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 7 December 2012

07 Dec 2012 – “ Bruttosozialprodukt ” (Geier Sturzflug, 1982)

07 Dec 2012 – “ Bruttosozialprodukt ” (Geier Sturzflug, 1982)

Hmmm… Need to find another way to kill time until Year End. Morning highs, lunch time lows and then trailing the US. EGBs on the stronger side with augurs seeing a weakening Germany and calls for lower rates putting the EUR under pressure. Ok, Germans: now work! Somebody has to pay the bills!
"Bruttosozialprodukt " (Bunds 1,3% +1; Spain 5,45% -1; Stoxx 2597 -0,3%; EUR 1,295 -20)
The US performance after European close was fairly uneventful and essentially moving sideways below HOD for most of the session. As nothing was dropping, the 0.3% uptick back to HOD in the last 30 minutes then finalized the day.
Asia mostly flat with exception of Oz, up a small 1% and especially China still ripping, shaking off the last weeks’ depressed mood, closing about 2% higher, extending the gains from Tuesday’s yearlong low to 7% - and incidentally riiiiiiight back to the 50d average.
Not much more in overnight news. Monti’s government made it through the latest confidence vote in the lower house, but Bunga Bunga is back in da House.

If the ECB yesterday sounded only cautious to gloomy, it’s because they hadn’t yet seen the Bundesbank forecast, otherwise they would have been less sanguine (unless they really think that the Periphery will propel things): 2013 GDP outlook slashed by four to 0.4% from 1.6%, Q4/2012 to be bleak and GDP expectations lowered to +0.7% from 1%, while saying that the German economy was still “in good shape” and that employment shouldn’t be impacted too much. 2014 GDP is seen at 1.9%, subject to resolution of the debt crisis. Inflation to remain subdued. Well, if that’s not a reason to plough into equities…

Ending the week with umpteenth, accustomed slight Risk On. why kick the habit?
Bunds up 1bp to 1.30% (UST +1 to 1.58%). Hard Core same. Soft Core 1bp firmer, but the Periphery drifting a little wider with Spanish 2s right at 3% (+5) and 10s just below 5.50% (+3). Italian 2s still below 2% at 1.94% (+3) and 10s shifting away from 4.50% at 4.60% (+2).
Bunga, why did you spoil the party?
Equities about unchanged half an hour into the cash session, but 0.50% lower than opening future quotes.
EUR still drifting lower at 1.294 (that’s about 200 pips below Wednesday’s highs) and Commodities mostly unchanged with Gold sluggishly resting on the 1700-handle.

No government supply today; only EUR 4bn 3 and 6m bills on Monday, next to the weekly French auction for EUR 6bn 3,6 an 12m bills.
Spain going ballsy next week with among the bonds to be issued, next to 3 and off-the-run 5 YRS, a retap of the 4.90% 2040 (6.07% at COB) announced for next Thursday (with Wednesday’s auctioned paper still about 15bp under water in the close).

New Issues supply limited to Crédit Agricole going 2 YRS FRN route for EUR 1.25bn at 3mE +45.

Markets then en route to take a serious nap before NFP, hoping to then rush into the weekend unharmed. Getting a bit of a slide in Risk appreciation with Spain still adrift and equities pushing lower and slightly negative by lunchtime with the German IP not exactly helpful.

German Oct Industrial Production a downer, but then the Bundesbank said so much this morning, falling 2.6% MoM sa (fcst was 0% after -1.8%, rev. -1.3%). Sharp drop on YoY nsa wda basis, down -3.7% after -0.8%.
Greece final Q3 GDP revised to -6.9% (from -7.2%), the seventeenth negative quarter, while Portugal’s was revised a tick lower to -0.9% QoQ (after -1% in Q2) / -3.5% YoY, for an eighth quarter of contraction. 

Midday levels, a witness of fairly uninspired markets. EGBs +/- 1 bp, rather -1 actually, catching up on yesterday’s Bund sprint, and with the Soft Core ticking tighter still.
Equities down -0.4%, after having gapped up about 0.50% in pre-cash trading, to retest yesterday’s new 2012 highs, and then sliding gradually 1% from there. Credit 1-2 ticks / 1% wider, in line. Periphery still wobbly and probably okay given the softer tone.
Not soft at all were Hellenic bonds, rising Icarus-like, to 40.5 (+100) and 31.25 (+75) and bringing yields crashing down to 14.24% (from 14.75%) and 11.63% (from 11.85%). Buy-back supposed to end today, but this being a Greek deal…
Bunds 1,30% (+1), OBLs 0,30% (unch), BKOs -0,065% (-1,4). UST 1,58% (+1).
Spanish 2s at 2,99% (+4), 10s at 5,50% (+4). 2-10 YRS spread 252bp (+1).
Italian 2s at 1,95% (+4), 10s at 4,59% (+1). 2-10 YRS spread 263bp (-5).
EUR 1.293 in the tightest of 20-40 range. Commodities unchanged.

Slovak ECB member Makuch revealing that the rate cut debate had been serious yesterday, as well negative rates discussions. Separate rumours at the same time spoke of a majority having been in favour. Add that to weaker German figures and there you go; enough to dip the EUR to test the 29-figure.
Looks like the “bosses” (Draghi, Coeuré, Asmussen & Weidman) drowned that rate cut thing. But now, it’s out there…

NFP a flyer with 146k jobs added (fcst 85k after 171k, albeit revised to 138k). Private Payrolls strong at +147k (fcst 90k after 184k, even revised up to 189k). Manufacturing remains weak, though, at -7k (fcst -4 after +13k, rev. +10). Unemployment headline rate now down to 7.7% (fcst was unchanged at +7.9%). Hourly earnings in line with expectations at +0.2% MoM / 1.7% YoY (up from 0% / 1.6%). Household employment at -122 after +410. All is good!

Good for a 0.6% push back up in equities, slightly above Thursday’s closing levels.
UST sliding a further 4bp to 1.62%. 20 ticks impact on Bund futures, adding 1bp in cash.

US cash open ok at +0.25-0.4%, but not outrageous either (All lot of good news are already priced in at these levels and markets want that Fiscal Cliff discussions behind, before getting too excited), so European Risk rapidly ticked back to closing levels again, leaving Bunds still hurting a little (with UST still out by 5) and the rest of the EGB gang test (yet again) new lows. Michigan Confidence a spoiler, too, falling to 74.5 (forecast was a slight correction to 82 from 82.7).
All the more a reason not to get over-excited.
NFP second thoughts involve Thanksgiving & Black Friday / weekend hiring, as well as drop-outs on the job seeker front. Whatever… Best is not to move.

Italian BTPs snapping tighter in the course of the afternoon with Bunga supporters asking for an “orderly” end to Monti’s government, interpreted as a (longer) (haggle) process that might not be immediate.
Good for Spain and especially good for the FR / BE pair, propelled yet a little tighter to close the week on record lows.
European equities retesting lunchtime lows nearing the close (-0.5%), which ends the week at +0.7%.
Credit eventually ticking 2 wider (1.5%). Apple still shaking its cart.
Hard Core faring about alright (-1), Soft Core dancing with France at 1.95% in 10s, 0.635% in 5s and 0.030% in 2s. Belgium nearing the 2%-mark as well.
Bunds closed at 1,30% (+1), OBLs at 0,29% (-1) and very strong BKOs at -0,080% (-2,9). UST at 1,62% (+5) COB.
Spanish 2s at 2,93% (-2), 10s at 5,45% (-1). 2-10 YRS spread 252bp (+1).
Italian 2s at 1,84% (-7), 10s at 4,53% (-5). 2-10 YRS spread 269bp (+1).
Greek bonds closing the 2023s at 40.75 (14.15%) and 2042s at 31.0 (11.71%)
EUR eventually balancing out, lacking follow-up pressure. Commodities trading about flat to yesterday.

Take-away: Hmmm… Need to find another way to kill time until Year End. Morning highs, lunch time lows and then trailing the US. EGBs on the stronger side with augurs seeing a weakening Germany and calls for lower rates putting the EUR under pressure. Ok, Germans: now work! Somebody has to pay the bills!

Outlook: Same on the menu. Broadly sideways, unless a shoe drops. If the sun shines, test the upside. Fiscal Cliff uncertainty remains on the menu. Italy becoming again a wobbly candidate for some Periphery stress. Need to see if the Greek buy-back will take Greece off the radars (for a while).
Lot of sentiment data new week with the flash PMI round on Friday to be scrutinized.

European 50 & 100d averages: EStoxx 2514/2476, DAX 7279/7147, CAC 3457/3437, MIB 15569/15232, IBEX 7813/7575.
US 50, 100 & 200d averages: INDU 13153/13152/12998, S&P 1418/1412/1386, NASDAQ 3009/3023/2988 with AAPL at 602/623/601.
EUR: 50d 1.292, 100d 1.274& 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%).

Don’t miss the Shuffle Rewind over the weekend.

Closing levels:
10 YRS Yields: Germany 1,30% (+1); Luxembourg 1,38% (-1); Netherlands 1,52% (-1); Finland 1,55% (+1); EU 1,58% (-1); Swaps 1,58% (-1), Austria 1,69% (-3); EIB 1,75% (unch); EFSF 1,86% (-1); France 1,95% (-4); Belgium 2,09% (-3); Italy 4,53% (-5); Spain 5,45% (-1).

10 YRS Spreads: Luxembourg 8bp (-2); Netherlands 22bp (-2); Finland 25bp (unch); EU 28bp (-2); Swaps 28bp (-2); Austria 39bp (-4); EIB 45bp (-1); EFSF 56bp (-2); France 65bp (-5); Belgium 79bp (-4); Italy 323bp (-6); Spain 415bp (-2).

EUR swap curve 2-5 YRS 44bp (unch); 5-10 YRS 82bp (+1,0) 10-30 YRS 70bp (+3,0).
2 YRS German BKOs closed -0,080% (-2,9) and 5 YRS OBLs 0,29% (-1).
Main +2 to 119 (1,7% wider); Financials +2 to 153 (1,3% wider); Cross +5 to 480 (1,1% wider).

Stoxx Futures at 2597 / -0,3% (from 2605) with S&P minis at 1413 (+0,1% from 1411, at European close).
VIX index at 16,5 after 16,5 yesterday same time.

Oil 86,2/107,0 (WTI/Brent) from 85,9/107,0 (+0,3%/unch). Gold at 1701 after 1700 (+0,1%). Copper at 365 from 364 (+0,3%). CRB at EU COB 296,0 from 298,0 (-0,7%).
BDIY remains on the slide, down to 966 from 990 (down 11% from last week).
Xmas shipping really, really, really over? Upcoming Chinese New Year (10 Feb 2013)?
Still, one to watch for the real economy.

EUR 1,295 from 1,297

Greek guesstimate: Through the roof, especially in 10s… 2023 40.75 / 14.15% (+175 / -60bp to yesterday) and 2042 31.0 / 11.71% (+50 / -4bp).
Buy-back price proposal: 38.1-40.1% & 30.2-32.2%

All levels COB 17:30 CET

Fast-forward Macro and Events:
German Exports on Mon (somebody has to grow!), ZEW Sentiment on Tue, especially flash PMI releases on Fri 14 everywhere. For the US, FOMC on Wednesday, Retail Sales and IP next Friday.
Not much pencilled in government supply-wise, mostly bills (EUR 4bn Dutch 3 & 6m and EUR 6bn French 3, 6 and 12m on Monday; Belgium, Greece, Spain on Tuesday). Some Periphery bonds next Thu.

EC: Mon 10 Sentix Sentiment fcst -18 after -18.8; Tue ZEW Sentiment, Wed IP fcst +0.3% after -2.5% MoM sa; Fri flash PMI Comp fcst 46.9 after 46.5
GE: Mon Exports fcst -0.6% after -2.4%, Tue ZEW Sentiment fcst 6 after 5.4; Wed 12 CPI; Fri flash PMI MfG fcst 47.1 after 46.8 and Services fcst 50.3 after 49.7
FR: Mon Biz Sentiment, IP fcst +0.1% after -2.7% MoM, Wed 12 CPI, Fri flash PMI MfG last 44.5% and Services last 45.8
Italy: Mon IP fcst -0.3% after -1.5%, Wed final Q3 GDP; Thu CPI; Fri Government Debt
Spain: Wed Housing transactions; Thu CPI, Fri 14 Q3 House Prices & Labour Costs
US: Mon nothing; Tue Small Biz Optimism last 93.1, Wholesale Inventories fcst +0.4% after 1.1; Wed FOMC; Thu Retail Sales fcst +0.3% after -0.3%, PPI, Claims; Fri CPI, PMI last 52.4, Industrial Production fcst +0.2% after -0.4%, Capacity Utilization.

Click link under title or below for today’s musical support:
Lacking further inspiration a song about increasing “Bruttosozialprodukt” (German for GDP) might seem fitting.
For non-German speaker, English lyrics here.

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