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 6 April 2012

06 April 2012 – "Adagio for Strings" (Samuel Barber, 1936)

06 April 2012 – "Adagio for Strings" (Samuel Barber, 1936)

Hmmm…Quite quiet here today. No wonder, most markets are shut. Duh! Asia mostly lower to slightly flat with the US closing off lows, but still slightly negative. French trade deficit wider than expected at EUR 6.4bn. Will somehow need to be addressed by someone at some time.
No real figures until the US jobless claims, which are really under forecast at +120k (versus 205k forecast)… Unemployment rate falling to 8.2%, though. US markets about closed, but Treasury futures up 1 point on the news. DJ futures down 1%. Rest of digestion next week…

Very suiting for some inspirational and quiet musical support. Nice piece, fitting for this week’s drama in review: Risk aversion is back in full force with Spain again the elephant in room.
Firewall or not, as the 800-pound gorilla in the room, it is heavy enough to bring things down and drag Italy along, hence the relative similar underperformance of both this week.

-          10 YRS Yields: Germany 1,73% (-6); Luxembourg 2,24% (-3); Swaps 2,26% (-2); Finland 2,26% (-5); Netherlands 2,30% (-3); EFSF 2,86% (-8); Austria 2,90% (+9); France 2,98% (+10); Belgium 3,42% (+4); Italy 5,42% (+32); Spain 5,74% (+41).

-          10 YRS Spreads: Swaps 50bp (+4); Luxembourg 50bp (+3); Finland 52bp (+1); Netherlands 56bp (+3); Austria 117bp (+15); EFSF 112bp (-2); France 125bp (+16); Belgium 169bp (+10); Italy 369bp (+38); Spain 400bp (+47).

Very worrisome rise in Spanish and Italian yields and spreads. Roughly parallel shift of the whole curve for both +30, respectively +40 bp. So simply general dislike, but no panic yet (that is signalled when the curves start to invert…)
Traded out to test 5.5% on BTPs and past 5.80% for BONOs. Spain, as well announcing that it based its budget outlook on actual (Ok, now not that much anymore) yield levels (post-LTRO irrational exuberance lows) and its intention to lengthen its debt duration. Well, on this week’s closing levels, ay ay ay…
Italy’s turn to test waters next week.
Portuguese yields about 1% wider with 2 YRS 14.25% 15 YRS 14% 10 YRS 12% (from 13.2% 13% 11.2%)
Greece 2023 21.5% (from 20.7%)  & 2042 17.25% (from 16.8%)

Germany and the Core EZ+ gang (Holland has stabilized) now trading back near historic lows (1.67% in Sep 2011). As indicated by Angela last week, Bund yields CAN certainly rise from here… Given the relative constancy over the last months, moving averages have all melted to near actual levels (50d 1.88%; 100d 1.92%; 200d 2.05%), which makes it technically possible to rapidly break out the other way around.
But that would only be triggered by seriously good news in terms of crisis resolution and / or growth hopes and / or inflation worries. I don’t see that in the near future…

Austria and France about in sync as Core EZ minus brethren. France, as pointed out several times this week, probably in for a rougher ride in the coming weeks, be it justified or not.
Belgium faring rather well with quite some chunks of funding done for the year and thus less present. As the supply is getting digested and in absence of negative news, the Kingdom has managed to distance itself from the South and is tightening in on France.
The most surprising performance comes from the EFSF bonds, but then again with EUR 3bn outstanding, its 10s are more akin to a larger eurobond than to a sovereign issue. Firmer placement, lesser liquidity might; it trades more on a buy-and-hold manner. Now trading through Austria and France might be a bit optimistic, given the a.m. zoological risk. The same could be said for Luxembourg’s EUR 1bn 10 YRS, but we’re not talking about the same contingent risk of having potentially to raise billions, if push comes to shove.

EUR swap curve 2-5 YRS 47,7bp (-1,6); 5-10 YRS 73,2bp (+1,9) 10-30 YRS 28,9bp (+2,9).
2 YRS BKO managed to trade back to historical lows, traded mid Jan, at 0.13% to close the week (from 0.21%), 5 YRS OBL down 10 bp to 0.70%.
Flight to quality behaviour into the median part of the curve. Difficult to go elsewhere, the short end is floored; the long end suffers on-going bouts of printing press aversions…

Main 132 (from 125, 5.6% weaker); Financials at 234 (from 220, 6.4% weaker); Sovereigns 272 (from 269).
Financials all beaten up this week (222 this Mon, 220 last Friday, 200 last Wed)

European equities coming from a new high a fortnight ago, had another rough week, with Stoxx Futures closing 2325 / -3.5% (from 2410 last Friday, 2450 the prior week), while US equities remained about put with the S&P just 0.5% lower at 1400 (from 1407). Stoxx up 3.3% YTD (from 6.8% last week). S&P still up 11.2%.
Yes, Doc, I feel a pulse: VIX closing at 16.7 from 15.3 is showing some limited bouts of life.

EUR 1.306 from 1.333, victim in 2 stages of the supposedly FED turn-about on QE3 as well as the periphery jitters, coupled with a dovish ECB inflation outlook.

Commodities by and large about stable in an instable world. A bit softer, as everything else, but nothing major. Gold was the one asset that had the roughest ride, as the FED seeme to pass QE3 (for the moment).
Oil 102.9 / 122.9 from 103.4 / 123.2 (-0.5%/-0.2%). Gold at 1632 from 1663 (-1.9%). Copper 382 from 382 (unch). CRB 306.5 from 309.4 (-0.9%)
Given the EUR correction, Brent in EUR is at 94.10, back to within EUR 2 of its mid-Mar all-time high. Any more EUR “weakness” (Is 1.30 really weak???) or oil strength will be punishing for European consumers.
Baltic Dry wobbly at 928 from 934 last Friday. It shed 8 points on Tuesday and Wednesday, having fixed unchanged on the top since 22 Feb at 934 twice in a row. Keeping a tab on my (physical) trade coalmine canary.
All levels European COB 17:30 CET Thu

Next week
Not much on the hard data front next week: European Industrial Production figures en masse on Tue & Wed. Final CPI numbers. US PPI and CPI. Beige book, maybe.

Austria and Holland should do ok with smaller-sized auctions. Germany can have a shot at trying to wring out a 10 YRS auction on historic lows on Wednesday.
Italy will try its luck on auctions on Tuesday and Thursday.

Holiday season. Thin markets. Not much hard date… Expect a market driven by sentiment and technical trading. Probably not the best environment for re-boosting the mood. My guess: Risk off, seriously off.
Given the US figures that might show that long-term decoupling might have been an illusion, probably even more risk off. Need to see on Tuesday.

FR Industrial Prod Feb fcst -1.4% after -1.5% YoY, Manufacturing -1.7% after -1.2%.
SP Housing transaction and Biz confidence.
US mortgage applications, Beige book

Click link on title or below for today’s musical support:

Thursday 5 April 2012

05 April 2012 – "Swiss Lady" (Pepe Lienhard Band, 1977)

05 April 2012 – "Swiss Lady" (Pepe Lienhard Band, 1977)

Crisis SNAFU and everyone’s ducking before the extended weekend. US weren’t able to free itself from the European pressure after the latter’s close with the S&P closing under the (largely symbolic) 1400 level. Dow only 100 ticks from its 50d MAVG, a break thereof would be bad. Asia relatively brave in the adversity with China, reopening from an extended holiday break, balancing out late data streams. HSBC Services PMI at 53.3 from 53.9, unlike the official reading 2 days ago that showed an increase. In any case, all data still over the 50 expansion mark.
Had a tentative uptick in risk, which simply didn’t last. From +0.5%, down 1% to -0.5%.

Rather robust French OAT auction, at depleted levels at over 120 to Bunds. Was good for EUR 8.4bn, hence the top end of the intended volume. EUR 4.3bn 10s at 2.98% (versus 2.91% last month), as well as EUR 1.3bn Oct 2017, EUR 1.6bn Apr 2026 3.46% (versus 3.3% in Mar) and EUR 1.2bn Apr 2041. Correct bid to covers.
One will note the slight rise in the financing cost, which some augurs will certainly suggest as just being the beginning of the pain France might be submitted to around or after the presidential elections (first round 22 Apr, second round 06 May). France then holding about in line, while Spain and Italy, after tentative rebounds at the open, just traded off some more. Pressure on Italy, as it breached 5.50% in 10s, while Spain was taken past the 5.75% mark (I incidentally warned off that last Thursday 29 Mar).

Things then just got heavier.
EUR/CHF, yes, it was bound to react to the increased tensions at some time, traded right on 1.2000, having been kept in the narrowest of all ranges since the beginning of the year. Someone disrespectfully even flashed a 1.19951, a first below 1.20 quote since early Sep 2011.
There was that thing about the SNB and its “With immediate effect, it [the SNB] will no longer tolerate a euro-franc exchange rate below the minimum rate of 1.20 francs” and “is prepared to buy foreign currency in unlimited quantities.” Push comes to shove, and the crisis deepens, someone is bound to test what exactly “unlimited” means. In the meantime, the SNB reasserted that cap late in the morning. As other European safe-haven, the NOK is bound to be bought up, too (Had numerous NOK Aaa SSA issues lately).
To round up the heavy side of things, German Feb IP YoY was published at -1%, instead of the positive +0.5% forecast with Jan data revised lower. First negative print since Dec 2009.

By noon, we had reached the following torsion in 10 YRS sovereigns with Austria, France Belgium about unchanged, Germany trading down to 1.74% (-4 bp), Italy out to 5.50% (+13 bp) and Spain to 5.82% (+13 bp). Italian and Spanish spread at symbolic +375, respectively past +400.
400 had been the maximum spread reached before in Aug 2011 (with the exception of the November crisis, which had seen a spike to +470, before the announcement of the first 3 YRS LTRO crushed that spread back to low 300s, 330s being the average and mean since then.
Bund futures traded a new all-time high at 139.38 (up 96 ticks), closing just a little off that, despite rebounding equities. Serious damage done in the periphery, even if off highs at close.
US jobless claims a tick higher than forecasted and previous data revised upwards. In absence of follow-through selling and ahead of the long weekend in most trading hubs, things calmed down somehow with equities trying to close in on yesterday’s levels.
Credit indices nevertheless really weak on Main and Financials.

No European new issues.
Greece extending its offer for foreign law bond PSI to 20 April (second extension at this stage). Not sure people are pushing to get these done.

ECB deposits down EUR 13bn to EUR 773bn.
VIX 16.5 at COB.
Oil 102.9 / 122.9 (+1.6% / flat from 101.3 / 122.8 WTI / Brent). Gold correcting back up to 1632 from 1616 (+1%). CRB tad higher 306.5 from 306.1 Copper just so stable at 382 from 381. Given the EUR correction, Brent in EUR is at 94.10, back to within EUR 2 of its mid-Mar all-time high. Any more EUR “weakness” (Is 1.30 really weak???) or oil strength will be punishing for European consumers.
Baltic Dry wobbly at 928 (+2 points), having shed 8 points on Tuesday and Wednesday and having fixed unchanged on the top since 22 Feb at 934 twice in a row. Keeping a tab on my (physical) trade coalmine canary.

10 YRS Yields: Germany 1,73% (-5); Swaps 2,26% (-3); Luxembourg 2,24% (-4); Finland 2,26% (-3); Netherlands 2,3% (-3); Austria 2,9% (unch); EFSF 2,86% (-4); France 2,98% (-2); Belgium 3,42% (+3); Italy 5,42% (+7); Spain 5,74% (+5).

10 YRS Spreads: Swaps 50bp (+2); Luxembourg 50bp (+1); Finland 52bp (+2); Netherlands 56bp (+2); Austria 117bp (+5); EFSF 112bp (+2); France 125bp (+4); Belgium 169bp (+8); Italy 369bp (+13); Spain 400bp (+10).

With regards to the ECB supporting sovereign debt, another week of zero buying. Ever since just avoiding taking a haircut on Greece and having to justify for not doing so, the ECB seems to have become very reluctant to be cornered in such a situation again. So, best is avoiding buying the stuff directly altogether – it’s repo ware anyway…. Why load up with even more?

EUR swap curve 2-5 YRS 47,7bp (-1,9); 5-10 YRS 73,2bp (+1,8) 10-30 YRS 28,9bp (+2,7).

Main 132 (from 130) ; Financials at 234 (from 228); Sovereigns 272 (from 271).
Financials all beaten up this week (222 this Mon, 220 last Friday, 200 last Wed)
All levels European COB 17:30 CET.

Need to check mood next week, after players have been loading up on (Swiss) chocolate. Is known to be an anti-depressant. Might help to mellow tensions.

France open tomorrow, but a bit on its own. French budget pitches by both Holland and Sarkozy about in now. Might be second-guessed going forward next week, by the press, the markets or both.

Most markets closed. US nonfarm payrolls expected at 205k after 227k. Rate of 8.3% fcst (unchanged).

Click link on title or below for today’s musical support:

Wednesday 4 April 2012

04 April 2012 – "This Is Not A Love Song" (Public Image Ltd, 1983)

04 April 2012 – "This Is Not A Love Song" (Public Image Ltd, 1983)

Ouch! What a disappointment for market players. Not unlike Greespan muttering “I guess I should warn you, if I turn out to be particularly clear, you've probably misunderstood what I said.”, last week’s tentative QE3 hint by Bernanke was seemingly just a thought crossing his mind, as the FOMC minutes certainly are not considering this (yet). Had a (mildly) softer close in the US, but more distress in Asia, which as well did some catch-up of the 1.5% correction in EU.
So weak European open in the wake. Commodities uneven with Gold getting hit most, as the US printing press is getting a break.

Already said last week that this Spanish auction and its timing was not a good idea. And then it wasn’t…
EUR 2.6bn sold on a (already reduced) EUR 3.5bn maximum is NOT what the market had expected. Small amount, higher yields, lower bid to cover, and tails remaining rather high to reach these. No good. EUR 1.13bn 2015 at average 2.89% (prior 2.44%), but with a 7bp tail to catch the lowest accepted bids , EUR 0.97bn 2016 at 4.32% (prior 3.38%) and EUR 0.49bn 2020 at 5.34% (prior comparison unsubstantial, as last auctioned in 2011). B/D ranging between 2.4 and 3. And there goes yesterday’s pitch buy Spain about lengthening its debt…

Add European retail figures coming out lower than forecasted with prior data revised to the downside (-2.1% versus -1.1% fcst after 0%, revised to -1.1%). PMI figures in Europe all a bit higher than fcst, but service is not the biggest worry these days. German Feb factory orders down 6.1% YoY, lower than the -5.5% fcst, with prior data as well revised to the downside to -6% (from -4.9%).
Germany issued EUR 4bn of 5 YRS at 0.80% (after 0.79% in March), of which EUR 633m were retained by the Bundesbank for market intervention purposes. Stable B/C. Non-event, confirming that as soon as there’s a bit of smoke rising, market players rush back to safe haven.
Portuguese bill auction uninspiring as most bill auctions are. Ok, there EUR 1bn 18m bills at 4.54%, which is the longest Portugal has issued since being bailed-out. Sold as well EUR 500m 6m bills at 2.9% (versus prior 4.33% in Feb).
At the same time, life of the Portuguese curve didn’t change and 2 YRS were still trading just shy of 10%. Must be some seriously committed buyers to skip that 2 YRS at twice the yield….
Bunds and the rest of the EZ bonds surprisingly static with Spain dragging Italy lower in strong correlation. Spanish 10s at 5.55% (+13 bp) by mid morning, rising up to  5.67% (out by 25 bp!) on ECB non-action on rates to settle 5.63 after lunch and ahead of the ECB press conf.
Equities down 1.5% before ECB press conf. Bunds up 35 cts. Commodities drifting lower with Gold and Silver hammered.
No revelation at Super Mario’s press conference. On hold. Risk to growth from commodities repeated. Hawks. Of course, nobody out there is hooked on cheap money. Doves. No specific exit, but exit from unconventional measures. A little for everyone…EUR, which had tanked after the FED minutes from 1.3350 to nearly 1.3100 got a bit of support there.
Ah, “peanuts amounts” on GG bank bonds from bail-out sovereigns, now refused by Austria, next to the BuBa. Seems to be less than EUR 500m, but when bankers talk about “peanuts”, and we’re not talking about the comic strip, you can be sure that it always comes back as boomerang at some time.
US ISM below consensus not helping to lift the mood, but not adding either.

No European new issues.

ECB deposits up EUR 3bn to EUR 786bn.
VIX spiking to 17.6 from 15.5 on accrued tensions.
Oil 101.3 / 122.8 (again -3.2% / -1.9% from 104.6 / 125.2 WTI / Brent). Gold touch weaker 1616 from 1672 (-3.3%). CRB down 5 to 306.1 from 311.5 (-1.7%). Copper correcting last couple of days’ resilience and back to 381 from 392.
After a first unchanged Baltic Dry at 934 yesterday for a continuous rise since 22 Feb, the index shed 3 points yesterday and another 5 today, ending at 926. End of a nice rally, though. Need to check further developments, as this index is good (physical) world trade coalmine canary.

10 YRS Yields: Germany 1,8% (0); Swaps 2,3% (+0); Luxembourg 2,28% (-1); Finland 2,29% (-1); Netherlands 2,33% (+1); Austria 2,85% (+2); EFSF 2,89% (-1); France 2,95% (+4); Belgium 3,37% (+2); Italy 5,37% (+25); Spain 5,69% (+26).

10 YRS Spreads: Swaps 47bp (+0); Luxembourg 48bp (-1); Finland 49bp (0); Netherlands 53bp (+1); Austria 105bp (+2); EFSF 109bp (-1); France 115bp (+4); Belgium 157bp (+2); Italy 357bp (+25); Spain 389bp (+27).

Very surprising to see Italy and Spain in some sort of stand-alone weakness. Will be corrected at some stage. EFSF getting more and more expensive, now trading through France.
EUR swap curve 2-5 YRS 49,1bp (-0,5); 5-10 YRS 73,4bp (+2,0) 10-30 YRS 28,7bp (+2,5).

Main 130 (from 124) ; Financials at 228 (from 217); Sovereigns 271 (from 265)
All levels European COB 17:30 CET.

Not much love for risky assets ahead of an extended weekend…

German IP fcst +0.5% after +1.8% YoY. US claims fcst +355k after +358k

Click link on title or below for today’s musical support:

Tuesday 3 April 2012

03 April 2012 – “Entre Dos Tierras” (Héroes de Silencio, 1990)

03 April 2012 – “Entre Dos Tierras” (Héroes de Silencio, 1990)

Asia again about unchanged overall, despite a rather healthy US close and the S&P trading out a new high that takes us back to a May 2008 rebound after the correction off the 2007 all-time high (1565 in Oct) had started, bottoming out then at 1275. Chinese PMI data confusion between official and private readings, knowing that seasonality adjustments to offset the Chinese New Year that started early this year add to the noise. Non-manufacturing PMI at 58 after a revised 57.3 (from 48.4). This is a bit of steamrolling adjustment. Anyhow, impact was pretty nil. China closed anyway.

EZ Feb PPI at 3.6% higher than 3.5% fcst, knowing that Jan data was revised to 3.8% (from 3.7%). Should make ECB hawks cringe again. Spanish unemployment still on the rise, although numbers were less bleak that expected. Still, the annual increase is still on the rise at over 9.6%.
Talking of Spain: 2012 budget presentation sees the debt/GDP ratio set to rise to 79.8% from 68.5%. Spain will try to extend its debt maturity this year and use less bill (Not sure they were on the right path on that for the moment, at least on the bond side, which saw tons of LTRO matching 3 YRS and lower). Targeting 6.2-6.4 average life. Which seems unchanged to me when compiling figures (BONO EUR 523bn outstanding WAL 7.3 years, Letras EUR 81bn WAL 0.5 year and international bonds EUR 5bn WAL 3.1 years). Having mostly issued on the shorter end, long end supply will thus need to be increased at some time.

Had Spain 10 YRS duly widen by 5 bp in an otherwise mainly unchanged market, then widening out when it was said that debt figures were calculated on current levels (i.e. definitively lower than Q4/2011 levels: 2 YRS 2.50% versus 6%+ high, 5 YRS 4.25% against 6.25% and 10 YRS 5.40% against 6.5%+. March 2010 lows were 1.45%, 2.65% and 3.85%, respectively). Weakening further into the close (and ahead of tomorrow’s auction).

Belgium issued EUR 1.4bn 3m at 0.19% (unch from Feb) and EUR 1.7bn 6m at 0.21% (down from 0.26%, but with much lower bid to cover). EFSF EUR 2bn 3m at 0.11% (after 0.05%). Hey, jumpy…

Markets sideways to slightly weaker on waning periphery until noon. Commodities for choice a tick firmer on energy / oil. Credit also outperforming equities with financials recovering a little. US Feb factory orders at +1.3% below +1.5% fcst, but some prior data revised both ways. Ambiguous read. In the meantime, trailing Europe a little lower, but just so. Could jump back, as soon as Europe closes. European equities correcting their solo rebound of yesterday and accelerating losses into the close. Back to Friday levels.

European new issues restricted to pre-announced AXA Bank Europe (Belgium) EUR 1bn 5 YRS covered bonds MS +70 and CADES USD 2bn 5 YRS MS +95.
Had as well low IG French GECINA raising EUR 650m 7 YRS at MS +290 and non-IG Peugeot for EUR 600m 5 YRS at MS +412bp.

ECB deposits up EUR 4bn to EUR 783bn. Volatility of deposits seems to diminish (on high levels).
VIX trading over 16 (!) at the open after 15.5 close on Friday. Back to 15.5 at COB EU.
Oil 104.6 / 125.2 (again +0.6% / +0.8% from 104.0 / 124.2 WTI / Brent). Gold touch weaker 1672 from 1682 (-0.6%). CRB sideways plus at 311.5 from 311.0 (+0.5%). Copper still pushy more at 392 from 390, China follower.
After a first unchanged Baltic Dry at 934 yesterday for a continuous rise since 22 Feb, the index shed 3 points today. End of a nice rally, though. Need to check further developments, as this index is good (physical) world trade coalmine canary.

10 YRS Yields: Germany 1,8% (unch); Swaps 2,29% (+1); Luxembourg 2,29% (+1); Finland 2,29% (unch); Netherlands 2,32% (+2); Austria 2,83% (+1); France 2,91% (+2); EFSF 2,91% (-2); Belgium 3,35% (-2); Italy 5,13% (+4); Spain 5,42% (+10).

10 YRS Spreads: Swaps 47bp (+1); Luxembourg 49bp (+1); Finland 49bp (-1); Netherlands 52bp (+1); Austria 103bp (+1); France 110bp (+2); EFSF 111bp (-3); Belgium 154bp (-2); Italy 333bp (+4); Spain 362bp (+9).

EUR swap curve 2-5 YRS 48,9bp (-0,7); 5-10 YRS 72,4bp (+1,0) 10-30 YRS 28,1bp (+1,9).
Main 124 (from 124) ; Financials at 217 (from 220); Sovereigns 265 (from 266)
All levels European COB 17:30 CET.

Again, not much to chew on today. General European softness. Spain probably back, as the wildcard to potentially rock markets. Somehow obliged to navigate between growth killing austerity (unsustainable) and deficit spending limitations (unsustainable). Entre dos tierras… Need to check tomorrow’s auction (might have added to today’s weakness).
Need to check ECB press conference for crispy food for thought.

EZ retail sales -1.1% YoY fcst (after zero). German factory orders -5.5% YoY fcst (after -4.9%). German EUR 4bn 5 YRS auction. Spanish 2015, 2016 & 2020 auction. Portugal testing waters with EUR 1.25 to 1.5bn 6 and 18m bills. European Mar PMI figure confirmation. Italian Q4 debt/GDP figures.
ECB press conference.

Click link on title or below for today’s musical support:

02 Apr 2012 - Email issues

Trying to solve e-mail issues. Looks like updates are not dispatched, as they should. Working on it.

02 April 2012 – “Its Just a Song about Ping Pong” (Operator Please, 2007)

02 April 2012 – “Its Just a Song about Ping Pong” (Operator Please, 2007)

Asia about unchanged overall, too, despite better than expected figures. Chinese official PMI at 53.1 (versus 50.8 fcst after 51.0). Japanese Tankan on the weaker side of expectations. Europe opening about flat to Friday close. Had a strange open anyway. Periphery debt roared ahead with Italian and Spanish 10 YRS roaring ahead 10 bp, while Bunds were falling like a stone. Had then a bit of an instant equities sell-off id morning with no clear reason to be found.
Eventually it seems that some rehashed news about the BuBa not accepting bailed-out sovereign collateral went viral. The fact that the BuBa denied this story and did confirm that it was still accepting these didn’t really lead to a real rebound. Damage done. Most equity markets then in negative territory with Italy and Spain down about 1.5% and their govies giving back most gains. Bunds up to marginally negative levels by mid-afternoon, having traded up 1.86% (from 1.79% close). Commodities split with weaker energy, but ok metals.

Not much to extract from these trading patterns, outside that markets remain accident-prone and on the rather nervous side.

Raft of European PMI figures (Italy better, France worse, Germany a tick better than expected). Overall EU PMI picture confirmed at 47.7 (as fcst). EZ unemployment at 10.8% (after 10.7%), highest since Feb 2008 low at 7.3%. Matching 1997 levels.

Weekend public sector wage hikes of 6.3% in Germany will have the Bundesbank and the ECB shriek (then again CPI spike at 2.9 in Sep / Oct 2011, Mar record unemployment at 6.7%).

Unexciting sovereign supply out of Germany with EUR 3.3bn 6m bills at 0.07% and the Netherlands (EUR 1.1bn 3m at 0.01% and EUR 1.1bn 9m at 0.07%). In order to round up the picture: French bills for EUR 7.4bn in 3, 6 and 12m at 0.09%, 0.13% and 0.27%. All a bit wider than previously.
Half of Greeks foreign-law bonds have not agreed to any voluntary exchange to date. Next maturing issue are EUR 450m on 15 May.

US figures maybe a bit on the low side, but nothing wild either. Feb construction spending lower than forecasted. ISM Manufacturing a bit better 53.4 (after 52.4 and 53 fcst), Prices Paid at 61 (after 61.5 and 63 fcst). Not enough to keep US equities below water. On the contrary, bit of a lift to European stocks, once NY turned positive. Bounced up, like it traded off. Ping pong. Actually crawling to close up nearly 1%, better than credit or the periphery.

New issues (at least for today) already on egg hunting expedition.

ECB deposits down EUR 7bn to EUR 779bn. Once more no SMP (periphery govies) buying by the ECB. On the contrary, stock lowered by Greek bond redemption.
VIX trading over 16 (!) at the open after 15.5 close on Friday. Back to 15.5 at COB EU.
Oil 104.0 / 124.2 (+0.6% / +0.8% from 103.4 / 123.2 WTI / Brent). Gold healthily back up to 1682 from 1663 (+1.1%). CRB likewise positive at 311.0 from 309.4 (+0.5%). Copper more than ok at 390 from 382 (+2%), China follower.
Baltic Dry unchanged at 934! The first day without a rise since the 22 Feb.

10 YRS Yields: Germany 1,8% (unch); Swaps 2,29% (+1); Luxembourg 2,28% (+1); Finland 2,3% (-1); Netherlands 2,3% (-2); Austria 2,82% (+1); France 2,88% (+0); EFSF 2,93% (-1); Belgium 3,36% (-3); Italy 5,09% (-2); Spain 5,33% (+0).

10 YRS Spreads: Swaps 46bp (unch); Luxembourg 48bp (unch); Finland 50bp (-2); Netherlands 50bp (-3); Austria 102bp (+1); France 109bp (unch); EFSF 113bp (-1); Belgium 156bp (-3); Italy 329bp (-2); Spain 353bp (unch).

EUR swap curve 2-5 YRS 49,6bp (+0,3); 5-10 YRS 71,5bp (+0,2) 10-30 YRS 26,2bp (+0,2).

Main 124 (from 125) ; Financials at 220 (from 220); Sovereigns 266 (from 269)
All levels European COB 17:30 CET.

Puh… If it had been for the periphery whiplash, the Bund down-up-down and equities up-down-up, there wouldn’t be anything to write home about. Ping pong markets.
Would be careful given seemingly low volumes. As seen this morning, a 15bp tightening in the periphery and then the same re-widening within 3 hours is far from impossible.

Not even real data to chew on. EZ PPI fcst +3.5% YoY (after 3.7%). Feb Factory orders in the US (fcst +1.5% versus -1% in Jan). FOMC minutes, which might show haggling whether or not to QE3 (?). Spanish unemployment should remain depressing reading.

Click link on title or below for today’s musical support:

30 March 2012 – “Oops Upside Your Head” (The Gap Band, 1979)

Had the often witnessed US risk decoupling as soon as hysterical Europe headed home yesterday, lifting US equities back half a point to close about unchanged; a lead Asia seemed happy to follow to close Q1.
Contradictory Japanese numbers with better than expected PMI at 51.1 and housing, but negative Industrial production. Macro data saw German retail sales dropping -1.1% MoM against +1.1% fcst. French PP higher than expected at +4.3% YoY (fcst 4.0%) and surprisingly French consumption up 0.5% YoY against an expected -2.5% from prior -2.2%. Otherwise negative Spanish and Greek retail sales, Italian CPI quite above consensus at 3.8% YoY, as was the overall EZ CPI at 2.6% (2.5% fcst after 2.7%). If the ECB sees inflation falling at some time, it will need to wait a little. Not much else to chew on while awaiting US figures.

Europe opening on a less distressed mood with a bit of an uptick in risk appetite, but no strong rebound and with Bunds holding the level. Late morning saw the trend firm up a little. Italy recovering some 8bp against unchanged Bunds. Spain better, but less buoyant. Commodities a tick better with Gold swinging back.
Wait-and-see over lunch. Equities up 1%. Germany 2 bp softer. Commodities near or slightly above European COB. The one thing one will note is that credit is just a tick better in general, but that Financials gave up another 3 bp. In 10 YRS sovereigns, Italy and Spain corrected about half of yesterday’s widening. ECOFIN haggling ending with a compromise EUR 800m firewall.

No sovereign supply.

Interesting editorial in this week’s The Economist about France “being in denial” (link). Will make some people grind, but can certainly not be simply put off as being just another accustomed Anglo-Saxon “Frogger” attack.  Might in hindsight explain why late French confidence figures were all relative upbeat, as the mood has been marked by “crisis over” calls, while austerity urgency has been witnessed mainly on tv in news about the southern neighbours, who like it or not have started to bite the bullet. Concludes French spreads might be in danger, if the presidential debate doesn’t tackle future outlook and solutions. Seems obvious, but worth reminding.
Then again trading just shy of 3%, albeit 100 bp wider than Bunds, French 10 YRS are trading at / near historic lows (2.5% hit in Aug 2010 and Sep 2011) anyway. 5 YRS average is 3.66%, 10 YRS 3.84% and 4.13% since introduction of the EUR. As with German bonds, one should be aware that there’s a huge safe haven (safest forGermany) element in the actual levels. Although I wouldn’t give too much on Merkel’s sense of market timing (27 Mar 16:28 RXA 137.18, now 125 ticks higher) about when Bund yields will rise, she’s certainly right in commenting that yields will probably rise at some time, as the crisis ebbs, and no one should bet on and budget actual levels for ever.
So, one way or another, some caution is warranted here. When the wind blows…

Talking of austerity. No huge market reaction on Spain’s budget announcement. BONOs tightened back some, along Italy. Final 2011 numbers for Portugal: Budget deficit 4.2% (after 9.8% in 2010), debt/GDP 107.8% (after 93.3%). 2012 targets are -4.5% / 112.5% and -3% for 2013.

US figures didn’t bring nor changed much (Income a tick lower and prior revised a tick lower, balanced by spending a tick higher and prior revised higher, too. Deflator +2.3%). Chicago PMI a bit on the weak side at 62.2 (fcst 63 after 64), but balanced by Michigan Conf at 76.2 (fcst 74.5 after 74.3). NAPM of 51.8 way off 58 fcst. US open a tick higher and markets the freewheeling into the weekend with a slightly positive bias.

New issues time-out. Won’t probably see much strategic deals in the coming 10 days / 2 weeks, given the upcoming Easter period, bank and school holidays. Opportunistic SSA borrowing certainly possible. For corporates and financials maybe increases of exiting bonds.

-          ECB deposits up EUR 9bn to EUR 786bn.
-          VIX eventually closed back unchanged at 15.5 in the US, from 16.9 spike at COB Europe. 15.3 tonight here at close.
-          Oil 103.4 / 123.2 (+0.1% / +0.4% from 103.3 / 122.7 WTI / Brent). Gold back up to 1663 from 1648 (+0.9%), having already crawled back to 1660 by NY close. CRB remaining soft on the week but recovering to 309.4 from 307.8 (+0.5%). Copper actually doing ok at 382 from 378 (+1%).
-          Baltic Dry up 934 after 930.

-          10 YRS Yields: Germany 1,79% (-1); Swaps 2,28% (-1); Luxembourg 2,27% (unch); Finland 2,31% (-3); Netherlands 2,33% (-6); Austria 2,81% (-7); France 2,88% (-7); EFSF 2,94% (-2); Belgium 3,39% (-6); Italy 5,11% (-11); Spain 5,33% (-12).
-          10 YRS Spreads: Swaps 46bp (unch); Luxembourg 48bp (+1); Finland 52bp (-3); Netherlands 53bp (-5);Austria 102bp (-6); France 108bp (-6); EFSF 114bp (-1); Belgium 159bp (-5); Italy 331bp (-10); Spain 353bp (-11).
-          Italian bonds curve recovered about 10 bp across the curve, thus keeping yesterday’s negative flat bias. The CTZ auctioned on Tuesday at 2.35%, which got trashed to 2.88% yesterday, recovered to 2.83%. Spanish 5s in sync.

-          EUR swap curve 2-5 YRS 49,8bp (+0,8); 5-10 YRS 71,2bp (-1,2) 10-30 YRS 26bp (+0,2).
-          Main 125 (from 126) ; Financials, once more weak at 220 (from 217); Sovereigns 269 (from 274)
-          All levels European COB 17:30 CET.

On the week:

-                                        Some gloom was warranted last week and despite some, rapidly offset, Bernanke fever on Monday things trailed rather on the heavy side this week.
-                                        10 YRS Yields: Germany 1,79% (-7); Swaps 2,28% (-4); Luxembourg 2,27% (-5); Finland 2,31% (-8); Netherlands 2,33% (-12); Austria 2,81% (-8); France 2,88% (-6); EFSF 2,94% (-11); Belgium 3,39% (+3); Italy 5,11% (+8); Spain 5,33% (-2).
-                                        10 YRS Spreads: Swaps 46bp (+3); Luxembourg 48bp (+3); Finland 52bp (0); Netherlands 53bp (-5);Austria 102bp (-1); France 108bp (+1); EFSF 114bp (-4); Belgium 159bp (+10); Italy 331bp (+14);Spain 353bp (+5).
-                                        2 YRS BKO remained about floored at 0.21% (0.23% last week, 0.33% prior week), 5 YRS OBL a bit flatter at 0.80% (versus 0.88% last week, 1.07% prior).
-                                        Netherlands clawing back after last week flirt with the 60bp spread to Germany.
-                                        Austria and France acting a bit as pivot, yield and spread-wise. EFSF bonds still faring well, although starting to look rich compared to RAGBs and OATs.
-                                        Spread-wise things again wobbly on the periphery.
-                                        Belgium a little soft on periphery woes and syndicated supply. Should fare better given advanced stage of funding for the year.
-                                        Italy and Spain went really soft yesterday, flirting with 5.25% and 5.50% before regaining some colours.
-                                        Greece 2023 20.7% 2042 16.8% Portugal 2 YRS 13.2% 5 YRS 13% 10 YRS 11.2%

-                                        Last week’s index rolls triggered some volatility and need for rebalancing in credit. This week risk adverseness was more than shared with the Main closing at 125 (from 118, 5.9% weaker), Financials 220 (from 209, as well 5.3% weaker). Sovereigns, despite the jitters on Italy and Spain, held better on average, closing at 269 (after 280).
-                                        European equities coming from a new high 10 days ago, had another rough week, closing 2410 / -1.8% (from 2455 last Friday), while US equities were once more decoupling with the S&P up 0.9% at 1407 (from 1395). Stoxx up 6.8% YTD. S&P 11.9%
-                                        Like last week, the VIX mainly traded like a dead mattress for most of the time with feverish spikes once in a while (high 16), but closing about unchanged at 15.3 from 14.9.

-                                        EUR 1.333 from 1.326. Still pretty much without risk on / off barometer function.
-                                        Energy got hammered with Oil 103.4 / 123.2 from 107.1 / 125.5 (-3.5%/-1.8%). Gold fared okay-ish as haven closing at 1663 from 1661 (+0.1%), albeit with some swings. Likewise, Copper held pretty well despite the Chinese sell-off, closing up 382 from 380 (+0.5%). CRB 309.4 from 315.0 (-1.8%) with most weakness stemming from the Thu move.
-                                        WTI and Brent up 4.6% and 14.8% YTD. Gold 6.3%. Copper 11.3%. CRB only 1.4%, though.
-                                        Baltic Dry still in full recovery mode at 934 from 908 (+2.9%, after +6 to +7% the weeks before)

Next week should be on the light side with a 3-4 days Easter weekend pencilled in for most. Not sure, unless responding to news, there’ll be much repositioning to start Q2. Not much figure releases either.
German OBL, Spanish BONO and French OAT auctions. Spain to be monitored.
ECB, of course, with questions about LTRO2, inflation, Target2, pulling the plug on extraordinary measures. Interesting press conference to look forward to.
Might have a look on charts next week to see if one can read something out of them... Otherwise, tea leave reading is said to be fine, too.

German Mar PMI 48.1 fcst after 48.1 French PMI 47.6 fcst after 47.6 .IT PMI 47.6 fcst after 47.8 . US: ISM 53.1 fcst after 52.4.
Italian Budget figures as wildcard event.

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29 March 2012 – “Slipping Away” (The Rolling Stones, 1989)

Wobbly Asian session on the back of the US closing down 0.5%, albeit half a point off lows. Asian losses of 0.75-1% pretty much throughout with China loosing another 1.5%. YTD gains in Asia still above 10% withJapan still clocking in about 20%. It’s China that is fast nearing break-even and Asia’s underperformer for 2012. Had leading index published Jan / Feb combined. Japanese retail sales at +0.2% way above -0.3% fcst.
German unemployment numbers of 6.7% beating 6.8% unchanged to the prior 3 months expectations with the prior number of unemployed revised lower. It’s just a tick, but at 6.7%, this is another 20 YRS low. For eco history trivia fans who might wonder: record high was 12.1% in March 2005. Resilient Germany against the trend in Europe. Add yesterday’s 2.3% CPI coming down from 2.9% in Q4 and you get a sense were salary negotiations in Germany will head to.
Spanish housing permits down 25% YoY in Jan. Ouch. Situation keeps Spanish inflation in check at +1.8% YoY, after +1.9%. Speaking of housing, UK house prices came in negative, too, at -1% MoM. EZ economic sentiment figures, which had been expected about unchanged to prior, low levels, came in a tad weaker.

Like yesterday, uneven slightly negative open, but not far from closing levels throughout all asset classes. Oil down 50cts, if in need to single out something weak, as well as Gold (-1% from European close). Not much follow-up yet to the refried Saudi oil increase promises and possible concerted use of strategic reserves (France, US, UK). Same for Southern European strikes (ItalyGreeceSpain). Markets in morning cruising mode, waiting for some input, either from the official front, ECOFIN leaks or comments or from US data later.
Publication of the EZ confidence figures triggered a slight slide on risk appetite, which was further enhanced by the results of the Italian auction and subsequent periphery slide.
Knock-on effect on wider sentiment, confirming risk off mood. Equities down 1% by noon. Credit wider. EUR down through 33 handle.

The Italian auction was received as having been a bit on the heavy side with EUR 3.25bn 10s @5.24% (vs. 5.50%), EUR 2.5bn 5s @4.18% (vs. 4.19%) and “only” EUR 2.25bn 5 YRS FRN. While yields were duly lower than previously in 10s (and about equal in 5s) and bid to covers slightly higher, the maximum targeted amount of EUR 8.25bn was not reached, knowing that the missing EUR 250m were on the new CCT (FRN), not on the mainstream securities. CCTs being more a domestic thing, this feels rather like some communication glitch between the Tesoro and its primary dealers.
I’m surprised that this triggered such a reaction with BTPs (and BONOs in sympathy) softening spontaneously by 10bp. Fickle markets, low liquidity. Then again, relative levels on Italy were low lately. Surprised people realized that after the auction – not before... Bad timing.
Given illiquidity, freshly loaded books at the top and general unwillingness to catch a falling knife these days, stops seem to have been triggered with Italian 10s hitting 5.25% and Spain flirting again with 5.50%.
Spain detailed next week’s auction, brought forward one day to Wed, because of holidays. Bang in the middle of “Semana Santa”. Somehow this doesn’t bode well for contrarian, domestic support, if needed, to keep the slide from going out of bounds.

Oops… US figures didn’t make for the best reading in an already slippery market:  GDP figures all confirmed as forecasted, but jobless did rise to 359k (fcst 350k) with prior data revised higher, too (364k after est. 348k), somehow drawing a line in the sand above the 350k mark. To be followed.
Had simultaneously Bank of Portugal revising 2012 GDP outlook to -3.4% (from -3.1%). PGBs only widening in line with Periphery. Talking of which, Greece has been quietly slipping away, too. Had S&P raise the question of the possible need for further restructuring.

Equities then gently slipped further away. Nothing panicky initially, but a regular and gradual diagonal down the screens. Interesting (initial) quasi staticity of Bunds and other traditional Core EZ havens (compared to past transfer moves).

New issues lull, but with a well-received TEVA EUR 1bn 7 YRS MS +100 deal on the corporate side. Supply otherwise restricted to covered bonds from Crédit Agricole for EUR 1.5bn 5 YRS MS +63 and German Landesbank HSH for EUR 500m 5 YRS MS +33, both pre-marketed already yesterday and therefore closed before one had the chance to grab a second cup of coffee – and before markets became jittery. Good timing.

-          ECB deposits up EUR 3bn to EUR 777bn.
-          VIX closing at 15.5 in the US, from 16 at COB Europe Wed. Shooting up to 16.9 by EU COB, highest since early March.
-          Commodities initially very stable, but eventually dragged lower with the rest. Oil 103.3 / 122.7 (-1.6% / -1.0% from 105.3 / 123.9 WTI / Brent). Gold 1648 from 1672 (-1.4%). CRB down 307.8 from 315.2 (-2.3%) on energy. Copper tamer at 378 from 380 (-0.5%).
-          Baltic Dry up 930 after 922 (+0.5%). Up 43% since 03 Feb (near historic) low. Better than AAPL (up 33% same period). Must-have stock! Ah, it’s not a stock???

-          10 YRS Yields: Germany 1,8% (-3); Swaps 2,29% (-3); Luxembourg 2,27% (-2); Finland 2,34% (-2); Netherlands 2,38% (-2); Austria 2,88% (-1); France 2,95% (-1); EFSF 2,96% (-4); Belgium 3,45% (+4); Italy 5,21% (+13); Spain 5,45% (+14).

-          10 YRS Spreads: Swaps 46bp (+1); Luxembourg 47bp (+1); Finland 54bp (+1); Netherlands 58bp (+1); Austria 108bp (+2); France 114bp (+2); EFSF 116bp (-1); Belgium 165bp (+7); Italy 341bp (+16); Spain 364bp (+17).

-          Don’t want to sound too much a scaremonger, but the by-now nearly 50 bp uptick in Spain over the last 3 weeks is one of the largest witnessed since Jan 2011. It’s no a simple statistic anomaly. Avowedly, if it hadn’t been for last Friday’s sudden squeeze, this week’s widening would look slightly less severe, but if not countered (ECB SMP?) and with next week’s auction looming, I’d say we’ll be testing 5.75% next week.
-          On Italy, the 10 YRS weakness has been transferred and increased throughout the curve in bad case of bearish flattening. 2 YRS are up a staggering 32bp, 5 YRS 22 bp, 10 YRS 13bp. The CTZ auctioned on Tuesday at 2.35% are now quoted 2.88%. Spanish 5 YRS up 20 bp, too
-          On ECB SMP intervention: about zero buying since November…

-          EUR swap curve 2-5 YRS 48,9bp (-2,8); 5-10 YRS 72bp (-0,7) 10-30 YRS 25,8bp (-0,3).
-          Main 126 (from 120) ; Financials 217 (from 207) on across the board weakness, especially in the periphery; Sovereigns 274 (from 268)
-          All levels European COB 17:30 CET.

End of complacency out there…

Friday: End of week, end of month, end of Q1, end of Japanese fiscal year
Heavy load of Japanese figures, among which PMI (50.5 prior) and Industrial production at +3.7% YoY fcst after -1.3%. German retail sales fcst +0.1% YoY after +1.6%. French consumer spending fcst -2.5% after -2.2% and PPI fcst +4.0% YoY after +4.2%. Italian CPI fcst 3.3% after 3.4%. Portuguese GDP and deficit. US: Pers. Income & Spending, Chicago PMI fcst 63 after 64, MI Conf fcst 74.6 after 74.3 NAPM fcst 58.0 after 58.6. Watch out for prior data revisions.

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