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

Friday 30 November 2012

30 Nov 2012 – “ What's Up? ” (4 Non Blondes, 1992)

30 Nov 2012 – “ What's Up? ” (4 Non Blondes, 1992)

Europe rather direction-less on its own. Equities still rather firmer than not; with Bonds just the same. Macro data generally rather bleak, although expectations have been put so low lately that anything about palatable will do. Peeking over the Pond to see whether Fiscal Cliff discussions could scuttle things. Here late valuations are such that numbers should be really good to get things going. So: Drifting. Chatting. Checking.
"What's Up?" (Bunds 1,38% +1; Spain 5,3% -2; Stoxx 2580 unch; EUR 1,301 +30)
Fiscal Ping-Pong, Part III yesterday evening. Nice hiccups (+0.6%, -0.5%, +0.3%,-0.5%, +0.4%, +0.25%, -0.4%, +0.3% to close up a quarter in INDU. Jumpy but barely ever negative). Dow has retaken its 200d average, the S&P is back over its 100d and targeting the 50, while the NASDAQ is doing just the same. Bah. More to come. Less unsettling than it was 2 weeks ago.
Asia closing the week in decent manner, especially for late closers. Even China made it into positive territory, after trading yet new lows, especially at open.

German Retail Sales disappointing at -2.8% MoM (fcst -0.4% after +1.5%, revised down one point to +0.5%), -0.8% after -3.4% YoY. Not exactly thrilling. French Consumer spending as expected at -0.2% MoM / -0.5% YoY. French PPI better at +0.5% (fcst +0.2% after rev. +0.4%) / +2.9% unch YoY. Spanish CPI dipping to 3% (fcst +3.4% after 3.5%), bargaining power reduced with 25%-plus unemployed. Talking of which, Italian unemployment worse than expected and rising to 11.1% in Oct (fcst 10.9% after 10.8%). All in all, not exactly thrilling, but seemingly not the worry of the moment. Draghi on the ticker seeing a recovery in H2/2013. So, just a question of time and patience… And doing the right things. Parliamentary debate in Germany on the Greek aid allowing everyone to express a) doubts and b) solidarity nevertheless. Sign it off, be patient. The next package will come soon enough… Not exactly thrilling.

Bit of a wobbly start, trying to find common ground between FC, nothing burning in Europe, a better close, the EUR trading above 1.30 and the above-mentioned not exactly thrilling day-to-day reality… So best is to stay close to home. Half an hour into the cash session, Hard Core EGBs were about 1bp softer (1.38% in Bunds, 1.63% in Treasuries), the Soft Core a tick tighter with France hitting a new 2.03% low in 10 YRS. Periphery split -/+ 1 with Italy at 4.55% and Spanish 10s at 5.33%.
Credit unchanged. Equities up a quarter from close, knowing that with all the hiccups the US indices closed where they stood at European COB.
Oil down 0.5%, Gold up a quarter and Copper flat at 360. EUR 1.302 (from 1.298).

Quote of the Day by Super Mario, asserting that the Crisis has shown that “We were living in a Fairy World”. Cute way of spelling it out. Duh!

EZ Unemployment hitting the expected historic high of 11.7% (up from 11.6%). EZ CPI a brighter spot, as underlying the ECB pitch that it eventually would get lower, falling to +2.2% (fcst 2.4% after 2.5%). As for Spain, at some point prices must fall when there are so many unemployed. Sadly makes sense.

No supply today. Yesterday’s (totally overpriced) Italian auction issues under water at 3.42% and 4.55% (from 3.23% and 4.45% average auction yields and closes on Wednesday evening at 3.385% and 4.585%). Not exactly stellar.
Talking of which, Spain drifted further wider during the morning from yesterday’s outwordly yield lows of 2.55% in 2s and 5.15% in 10s, widening to 2.85% and 5.38%, back to the 400 to Bund mark.
France doing itself and its spread a pleasure by announcing an OAT auction of a mere EUR 4bn next Thursday, and with no 10 YRS (Oct 2018, Oct 2019 and Oct 2027). The last auction was for a combined EUR 7.5bn size, of which EUR 4.4bn 10s (next to off-the-run 7 YRS and 2035s).

Sluggish Friday sideways trading. Everything about unchanged.
Bunds 1,37% (unch), OBLs 0,40% (unch) and BKOs 0,010% (+0,5). UST 1,62% (-1).
Spanish 2s at 2,85% (+9), 10s at 5,38% (+6). 2-10 YRS spread 252bp (-4). Spain about 20bp wider from Thursday noon.
Italian 2s at 1,80% (+4), 10s at 4,53% (-3). 2-10 YRS spread 273bp (-7).
Equities some 0.2% firmer. Credit unchanged.
EUR 1.301 and Commodities by and large unchanged.
Big YAWN! Will need to wait for US figures to get things moving, or not, or for Fiscal Ping-Pong, round 4.

Greek rescue vote in Germany Parliament going through, but with Merkel falling short of a coalition majority. Then again, well-orchestrated, not a surprise.

US figures showing Personal Income stagnating (0%, fcst +0.2% after +0.4%) and Spending diminishing (-0.2%, fcst flat after +0.4%, rev. +0.3%) but with no immediate reaction in an amorphous market.
Milwaukee NAPM up, but under forecast (45.5 after 43.3) and finally the Chicago PM about in line at 50.4 (50.5 after 49.9).
By and large flat US cash open. Amorphous? What’s up? What’s going on? Nada.

Month end. Waiting for something to happen – or not. Trying to avoid any FCDRE (Fiscal Cliff Discussion Risk Event)…
Spanish bonds eventually tightening back as nothing else happens.

Falling asleep into the close, opening an eye to hit F9…
Bunds closed at 1,38% (+1), OBLs at 0,40% (unch) and BKOs 0,007% (+0,2). UST at 1,61% (-2) COB. Ah! Movement! 1 tick! Soft Core closing near record lows (give or take one bp), but not spot on. Good week, though.
Spain back on track on an after-thought, recouping today’s soft patch and yesterday’s losses and closing down 30bp on the week. B+392. Note that the recovery in Periphery was on the longer end only with 2 YRS softer.
Spanish 2s at 2,83% (+7), 10s at 5,30% (-2). 2-10 YRS spread 247bp (-9).
Italian 2s at 1,80% (+4), 10s at 4,49% (-7). 2-10 YRS spread 269bp (-11).
Equities flat flat flat.
EUR closing juuuuuust above 1.30, for the principle. Commodities flat. Gold suffering, again, an attack to the downside.

Take-away: Quiet. Europe rather direction-less on its own. Equities still rather firmer than not; with Bonds just the same. Macro data generally rather bleak, although expectations have been put so low lately that anything about palatable will do. Peeking over the Pond to see whether Fiscal Cliff discussions could scuttle things. Here late valuations are such that numbers should be really good to get things going. So: Drifting. Chatting. Checking.

Outlook: Fiscal Cliff Discussion Risk Event still live. Greek maths on buy-back. Spain maths on its budget. Italian maths… French... Bah… Seem to be drifting. Bond strength with the latest levels in equities somehow puzzling. Growth slow-down versus H2/2013 Outlook. Risk levels probably too low. Not much on the fundamental side in the next 2 days. Maybe waiting for an ECB-gesture (which shouldn’t come). Cyprus-bailout for 03 Dec.

European 50 & 100d averages: EStoxx 2509/2460, DAX 7271/7106, CAC 3447/3419, MIB 15552/15118, IBEX 7827/7509.
US 50, 100 & 200d averages: INDU 13209/13135/12995, S&P 1422/1409/1384, NASDAQ 3027/3018/2987 with AAPL at 616/625/600.
EUR: 50d 1.291, 100d 1.270 & 200d 1.279. 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 closing the week with Telenor selling EUR 600m 12 YRS at MS +83 and Spanish government-guaranteed ICO trying to jump on yesterday’s FADE band-wagon, but closing a minimum EUR 500m increase of an outstanding Jul 2017 at Spain +60 (about MS +405) at that minimum amount.
This was quite an active week of over EUR 27bn in 30 New Issues (including a EUR 7bn 1-year deal for the EFSF).

Don’t miss the Shuffle Rewind over the weekend.

Closing levels:
10 YRS Yields: Germany 1,38% (+1); Luxembourg 1,49% (unch); Netherlands 1,61% (+1); Finland 1,62% (+1); Swaps 1,67% (-1); EU 1,70% (unch), Austria 1,74% (unch); EIB 1,86% (-1); EFSF 1,99% (unch); France 2,04% (unch); Belgium 2,16% (-1); Italy 4,49% (-7); Spain 5,30% (-2).

10 YRS Spreads: Luxembourg 11bp (-1); Netherlands 23bp (unch); Finland 24bp (unch); Swaps 29bp (-2); EU 32bp (-1); Austria 36bp (-1); EIB 48bp (-2); EFSF 61bp (-1); France 66bp (-1); Belgium 78bp (-2); Italy 311bp (-8); Spain 392bp (-3).

EUR swap curve 2-5 YRS 45bp (unch); 5-10 YRS 81bp (unch) 10-30 YRS 63bp (unch).
2 YRS German BKOs closed 0,007% (+0,2) and 5 YRS OBLs 0,40% (unch).

Main +1 to 123 (0,8% wider); Financials +1 to 160 (0,6% wider); Cross +3 to 497 (0,6% wider).
Stoxx Futures at 2580 / +0,0% (from 2579) with S&P minis at 1412 (-0,3% from 1416, at European close).
VIX index at 15,8 after 15,2 yesterday same time.

Oil 88,5/110,9 (WTI/Brent) from 88,2/110,9 (+0,4%/+0,1%). Gold at 1712 after 1727 (-0,8%). Copper at 361 from 360 (+0,3%). CRB at EU COB 299,0 from 297,0 (+0,7%).
Another fall after yesterday, after nearly 3 weeks of continuous rise for the BDIY, down 1% to fixing at 1086. Target 1162-high, seen in July, post-Chinese New Year slide.

EUR 1,301 from 1,298

Greek guesstimate: Greek bonds had the 2023s ticking down 25 to 16.00%, having ended yesterday unchanged, with the 2042s remaining unchanged today at 12.50%. So give us those buy-back prices now!

All levels COB 17:30 CET

Fast-forward Macro and Events:
Hmm… Only 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, EFSF, France, Germany, Netherlands) and see additional EUR 4bn German 2 YRS on Wednesday. Spain will hold an auction in 3, 7 and (short) 10 YRS on Wednesday as well (as Thursday will be closed), while France will supply its monthly OAT auction on Thursday, albeit for only up to EUR 4bn and without 10 YRS (2018, 2019 & 2027).

EC: Mon Final MfG PMI; Tue PPI fcst +2.5% after +2.7% YoY; Wed Final Comp PMI, Retail Sales; Thu EZ GDP and ECB
GE: 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: Monday Final MfG PMI; Wed Final Serv PMI; Thu Q3 unemployment
Italy: Mon Budget Balance, Car Sales; Wed Final Serv PMI
Spain: Tue Unemployment; Wed Industrial Output (last 7% wda).
US: 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:
And I am feeling a little peculiar/ And so I wake in the morning / And I step outside / And I take a deep breath and I get real high / And I scream at the top of my lungs
What's going on?

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