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, 6 December 2012

06 Dec 2012 – “ Magic Carpet Ride ” (Steppenwolf, 1968)


06 Dec 2012 – “ Magic Carpet Ride ” (Steppenwolf, 1968)

Strong start in Risk to take out new 2012 highs in Equities and trying to retrace near 2012 Credit lows, too. Core EGBs cool. Bunga Square’s rug pulling scuttled all that easy living by noon, weighting on the Periphery and boosting Core EGBs. ECB gloomy. Equity – bond divergence not a flyer yet, though… US sideways and Risk Watchers back to scanning European politics. EUR falling off the carpet.
"Magic Carpet Ride" (Bunds 1,29% -6; Spain 5,46% +8; Stoxx 2605 +0,6%; EUR 1,297 -100)
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Lather. Rinse. Repeat. Bla bla bla. Snore. US had a split close, mostly due to Apple’s biggest slide in 4 years (down $37 or 6.4%), for which no one seems to be able to pinpoint a definite reason, outside definitively more sellers than buyers (and that is in good volumes and a final 2.5% dunk in the closing hour).
Performance has been that outrageous that we need to crawl back in time to find some chart points. $525-530 and then 506 (that was 3 weeks ago, thinking of it…). If we take the low of the latest (relative) weak patch in Nov 2011 at 364 as base and 21 Sep 2012 705 high, we end with a 50% retracement at 534, pretty much where we are now, then 494 and 444. 50g average at 605 catching up on 200d at 601. Suit yourself.
Rather uneventful Asian session, mostly up, but for China, paring a little bit of Wednesday morning’s surge.
Note, anecdotally, or not, that despite promises of 5% GDP growth (and tons of inflation), 10 JGBs closed on a historic low (as so many) of 0.69%, which shows how much trust there is in the promised reflation attempt.
Note, too, that S&P considers the Greek buy-back as a Selective Default and downgraded it to SD from CCC. But with next to no private ownership in the future and the OSI obviously intending to mark-to-market Greece at 100 (until it stops to do so), who should still care?

Now usual (slight) European Risk On start with European equities catching up on the US close (+0.3%). Credit the usual 1-2 tighter open.
EGBs flattish to a tick softer, after yesterday’s strong close. Bunds unchanged at 1.34% (UST 1.59%). Curve unchanged. Periphery bonds open a bit stronger (after yesterday’s 15bp widening in BONOs, given the rather botched auction).
EUR a tick softer at 1.305 with Commodities trading sideways, having slid from 1.308 in Asian trading. Gold unchanged, caught below 1700.

Waiting for Super-Mario show after lunch. Then for the NSF. Then for the weekend. Then for Xmas. Then for Year End. Mayan calendar permitting…

French Q3 unemployment better than expected at 10.3% after 10.2% (fcst 10.5%) with Mainland staying below the (expected) 10%-mark at 9.9% (up from 9.7%, rev. 9.8%). 29k added (after 65k). Then again, a lot of firings have been postponed from the election period, past the summer, but are on-going in Q4. So that 10% will eventually be flashed.

Bit of a sportive sprint to hit once more the +1%-mark in equities, taking out yesterday’s highs and printing a new 2012 high at 2618. As pointed out yesterday, the Sep intra-day high was first taken out at 2608 to hit 2610 in EStoxx. 2611 was the 2012 intraday high of 16 Mar, broken to the downside in Aug 2011. 3068 remains the post-Lehman high of Feb 2011), so there still is a bit of room there (some 18%)…
Credit overdoing the move with Main 2.5% tighter by mid-morning and financials even 4.5% tighter (passing the mid Oct low at 153 and now back May 2011 levels).

Q3 GDP confirmed -0.1% QoQ / -0.6% YoY, as expected. EZ Household consumption in Q3 actually holding better than expected at flat QoQ (fcst -0.2% after -0.2%, albeit with Q2 revised to -0.4%).
Greek Unemployment hitting 26% in September from 25.3%.
German Factory orders hopping above consensus with +3.9% MoM (fcst +1% after -3.3%, rev. -2.4%). YoY nsa still down 2.4%, but better, too (fcst -5.6% after -4.7%, rev. -3.9%). At least this still works in Europe…

The modestly-sized EUR 4bn French OAT auction to end French long end supply for the year went through in style with EUR 1.4bn at 1.010% for the 4.25% Oct 2018 (COB 1.015%), EUR 1.7bn at 1.270% for the 3.75% Oct 2019 (COB 1.285%, last auctioned at 1.39% one month ago) and EUR 900m at 2.560% for the 2.75% Oct 2027 (COB 2.565%). No real comparable past auctions. Suffice to say that this auction was dealt at historical lows. In comparison, last month’s 10 YRS auction was at 2.22% (closing again at 1.99% today).

New Issues in covered bond format from Australian NAB for EUR 1bn 10 YRS at MS+ 37 and Société Générale for a big EUR 1.5bn 5 YRS at MS +25. Unrated Air France issued EUR 500m at 6.375% in long 5 YRS (ca. MS +557).
Hypo Alpe Adria issued EUR 1bn Tier 2, guaranteed by Austria, at MS +82 / +70 over the RAGB.

Periphery getting a big hit by late morning with 2 YRS Italians over 10 wider to 1.88% and both 10 YRS suddenly widening 5bp to the symbolic 4.50% for Italy and 5.43% for Spain. Trigger being Il Cavaliere’s intention to scuttle a non-confidence vote in Parliament with his party unwilling to support Monti’s growth plan. Bunga Square pulling the rug…
Ah. Periphery headline risk in a quiet market. Hadn’t had that for a while. Too much complacency out there of late…
Thought everything was fine, now, and that we had left the Crisis behind us.

Whoa! Violent movement, scuttling ROn by midday.
Equities back to up a quarter (down 0.75% from the top), Credit snapping back to unchanged.
Bunds a tick tighter, Hard Core flat, Soft Core +3 (There goes the sub-2% for France again). Periphery getting a huge slap with Italians soaring 20bp (nearing the symbolic 2%-level), pushing Spain past 3 in 2s and past 5.50% in 10s.
Bunds 1,33% (-1), OBLs 0,35% (-1), BKOs -0,012% (-0,7). UST 1,58% (unch).
Spanish 2s at 3,02% (+11), 10s at 5,51% (+13). 2-10 YRS spread 249bp (+2).
Italian 2s at 1,97% (+20), 10s at 4,57% (+12). 2-10 YRS spread 260bp (-7).
EUR and Commodities barely changed.

BoE unchanged. ECB unchanged. Periphery getting a little calmer, but will remain cautious on Bunga Square Scare (BSS).

US Claims to kick-start the afternoon in a more positive spin at 370k (fcst 380k after 393k, revised 395k) and Continuous Claims at 3205k (fcst 3275k after 3287K, rev. 3305).
Ok, en route for tomorrow’s NFP (fcst +86k after +171k) with Unemployment expected to remain stable at 7.9%. Will need to check Household employment and government jobs, the late engines for the improved situation.

Super-Mario show a bit tired with not much in terms of crisp news (and, then, where from?). Inflation to fall below 2% next year. Growth beurgh until the end of 2013. A rate cut has been discussed – and shelved (Always keep the Hope alive). Negative rates? Bof, to be seen (Never say never). Oh, and someone even asked about the OMT? Yeah, do you remember? Conditionality & Support. Anyone seen the Loch Ness monster lately?

Whatever, the whole thing didn’t have much of an impact with levels before and after the press conference by and large the same and markets readying up for the US open – and the now-accustomed FCDRE and Apple-jelly movements.
Periphery bonds recovering from their initial shock, step by step. BSS looming, though…
US cash open on the flatter side. Like flat flat flat. Like a carpet flat.
EGBs maintaining their momentum on the gloomy ECB outlook (not a surprise, though), fickle equities on their highs and fickle Periphery.
Still, equities managing to shake off the Periphery stress and arcane Italian politics and concentrating on trailing US stocks tick for tick, yet again in total sync compared to yesterday’s close.

Strong tightening move in agency paper, which had lagged EGBs a little, flat to, or even outperforming Bunds, and definitively leaving the Soft Core behind today. EIB zooming in on Austria. Soft Core caught in-between and eventually unchanged, or just a tick better. Then aagin, new lows everyday…
Periphery damage about under control with Spain closing well off-wides, but Italy shaken (not stirred).
Bunds closed at 1,29% (-5), OBLs at 0,30% (-6) and BKOs -0,051% (-4,6). UST at 1,57% (-1) COB. Short end of both back below 2%, respectively 3%-mark.
Spanish 2s at 2,95% (+4), 10s at 5,46% (+8). 2-10 YRS spread 251bp (+4).
Italian 2s at 1,91% (+14), 10s at 4,58% (+13). 2-10 YRS spread 268bp (+1).
Greek bonds balancing out near buy-back mid prices at 39.00 (+50 ticks) and 30.50 (flat).
The EUR didn’t like the Magic Carpet Ride and the return of political instability in Italy, as well as the 1.28 2013 ECB outlook, as well as the failed attempt to break 1.315 yesterday and took a dive from noon on. Magic Carpet stalling. Oil is down 2%, Gold back to 1700 (+0.7%) and the rest trailing sideways.

Credit indices still seem to attempt taking out new lows for the year (Main 112 in March, today 115 before bounce back; Financials hitting 146 past the Oct 153 point; Cross low 462 mid Sep, 468 today).
Highs were respectively 208 & 184 in Nov 2011 and then May 2012 in the Main, 355 & 309 for Financials and 842 & 753 for the Crossover. So we’ve come some way here, too.

Take-away: Strong start in Risk to take out new 2012 highs in Equities and trying to retrace near 2012 Credit lows, too. Core EGBs cool. Bunga Square’s rug pulling scuttled all that easy living by noon, weighting on the Periphery and boosting Core EGBs. ECB gloomy. Equity – bond divergence not a flyer yet, though… US sideways and Risk Watchers back to scanning European politics. EUR falling off the carpet.

Outlook: Periphery. Fiscal Cliff. Apple. Etc. Ok, en route for tomorrow’s NFP (fcst +86k after +171k) with Unemployment expected to remain stable at 7.9%. Need to check Household employment and government jobs, the late engines for the improved situation. Michigan Confidence fcst 82 after 82.7.


European 50 & 100d averages: EStoxx 2512/2473, DAX 7274/7140, CAC 3454/3434, MIB 15561/15210, IBEX 7811/7562.
US 50, 100 & 200d averages: INDU 13162/13149/12997, S&P 1418/1411/1386, NASDAQ 3012/3022/2988 with AAPL at 605/624/601.
EUR: 50d 1.292, 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 1,29% (-5); Luxembourg 1,39% (-6); Netherlands 1,53% (-3); Finland 1,54% (-4); EU 1,59% (-5); Swaps 1,59% (-4), Austria 1,72% (-1); EIB 1,75% (-5); EFSF 1,87% (-6); France 1,99% (unch); Belgium 2,12% (-1); Italy 4,58% (+13); Spain 5,46% (+8).

10 YRS Spreads: Luxembourg 10bp (-1); Netherlands 24bp (+2); Finland 25bp (+1); EU 30bp (unch); Swaps 30bp (+1); Austria 43bp (+4); EIB 46bp (unch); EFSF 58bp (-1); France 70bp (+5); Belgium 83bp (+4); Italy 329bp (+18); Spain 417bp (+13).

EUR swap curve 2-5 YRS 44bp (-1,0); 5-10 YRS 81bp (unch) 10-30 YRS 67bp (+3,0).
2 YRS German BKOs closed -0,051% (-4,6) and 5 YRS OBLs 0,30% (-6).

Main -1 to 117 (-0,8% tighter); Financials -2 to 151 (-1,3% tighter); Cross -7 to 475 (-1,5% tighter).
Stoxx Futures at 2605 / +0,6% (from 2589) with S&P minis at 1411 (+0,7% from 1401, at European close).
VIX index at 16,5 after 17,2 yesterday same time.

Oil 85,9/107,0 (WTI/Brent) from 87,9/109,0 (-2,3%/-1,9%). Gold at 1700 after 1687 (+0,8%). Copper at 364 from 365 (-0,3%). CRB at EU COB 298,0 from 297,0 (+0,3%).
BDIY sliding back through the 1000-mark, down 3% to 990 (down over 10% in one week).
Xmas shipping really, really over? When will come the excuse of the upcoming Chinese New Year (10 Feb 2013).

EUR 1,297 from 1,307

Greek guesstimate: 2023s up 50 ticks to 39 (14.75%) and 2042s unchanged at 30.50 (11.85%). Highs were Monday with 39% high (14.75% yield) for the 2023s and 30.75% (11.77%) for 2042s. Buy-back price proposal: 38.1-40.1% & 30.2-32.2%

All levels COB 17:30 CET

Fast-forward Macro and Events:
Looking forward to new week: German Exports on Mon (somebody has to grow!), ZEW Sentiment on Tue, especially flash PMI on Fri 14.
Not much pencilled in in exciting government supply, mostly bills. Some Periphery bonds next Thu.

EC: 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: Fri NFP

Click link under title or below for today’s musical support:
Last night I hold Aladdin's lamp / So I wished that I could stay / Before the thing could answer me / Well, someone came and took the lamp away.




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