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

Saturday 17 November 2012

Shuffle Rewind 12-16 Nov " No Direction " (Simply Red, 1985)

Shuffle Rewind 12-16 Nov " No Direction " (Simply Red, 1985) 

This week in review (compared to Fri 09 Nov COB): 
Click on day for related post, on title for song.

The week ending 09 Nov saw elections clearing the way for a second Obama mandate and brought the Fiscal Cliff question back into the light. While fundamental negative economic figures were mostly ignored at the beginning on the week, once Wednesday showed final results, markets started sinking. An awakening.
"Wake Up" (Bunds 1,34% -11; Spain 5,81% +17; Stoxx 2481 -2,4%; EUR 1,271 -130)

This Monday opened softer, as Europe, having sold off Friday morning was squeezed into the weekend close, before US stocks slumped back at their own close. Then again, once done, markets went rather quiet. The Periphery, while still on the soft side, mainly trailed a generally softer Risk sentiment, somehow waiting for the US to “Show Me The Way" (Bunds 1,34% unch; Spain 5,88% +7; Stoxx 2473 -0,3%; EUR 1,271 unch), despite looming European problems (mainly Greece). As Greek discussions overnight revealed a spat between Europe and the IMF, and given yet another closing slump in the US, Tuesday started on a weak footing with Risk nearing Friday lows, before being ramped up by rumours, showered again and finally supported by the US opening in negative, albeit tame manner, before moving into positive territory and taking everything along. Given the noon despair, the afternoon relief seemed…exuberant. Especially as the US still led the way, "That's The Way" (Bunds 1,34% unch; Spain 5,83% -5; Stoxx 2494 +0,8%; EUR 1,272 +10). Wednesday was another case of Lather. Rinse. Repeat. See-sawing – and looking for direction. Weaker open, in line with the US close. Some exuberance ahead of the Italian auction, despite negative figures. Awakening that nothing was justifying this. Re-correction. Some more European gloomy news to end the day. Mostly an equity move, although Spain got slammed. "Way Down" (Bunds 1,34% unch; Spain 5,92% +9; Stoxx 2475 -0,8%; EUR 1,274 +20). Trashy US close on Wednesday evening, resilient Thursday open in Europe. Saved by the gong – and slightly better than expected GDP figures in France, Germany and Italy. Still, once that said and despite this resilience, Europe kept looking for a lead, but no one really knows who’s leading whom these days: "Are You Gonna Go My Way?" (Bunds 1,34% unch; Spain 5,89% -3; Stoxx 2459 -0,6%; EUR 1,279 +50). Friday was eventually mostly boring: Several inconclusive downside tests in European equities, with static bonds, unwilling to tighten further. More US equity weakness, more downside. Afternoon US equity dump. Again with Credit, EGBs, most commodities just watching. Dismal European close. "That's the Way (I Like It)" (Bunds 1,32% -2; Spain 5,86% -3; Stoxx 2429 -1,2%; EUR 1,270 -90). 5 minutes after EU close, the US market was spun around by initial Boehner comments, interpreted as ways could be found on the Fiscal Cliff issue. To be followed.
While the prior week was marked by some kind of awakening, this week was more about finding a direction. Eventually mostly downwards, but always in jumps, marked by tentative rebounds. Europe mostly lost, so unused not to be the focal point anymore, waiting for US input. If it wasn’t for the Fiscal Cliff, and in absence of further news out of the Periphery, we seem to have
"No Direction" (Bunds 1,32% -2; Spain 5,86% +5; Stoxx 2429% -2,1%; EUR 1,270 -10) 

After several very strong weeks for bonds, it seemed quite difficult to keep that drive, at least for the Hard Core, which by and large refused to react to equity weakness. With remarkable and rare consistency, Bunds closed at 1.34% (last Friday’s closing level), every single day this week with rare “spikes” to 1.32% lows and sometimes even 1.365% highs, for a change. Eventually closed at 1.32%, but only because the US fell out of bed.
German Schätze stayed in negative territory, as well in restricted volatility.
In the meantime, swaps and Soft Core (Austria & Belgium) traded new historic lows this week with France nearing, too, its August lows of 2.055%. French 2 and 5 YRS were auctioned at historic lows this week, as were Dutch 10 YRS. Belgium still doing great at 17 over France (unchanged) and down to B+93 (from 96 last week).

Periphery still bobbling up and down, but with not much of an own dynamic these days. It’s more a case of going with the general Risk assessment. Breaching symbolic levels for a while (5% for Italy, B+450 for Spain with 10s just under 6%) didn’t trigger much of a panic. Wednesday 12m bills auction went well in Italy, while Wednesday’s test to renter the very long end was just so so. Auction results were very good price-wise, rather doubtful demand-wise. Looked like being sponsored and put off the market for a while. Eventually digested and with Italy showing better than expected GDP numbers (or rather less bad), demand for BTPs seemed to pick up again. Spain drifting on its own and performing so so on the week (+7, -5, +9,-3,-3. Overall +5 at 5.86%, B+454). Italy (+ 7 to past 5%, -6,-unch Wed,- 7, -2. Overall -10 to 4.87% or B+355). For both, symbolic pain levels at 5 and 6% have been avoided to end the week.
Short end mostly uninspired, too, closing at 2.06% and 3.22%. Italian 2-10s at 281bp (-5) and Spanish equivalent at 264 (-8) with the flattening coming from the overall 10 YRS strength.

EUR swap curve out to 10 YRS at historic lows, again.
2-10s at 127 after 128, but just in the last hours of the week. Some ROff with 10-30s at 61 from 58.

Credit once more overdoing Risk swings and still decompressing for overly tight lows a couple of weeks ago. Out by some 5% versus equities down slightly over 2%. As for the Periphery, mostly static with some re-adjustments in jumps. Lacks own dynamic. 
Having closed the prior week down 2.4%, European equities remained mostly rangy, around / slightly below the 50d average and trailing the US (+0.3%, +0.8%, -0.8%, then a heavier -1.2% and a dismal -2.1% on Friday ). Might see a positive gap on Monday, depending on weekend news as the Europe closed LOD/LOW – just some 5 minutes before US equities were turned around, closing some 1% higher than at 17:30 CET.
VIX now confirmed over the 18-mark for a while - yet still far from panic levels.

European 50d & 100d: EStoxx 2514/2435 (50d/100d), DAX 7285/7035, CAC 3453/3392, MIB 15683/14991, IBEX 7857/7423.
US 100d& 200d for INDU 13123/12992, SPX 1405/1382 and NASDAQ 3015/2985, as totally Apple-challenged (200d 595).
50% INDU retracement of the Oct 2011 – Oct 2012 at 12.447. S&P at 1317. NASDAQ 2819 (broken 17:25 on Friday, 10 minutes before being sharply spun around).

Very stable EUR, which has obviously lost its Risk Off indicator function, at least for now. Has actually been profiting from US ROff – until a sharper Friday correction. Stuck in charts. 
EUR: 100d 1.265 & 200d 1.281. Fibo retracement (of May 2011 1.494 & Jul 2012 1.204 down-leg) at 1.273& 1.315. Jul 2012 to Sep rebound levels: 1.231 – 1.247 – 1.2611.274 – 1.291.

Commodities absolutely uninspiring on the week. Oil reacted duly to Middle-East tensions… up $ 2-3…for a day… then back. Gold managing to hold above the 1700-mark, but heavy.

New Issues rather uninspiring with EUR 12.5bn printed in 17 benchmarks (down from EUR 14.7bn last week). Highlight was Xstrata’s 2-trancher for EUR 1.25bn May 2016 at MS +100 and EUR 1bn 6 YRS at MS +140. Note as well IBM with EUR 1bn 7 YRS at MS +20, as well as the return of an Irish Bank in covered bond format after 3 YRS with BOI going for EUR 1bn 3 YRS at MS +270. Irish utility ESB was in the markets, too, with EUR 500m 7 YRS at MS +320.

Outlook: More of the same? Certainly. There isn’t much in terms of European data until next week’s Thursday, which will be PMI day. Wednesday crowded US data dump ahead of Thu 22 Thanksgiving holiday. Black Friday.
EU FM meeting on Monday evening and Eurogroup on Tuesday to settle Greece… or probably not. Spailout & Grexit
Fiscal Cliff always good for a market move in the coming weeks. US (and EU) Fri equity close up for interpretation chart-wise. Avoided real 50% retracement breach on the NASDAQ, but just so. Despite this rebound, the US was markedly down.
Light week auction week: Tue 12 & 18m Spanish bills; Wed 10 YRS Bund increase and Portuguese bills; Thu 2015 2017 & 2021 BONOs. Thus, all eyes on Spain.

On the week (compared to Fri 09 Nov COB): 
10 YRS Yields: Germany 1,32% (-2); Luxembourg 1,47% (-2); Netherlands 1,58% (-3); Finland 1,60% (-3); Swaps 1,66% (-2); EU 1,70% (-3); Austria 1,77% (-3); EIB 1,86% (-3); EFSF 1,98% (-2); France 2,07% (-5); Belgium 2,25% (-5); Italy 4,87% (-10); Spain 5,86% (+5).

10 YRS Spreads: Luxembourg 15bp (unch); Netherlands 26bp (-1); Finland 28bp (-1); Swaps 34bp (unch); EU 38bp (-1); Austria 45bp (-1); EIB 54bp (-11); EFSF 66bp (unch); France 75bp (-3); Belgium 93bp (-3); Italy 355bp (-8); Spain 454bp (+7).

EUR swap curve 2-5 YRS 46bp (unch); 5-10 YRS 81bp (-1,0) 10-30 YRS 61bp (+3,0).
2 YRS German BKOs closed -0,052% (-2) and 5 YRS OBLs 0,34% (-2), on the week, with UST closing at 1,56% (-6).
Swiss 2-YRS were as uneventful as Schätze and closed at -0.25% from -0.257%.

Main at 139 from 132 (5,3% wider); Financials at 188 after 180 (4,4% wider); Cross at 572 from 534 (7,1% wider).
Stoxx Futures at 2429 / -2,1% from 2481 with S&P minis at 1344 / -2,7% from 1382, at European COB last week.
VIX index at 18,3 after 18,0 last week.

Oil 86,9/108,2 (WTI/Brent) from 85,7/108,0 (+1,4%/+0,2%). Gold at 1711 after 1734 (-1,3%). Copper at 343 from 343 (+0,0%) . CRB closes 293,0 from 292,0 (+0,3%).
BDIY finally ended its 2-week slide from the latest 1048-high with a healthy 10.2% rebound to 1036 from last Friday’s 940.
Intermediate 2012 high (post-Chinese New Year) was at 1165 early May after a 10-year low at 647 early Feb, before dipping to 872 in June, rising back to 1162, retesting lows at 661 mid-Sep, re-testing highs at 1109 before sliding back to 916 in the last down-leg. Seems to point to around 1000 as balanced level, from a seagull view.

EUR 1,270 after 1,271 last Friday

Greek guesstimate: Greek bonds back to 17.25% for 2023s and 14.50% for 2042s, 75bp tighter from last week’s closing at 18% and 15.5%, as haggling remains on-going and can kicking alive.

All levels Friday COB 17:30 CET

Fast-forward Macro and Events: 
PMI week. There really isn’t much in terms of European data until next week’s Thursday, which will be PMI day.
Wednesday crowded US data dump ahead of Thu 22 Thanksgiving holiday.
Light week auction week: Tue 12 & 18m Spanish bills; Wed 10 YRS Bund increase and Portuguese bills; Thu BONOs. All eyes on Spain, thus.

EZ: Mon 19 Construction; Thu 22 Comp / Manu / Services PMI last 45.7, fcst 45.5 after 45.4 and 46 unch, EZ Consumer Conf fcst -25.5 after -25.7
GE: Tue PPI; Thu 22 PMI Manu last 46 Services 48.4; Fri 23 Final GDP, IFO Nov Biz Climate last 100, Current last 107.3, Expectations last 93.2
FR: Thu 22 PMI Manu last 43.7, Services last 44.6; Fri 23 Biz Conf last 85
Italy: Mon 19 Sep Indu Orders last +0.7% MoM & Sales last +2.9% MoM; Fri 23 Retail Sales last +0.% MoM
Spain: Wed 21 Trade; Fri 23 PPI
US: Mon 19 Home Sales; Tue 20 Housing Starts and Permits; Wed 21 PMI, Claims, U Michigan, Leading Indicators. Wed 22 Thanksgiving

Click link under title or below for today’s musical support: 
Quite proud of my “Royal Flush” with songs containing “Way” in the title last week. All these different ways, but No Direction 

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