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 13 December 2012

13 Dec 2012 – “ When It's Sleepy Time Down South ” (Louis Armstrong, 1931)

13 Dec 2012 – “ When It's Sleepy Time Down South ” (Louis Armstrong, 1931)

Markets getting back to some normality with the Periphery still recovering, although less today after the auctions, Bunds 5 wider on the week, Italy 10, but Spain 7 tighter across the curve from last Friday. Equities and Risk oblivious to that anyway and synching with the US. Getting difficult to find something crisp out there with reduced news flow and volatility. Excitement to be found in the US on FC developments, now that Greece, Spain and Italy are seemingly off the table and that the FED has moved to QE4.
"When It's Sleepy Time Down South" (Bunds 1,35% +1; Spain 5,38% +4; Stoxx 2622 -0,2%; EUR 1,308 +40)
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Well, it seems like having been a good day to stay away from the screens yesterday, with not much going outside the on-going re-normalization of the Italian Job with Italian 2s 14bp tighter and back through the 2%-mark and Spain closing 11bp tighter right on the 400 to Bunds mark, while waiting for FED news. All is good.
Yet another new 2012 high traded in EStoxx at 2633 on the 12.12.12, which sounds funky. EUR past 1.30 on general lenient risk attitude.
The Greece buy-back went through for EUR 31.9bn and leading to further rallying secondaries (good for the OSI end of year mark-to-market…). Details here.
"OFF" (Bunds 1,34% +2; Spain 5,34% -11; Stoxx 2628 +0,2%; EUR 1,304 +50)
Big Ben unveiled QE4, which had US equities shoot up 0.6% from unchanged, re-think about it 0.8% lower to finally close unchanged. Eh… No. The FED won’t be able to contain a fall off the Fiscal Cliff and the economic outlook is such that ZIRP seems warranted until 2015 (subject now to numbered targets of Unemployment < 6.5% and Inflation outlook <2.5%). Well… Note a 10 YRS US auction with indirect bidders (aka foreign central banks and real money) on the shy side, pushing 10s up to 1.70%.
Asian stocks mixed with Japan up strongly again (Nikkei +1.7%), China running out of steam (-1%), Korea up 1.4% and Oz flat. Something for everybody. EUR bought up before the FED, then back down in Asia, back up to hit 1.31, as common ground for the EU banking oversight was found (from March 2015 on)(…) and starting the European session at 1.308.

Wednesday figures were rather on the softer side. German CPI -0.2% MoM / +1.9% YoY (from +2% EU harmonized). French CPI on the other hand went dipping 0.2% (fcst flat after +0.2%) MoM / 1.6% YoY (fcst +1.8% after +2.1%). Spanish housing transactions are up 12.8% in Oct (from +0.9% prior).
EZ Industrial Production tanking 1.4% (fcst flat after rev. -2.3%) MoM, which is an unimpressive -3.6% YoY wda (fcst was -2.4% after -2.3%, revised lower to -2.8%).
US Import Prices down 0.9% on lower oil (after 3 months of increases and last rev. +0.3%) with Export prices down as well, -0.7% after revised flat (from +0.4%).
Today was another light data day in Europe with Spanish CPI in line with expectations down 0.2% MoM (from +0.5%), stable at 3% YoY and Italian figures confirmed at -0.3% MoM / +2.6% YoY. Greek Q3 Unemployment of 24.8% after 23.6% already topped by Sep numbers at 26% from last week.

Morning quotes showing markets by and large flat in EGBs, 4-5 stronger in the Periphery, across the curve, ahead of today’s auctions, and half that in the Soft Core. UST 1.70% in overnight trading.
Equities about flat overall: EStoxx a tick higher, DAX & CAC a tick lower, Periphery a little stronger, led by Milan.
EUR right on the 31-handle. Commodities on yesterday’s closing levels with Gold again a little softer right on the 1700-mark.

Italy sold EUR 6.5bn in 12m bills at 1.456% on Wednesday, the lowest levels since March 2012 (last was 1.76%), so the last couple of days haven’t been that detrimental, after all.
Spain went and filled the targeted, modest EUR 2bn with EUR 680m 3 YRS at 3.358% (COB 3.435%. Levels were 3.39% 2 weeks and 3.62% one month ago), EUR 803m off-the-run 5 YRS at 4.200% (COB 4.200%) and EUR 540m 4.90% Jul 2040 at 5.893% (5.945% at COB). Tail ok in 3s (8cts) and 5s (16cts), maybe a little large on the long end (42cts). Fair prices and good bid to cover ratios, but no sparkles either. High BC of 4.8 in 3 YRS has to be seen against the small size of the auction. It seems, however, that price action disappointed. Then again, you can't always have someone squeeze the hell out of these bonds right on acution day every time...
The new Italian 3 YRS benchmark 2.750% 01 Dec 2015 (ISIN IT0004880990) was sold for just short of EUR 3.5bn, as planned, at 2.500% (COB 2.595%. The last 3 YRS auction was at 2.64% for Jul 2015s mid Nov), next to EUR 729m 4.500% Mar 2026 at 4.75% (COB 4.830%) (up to 750m had been planned). B/C in 3 YRS rather ad minima work.
But, hey, who would have guessed we were nearly back in crisis 3 days ago?

New Issues supply on Wed restricted to non-IG offerings with French Nexans in for EUR 250m long 5 YRS at MS +354 and, hear, hear, Bank of Ireland with EUR 250m 10 YRS  Tier 2 at around 10%.
Nothing today.

Agreement through on Greek bail-out #657 with EUR 49.1bn to go south, of which EUR 34.3bn immediately.
Whatever is left in GGBs is still heading north and providing OSI holders with some nice 50% paper gains for year-end. As some of these gains are supposed to be transformed into advances to be sent back to Greece, this looks like a fairly welcome positive loop. Although, the whole thing still feels…epic?

Midday levels trailing back to about unchanged levels with EGBs tightening back in a tick, as the Periphery started digesting its auctions.
Equities a bit softer than yesterday evening. Main flat, but Financials and Crossover a bit tighter.
Bunds 1,33% (-1), OBLs 0,31% (-1), BKOs -0,063% (-1). UST 1,70% (+3), ahead of the last round of supply with USD 13bn 30 YRS tonight (on the thirteenth...).
Spanish 2s 2,85% (-2), 10s 5,36% (+2). 2-10 YRS spread 251bp (+3).
Italian 2s 1,92% (-2), 10s 4,64% (unch). 2-10 YRS spread 272bp (+2).
Mild Risk Off spreading to Commodities (-0.5%), but especially on Gold (-1% and back through 1700).

Good round of US figures to kick-off the afternoon. Headline Retail Sales a miss at +0.3% (fcst +0.5% after -0.3%), but ex Auto and Gas up +0.7% (fcst +0.4% after -0.3%, rev. -0.1%). So people spending on something else than 4-wheel related matters. Mini iPads – for instance… Claims better as well at 343k (fcst 369k after rev. 372k) with Continuous Claims dropping to 3198k (fcst 3210k after rev. 3221k). PPI in line on ex basis at +0.1% after -0.2% MoM, 2.2% after 2.1% YoY.

US cash open at flat from close (-0.5% from European closing time) to a shade red, with not much of a follow-up pressure after mulling things over overnight, was in itself good enough to support Europe back to unchanged levels in equities and EGBs back to flat. Italy recovering better from its auction than Spain though.
UST hitting the widest to Bunds since early April at 38 (tightest was 5 in July after hitting 46 in April, from -5 one year ago.) UST +11 since last Friday versus Bunds +4 in late afternoon.

End of day unconvinced sideways trading. EGBs broadly unchanged to a tick wider. Swaps softer though. Periphery trading sideways on lunchtime levels with Italy recouping and Spain a bit wider.
Equities just a bit softer, trailing a quarter lower US equities on renewed FC base jumping announcements. But we’re a far cry from epidemic reactions like a month ago. Just solved it… Yawn!
Bunds closed at 1,35% (+1), OBLs at 0,32% (-1) and BKOs -0,060% (-0,8). UST at 1,72% (+5) COB, ahead of the 30 YRS auction.
Spanish 2s at 2,87% (unch), 10s at 5,38% (+4). 2-10 YRS spread 252bp (+4).
Italian 2s at 1,92% (-2), 10s at 4,63% (-1). 2-10 YRS spread 272bp (+2).
Portuguese 10s down to 7.30%, the lowest since Feb 2011. Greek 2023s up 75 ticks to 45.0 (12.83% -23bp) and 2042s +50 to 34.0 (10.90% -13bp).
All is good. All back to sleep in the South!
EUR uninspired, as are Commodities with Gold stuck below 1700. Yawn, again!

Take-away: Markets getting back to some normality with the Periphery still recovering, although less today after the auctions, Bunds 5 wider on the week, Italy 10, but Spain 7 tighter across the curve from last Friday. Equities and Risk oblivious to that anyway and synching with the US. Getting difficult to find something crisp out there with reduced news flow and volatility. Excitement to be found in the US on FC developments, now that Greece, Spain and Italy are seemingly off the table and that the FED has moved to QE4.

Outlook: Same. Sideways upwards, subject to Fiscal Cliff discussions. Italian Bunga off the menu (seemingly), as well as Gyros jitters and Spanish gloom. The floor is probably republican, now. Flash PMIs tomorrow, first for China (fcst 50.8 after 50.5), then France (Mfg 44.9 after 44.5, Serv 46 after 45.8), Germany (M 47.3 after 46.8, S 50 after 49.7), the EZ (M 46.9 after 46.6, S 47 after 46.7) and the US (51.8 after 52.4). US IP fcst +0.3% after -0.4% and Capacity Utilization at 78% after 77.8%.

European 50 & 100d averages: EStoxx 2524/2493, DAX 7301/7191, CAC 3475/3458, MIB 15584/15338, IBEX 7820/7646.
US 50, 100 & 200d averages: INDU 13133/13166/13002, S&P 1416/1414/1387, NASDAQ 3000/3026/2989 with AAPL at 591/621/602.
EUR: 50d 1.292, 100d 1.278 & 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 1,35% (+1); Luxembourg 1,42% (+1); Netherlands 1,55% (unch); Finland 1,57% (unch); EU 1,61% (unch); Swaps 1,61% (+2), Austria 1,74% (+2); EIB 1,78% (+1); EFSF 1,89% (unch); France 1,98% (+1); Belgium 2,12% (unch); Italy 4,63% (-1); Spain 5,38% (+4).

10 YRS Spreads: Luxembourg 7bp (unch); Netherlands 20bp (-1); Finland 22bp (-1); EU 26bp (-1); Swaps 26bp (+1); Austria 39bp (+1); EIB 43bp (unch); EFSF 54bp (-1); France 63bp (unch); Belgium 77bp (-1); Italy 328bp (-2); Spain 403bp (+3).

EUR swap curve 2-5 YRS 45bp (+1,0); 5-10 YRS 82bp (unch) 10-30 YRS 66bp (unch).
2 YRS German BKOs closed -0,060% (-0,8) and 5 YRS OBLs 0,32% (-1).

Main +1 to 115 (0,9% wider); Financials -1 to 151 (-0,7% tighter); Cross +2 to 464 (0,4% wider).
Stoxx Futures at 2622 / -0,2% (from 2628) with S&P minis at 1419 (-0,8% from 1431, at European close).
VIX index at 16,1 after 16,0 yesterday same time.

Oil 86,7/108,9 (WTI/Brent) from 86,5/109,6 (+0,2%/-0,6%). Gold at 1697 after 1712 (-0,9%). Copper at 365 from 368 (-0,8%). CRB at EU COB 295 from 294 (+0,3%).
After having been left hung out to dry yesterday with a 8% plunge down to 826 from 900, the Baltic Dry sunk yet again 3.3% to 799 today.
The latest dip from the post-Summer high of 1109 in Oct had been halted at 916, before that we slipped from 1162 in July to 661 mid-September.
Upcoming Chinese New Year (10 Feb 2013)…

EUR 1,308 from 1,304

Greek 2023s up 75 ticks to 45.0 (12.83% -23bp) and 2042s +50 to 34.0 (10.90% -13bp).

All levels COB 17:30 CET

Wednesday’s close
Bunds closed at 1,34% (+2), OBLs at 0,33% (+2) and BKOs -0,053% (+1,7). UST at 1,67% (+2) COB.
Spanish 2s at 2,87% (-8), 10s at 5,34% (-11). 2-10 YRS spread 248bp (-2)
 Italian 2s at 1,94% (-14), 10s at 4,64% (-8). 2-10 YRS spread 270bp (+7).

10 YRS Yields: Germany 1,34% (+2); Luxembourg 1,41% (+2); Netherlands 1,55% (+2); Finland 1,57% (+1); EU 1,61% (+3); Swaps 1,59% (+1), Austria 1,72% (+1); EIB 1,77% (+2); EFSF 1,89% (+3); France 1,97% (+1); Belgium 2,12% (+0); Italy 4,64% (-8); Spain 5,34% (-11).

10 YRS Spreads: Luxembourg 7bp (+0); Netherlands 21bp (+0); Finland 23bp (-1); EU 27bp (+1); Swaps 25bp (-1); Austria 38bp (-1); EIB 43bp (+0); EFSF 55bp (+1); France 63bp (-1); Belgium 78bp (-2); Italy 330bp (-10); Spain 400bp (-13).

EUR swap curve 2-5 YRS 44bp (+0,0); 5-10 YRS 82bp (+0,0) 10-30 YRS 66bp (-1,0).
2 YRS German BKOs closed -0,053% (+1,7) and 5 YRS OBLs 0,33% (+2).

Main -1 to 114 (-0,9% tighter); Financials +0 to 152 (0,0% tighter); Cross -1 to 462 (-0,2% tighter).
Stoxx Futures at 2628 / +0,2% (from 2623) with S&P minis at 1431 (+0,0% from 1431, at European close).
VIX index at 16,0 after 15,6 yesterday same time.

Oil 86,5/109,6 (WTI/Brent) from 85,8/107,9 (+0,9%/+1,6%). Gold at 1712 after 1707 (+0,3%). Copper at 368 from 368 (+0,0%). CRB at EU COB 294,0 from 293,0 (+0,3%).
Baltic Dry hung to dry, down 8.% to 826 from 900.

Greek 2023s 44.25 +75 (13.06% -22bp) 2042s 33.50 -50 (11.03% +13bp)

EUR 1,304 from 1,299

Fast-forward Macro and Events:
Preciously few things…
Dragging into Year End, unless next Friday proves the Mayan right.
US housing back into focus next week. Big Friday US data dump.
Pretty empty government supply slate with Spanish and Greek bills on Tuesday

EC: Fri flash PMI Comp fcst 46.9 after 46.5, MfG fcst 46.6 after 46.2 and Services fcst 47 after 46.7; Mon 17 Trade Balance; Wed 19 Construction; Thu 20 Cons Confidence
GE: Fri flash PMI MfG fcst 47.3 after 46.8 and Services fcst 50.0 after 49.7; Wed 19 IFO fcst 102.3 after 101.4; Thu 20 PPI; Fr 21 Cons Confidence
FR: Fri flash PMI MfG fcst 44.9 after 44.5 and Services fcst 46 after 45.8; Fri 21 BIZ Confidence
Italy: Fri Government Debt last EUR 1995bn; Wed 19 Industrial Orders and Sales; Thu 20 Retail Sales; Fri 21 Consumer Conf
Spain: Fri 14 Q3 House Prices last -3.3% QoQ/-14.1% YoY & Labour Costs
US: Fri CPI, PMI last 52.4, Industrial Production fcst +0.2% after -0.4%, Capacity Utilization; Mon 17 Empire Manu fcst 0 after -5.22; Tue 18 NAHB Housing; Wed 19 Housing Starts fcst 873k after 894k, Permits fcst 870k after 868k; Thu 20 Existing Homes Sales fcst 4.85m after 4.79m;Claims and yet another Q3 GDP revision; Big Friday with Chicago FED, Pers Income & Spending, Durable Goods;, Michigan Conf.

Click link under title or below for today’s musical support:
Yawn!
At least some warmth to shelter us from winter temperatures in Europe…



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