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 4 May 2012

04 May 2012 – "It’s Raining Again" (Moby, 2005)

04 May 2012 – "It’s Raining Again" (Moby, 2005)

Same pattern as yesterday, although the US close was a bit on the heavy side (S&P close 1392, 200d average 1386).Asia mixed to slightly firmer on good services PMI (54.1 after 53.3), which is back on track with 3m average crawling back higher.

That was for the good part. European Service PMI figures all bleak to very bleak with Germany holding best at 52.2 after 52.6 (fcst was unchanged). France dips to 45.2 (from 46.4), Italy to 42.3 (from 44.3) and to 42.1 (from 46.3). All below forecast. Final EZ Service PMI stands at 46.9 after 49.2 and Composite PMI 46.7 after 49.1. Better then expected EZ retail sales (March) didn’t really brighten up the mood (+0.3% after revised -0.2% MoM, still -0.2% YoY).

Actually not much to say about the rest of the morning, as not much happened. Equities down some 0.75% by noon, before rallying back double that in the course of the lunch break, ahead of the US figures. A bit of in the void movement with Credit indices stable.
European sovereigns ranging from unchanged (Hard Core EZ) to -10 for the periphery. Hence, Italy and Spain 10 YRS rather spontaneously down to 5.39% and 5.65% and moving away from the hot plate zone.

Likewise, France moving away from the 3% area to which 10 YRS were stuck before the elections and yesterday’s auction. Feels a little overdone at this stage. Comes Monday, things might look bleaker. Holland’s election seems pretty certain in the latest polls, but re-pricing of French assets overall might become due after second thoughts once on results are on screens.
The possible ricochet effect on the rest of the Eurozone has been felt much lately either. But despite any realpolitik and prevailing realism, rebuilding a functioning Franco-German couple won’t happen overnight. And one can’t expect a sudden turn-about from the “I’ll arm-bend Germany into accepting growth in the compact –without too many efforts”, as that was part of the winning ticket. Austerity was not high on the agenda during the election campaign in FranceOn verra.

No sovereign supply. No New Issues either. Poor capital markets week. Won’t probably be much better next week.

US Nonfarm Payrolls another miss in US figures with 115k created (160k fcst), but with prior figures increased to 154k from 120k. Unemployment rate as such down to 8.1% (8.2% fcst from 8.2%), but this is more an accounting reality with long-time job seekers dropping out of the headline number.
European equities initial knee-jerk, but rapidly back up. Waited for the US open. Probably in the hope again to have QE3 hopes pulling risk assets higher… Strange world. Didn’t work out, though... and things tanked for the weekend. Rainy days. Ugly first week. Sell in May and go away?

More an equity and commodities story today. Credit holding rather well in front of adversity. Note that WTI has cut through the 100 level with no hesitation. Negative dynamic on oil. Gold stable, in refuge function.
Non-core sovereigns gave up most of their intra-day gains into the close, leaving France as best performer and Germany closing the week on yet lower lows across the curve. Still, Spain managed to crawl further away from that 6% “tipping point”.
Hmmm.. Why do I have the sudden urge to check Japanese bonds? 2 YRS 0.11%, 5 YRS 0.22%, 10 YRS 0.82%. Oh, cool! Still some room in 5s and 10s. But, then again, it’s the BOJ squeezing these, not the market.

Closing levels:

10 YRS Yields: Germany 1,59% (-2); Luxembourg 2,04% (-3); Swaps 2,07% (-4); Finland 2,07% (-5); Netherlands 2,14% (-3); Austria 2,69% (+0); France 2,82% (-8); EFSF 2,89% (-3); Belgium 3,18% (-2); Italy 5,43% (-7); Spain 5,71% (-5).

10 YRS Spreads: Luxembourg 45bp (-1); Swaps 49bp (-1); Finland 48bp (-2); Netherlands 55bp (-1); Austria 110bp (+2); France 123bp (-6); EFSF 131bp (-1); Belgium 159bp (+1); Italy 384bp (-4); Spain 413bp (-3).

EUR swap curve 2-5 YRS 41,8bp (-2,5); 5-10 YRS 74,9bp (+0,4) 10-30 YRS 34,3bp (+0,5).
2 YRS German BKOs closed 0,09% (+0) and 5 YRS OBLs 0,55% (-3).

Main at 144 from 141 (2,7% wider); Financials at 244 after 239 (2,0% wider). SovX about unchanged at 273 from 274. Cross a bit wider at 654 from 643.

Stoxx Futures at 2209 / -1,4% (from 2240) with the S&P at 1375 (-1,8% from 1400, at European close).
VIX index at 18,6 after 16,9 yesterday same time.

EUR 1,310 after 1,315
ECB deposits now about heavy-lifting EUR 806bn from 803bn before. Highest ever were EUR 827.5bn early March, just after LTRO2 was paid out. Only had overall 8 readings above EUR 800bn. So what was the question about the utilization of the LTRO cash? No trickling into the economy yet… Bah, let’s wait a bit longer. Then again, we’re nearing the end of the reserve maintenance period on 08 May (Wed). Were at EUR 788bn at the end of the last reserve maintenance period and then had a EUR 135bn drop. EUR 130bn the month before. Still, this piling up of money seems at odds with the “the crisis is over” mantra and would seem to point to some still lingering serious mistrust among banks.

Oil 99,5/113,3 (WTI/Brent) from 102,9/116,4 (-3,2%/-2,6%). Gold at 1640 after 1637 (+0,1%). Copper at 374 from 373 (+0,2%). CRB closes 298,1 from 302,0 (-1,3%).
The Baltic Dry stayed unchanged at yesterday’s new 2012 high of 1157.
All levels European COB 17:30 CET

On the week (compared to Fri 27 Apr close):
Force is to reckon that this was no good week for risk assets, especially equities (in Europe) and commodities, which led to a flight into bonds. All bonds as the inner-European jitters were slightly less hysterical this week. Bunds are closing another week on another yield lows. Then again, given the levels attained every basis point tighter is getting more difficult to attain in Germany (So! Do you REALLY want to own 2 YRS Schätze at 0.08%? And do you REALLY REALLY WANT to buy 10 YRS Bunds at well under 1.7%), which has led to some good performance by the rest of the European sovereigns with some extra special performance of Belgium, which keeps getting tighter to France. Austria slightly on the heavy side, but has a EUR 1.2bn auction in 5s and 10s on Tuesday. Not big, but it’s not a big country / market either.

10 YRS Yields: Germany 1,59% (-11); Luxembourg 2,04% (-17); Swaps 2,07% (-16); Finland 2,07% (-15); Netherlands 2,14% (-10); Austria 2,69% (-11); France 2,82% (-16); EFSF 2,89% (-16); Belgium 3,18% (-16); Italy 5,43% (-22); Spain 5,71% (-14).

10 YRS Spreads: Luxembourg 45bp (-6); Swaps 49bp (-6); Finland 48bp (-5); Netherlands 55bp (+0); Austria 110bp (0); EFSF 131bp (-5); France 123bp (-5); Belgium 159bp (-5); Italy 384bp (-11); Spain 413bp (-3).

EUR swap curve 2-5 YRS 41,8bp (-8,4); 5-10 YRS 74,9bp (+0,3) 10-30 YRS 34,3bp (+4,5).
Interesting flattening move with 5 YRS pushing and pushing. Long end a bit on the softer side.
2 YRS German BKOs closed 0,09% (+0) and 5 YRS OBLs 0,55% (+0), on the week.
Traded new intra-day lows at 0.065% and 0.55% this week.

Portugal quiet with 2YRS unchanged at 11.50%, while 5 and 10 YRS were quote 50 bp wider at 12.00% and 10.75%.
Greek yields quoted down 50 cts to 20.25% in 2023s and unchanged at 16.75% in 2042s.

Main at 144 from 140 (3,1%); Financials at 244 after 245 (-0,3%). SovX at 273 from 275. Cross at 654 from 654.
Financials getting some respite on ok Q1 figures, as well as some respite on the sovereign jitters front. Spanish banks remain in the limelight, though.

Oil 99,5/113,3 (WTI/Brent) from 104,2/119,5 (-4,5%/-5,2%) . Gold at 1640 after 1655 (-0,9%). Copper at 374 from 377 (-0,7%) . CRB closes 298,1 from 303,3 (-1,7%).
Commodities certainly the asset class reacting the most to the round of weak manufacturing figures across Europe and the US.
Baltic Dry up to a new 2012 high of 1157, overcoming some mid-week corrections to 1149, and up just a tick from last Friday’s 1156.

Stoxx Futures at 2209 / -3,7% from 2293 with the S&P at 1375 / -1,8% from 1400, at European COB last week.
VIX index at 18,6 after 16,2 last week.
EUR 1,310 after 1,326 last Friday

Next week:
Note that following French election son Sunday 06 May, Tuesday will be a public holiday (Victory Day) with many players off on Monday, which happens to be the UK will May Day on 07 May.
Data flow rather thin. Auctions concentrated on Tuesday. As lately, markets open to any input…

Germany: Mon Factory Orders -2.8% fcst (after -6.1% ,YoY), Tue IP -1.2% fcst (after -1% YoY), Wed Trade Balance, Friday CPI
France: Thu IP –Mar 0.5% (after +0.3%, MoM), Fri Biz sentiment
EZ: Mon Sentix sentiment -14.5 fcst (after -14.7), EU commission growth forecast
Other EU: Spain Industrial output Mon, Housing transaction Thu, CPI Friday, Italian IP on Thu
US: Inventories on Wed, Trade balance and jobless claims Thu, PPI and U Michigan Fri.
Asia: Chinese data flow mainly on Thu & Fri (Trade balance, IP, Retail Sales). Japan likewise empty until end of the week.

Next market update will be sent on Wednesday.

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

Thursday 3 May 2012

03 May 2012 – "Barcelona" (Freddy Mercury & Montserrat Caballé, 1987)

03 May 2012 – "Barcelona" (Freddy Mercury &  Montserrat Caballé, 1987)

Okay-ish, albeit slightly negative US close. Same in Asia. Not much to write home about, but the European start was positively spirited with equity indices pretty much all up 1% at the open. Markets then just hovered there, spending time, waiting for the Spanish and French auction outcomes, and then waiting further for the ECB and then US figures.
Nothing in terms of data with exception of EZ PPI coming out a tad softer than expected at 3.3% from prior 3.6%, somehow cajoling people in hoping that this could mellow down the ECB.

French presidential debate no game-changer, and hadn’t been expected to be either. Not much in terms of revelations and hence no immediate impact and none on the auction.

EUR 7.4bn were thus sold in 4 lines with most in the on-the-run 10 YRS. EUR 1.1bn 2017 at 1.89% (after 1.96% last month), EUR 1.6bn 2021 at 2.85%, EUR 3.3bn 10s at 2.96% (after 2.98% last month, thus stable) and EUR 1.5bn 2025 at 3.31%. Bid to covers ranging from 1.98 to 3.6 with the lowest in the on-the-run 10s. Having underperformed yesterday (2.96% close) and auctioned with a 2bp discount, the bonds then snapped tighter by 5 bp once results came out.
Spain reached the top end of a (small) EUR 2.5bn auction with about EUR 1bn 3s at 4.04% and slightly over EUR 1.5bn in short  and long 5 YRS at 4.75% and 4.96% in decent bid-to-covers. Short 5s with the highest B/C at 3.7 as well with the highest tail of 18 cts / 4.4 bp. Overall probably ok, but nothing immense, either. We’ll note that the price tag in 3s has increased from 3.46% mid April and below 2.50% mid March.
Same relief tightening than in France.

FranceBelgiumItaly and Spain all 4 tighter in 10s by noon. AAA Gang +1 bp. Shorter German +1 and +2 in 2s and 5s. Equities up 1.25% and credit indices tighter by 2 bp entering the lunch period.

ECB unchanged, of course. Despite visiting Barcelona.  Had the market then traded off nearly 1%, despite better than expected US jobless claims (365k versus 379k fcst and prior 388k, revised to 392k), when Draghi started to speak and made clear that the ECB’s vision of fiscal compact and growth compact didn’t mean a “free for all” spending spree, but real discipline. The ECB sees itself as already being accommodative and still mulls stimuli exit strategies. Pitching the question where the EUR idea should be in 10 years from now, doesn’t obviously deliver answers on the short term. Whatever the outcome, hopes for (immediate) ECB leniency were somehow doused, but Draghi’s nod to Italian and Spanish efforts  were seen as a stamp of approval (at least for today).
Then again, not that bad and we witnessed a good rotation around Holland / Austria with the periphery tighter (-4/-6) and Bunds softer (+3).

US non-manufacturing ISM at 53.5 (after 56 and fcst 55.3) was just one more missed US data and brought risk assets from a morning RISK ON back to RISK NEUTRAL. Dow is high. S&P has been snaking with its 50s average (now 1387) for a while. Tomorrow’s payroll will need to be watched carefully.
2280-2300 area in Stoxx futures / 2320-40 on the cash index seems to become a real resistance. On cash 2341 is 200s average, 2372 50% HiLo. If we take the rebound from the Sep 2011 lows, we get 2360 and 2273 resistance and support Fibo levels, with the support obviously to nearer.

Had Fitch spoiling the mood somewhat, as when mulling alternative scenarii for “Europe’s muddling through” (sic)(preferred scenario), they did mention the possibility of Greece leaving the EUR, which would result in an immediate downgrade of the rest of the IIPS for them. Timing-wise, this comes as rumours out of Greece about further elections being already lined up for after the summer, if no government collation can be put in place…

German yields by and large still about at record lows, give or take 1 bp.

New Issues once more limited to a German SSA issuer with NRW.Bank, the development bank of North Rhine-Westphalia and guaranteed by the latter, raising EUR 1.75bn of Nov 2015 at MS flat.
Had Iceland coming back to the USD market with 10 YRS to be priced later, showing that markets DO forgive – or have a short memory… Had some rather good traffic in USD new issues lately with financials and European corporates doing rather well for multi-billion / multi-tranche deals (BP USD 3bn 5s and 10s, Glaxo Smithkline USD 5bn 3s, 5s and 10s, Ericsson USD 1bn 10s).

10 YRS Yields: Germany 1,61% (+0); Luxembourg 2,07% (-2); Swaps 2,10% (-3); Finland 2,11% (-1); Netherlands 2,17% (-1); Austria 2,69% (-4); France 2,90% (-5); EFSF 2,93% (-2); Belgium 3,20% (-8); Italy 5,49% (-4); Spain 5,77% (-6).

10 YRS Spreads: Luxembourg 46bp (-2); Swaps 50bp (-3); Finland 50bp (-1); Netherlands 56bp (-1); Austria 108bp (-5);France 129bp (-6); EFSF 132bp (-2); Belgium 159bp (-8); Italy 388bp (-4); Spain 416bp (-6).

EUR swap curve 2-5 YRS 44,3bp (-1,1); 5-10 YRS 74,5bp (-2,0) 10-30 YRS 33,8bp (+0,6).
2 YRS German BKOs closed 0,08% (+1) and 5 YRS OBLs 0,58% (+2).

Main at 141 from 140 (0,3%); Financials at 239 after 239 (0,3%). SovX at 274 from 275. Cross at 643 from 642.

Stoxx Futures at 2240 / -0,6% (from 2253) with the S&P at 1400 (-0,1% from 1402, at European close).
VIX index at 16,9 after 17,2 yesterday same time.

EUR 1,315 after 1,316
ECB deposits at EUR 803bn from 789bn. Breaching the 800 mark, here...
Oil 102,9/116,4 (WTI/Brent) from 105,3/118,1 (-2,3%/-1,4%). Gold at 1637 after 1652 (-0,9%). Copper at 373 from 378 (-1,2%). CRB closes 302,0 from 305,3 (-1,1%).
Commodities actually the most hit in risk assets on global slow-down.
The Baltic Dry trading out a new high at 1157, from 1149 yesterday. So back in the ring...
All levels European COB 17:30 CET

Thin again in Europe. Services PMI around Europe. EZ retail sales fcst 0% after -0.11 MoM / -1.1% fcst YoY
US non-farm payrolls fcst +160k after 120k. Unemployment fcst stable at 8.2%

Note that following French election son Sunday 06 May, Tuesday will be a public holiday (Victory Day) with many players off on Monday 07 May, which happens to be when the UK will celebrate May Day. Any pre-positioning / squaring ahead of French, Greek (and German local elections) will need to take place tomorrow.

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

Wednesday 2 May 2012

02 May 2012 – "Wipe Out" (Surfaris, 1962)

02 May 2012 – "Wipe Out" (Surfaris, 1962)

After having been arrested for driving blind, oblivious to the overhang of bad news that came out of late, markets got a beating on the last day of April with some serious bashing in European equities, induced by dire Spanish figures and the latter entering in recession, too. The beating was tamer on other risk assets. Italy and Spain were continuing their compression move, in an empty market, leaving the floor yesterday to a strong US market, propelled to a 4 YRS high in the Dow on the back of much better than expected Manufacturing ISM, which by the way was about the only US data beating estimates over the last 10 days.
Given the fact that Continental Europe was all but close and getting further support from growing Chinese PMI data, both official and private (53.3 after 53.1, albeit less that the 53.6 fcst and with HSBC’s flash estimate revised to 49.3), we saw a strong tentative rebound at the open with the Stoxx up 1.75%, trying to retake Friday’s levels.

This major up-wave just didn’t last as a flood of negative European PMI readings brought the whole rebound to a screeching halt. Needless to deepen, which numbers were weak, as it was an all-around situation. We’ll note as well that the Euro-depression is starting to take a toll on others, from Norway to Australia (which lowered rates by more than expected 50 cts to 3.75% yesterday).
Even German figures, and Germany IS running a different course, are running out of steam and unemployment last month didn’t fall as expected, although the rate remains a comfortable 6.8% (after a revised 6.8% from 6.7%). Talking of which, EZ –wide, we’re hitting 10.9% (after 10.8%) with no real end in sight.

After yesterday’s surge in the US, today’s figures were all too weak to keep the party going (ADP employment 119k versus 170k fcst, NY ISM 61.2 after 67.4 – joining a raft of low ISM readings from all FED districts – and Factory orders although down less than expected (-1.5% versus -1.6%, but after +1.3% revised to +1.1%).

Portugal sold EUR 500m 6m bills at 2.935% (after 2.90%) and EUR 1bn 12m bills at 3.91% (after 3.65%).

New Issues, as expected on hold until today, wringing out only some German-speaking Aaa and SSA on the EUR side with EUR 3bn FMS (Germany-guaranteed) 7 YRS at MS +16, EUR 1bn Rentenbank 8 YRS at MS +2 (probably a bit tight compared to FMS) and EUR 500m 10 YRS Austrian public sector covered bonds via Hypo Noe at MS +88.

Excluding the Monday movements in European sovereigns that were far from clear or understandable, the situation tonight shows Germany and the AAA gang taking out ever lower levels with especially  France and Spain on the laggard side, for know reasons, as well as tomorow’s auctions. Italy actually holding in line.
Oh, and remember the last “failed” German 30 YRS auction on 25 Apr with few bids at 2.41%? The bonds are now trading 2.33%...

Having a TV confrontation between polling favourite Hollande and incumbent Sarkozy tonight on French TV. Doubtful that this will bring the world and its problems much nearer to the French voter, given the conspicuous absence of these themes from the election campaign over the last weeks. Hence, the next steps in terms of economic governance, both domestic and European, given the weight of France, will probably only become clear in the coming weeks. Have noted Junker’s frustration with the Franco-German couple. Obviously, a Franco-German couple that was to find new marks wouldn’t ease his job…
Greek vote is next Sunday, too. Obviously, polling doesn’t seem to be permitted, but whatever pops up in the press, doesn’t look rosy with regards to fully-fledged support to the imposed austerity measure / EUR-membership.

10 YRS Yields: Germany 1,61% (-9); Luxembourg 2,09% (-12); Swaps 2,13% (-10); Finland 2,12% (-9); Netherlands 2,18% (-6); Austria 2,73% (-6); France 2,96% (-2); EFSF 2,95% (-11); Belgium 3,28% (-6); Italy 5,53% (-11); Spain 5,82% (-3).

10 YRS Spreads: Luxembourg 48bp (-3); Swaps 53bp (-2); Finland 52bp (-1); Netherlands 58bp (+2); Austria 112bp (+2); France 135bp (+6); EFSF 134bp (-2); Belgium 167bp (+3); Italy 392bp (-3); Spain 422bp (+6).

EUR swap curve 2-5 YRS 45,4bp (-4,8); 5-10 YRS 76,5bp (+1,9) 10-30 YRS 33,2bp (+3,4).
2 YRS German BKOs closed 0,08% (-2) and 5 YRS OBLs 0,57% (-7).

Main at 140 from 140 (unch); Financials at 239 after 245 (-2,6%). SovX at 275 from 275. Cross at 642 from 654.

Stoxx Futures at 2253 / -1,7% (from 2293) with the S&P at 1402 (+0,1% from 1400, at European close). Notre that France in Gallic pride is up 1% against the trend today.
VIX index at 17,2 after 16,2 Friday same time.

EUR 1,316 after 1,326                                                                                                                    
ECB deposits at EUR 789bn after EUR 793bn.
Oil 105,3/118,1 (WTI/Brent) from 104,2/119,5 (+1,0%/-1,2%). Gold at 1652 after 1655 (-0,2%). Copper at 378 from 377 (+0,3%). CRB closes 305,3 from 303,3 (+0,6%).
Commodities slightly uneven to unchanged firmer compared to Friday.
The Baltic Dry fell 0.3%  to 1149 today. It peaked at 1156 last Friday, then closing 1155 Mon and 1152 Tue. First 3-day slide since bottoming out early Feb and sliding just a little mid Feb. Since then it had become a one-way street until this week. Then again, rates about doubled from the through. Still, the 12m average is just shy of 1400 (1394).
All levels European COB 18:25 CET (compared to Friday 15:00 CET)

Rest of the week:
Thursday will be action-packed with auctions both in France and in Spain and then ECB. EZ PPI fcst 3.4% (after 3.6%), knowing that past inflation data in Europe has rather negatively surprised to the upside, which doesn’t help the ECB.
Last French 10 YRS auction level was 2.98% last month. Spanish 5 YRS came at 3.38% in March.

Very, very thin data flow until Friday’s US payrolls. Subject to all what comes up.

Friday further Services PMI round across Europe.

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