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

Monday 10 December 2012

10 Dec 2012 – “ Uh...Uh - Bingo Bongo ” (Adriano Celentano, 1982)

10 Dec 2012 – “ Uh...Uh - Bingo Bongo ” (Adriano Celentano, 1982)

Surprisingly stable Risk. BTPs shot down in style. Italy? Down. Chinese data? Partially weak. Japan? In recession. French data? Weak. German data? Strong. Wow! Better have Friday’s PMI numbers really good. Analysts having to reinvent themselves once more as political experts to glare into a smoky crystal ball… Italian contagion contained, for now. Uh…Uh…!
"Uh...Uh - Bingo Bongo " (Bunds 1,30% unch; Spain 5,54% +9; Stoxx 2598 +0,0%; EUR 1,293 -20)
The US closed mixed on Friday, slightly above European closing time levels, ending a rather low volatility week (except for Apple), still looking for an answer to the Fiscal Cliff issue. UST remained on the heavier side after the NFP, closing the day up 5 at 1.62%.
Chinese early month data dump for November on the disappointing side with the trade balance shrinking to USD 19.6bn (fcst USD 26.9bn after USD 32bn), as exports grew a paltry 2.9% (fcst +9% after 11.6%) and Imports stood at flat (fcst +2% after +2.4%). CPI was tame at +2 (fcst +2.1% after +1.7%), PPI slid 2.2% (fcst -2% after -2.8%). IP grew 10.1% (fcst 9.8% after 9.6%) and Retails Sales were in line at +14.9% YoY (fcst +14.6% after 14.1%). Japan in technical recession with Q3 -0.9% QoQ /3.5% YoY and Q2 revised to -0.1% from flat.
Monti’s resignation announcement with early elections probably to take place in February or March didn’t have much of an impact on the Asian session, which was mostly flat to slightly positive with China still standing out on the stronger side (+1%), continuing the bounced back started last Wednesday, and trading on better IP and Retail Sales, ignoring trade balance woes.

French biz sentiment at 91 (fcst was 92 unchanged) on really soft IP at -0.7% (fcst +0.2% after -2.7%) MoM / -3.6% YoY and Manufacturing at -0.9% MoM (fcst -0.1% after revised lower -3.4%) / -4% YoY. There goes Montebourg’s call for French products… Can’t buy, if not produced.
At least German trade remained solid with Exports up 0.3% (fcst -0.3% after rev. -2.4%) and Imports up a solid +2.5% (fcst +0.4% after rev. -1.4%). Finnish IP better at +0.% (fcst -0.5% after sharply revised lowed -1.1%)

So, now, Italy… Si, claro!  For once lately, markets opened unsurprisingly on the soft side with some serious Risk Off on the Periphery.
Italian 10s spiking out by over 30bp to hit initially 4.85%, dragging Spain along (+13 to 5.58%). Similar picture on the short end with Italy out by 20 and past the 2%-mark to 2.04% with Spain +10 and past the 3%-mark to 3.03%.
OMT virtual support fading, at least on Italy, as no one would be there to credibly sign off any “conditionalities”. Ah. Tough one. Wasn’t thought that way.
Bunds 3 tighter to 1.27%, along with most other EGBs. German 2s flirting with -0.9%.
Equities down 0.75% on ESToxx with Italy down 2%, Spain over 1% and Germany a small quarter.
EUR pushed to the 29-line. Commodities slightly firmer.

Talking of Italy and bad news: Oct IP was worse than expected at -1.1% MoM (fcst -0.3% after rev. -1.3%) / -6.3% YoY wda.
Unfortunately, timing-wise, the Bank of Italy published today that Italian banks were holding a record amount in BTPs (p. 34) of EUR 340bn in October (+ EUR 13bn on the month and an impressive +EUR 121bn since Oct last year) – and there comes your negative loop back on the table… And the long, very long LTRO shadows. And Italian bank shares down the drain (down 6-7%).

At least the EZ Sentix was in line, showing a slight recovery to -16.8 (fcst -16.9 after 18.8), the highest since sentiment started to sink in Q2/2012 (low was -30.2 in Aug).

The Greek buy-back is supposedly doing fine, but was extended until tomorrow noon, boosting bonds the extra mile, up to 42 mid (+125) (13.76% -39bp) for the 2023s and 31.25 (+25) (11.63% -8bp) for the 2042s. Interesting comment in the official statement: “Investors should bear in mind that even if Greece accepts all bonds tendered in the Invitation, it will continue to engage with its official sector creditors in considering further steps to put its debt on a sustainable path. Future measures may not involve an opportunity to exit investments in Designated Securities at the levels offered for this buy back.”
Does this mean that having burnt out the PSI, next will be the OSI - with no further mercy for private holders?
In any case, EUR 27bn supposedly already on the table with the rest, if must be, possibly coming from Greek banks. Yeah, they’ll be recapitalized someow at some stage…

“Bills-only Monday”: EUR 2.2bn sold in 3 and 6m Dutch bills at -0.041% and -0.040%, a record low for the 6m tranche, (from -0.034% and -0.016%), next to the weekly French auction for about EUR 6bn 3, 6 and 12m bills at -0.026%, -0.015% and -0.012% (from -0.22%, -0.008% and +0.016%).
This is the first time ever France has gone negative in 12m bills. Bunga, gracie mille! Signed, Mosco. Uh…Uh!

Belgium for EUR 1.4bn 3m & 12m, Greece for some chunky EUR 2.125bn 4-week and EUR 1.25bn 6m bills tomorrow, next to Spanish EUR 3.5bn 12 & 18m (Last 2.80% and 3.03% ¡Ay ay ay!), next to Austrian bonds 2019 (COB 1.025%) and 2022s (1.700%).
Italy’s EUR 6.5bn 12m bills sales on Wed won’t probably come cheap either (last 1.76%) and Thursday was supposed to see a new Italian 3 YRS, but this might be postponed for something less watched than a new benchmark. Uh…Uh!
Spain intended to go ballsy this week with bonds to be issued, next to 3 and off-the-run 5 YRS, a retap of the 4.90% 2040 (6.135% at COB tonight) announced for Thursday. Choice maintained, however for a safer EUR 2bn-size. Ah…Ah!

New Issues a trickle with the Belgian strategic oil stock operator Apetra issuing EUR 300m 8 YRS at Belgium +43 / MS +80 next to unrated Finnish forest manager Tornator with EUR 250m 7 YRS at MS +200.

Midday picture showing further increased pressure on Italy, especially with the short-end slipping (and Spain 15 wider on average, by domino), while the intial bid on EGB eventually was zoomed on the Hard Core, leaving the Soft Core unchanged to weaker (for Belgium). Schätze zooming in on all-time lows.
Equities down about 1% (spread from Italy -3.5% to Germany -0.4%). Credit wnapping 2.5% wider  with Financials 5% softer. US futures about unchanged, though.
Bunds 1,27% (-3), OBLs 0,27% (-2), BKOs -0,095% (-1,5). UST 1,60% (-2).
Spanish 2s 3,07% (+14), 10s 5,61% (+16). 2-10 YRS spread 254bp (+2).
Italian 2s 2,28% (+44), 10s 4,84% (+31). 2-10 YRS spread 256bp (-13).
EUR stable in the low 29s, but Commodities firming up with Oil 0.75% better. Gold likewise. Copper surfing on Chinese good mood and up 1.5%.

No US figures to start the day nor later to entertain folks. Still, getting equities to crawl back upwards with a EUR regaining some colours at 1.294 and French and German equities back to flat. Periphery bonds regaining a couple of basis points, although not their composure.

US cash open ok, about a 0.25% firmer than Friday European COB, giving European peers a bit of a leg up to close the day, with as well Milan reducing losses to -2.4% from -4% around noon.

Very uncomfortable situation with Italy. No one there to realistically sign off any support call, if needed. Initial quick analyses putting Berlusconi way behind in the polls were a mere consolation. And hopes that Monti might go for some social-democratic left-centre-right solutions are so paved with uncertainties that any electoral spin might be interpreted the way the markets feel that day. Very refreshing. And not like in cool refreshing… Hence, the lack of recovery during today’s session, unlike on Friday.
Situation confirmed with Monti stating at the end of the afternoon he wouldn’t run, acknowledging, too, that there was a risk of populism on economic or European issues, while hoping this could be avoided during the campaign. Uh…uh!

Late afternoon and close confirming the impression that EGBs seem reluctant to move tighter from here, at least for the moment with the underlying Risk strength (ex Periphery bonds and equities) and with no full-scale panic out there.
Bunds closing off tightest levels, as everyone else.
US markets being opened a total side-issue today, especially as totally static. EStoxx futures closing eventually unchanged to a tick.
Credit recovering in Main (closing just 1 wider), but Financials a little shaken (+5, 3.3% wider), Crossover stable in that environment.
Bunds closed at 1,30% (unch), OBLs at 0,30% (+1) and BKOs -0,078% (+0,2). UST at 1,62% (unch) COB.
Spanish 2s at 3,05% (+12), 10s at 5,54% (+9). 2-10 YRS spread 249bp (-3).
Italian 2s at 2,18% (+34), 10s at 4,81% (+28). 2-10 YRS spread 263bp (-6).
Greek bonds closing in stellar manner, adding 50 ticks from noon: up to 42.50 mid (+175 to Fri) (13.58% -57bp) for the 2023s and 31.75 (+75) (11.49% -22bp) for the 2042s.
Not much going in the EUR for the moment. Italian contagion just as much as bay as with equities. Commodities eventually firming up a little.

Take-away: Surprisingly stable equities. BTPs shot down in style. Italy? Down. Chinese data? Partially weak. Japan? In recession. French data? Weak. German data? Strong. Wow! Better have Friday’s PMI numbers really good. Analysts having to reinvent themselves once as more political experts to glare into a smoky crystal ball… Contagion contained, for now. Uh…Uh…!

Outlook: Same on the menu. Sideways upwards, subject to Fiscal Cliff discussions and Italian bunga interventions. Spain hurting, if Italy weakens further. EGBs looking tight and rather unwilling to shed much more yield, unless real panic spreads. Equities amazingly aloof.
ZEW survey tomorrow. Needs to show a brave Germany. Spanish 12m and 18m bill sales.

European 50 & 100d averages: EStoxx 2517/2479, DAX 7285/7156, CAC 3462/3441, MIB 15581/15253, IBEX 7816/7591.
US 50, 100 & 200d averages: INDU 13147/13156/12999, S&P 1417/1413/1386, NASDAQ 3006/3024/2988 with AAPL at 600/623/601.
EUR: 50d 1.292, 100d 1.275 & 200d 1.278. 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 1,30% (unch); Luxembourg 1,39% (+1); Netherlands 1,53% (+1); Finland 1,56% (+1); EU 1,58% (unch); Swaps 1,58% (unch), Austria 1,70% (+1); EIB 1,75% (unch); EFSF 1,87% (+1); France 1,95% (unch); Belgium 2,11% (+2); Italy 4,81% (+28); Spain 5,54% (+9).

10 YRS Spreads: Luxembourg 9bp (+1); Netherlands 23bp (+1); Finland 26bp (+1); EU 28bp (unch); Swaps 28bp (unch); Austria 40bp (+1); EIB 45bp (unch); EFSF 57bp (+1); France 65bp (unch); Belgium 81bp (+2); Italy 351bp (+28); Spain 424bp (+9).

EUR swap curve 2-5 YRS 44bp (unch); 5-10 YRS 82bp (unch) 10-30 YRS 68bp (-2,0).
2 YRS German BKOs closed -0,078% (+0,2) and 5 YRS OBLs 0,30% (+1).

Main +1 to 120 (0,8% wider); Financials +5 to 158 (3,3% wider); Cross +2 to 482 (0,4% wider).
Stoxx Futures at 2598 / +0,0% (from 2597) with S&P minis at 1420 (+0,5% from 1413, at European close).
VIX index at 16,2 after 16,5 yesterday same time.

Oil 86,4/108,1 (WTI/Brent) from 86,2/107,0 (+0,3%/+1,0%). Gold at 1713 after 1701 (+0,7%). Copper at 370 from 365 (+1,4%). CRB at EU COB 295,0 from 296,0 (-0,3%).
BDIY ticking lower, again, and again: -3% to 937 from 966. The last dip from the post-Summer high of 1109 in Oct was halted at 916.
Upcoming Chinese New Year (10 Feb 2013)…

EUR 1,293 from 1,295

Greek bonds closing in stellar manner, adding 50 ticks from noon: up to 42.50 mid (+175 to Fri) (13.58% -57bp) for the 2023s and 31.75 (+75) (11.49% -22bp) for the 2042s.
Buy-back price proposal: 38.1-40.1% & 30.2-32.2%

All levels COB 17:30 CET

Fast-forward Macro and Events:
ZEW Sentiment on Tue, especially flash PMI releases on Fri 14 everywhere.
For the US, FOMC on Wednesday, Retail Sales and IP next Friday.
Spain and Italian bonds on Thursday.

EC: Tue ZEW Sentiment, Wed IP fcst +0.3% after -2.5% MoM sa; Fri flash PMI Comp fcst 46.6 after 46.5, MfG fcst 46.6 after 46.2 and Services fcst 47 after 46.7; Thu EZ CP
GE: Tue ZEW Sentiment fcst 6 after 5.4, Sentiment fcst -11.5 from -15.7, Wholesale PX last -0.6% MoM; Wed 12 CPI fcst unch +2.%; Fri flash PMI MfG fcst 47.3 after 46.8 and Services fcst 50.0 after 49.7
FR: Wed 12 CPI fcst +1.8% after 2.1%, Fri flash PMI MfG fcst 44.9 after 44.5 and Services fcst 46 after 45.8
Italy: Thu CPI fcst unch +2.6%; Fri Government Debt last EUR 1995bn
Spain: Wed Housing transactions; Thu CPI fcst +3% unch, Fri 14 Q3 House Prices last -3.3% QoQ/-14.1% YoY & 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:
After Bunga Bunga, let’s have a down to earth Bingo Bongo.
Uooo! Uo! Uo! Uo!
Ua ua eh eh ih ih oh oh uh uh
Oh oh oh ua ih ih ih ua ah ah eh eh ih ih
Oh oh uh uh eh eh

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