 & 200d averages: INDU 13220/13132/12994, S&P 1423/1408/1384, NASDAQ 3030/3018/2986 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 .

New Issues saw a chunky, really chunky FADE deal for EUR 1.75bn 3 YRS, priced at 70bp over Spain / about MS +360. Took a while to get that one going (Investor call was on 12 Nov), but met with EUR 2.5bn in demand. Spanish water tariff deficit financing vehicle, explicit Spanish government-guarantee. Hadn’t really managed to issue in benchmarks for over a year. Allocation might have been on the high side, priced at Spanish lows… To be followed. Happily the margin to Spain was fixed in the morning, while the pricing was in the afternoon with Spanish 2s correcting from 3.15% to 3.35%...
Otherwise, it was BBB corporate day with SabMiller quenching investor thirst for household names with EUR 1bn Jan 2020s at MS +70, next to EUR 500m for Bilfinger in 7 YRS at MS +115 and EUR 500m for G4S at MS +167.

Closing levels:
10 YRS Yields: Germany 1,37% (unch); Luxembourg 1,49% (unch); Netherlands 1,60% (unch); Finland 1,61% (+1); Swaps 1,68% (unch); EU 1,70% (-1), Austria 1,74% (unch); EIB 1,87% (-1); EFSF 1,99% (-1); France 2,04% (-1); Belgium 2,17% (-3); Italy 4,56% (-3); Spain 5,32% (+1).

10 YRS Spreads: Luxembourg 12bp (unch); Netherlands 23bp (unch); Finland 24bp (+1); Swaps 31bp (unch); EU 33bp (-1); Austria 37bp (unch); EIB 50bp (-1); EFSF 62bp (-1); France 67bp (-1); Belgium 80bp (-3); Italy 319bp (-3); Spain 395bp (+1).

EUR swap curve 2-5 YRS 45bp (unch); 5-10 YRS 81bp (-1,0) 10-30 YRS 63bp (unch).
2 YRS German BKOs closed 0,005% (+1,7) and 5 YRS OBLs 0,40% (+1).

Main -3 to 122 (-2,4% tighter); Financials -7 to 159 (-4,2% tighter); Cross -14 to 494 (-2,8% tighter).
Stoxx Futures at 2579 / +1,3% (from 2547) with S&P minis at 1416 (+1,2% from 1399, at European close).
VIX index at 15,2 after 16,1 yesterday same time.

Oil 88,2/110,9 (WTI/Brent) from 86,4/109,1 (+2,1%/+1,7%). Gold at 1727 after 1717 (+0,6%). Copper at 360 from 353 (+2,0%). CRB at EU COB 297,0 from 298,0 (-0,3%).
First fall in 2 weeks for the BDIY, giving back yesterday’s 7 ticks and fixing at 1097. Target 1162-high seen in July, post-Chinese New Year slide (5.25% away).

EUR 1,298 from 1,293

Greek guesstimate: Greek bonds closing unchanged in 2023s at 16.25%, but once more tighter in 2042s at 12.50% (-25) for 2042s, as the last word on the price level doesn’t seem to have been said yet.

All levels COB 17:30 CET

Fast-forward Macro and Events:
Hm… Bits and pieces on the macro front. Industrial output in Spain on Wed. Factory Orders in Germany on Thu. Fri NFP in the US.
Thursday ECB & BOE (FED on 12 Dec)

The start of next week will be flushed with bills (Belgium, France, Germany, Netherlands), see additional EUR 4bn German 2 YRS. Spain will hold an auction in 3, 7 and (short) 10 YRS on Wednesday (as Thursday will be closed) and France supply its monthly OAT auction on Thursday.

EC: Fri CPI fcst 2.4% after 2.5% YoY, Unemployment fcst 11.7% after 11.6%; Final MfG PMI; Tue PPI fcst +2.5% after +2.7% YoY; Wed Final Comp PMI, Retail Sales; Thu EZ GDP and ECB
GE: Fri Retail Sales; Mon Final MfG PMI; Wed Final Serv PMI; Thu Factory Orders last -3.3 MoM, Friday Industrial Production last -1.8% MoM/-1.2% YoY
FR: Fri PPI and Consumer Spending; Monday Final MfG PMI; Wed Final Serv PMI; Thu Q3 unemployment
Italy: Fri Unemployment, CPI & PPI; Mon Budget Balance, Car Sales; Wed Final Serv PMI
Spain: Fri CPI; Tue Unemployment; Wed Industrial Output (last 7% wda).
US: Fri Personal Income & Spending, NAPM and Chicago PM. Mon Final PMI, MfG ISM & Construction Spending; Tue ISM NY; Wed Factory Orders, Productivity and Labour Costs; Thu Claims; Fri NFP

Click link under title or below for today’s musical support:
Original by Phil Philipps, 1959, of course.
Ok, admittedly that song IS cheesy, but how could Robert Plant fall soooo loooww… Even tongue in cheek, this is low.

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