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, 20 December 2012

20 Dec 2012 – “ Merry Christmas (I Don't Want To Fight Tonight) ” (The Ramones, 1989)


20 Dec 2012 – “ Merry Christmas (I Don't Want To Fight Tonight) ” (The Ramones, 1989)

EGBs and Equities rather a side-story today, as mainly static. EUR, too. Spain ticking in. Italian 2s on new lows (with the old reference nearing 1.5%). Good US GDP, bad Gold Dump Party (GDP, too). Worse Silver sell-out. Metal weakness? Maybe the Mayans are getting rid of their stocks before tomorrow? Another shy EStoxx high and Risk low. Don’t fight (the trend)…
"Merry Christmas (I Don't Want To Fight Tonight)" (Bunds 1,42% unch; Spain 5,22% -3; Stoxx 2661 +0,1%; EUR 1,322 -40)
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The carefree drift couldn’t last forever, could it? “No news, good news, until proven otherwise, and a reason to tick ever higher” was (only slightly, though) derailed last night after initial compromise talks on the Fiscal Cliff soured with alternative plans prioritized. Bah. Made for a -0.75% close, which in itself doesn’t look devastating, but, given the size of movements lately, is a very visible red.
No real follow-up into the Asian session, though. Nikkei down 1% after the month-long rally. Most other Asian places rather up 0.3-0.5%.
Italian elections slated for 24 Feb with Monti to address the nation over the weekend.
The Greek FinMin speaking in the FT of “Make or Break 2013” with a very honest assessment that “the break would be if the political system finds the situation too difficult to handle”, which could lead to bankruptcy and Grexit. That seems more like a programme to me… At some stage, if the 50%-plus unemployment can’t be resolved, someone might just pull the plug on paying those debts and suggest that a Drachma re-introduction cum default might be a more realistic way to handle things. I personally do believe this.

No major data on the plate. German PPI pretty much as expected at -0.1% MoM / +1.4% after 1.5% YoY. Spanish Housing Permits at -34.3% YoY after -51.6%. Dutch tristesse with Nov Unemployment ticking up to a round and unprecedented 7% (from 6.8% and a 3.7% low in Aug 2008), the highest since pushing Dec Consumer Confidence to -39 from -37, with Oct Spending down 2.4% YoY. Italian Retail Sales under consensus of being unchanged, down 1% MoM after -0.1% / -3.8% after -1.6% YoY.

European open hence on the cautious side, down from yesterday’s yet another lofty highs. Equities down 0.5%. EUR back well through the 1.33 flashed yesterday at 1.323. EGBs flattish, a bit firmer in the Soft Core with France back through 2%. EUR curve flat.
Bunds 1.42% (unch) and UST likewise unchanged at 1.78%
Periphery 2bp softer, in rather Pavlovian manner, given the softer Risk environment. Credit 2% wider from yesterday’s tight close. Commodities all about a quarter softer.
Greek bonds undeterred by whatever the Greek FM might have said.

But why so pessimistic? About 90 minutes into the session, equities ticked back up to their closing levels and all were friends again.
EGBs about static…

No government supply.
German 2013 funding plans showing a slight decrease to EUR 250bn, of which EUR 173bn in bonds, from EUR 255bn this year. 2012 average funding costs were a mere 0.56% with total outstanding costs running at 3.6%. Q1 will see EUR 65bn, split EUR 44bn bonds / EUR 21bn bills. Same for Q2. Q3 EUR 43bn +20bn. Q4 EUR 42bn +15bn.
One “Germany Bond” to be sold next year (joint Bund / Länder issue), although the subject remains far from clear with some Länder already announcing not to opt in these deals. Looks already like a potential dog, trading in-between Bunds, KfW bonds and German Länder jumbos… Introduction of CAC.
French 2013 funding plans released in Tango with EUR 169bn of medium and long term bonds on the chop. CACs from Feb 2013 on. New lines to have May and November maturities.

New Issues market dormant.
By mistake, I put yesterday’s 1 YR BNPP deal at EUR 1bn, although it ended up only a mere EUR 300m. So basically more a money-market operation cum private placement. To be forgotten. Market is pretty much closed.

Risk recovering step by step throughout the end of the morning into the afternoon, but forensic movements…

Kicking off the afternoon with the latest US Q3 GDP revision wringing out a much better than expected 3.1% QoQ annualized (revision forecast was for 2.8% after 2.7%). Claims about on consensus at 361k (fcst 360k after 343k, rev. 344k) and slightly higher Continuous ones seen at 3225k (fcst 3200k after 3198k, rev. 3213k).
Not much GDP excitement, though; confirming European equities in the green, but just so. EUR drifting back up, bizarrely, but probably simply flow-driven. Gold weaker again, trading down to 1350s (with Silver down 3.5% and down over 10% from an intermediate rebound to 33.7 Wednesday one week ago).
Nice set of numbers to end macro supply for the day with Existing Homes sales for Nov at 5.04m (fcst 4.90m after rev. 4.76m) and Philly Fed very strong at +8.1 (fcst -3 after -10.7). Markets focused on Fiscal Cliff non-resolution and wondering at what time Obama is supposed to fly to Hawaii tomorrow evening (…).

Just so much pressure on equities to pin Europe back to yesterday’s closing levels (and the US 0.75% below European COB) and pinch EGBs a little tighter across the board with Spain the lead (-6), Italy the laggard at +1, Belgium on the ramp (-6), Soft Core (-3) and then Hard Core (-1).

Static dramatic. Boredom in disguise. Periphery split with Italy stuck at 300 to Bunds, but Spain tackling again year lows in 10s. Short Italians fine, though, with the former 2 YRS reference moving towards 1.50%. Belgium sneaking up from behind and tightening in further to France, having to hide back below 2% in order not to be overtaken.
Greeks stabilizing over the moon with 2023s at 50.0, unchanged after yesterday 500 ticks surge, (11.47%) and 2042s adding 50 ticks to 37.50 (10.09% -11bp), after yesterday’s +275. Interesting (but that’s for next year) to have discussions about the IMF asking (realistically) a Cyprus haircut before assistance… But, that ought to be haggled out next year.
Equities just so slightly green. Credit again a couple of ticks lower, though. Careful, on a final squeeze the Main will hit 100 by the end of the year.
Bunds closed at 1,42% (unch), OBLs at 0,38% (unch) and BKOs 0,003% (+1), in positive territory. UST at 1,79% (+1) COB.
Spanish 2s at 2,75% (-6), 10s at 5,22% (-3). 2-10 YRS spread 247bp (+3).
Italian 2s at 1,62% (-3), 10s at 4,42% (+4). 2-10 YRS spread 280bp (+7).
Portuguese 10s at 6.89%, unchanged.
Equities eking out 0.1% and yet another high at arggghh lift lift 2662 (+1)(tick).
EUR running out of steam after being bid in the early afternoon. Metals wacked with Gold down 2% past 1650, Silver down over 4.5% and Copper 1.7%. Maybe Mayans are getting rid of their stocks before tomorrow?
Still watching the Baltic Dry getting wacked on a daily basis and getting itchy seeing my coalmine canary getting so pale. Repeat.

Take-away: EGBs and Equities rather a side-story today, as mainly static. EUR, too. Spain ticking in. Italian 2s on new lows (with the old reference nearing 1.5%). Good US GDP, bad Gold Dump Party (GDP, too). Worse Silver sell-out. Metal weakness? Maybe the Mayans are getting rid of their stocks before tomorrow? Another shy EStoxx high and Risk low. Don’t fight (the trend)…

Outlook: Same. Sideways with an upwards bias, subject to Fiscal Cliff discussions.
Just the saaaaaaaaaaaame – until Santa comes. Or the Mayans. Tomorrow. Or not.
Consumer confidence in German and Italy, Biz Confidence in France, all expected about unchanged a tick better.
Busier US with Chicago FED last -0.56, Personal Income & Spending fcst +0.3% after 0% and +0.4% after -0.2%, Durable Goods fcst +0.3% after rev. +0.5%/ EX -0.2% after rev. +1.8%, Michigan Confidence fcst 75 after 74.5.

European 50 & 100d averages: EStoxx 2539/2509, DAX 7334/7237, CAC 3500/3476, MIB 15631/15469, IBEX 7849/7719.
US 50, 100 & 200d averages: INDU 13103/13190/13009, S&P 1414/1418/1389, NASDAQ 2988/3033/2990 with AAPL at 578/617/601.
EUR: 50d 1.295, 100d 1.282 & 200d 1.279. Fibo retracement (of May 2011 1.494 to Jul 2012 1.204 down-leg) at 1.273 & 1.315, then 1.349 (50%).


Closing levels:
10 YRS Yields: Germany 1,42% (unch); Luxembourg 1,45% (-1); Netherlands 1,59% (-3); Finland 1,63% (-1); EU 1,63% (-1); Swaps 1,64% (-1), Austria 1,76% (-1); EIB 1,79% (-2); EFSF 1,87% (-2); France 1,99% (-2); Belgium 2,04% (-6); Italy 4,42% (+4); Spain 5,22% (-3).

10 YRS Spreads: Luxembourg 3bp (-1); Netherlands 17bp (-3); Finland 21bp (-1); EU 21bp (-1); Swaps 22bp (-1); Austria 34bp (-1); EIB 37bp (-2); EFSF 45bp (-2); France 57bp (-2); Belgium 62bp (-6); Italy 300bp (+4); Spain 380bp (-3).

EUR swap curve 2-5 YRS 45bp (unch); 5-10 YRS 81bp (-1,0) 10-30 YRS 66bp (-1,0).
2 YRS German BKOs closed 0,003% (+1) (Ooops! Positive!) and 5 YRS OBLs 0,38% (0).

Main -1 to 109 (-0,9% tighter); Financials -3 to 135 (-2,2% tighter); Cross +1 to 445 (0,2% wider).
Stoxx Futures at 2661 / +0,1% (from 2658) with S&P minis at 1434 (-0,5% from 1441, at European close).
VIX index at 17,2 after 16,5 yesterday same time.

Oil 89,6/110,0 (WTI/Brent) from 89,8/110,1 (-0,2%/-0,1%). Gold at 1639 after 1672 (-2,0%). Copper at 353 from 359 (-1,7%). CRB unch at 296 EU COB.
Daily Wack the Balt! Purge on-going and confirming a fourth week of consolidation, down to 708 (-1.7%). I reckon 661 and 647 next stops soon.
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. 21st century low was 647 in Feb 2012. Upcoming Chinese New Year (10 Feb 2013)… Seems a little far, no?

EUR 1,322 from 1,326

Greeks stabilizing over the moon with 2023s at 50.0, unchanged after yesterday 500 ticks surge, (11.47%) and 2042s adding 50 ticks to 37.50 (10.09% -11bp), after yesterday’s +275.

All levels COB 17:30 CET

Fast-forward Macro and Events:
Dragging into Year End. For obvious reasons, an ultra-light slate next week…

EZ: No data next week.
GE: Fri Consumer Confidence fcst 5.9 unch. No data next week.
FR: Fri Biz Confidence fcst 89 after 88. Thu 27 Dec Cons Confidence, PPI, Claims, Q3 GDP revision
Italy: Fri Consumer Confidence fcst 85.1 after 84.8; Thu 27 Dec Biz Confidence, Fri 28 PPI
Spain: Fri PPI -0.2% after -0.1% MoM; Thu 27 Dec Mortgages; Fri 28 Retail Sales
US: Busy Friday with Chicago FED, Personal Income & Spending fcst +0.3% after 0% and +0.4% after -0.2%, Durable Goods fcst +0.3% after rev. +0.5%/ EX -0..2% after rev. +1.8%, Michigan Conf fcst 75 after 74.5; Wed 26 Dec Case Shiller; Thu 27 Claims, Cons Conf, New Homes Sales; Fri 28 Pending Home Sales

Click link under title or below for today’s musical support:
Definitively the right time to dig and unearth some more Xmas rock songs…
And I know you’d like THIS from the same album probably more…Less festive. More fun, though.


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