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 5 December 2012

05 Dec 2012 – “ Furry Happy Monsters ” (R.E.M., 1999)

05 Dec 2012 – “ Furry Happy Monsters ” (R.E.M., 1999)

Lather. Rinse. Repeat. Over and over. Europe doing about fine on its own and with an urge to test higher risk levels, in absence of negative news. Spanish BONOs feeling sad… US look more fickle. Is the fruit getting bad? Question of Muppets getting nervous out of boredom, or what?
"Furry Happy Monsters" (Bunds 1,35% -4; Spain 5,38% +15; Stoxx 2589 +0,1%; EUR 1,307 -10)
Lather. Rinse. Repeat. US had a weaker close, this time, on FCDRE, but in measured manner (less than -0.2%). Yawn! Markets have limited any possible sweat by simply moving in the tightest of ranges around closing levels.
China HSBC Services PMI slipped to 52.1 (prior 53.5) on soft new orders, but that went under as some stimulus hopes were seeded on “Urbanization Development”, which sent Chinese stocks ripping (CSI +3.60%, Shanghai back over that fatal 2000-level).
Asia mostly positive on the back of China, but having outperformed the latter lately, there wasn’t much to piggy-back on.

European Risk On start with equities up nearly 1%, Credit snapping 2.5% tighter (-3/4 points).
EUR firmer on the 31-handle at 1.312. Commodities following sluggishly up half a percentage point, but just so. Odd not to see Copper ripping, following the China lead.
EGBs surprisingly stable, being about 1bp softer, in order to mark the ROn movement out there, but quite decorrelated. Spain a touch softer, ahead of the auction.
Bunds 1.40% (+1), UST 1.62% (+2).OBL 0.42% (+1). Schätze flat at +0.015%.

Final Service PMI data mixed with the EZ-wide number revised higher to 46.7 from flash 45.8 and prior (Composite hence 46.5 from 45.7 flash and prior 48.4), which overshadows the fact that Germany has been doing fine (Services 49.7, flash 48, prior), while France’s and Italy’s numbers were revised lower from first estimates to respectively 45.8 (flash 46.1, prior 44.6) and 44.6 (flash 46, prior).
Spanish Industrial Output faring better than expected, “solely” down -3.3% YoY (wda). Forecast had been -6.4% after -7%, revised even lower to -7.5%.

Minimum service on the Spanish auction, totalling only EUR 4.25bn (target was EUR 4.5bn) with EUR 2.1bn sold in 3.75% Oct 2015 at 3.39% (COB 3.415%), EUR 1bn in 4.60% Jul 2019 at 4.67% (COB 4.610%) and EUR 1.1bn in the “on-the-run” 10 YRS 5.85% Jan 2022 at 5.29% (COB 5.235%). Bid to covers alright – on paper, as skewed to the allocations. Tails of 22cts (7bp) in 3s, 33cts (6bp) in the 7-year and 23cts (3bp) in 10s. Less than impressive. Ok, levels about / near the lowest in ages. Yada yada yada…
Trading already 5 bp wider before the auction, the results added 4bp right away.

The additional EUR 4bn in Schätze were sold at -0.01% (COB 0.015%, last -0.02% 2 weeks ago, +0.07% mid-Oct), of which some EUR 700 were retained for market intervention. Already boosted by the Spanish results, this took Schätze back into negative territory for good.

We will see a rather modestly-sized EUR 4bn French auction tomorrow for the 4.25% Oct 2018 (COB 1.015%), 3.75% Oct 2019 (COB 1.285%) and 2.75% Oct 2027 (COB 2.565%)  at historic lows.

While not qualifying as supply as such the ESM issued EUR 39.5bn today to back the FROB / Spanish bank bail-out (EUR 12bn 3 YRS FRN, EUR 12bn 2 YRS FRN, EUR 6.5bn 18m FRN, EUR 6.5bn 10m bills and finally EYR 2.5bn 2m bills, the last tranche for the SAREB, the Spanish bad bank). So that's on track.

Lesser active, albeit well-mixed New Issue activity with German agency L-Bank in for EUR 1bn 5 YRS at MS -7, French retailer Auchan with EUR 750m 10 YRS at MS +78 and Generali with a well-received EUR 1.25bn 30nc10 Tier 2 deal at 7.75%.
Note the chunky Intel 4-trancher in USD yesterday (USD 3bn 5s at T+75, USD 1.5bn 10s at +115, USD 750m in 20s at +130 and 30s at +150).

EZ Retail Sales a huge miss, declining 3.6% YoY (fcst -0.8% after 0.8%, revised double down to -1.6%). MoM -1.2%, fcst -0.2% after rev. -0.6%. So, no, it’s definitively not the European consumer who’ll save the day… So, who will, then? German Mittelstand: All hopes are on you!
Not that these figures would have any major impact, as the ROn was already divided by 2 on the Spanish auction disappointment (Equities +0.5%, Bunds -2 to 1.37%, Spain +10 to 5.33%).

Risk moving back to closing levels, having just traded out the Sep intra-day high at 2608 to hit 2610 in EStoxx. For chart historians: 2611 remains the 2012 intraday high of 16 Mar, broken to the downside in Aug 2011. 3068 remains the post-Lehman high of Feb 2011).
Midday levels confirming Risk levelling out – ahead of what US players might feel of all of this, or in advance dodging of FCDRE. Equities still up 0.3% and Credit 1-2 ticks tighter.
Bunds 1,37% (-2), OBLs 0,39% (-3), BKOs -0,002% (-1,7). UST 1,60%, unchanged to EU closing levels. Spain slammed on bad auction results. Italy taken along.
EGBs matching Bunds across the spectrum with France trying to take out the 2%-mark in 10 YRS.
Spanish 2s at 2,90% (+8), 10s at 5,35% (+12). 2-10 YRS spread 245bp (+4).
Italian 2s at 1,78% (+2), 10s at 4,46% (+4). 2-10 YRS spread 267bp (+1).

ADP figures showing 118k jobs (fcst 125k after rev. 157k).

US cash open exactly in line with Europe at +0.3%, although one would note the divergence between UST at 1.59 (-1) and EGBs at -3 to -4 with Bunds down to level left after the French downgrade on 20 Nov, which triggered the upside correction in EGB yields.

Further US figures on the positive side, too. Q3 Productivity rising 2.9% (fcst 2.8% after 1.9%), Labour Costs low, though, falling 1.9% (fcst -1% after -0.1%). Factory Orders beating flat estimates at +0.8% (from rev. +4.5%), as was Non Mfg ISM ay 54.7 (fcst 53.5 after 54.2).

Still, $25/4%-plus slide in Apple shares weighting on the mood (but the seedless Dow). NASDAQ back through 200d average and S&P on the 1400-line.
European equities retreating for good to yesterday’s closing levels, but with not much of follow-up harm (for the moment), giving EGBs additional 1-2 basis points.
Spain looking sad with 10s out by 15bp on the day and the auction well under water (2015 at 3.525% from auction 3.415%, 2019 at 4.745% from 4.67% and those 2022s at 5.38% from 5.29%).
Bunds closed at 1,34% (-5), OBLs at 0,36% (-5) and BKOs -0,005% (-2). UST at 1,58% (-2) COB.
France closing on historic levels with 10s at 1.99%, 5 YRS at 0.71% and 2s at 0.10%.
Spanish 2s at 2,91% (+9), 10s at 5,38% (+15). 2-10 YRS spread 247bp (+6). Italian 2s at 1,77% (+1), 10s at 4,45% (+3). 2-10 YRS spread 267bp (+1).
Greek bonds balancing out, 2023s down to 38% (from 38.75%), 2042s up to 30.50% (from 30.25%).
EUR couldn’t hold its 1.3125 late morning levels with equities trailing lower and ends at 1.307. Commodities listless with Oil down 0.5% and Gold, too, but symbolically through the 1700-mark. Copper flat (China hopes?).

Take-away: Lather. Rinse. Repeat. Over and over. Europe doing about fine on its own and with an urge to test higher risk levels, in absence of negative news. Spanish BONOs feeling sad… US look more fickle. Is the fruit getting bad? Question of Muppets getting nervous out of boredom, or what?

Outlook: More of the same. Lather, Rinse, Repeat. Stand still. Fiscal Cliff Discussion Risk Event still live. Anybody’s budget maths. Super Mario-show, but rate cut probably unnecessary at this stage of the normalization of the monetary transmission.
EZ Q3 GDP flash was -0.1 QoQ / -0.6% YoY, Consumption. German Factory Orders fcst +1% MoM sa / -5.6% YoY nsa (fro -33% / -4.7%). US Claims fcst +380k after +393k.

European 50 & 100d averages: EStoxx 2510/2470, DAX 7271/7132, CAC 3451/3430, MIB 15550/15186, IBEX 7811/7549.
US 50, 100 & 200d averages: INDU 13173/13144/12997, S&P 1420/1411/1385, NASDAQ 3017/3021/2988 with AAPL at 608/625/601.
EUR: 50d 1.291, 100d 1.273& 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%).

Closing levels:
10 YRS Yields: Germany 1,34% (-5); Luxembourg 1,45% (-4); Netherlands 1,56% (-4); Finland 1,58% (-5); Swaps 1,63% (-5); EU 1,64% (-5), Austria 1,73% (-3); EIB 1,80% (-6); EFSF 1,93% (-5); France 1,99% (-4); Belgium 2,13% (-2); Italy 4,45% (+3); Spain 5,38% (+15).

10 YRS Spreads: Luxembourg 11bp (+1); Netherlands 22bp (+1); Finland 24bp (unch); Swaps 29bp (unch); EU 30bp (unch); Austria 39bp (+2); EIB 46bp (-1); EFSF 59bp (unch); France 65bp (+1); Belgium 79bp (+3); Italy 311bp (+8); Spain 404bp (+20).

EUR swap curve 2-5 YRS 45bp (-1,0); 5-10 YRS 81bp (-1,0) 10-30 YRS 64bp (+1,0).
2 YRS German BKOs closed -0,005% (-2) and 5 YRS OBLs 0,36% (-5).

Main -2 to 118 (-1,7% tighter); Financials unchanged at 153; Cross -5 to 482 (-1,0% tighter).
Stoxx Futures at 2589 / +0,1% (from 2587) with S&P minis at 1401 (-0,3% from 1405, at European close).
VIX index at 17,2 after 16,9 yesterday same time.

Oil 87,9/109,0 (WTI/Brent) from 88,4/109,6 (-0,6%/-0,6%). Gold at 1687 after 1696 (-0,5%). Copper unchanged at 365. CRB at EU COB 297,0 from 300,0 (-1,0%).
BDIY slide accelerating further with 32 ticks (3%) down to 1022. Xmas shipping really, really over?

EUR 1,307 from 1,308

Greek guesstimate: Greek bonds sliding to 38.00% (15.11%) from  38.75% (14.83% yield) for the 2023s, but ticking back up to 30.50% (11.83%) after 30.25% (yield 11.92%) in 2042s.
Highs were on Monday with 39% high (14.75% yield) for the 2023s and 30.75% (11.77%) for 2042s.

All levels COB 17:30 CET

Fast-forward Macro and Events:
Factory Orders in Germany on Thu. Fri NFP in the US.
Thursday ECB& BOE (FED on 12 Dec)

Looking forward to new week: German Exports on Mon (somebody has to grow!), ZEW Sentiment on Tue, especially flash PMI on Fri 14.

EC: EZ Q3 GDP flash was -0.1 QoQ / -0.6% YoY, Consumption; Tue 11 ZEW Sentiment, Wed 12 IP; Fri flash PMI
GE: Thu Factory Orders fcst +1% MoM sa / -5.6% YoY nsa (fro -33% / -4.7%); Friday Industrial Production fcst flat / -1.5% from last -1.8% MoM/-1.2% YoY; Mon 10 Exports, Tue 11 ZEW Sentiment; Wed 12 CPI; Fri 14 flash PMI
FR: Thu Q3 unemployment fcst 10% after 9.7%; Mon 10 Biz Sentiment, IP, Wed 12 CPI, Fri flash PMI
Italy: Mon 10 IP, Wed 12 final Q3 GDP; Thu 13 CPI; Fri 14 Government Debt
Spain: Wed 12 Housing transactions; Thu 13 CPI, Fri 14 House Prices
US: Thu Claims fcst +380k after +393k; Fri NFP

Click link under title or below for today’s musical support:
Who can’t but love the Muppets? And R.E.M. had cool songs, too. Good Crossover. Really. Cute.

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