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 18 May 2012

18 May 2012 – "Last Dance " (Donna Summer, RIP, 1978)

18 May 2012 – "Last Dance " (Donna Summer, RIP, 1978)

Very weak US close, equally weak Asia on eurodepression (Grexit, Spain) and hence an equally weak open in Europe, although the panic is running out of fodder. Still, markets were good for a -1.5% test of the downside in early morning future trade before steadily crawling back up on absence of further concrete negative news.
Eventually, yesterday evening’s Moody downgrade of Spanish banks had been widely anticipated by then, although the harshness of the exercise maybe not. Fitch Greece downgrade not exactly exciting in “Ah?! So what? We all know the situation is what it is...”
Oh, we did trade a new all-time low in Bunds around 1.39% to kick off proceeding, while Spain spiked out to around 6.35% and Italy to 5.95%.

No major data flow to speak of. China home prices still pointing downwards, this, to the best of my knowledge, fits the goverment. German PPI surprising slightly on the downside at +2.4% YoY (fcst 2.5% after 3.3%). Italian Industrial order rebound at +3.5% (fcst 1%) probably helping stabilize things. Spanish bad loans unsurprisingly increasing.

Neither government supply nor new issues to close the week.

Whatever, by noon, the doom had petered out. Equities moved to slightly positive. Periphery bonds had made back some serious ground (tighter by 10 bp), while the Core (which had traded its umpteenth historic yield low) remained about unchanged. Funny to see all other indicators totally unchanged.
No real trigger for the turnaround. Bottom-fishing. Hopes the G8 would change something. Rumours that Greek voters would eventually stick to a pro-bail coalition. On my musing about contingent funding risks for Spain, ICO confirmed that, as a bank, it was able to fund via the ECB. Hmm, one problem partially solved. Won’t help people mulling about Target 2 and who’s funding who.

Anyhow, seeing low mail / update / news flow, lots of market players seem to have taken the decision to bridge Ascension Day into the weekend. Can as well be deducted from the Bund future volumes (666k on Monday, up to 879k on Tue, then a top at 1029k on Wed, still a hefty 682k yesterday and 525k today).
In absence of US figures, the market trailed sideways, awaiting American input – or not, and hoping for the weekend. End of day taking most assets to yesterday’s levels. Spain and Italian bonds giving back some / most of their gains, but closing a little tighter.

Is Facebook really worth EUR 104bn??? Hmmm. But, hey, MZ is a cool guy nonetheless. First quotes at $42.05 (from $38 issue level) but with some NASDAQ tech glitch (Bad omen?) delaying the party. Read it traded $70 in Europe. Odd. Utter flight to cyberspace?
Will wear a hoodie this weekend, if the FB close is reaaaally positive. Flip-flops, despite the cold, if the gain is more than 20% at COB...

Not exactly an inspiring day for mercantile scribes (link, sorry only in French)...

Greek bonds guestimates: 2023s probably unchanged at 29.50% and 2042s 22.25%. Quotes were 20.25% and 16.75% before the elections.

Closing levels:
10 YRS Yields: Germany 1,42% (unch); Luxembourg 1,90% (-1); Finland 1,86% (-1); Swaps 1,95% (-2); Netherlands 1,91% (-2); Austria 2,58% (0); EIB 2,64% (-1); France 2,84% (-2); EFSF 2,81% (-1); Belgium 3,31% (+1); Italy 5,77% (-3); Spain 6,23% (-6).

10 YRS Spreads: Luxembourg 47bp (-1); Finland 44bp (-1); Swaps 54bp (-1); Netherlands 48bp (-1); Austria 116bp (unch); EIB 121bp (-1); France 142bp (-2); EFSF 139bp (-1); Belgium 189bp (+1); Italy 435bp (-3); Spain 481bp (-6).

EUR swap curve 2-5 YRS 36,7bp (-0,6); 5-10 YRS 60,2bp (-0,8) 10-30 YRS 21,7bp (-1,7).
2 YRS German BKOs closed 0,05% (+1) and 5 YRS OBLs 0,49% (+1).

Main at 181 from 181 (unch); Financials at 306 after 303 (1,1%). SovX at 311 from 308. Cross at 750 from 751.

Stoxx Futures at 2124 / -0,2% (from 2129) with the S&P at 1302 (-1,7% from 1325, at European close).
VIX index at 22,3 after 22,3 yesterday same time.

Oil 92,3/107,3 (WTI/Brent) from 93,1/109,5 (-0,9%/-2,0%). Gold at 1596 after 1550 (+3,0%). Copper at 350 from 352 (-0,4%). CRB closes 289,4 from 289,4 (+0,0%).
EUR 1,273 after 1,270, after a 1.265 low print this morning.

ECB deposits down to EUR762bn from EUR 785bn.
All levels European COB 17:30 CET

On the week (compared to Fri 11 Mai close):
What a weak week for RISK! Monday’s Holy Diver, following last week’s Moby Dick, was followed by a Greased Lightnin’, superseded by a Spell put upon the markets that didn’t change the fact that the whole boat went rockin’...

10 YRS Yields: Germany 1,42% (-9); Luxembourg 1,90% (-8); Finland 1,86% (-11); Swaps 1,95% (-6); Netherlands 1,91% (-12); Austria 2,58% (-1);EIB 2,64% (-3); France 2,84% (+5); EFSF 2,81% (-4); Belgium 3,31% (+16); Italy 5,77% (+27); Spain 6,23% (+24).

10 YRS Spreads: Luxembourg 47bp (+1); Finland 44bp (-1); Swaps 54bp (+2); Netherlands 48bp (-3); Austria 116bp (+8); EFSF 139bp (+5); France 142bp (+14); Belgium 189bp (+25); Italy 435bp (+36); Spain 481bp (+33).

Did we mention the recurrent new lows in Bunds and the EZ Hard Core? Ah, yes, repeatedly, so we won’t do again. So what’s the story of the week. Periphery out by up to 35bp before paring some of the losses, but still out by next to 20bp. Spain did hit 500 to Bunds. France holding about stable this week with the new government now in place. Spread to Germany certainly wider, as Austria / France / EFSF / EIB are running some Sot Core pivot function here.

EUR swap curve 2-5 YRS 36,7bp (-2,1); 5-10 YRS 60,4bp (-4,6) 10-30 YRS 22,2bp (-1,9). Hail 5s, as 2s are so pass├ęs these days.
2 YRS German BKOs closed 0,05% (-3) and 5 YRS OBLs 0,49% (-6), on the week. How low can you go? Same as for swaps. High 5 the 5s.

Main at 181 from 158 (14,4%); Financials at 306 after 265 (15,7%). SovX at 311 from 285. Cross at 750 from 687.
Persistently, be it because of Cetacean knock-offs or because of general distrust, Credit traded heavier than equities.

Stoxx Futures at 2124 / -4,8% from 2232 with the S&P at 1302 / -4,4% from 1362, at European COB last week.
VIX index at 22,3 after 18,9 last week.

Oil 92,3/107,3 (WTI/Brent) from 96,7/112,5 (-4,6%/-4,6%). Gold at 1596 after 1589 (+0,4%). Copper at 350 from 366 (-4,4%) . CRB closes 289,4 from 293,1 (-1,3%). Massive risk off mood reflected in commodity prices, as was the decline in EUR.
Baltic Dry was a little wobbly, but closed at 1141 from 1138.
EUR 1,273 after 1,294 last Friday, with a 1.265 low print this morning.

Next week:
Lighter in terms of periphery supply, so less stress. Belgian auction on Mon (5, 10 & 15 YRS), explain the relative heaviness seen since yesterday. Otherwise, bills in GE, FR and NE on Monday.
Don’t see much else or big data slated for Monday (US Chicago Fed).
Full-run down next week.

Click link on title or below for today’s musical support:
(Not that Disco is my favourite music, but there were some greats then and she was certainly among them! RIP)

Thursday 17 May 2012

17 May 2012 – "Rock Me Baby " (The Rolling Stones with AC/DC, 2003)

17 May 2012 – "Rock Me Baby " (The Rolling Stones with AC/DC, 2003)

Cautious open after an eventually weak US open, but with some stimulus hopes read between the lines of the FED minutes. Likewise, spot the odd ones out, overnight news of better than expected Japanese (and Singaporean) Q1 GDP readings of 1% QoQ, respectively x, gave some comfort. Still, having tried a 0.5% upside in pre-open, a 0.5% slide seemed eventually more appropriate given the low hanging clouds of Grexit. Remember that Europe is half-closed anyway on Ascension day with a bridge to the weekend looming just thereafter (despite the poor weather outlook).
Hence not much at open. Bonds about put, with maybe Spain a touch weaker ahead of the auction. Brent soft-ish. EUR still trading on the low of the 27 handle. Frankfurt rather blockuppied, if I’m not mistaken.

No major data flow to speak of. Spanish GDP unsurprisingly confirmed into recession at -0.3 QoQ / -0.4% YoY, after prior -0.3% QoQ.

Government bond supply with Spain alone on the floor. Eventually the EUR 2.5bn were about covered, in healthy BC ratios, albeit at a steep price: a short combined EUR 1.4bn in 3 YRS at 4.38% and 4.88% (after respectively 2.89% in Apr and 4.04% early May) as well as EUR 1.1bn in 5s at 5.11% (after 3.37% in Mar). 3 YRS at that level sets the Spanish market seriously back to pre LTRO announcement levels with the high paid at 5.19% ion December 2011.
Then again, cover was good (given the level), but the costs are growing. Eventually, the Spanish Tesoro is advancing fast in its funding programme, but that would be solely its own.
Contingent needs for the government-guaranteed entities like ICO, the FROB and FADE, who all haven’t issued for a while, might at some stage pile up, as is the one of Spanish regions.

Whatever, so no surprise here, but the confirmation of the reality has sent RISK spinning again. By end of lunchtime, Bunds were down 5bp to a new all-time low (Yes, another one) of 1.42%, while the periphery was 7-10 wider with Italy nearing again symbolical levels of 6% (5.90%) again and Spain 6.50% (at 6.35%). Core “light” acting as pivot with Austria and France, the EFSF and the EIB treading water. 2 YRS swaps back through 2%.
Equities down 1.5%, flirting again with this week’s lows.
Further, contingent, stress in banks: Catacean losses; rumours that after Italy’s 26; Moody’s would go down on over 20 Spanish banks; cash retrievals in Greece and at recently nationalized Bankia. Adding 10 ticks to Financials, just shy of 300 and 5 to Main. EUR cutting through 1.27 over noon.

No major reaction to the French government nominations with Moscovici, a known Euro-phile, running Finances (Although, he did repeat in one of his first interviews that France wouldn’t sign the compact as is). Fabius nomination might be a bit touchier for some, as former EU Treaty opponent, and certainly less welcome in some regions of the Pacific. But realpolitic will be realpolitic. New PM hailed for speaking German.

Afternoon session started with US claims at 370k (fcst 365k after 367k, revised upwards). Not good, but given tested levels, not bad enough to push out risk further. I did help the EUR to spike back over 1.27, though. A tame opening in US futures, then further a bit of recovery with the periphery actually paring losses, but with the Core keeping the new all-tile lows. Odd... Leading indicators unexpectedly at -0.1% (fcst +0.1% after +0.3%), but here again, tame disappointment. Closing off, but still quite near lows.

Obviously, Armageddon was not due today. Then again, European markets were half staffed at best... Then again, negative close on 2-month low. Credit really heavy with especially financials past 300.

Greek bonds guestimates: 2023s probably unchanged at 29.50% and 2042s 22.25%, from Tuesday’s 29.0% and 23.25% (in yield), so a bit twisty. Talking about low double digits in price terms (14 and 12.50 cts on the EUR).
Quotes were 20.25% and 16.75% before the elections 10 days ago.

Closing levels:
10 YRS Yields: Germany 1,43% (-4); Luxembourg 1,90% (-3); Finland 1,87% (-4); Swaps 1,97% (-2); Netherlands 1,92% (-5); Austria 2,58% (-2); EIB 2,65% (0); France 2,86% (-2); EFSF 2,82% (-2); Belgium 3,30% (+6); Italy 5,81% (-1); Spain 6,29% (+2).

10 YRS Spreads: Luxembourg 48bp (+1); Finland 45bp (+0); Swaps 55bp (+3); Netherlands 50bp (0); Austria 116bp (+2); EIB 122bp (+4); France 144bp (+3); EFSF 139bp (+3); Belgium 188bp (+11); Italy 438bp (+4); Spain 486bp (+6).

EUR swap curve 2-5 YRS 37bp (-1,8); 5-10 YRS 61bp (-1,2) 10-30 YRS 23,6bp (+0,5).
2 YRS German BKOs closed 0,05% (-2) and 5 YRS OBLs 0,48% (-4).

Main at 181 from 177 (2,1%); Financials at 303 after 289 (5,0%). SovX at 308 from 302. Cross at 751 from 737.

Stoxx Futures at 2129 / -1,2% (from 2155) with the S&P at 1325 (-0,9% from 1337, at European close).
VIX index at 22,3 after 21,2 yesterday same time.

Oil 93,1/109,5 (WTI/Brent) from 93,7/111,7 (-0,6%/-2,0%). Gold at 1550 after 1543 (+0,4%). Copper at 352 from 350 (+0,5%). CRB closes 289,4 from 288,9 (+0,1%).
Baltic Dry was fixed unchanged at 1137.
EUR 1,270 after 1,272

ECB deposits down EUR 3bn to EUR 785bn.
All levels European COB 17:30 CET

German PPI fcst at 2.5% after 3.3% YoY / +0.3% MoM. IT Indu Orders at +1% MoM fcst after -2.5% (Might be too high, though). That’s all folks, not even US figures, outside some possible prior data revision. Not even an auction...

Click link on title or below for today’s musical support:
(Both Young Brothers among the most under-rated Blues players around, especially Malcom. Keith is Keith and what would he be without Ronnie??? But who’s that guy, who keeps jumping around???)

Wednesday 16 May 2012

16 May 2012 – "I Put A Spell On You " (Screamin Jay Hawkins, 1956)

16 May 2012 – "I Put A Spell On You " (Screamin Jay Hawkins, 1956)

Nothing like some self-satisfaction. Yesterday’s “Greased Lightnin’ “title of the wrap was just so prescient… Chosen before Hollande’s plane got stricken by lightning (Was it Zeus’ ire???). Whatever. Padding my own shoulder: Well done.

The first Merkollande meeting yielded the expected results (as in “No, there was no clash”) and some support for Greece staying in the euro-zone, but obviously that decision depends on other factors, namely the Greek people in the first place. Had Lagarde stating that one couldn’t exclude a Grexit, just another official statement of evidence. Evidence as well seems to show that Greeks withdrew EUR 700m of cash out of their banks lately…
US equities closed in the red, again, pretty much on the lows, after having trailed higher after European close and down over 1% from the day’s highs. Asia actually rather resilient (Well, down, but not out), but with losses speeding up once European futures started to trade, opening down another 1%. EUR joining the plunge and nearing lows traded in early 2012 (1.2675) with a 1.268 LOD.

Had a bloody European bond opening with Italy and Spain hit hard and trading out by up to 15 bp in 10s, hitting symbolic levels of 6% and just short of 6.50%, as well as 500bp to Bunds, for Spain. Gulps!
Still, once having traded out new lows for this year, and with no bad news striking, things somehow relaxed, especially after the French auction results.
No European figures with exception of EZ CPI for April with an expected +2.6%, down from the initial sticky 3% to 2.7% we had since Q4/2011.

Government bond supply with France with hitting the targeted EUR 8bn with all rates (exactly) 11bp lower than one month ago, which in itself is no real surprise, but reading it seems to have reassured markets. EUR 2.5Bn 2s at 0.74% (after 0.85%), EUR 0.9bn 3s at 0.95% (after 1.06%), EUR 0.9m 4s at 1.37% and finally EUR 3.7bn 5s at 1.72% (after 1.83%). Needless to stress that one month ago French 10s were trading 3.09% (compared to this morning’s 2.90%). Spread to Germany was then little changed from today at 139. But then again, French auctions are well orchestrated and don’t fail. Added about EUR 1.2bn in 10-15 YRS ILBs later. Higher rates though…170 bp to the curve for 10 YRS ILB seems cheap with regards to actual inflation. It’s a technical market, though. Maybe explained by the demand for a higher credit premium.
The other auction exercise of the day was the umpteenth attempt to see how low one could sell German Bunds and this happened to be at 1.47% today (EUR 5bn sold at 1.47%, of which about EUR 900m retained for market interventions). It’s worth noting that, unlike at the last sales, the auction was oversubscribed with EUR 6.1bn in bids, of which more than half were non-priced, meaning “at market”. 1cts of tail. All-time low were about 1.435% traded Monday morning and briefly during this morning’s bleak open. If that result is not a cry of desperation, what is???

Somehow, this result spoiled the mood somewhat. Having traded up a small 1% after the publication of the French auction results, and briefly dipped into positive territory, we had a bit of a slump with equities staying slightly in negative.

Once more equities so much more resilient and sanguine than credit, which just keeps trading like a damp mattress. Main opening more than 5 wider and sticking there. Financials nearly 10 wider, before recovering somewhat. Need equities to all turn positive over lunchtime to have both indices take back 2 ticks from their high print.
Eventually by noon, it was decided that the world was not gonna drown today and the periphery swung back with a vengeance, tightening by 5 to 10 from yesterday and hence by up to 25 bp from the opening highs.

Talking about the periphery, given late volatility and actual levels, don’t be surprised, if haircut increases rumours from the clearing houses pop up.
On this week’s auction menu, we actually still have Spain left with EUR 2.5bn 3 to 5s left to sell tomorrow. The unlucky thing is that tomorrow is a holiday in large parts of Europe. Then again, a lot as been said about how the LTROs have pushed the domestification of the periphery debt, so it will be up to the Spanish banks to step up to the plate. Getting into fado mood, when seeing Portuguese Q1 unemployment figures rising further to 14.9% (after 14%). Better than the neighbour, but hard nevertheless.

One lone (courageous) covered bond offering by Finnish OP Mortgage Bank for a well-received EUR 1.25bn of 5 YRS at MS+32 (after initial pricing thoughts of mid to high 30s). Managed to price through secondaries. Ah! Nordic covered bonds’ magic. Always works! Always puts investors under a spell.

US Mortgage applications on the rise (lower yields). Housing starts at 717k higher then expected (685k) with prior data revised upwards, too. Upwards revision of building permits as well. Ind Production printing higher than forecast at 1.1% (fcst 0.6%), but with prior data pretty similarly revised downwards, hence rather neutral. Pretty much same for capacity utilization. Oil stocks higher than expected, but compensated by higher draws of distillates and gasoline.

Afternoon session marked by divine interventions. After Zeus, we had Hermes, protector of commerce (certainly including traders) (and anecdotically although of thieves) (certainly including...euh... lots of folks) putting a spell on the mood. The official announcement / confirmation at 14:000 CET of another round of Greek elections on June 17 was just a blip on the screens and simply went widely ignored. Could have been some kind of Jedi mind trick, too.  (link). "This isn’t the crisis you’ve been looking for…" Especially when the ECB solely spells out a “strong preference for Greece not to Grexit”, but then again, can’t probably say much more.
Is it the less austere announcement of a pay increase of government ministers in Germany that had Bunds tanking about the same time? Had Italy and Spain trade up to 12 bp tighter, before giving back some into the close, as were equities, although by then credit had decided to come back. Understand who wants...
Eventually rumours into the close that the ECB was halting lending to Greek banks unless a recapitalization of the latter by the EFSF was sped up brought things back into reverse, with the EUR immediately loosing 50 pips before rebounding 25 and equities brought back to unchanged / negative territory. I hate COB rumours, as within 30 minutes what sounded sensible makes you look like a complete fool…

EUR slipping into levels unseen for a while. Had a low of 1.2675 early this year. Similar level in Q4/2010, then recovering from a 5-YRS low in the 1.20 area (Summer 2010)(Hey, wasn’t that already Greece???). Had before that 1.25 / 1.27 area as support after th post-Lehman crash from 2008.  Moved out from 1.27 to steadily rise to that 1.60 starting Summer 2006. So, presto, we are starting to get near to key levels. A breach of the 1.26 / 1.27 area would be real bad from a technical point of view. Knock-on effect on commodities will cease at some point, which brings us back to imported inflation (bad for all), but enhanced export possibilities (Good for Germany).

Greek bonds guestimates: 2023s probably worth 29.50% and 2042s 22.25%, from yesterday’s 29.0% and 23.25% (in yield), so a bit twisty. Talking about low double digits in price terms (14 and 12.50 cts on the EUR).
Quotes were 20.25% and 16.75% before the elections 10 days ago.

Closing levels:
10 YRS Yields: Germany 1,47% (+1); Luxembourg 1,94% (+2); Finland 1,92% (unch); Swaps 1,99% (+2); Netherlands 1,97% (unch); Austria 2,61% (+1); EIB 2,65% (+3); France 2,88% (-1); EFSF 2,84% (+2); Belgium 3,24% (-1); Italy 5,81% (-5); Spain 6,27% (-6).

10 YRS Spreads: Luxembourg 47bp (+1); Finland 45bp (-1); Swaps 52bp (+1); Netherlands 50bp (-1); Austria 114bp (unch); EIB 118bp (+1); France 141bp (-3); EFSF 137bp (+1); Belgium 177bp (-2); Italy 434bp (-6); Spain 480bp (-7).
Lacklustre hard core EZ, except into the close. Shouldn’t last. Too bad it loaded up on an auction near the lows.

EUR swap curve 2-5 YRS 38,8bp (+2,9); 5-10 YRS 62,2bp (+0,7) 10-30 YRS 24bp (+1,2).
2 YRS German BKOs closed 0,06% (unch) and 5 YRS OBLs 0,52% (+2). Are you kidding, no one loved BOBLs no more???

Main at 177 from 175 (1,4%); Financials at 289 after 289 (-0,2%). SovX at 302 from 298. Cross at 737 from 738.
Credit so heavy and static. Won’t tighten. Will bring equities down – or suddenly snap tighter. Sense the first option, though.

Stoxx Futures at 2155 / +0,0% (from 2154) with the S&P at 1337 (-0,2% from 1340, at European close).
VIX index unchanged at 21,2 from yesterday same time.

Oil 93,7/111,7 (WTI/Brent) from 94,6/111,9 (-1,0%/-0,2%). Gold at 1543 after 1554 (-0,7%). Copper at 350 from 352 (-0,7%). CRB closes 288,9 from 288,5 (+0,2%). Still bleeding.
Baltic Dry index stopping late slippage and adding 7 to 1137.

EUR 1,272 after 1,276
ECB deposits just about unchanged at EUR 788bn.
Given the speed of this piling up and the ambient mood, we’re bound to break the early March high of 828bn very soon. While at that time, it was spare LTRO #2 money that hadn’t yet found enough periphery bonds to sink its teeth into, where is that now coming from (outside the unwillingness to lend to anyone else???).
All levels European COB 17:30 CET

Rest of week:
Tomorrow will be Ascension Day in most of Continental Europe and will probably be bridged into an extended weekend by numerous players.

Germany: Fri PPI
Other EU: Ind orders Fri. SP GDP on Fri.
US: Thu claims & Leading Ind. Fri nada.

Click link on title or below for today’s musical support:
(Additional link because it was so cool when entertainers were entertaining http://youtu.be/a1AE_bCoPSI )


Tuesday 15 May 2012

15 May 2012 – "Greased Lightnin’ " (John Travolta, 1978)

15 May 2012 – "Greased Lightnin’ " (John Travolta, 1978)

US equity close off intra-day highs and in the red, following the European lead (although to a lesser extent). Asia actually quite resilient in that context with a mixed to flat close (helicopter view), in any case better on a 2-day basis.
Seemingly the US sentiment was seemingly more affected by Moody’s downgrade of 26 Italian banks than Europe.

Rather positive European open backed by the first set of GDP figures, although that petered out somewhat as more were published. France opened the dance with an expected flat reading (although prior data was revised down from +0.2% to +0.1%), hence a sluggish stand-still. Germany then with a higher than expected 0.5% gain in GDP (QoQ, sa) (forecast had been +0.1% after -0.2%). French CPI a tick lighter at 2.4% Austrian GDP a tick up, but the Netherlands clocking in a third quarter of negative growth at -0.2%. Italy heavy and a tick softer than expected at -0.8% (after -0.7%). That’s a -1.3% YoY and as well a third quarter of contraction, so we’re slipping into a real recession here. Greek GDP (YoY) at -6.2% (after -7.5%), that’s something like the 13th negative reading in a row; bare an uptick in Q1/2010. Hard.
Euro-zone GDP reading at flat, both QoQ and YoY, better than the expected -0.2%.
Finally, the German ZEW figures offered a mixed reading with economic sentiment at 10.8 against a forecasted 19 and prior 23.4, somehow against the trend that German GDP figures were drawing, but with current conditions at 44.1 after 40.7 and a forecast of 39. Then again last economic sentiment readings were a 2-year high, oddly against the prevailing European mood (European ZEW at -2.4 after 13.1). Sector reading shows that basically only retailing has improved markedly (given wage increases, my guess). Finance unsurprisingly bleak. Cars, electronics, machinery, construction all less upbeat. Back to Earth.

Risk appetite then slipping again a little and markets back to closing levels throughout most asset classes. Govies overall slightly heavy from yesterday’s record lows for the Core with the periphery gently back to tickle yesterday’s highs (5.75% in Italian 10s and 6.25% for Spain). Credit indices taking a breather for last days’ depression.

Greece raised EUR 1.3bn 3m bills at 4.34% after 4.2% in April.  Need to roll EUR 1.6bn of 3m bills issued in Feb. Targeted were EUR 1bn, but then again, Greece confirmed it would indeed redeem today’s hold-out issue with EUR 436m outstanding. Plus the EFSF had sent over EUR 4.2bn last week. Still, that preferential treatment of the holders of this very issue will certainly have lots of people mulling over Greek debt holder treatment, the whole EUR 100bn PSI exercise and will certainly keep any further hold-outs from changing their stance.
Seeing next redemptions some EUR 3.3bn to the ECB and EIB (non-PSIed) and then EUR 9.6bn of bills (including today’s) until mid-August. “Real” PSI held-out bonds maturing seem thus to be limited to some Hellenic Railways bonds due in Sep and Dec.

Belgium raised a total of EUR 3.4bn in 3 and 12m bills at 0.20% and 0.63% respectively.
Taking of the EFSF, it raised EUR 960m of its outstanding 5 YRS May 2017 at 1.83% via auction.

New issues restricted to yet another EIB (sizeable) EUR 1bn increase of a 15 YRS benchmark at MS+84 and we had a pre-marketed, unrated Bureau Veritas raising at the wider end of EUR 300 to 500m of 5 YRS at MS +250.
Had flight to quality USD offerings via Denmark’s USD 1.75bn 3 YRS at MS -9 and an EBRD 5 YRS increase.

Mixed serving of US figures, mostly in line with expectations: CPI 2.3% (cum and ex), Retail sales a mere +0.1% (after 0.8%) confirming some slow down in things. Empire State manufacturing higher than expected, but it’s a noisy figure.
Final set of figures for the day via US biz inventories at 0.3% after 0.6% (fcst 0.4%) and NAHB Housing index higher than expected at 29 (fcst 26) after prior 24 (revised from 25). Mixed bag. Not enough to propel American risk appetite higher at open.

Afternoon session marked by the announcement that Greece was heading to new elections after all, triggering an immediate 2% equity slide / 5 bp uptick in Main. Cemented as well a 10 bp widening of Italy and Spain, hitting past 5.80% and 6.30% respectively.
Then again? Where’s the news here and markets crawled back from their lows…
And then slumped back to close near the lows. Credit persistently weak, after the early morning spurt.
Lightening is never said to strike over and over at the same place, but Greece does manage to.

Interesting lack of reaction of German and Core EZ bonds. Thin air up there. Only had a 50 cts uptick on the Greek news. Didn’t even manage to hit yesterday’s all-time high. Maybe next time… Then again: EUR 5bn of 10s on the block tomorrow for Germany. Chances are that, as now usual, the BuBa will have to pick up some slack/ Chances are, it will manage to get rid of them in the next panic attack…Having as well EUR 7 to 8bn 2014, 2015, 2016 and 2017 French bonds and EUR 800m to EUR 1.2bn French ILB. Rare gathering of auctions, as the French one was brought forward from Thursday (Ascension Day) to Wednesday. Will thus be the new French government’s opening encounter with “cet adversaire, c'est le monde de la finance” (sic). Then again, it should fare ok, as French auctions tend to fare ok.

Greek bonds guestimated wider again: 2023s now probably worth 29.0% and 2042s 23.25%, up from yesterday’s 27.5% and 21.5% (in yield). Talking about low double digits in price terms (14.5cts and 12 cts on the EUR). Quotes were 20.25% and 16.75% before the elections 10 days ago.

Closing levels:
10 YRS Yields: Germany 1,46% (unch); Luxembourg 1,91% (unch); Finland 1,92% (unch); Swaps 1,96% (+1); Netherlands 1,97% (unch); Austria 2,59% (+1); EIB 2,62% (+1); France 2,89% (+7); EFSF 2,81% (unch); Belgium 3,25% (+5); Italy 5,86% (+17); Spain 6,33% (+13).

10 YRS Spreads: Luxembourg 46bp (unch); Finland 46bp (-1); Swaps 51bp (unch); Netherlands 51bp (unch); Austria 114bp (+1); EIB 117bp (+1); France 143bp (+7); EFSF 136bp (unch); Belgium 179bp (+4); Italy 440bp (+17); Spain 487bp (+13).
Spain closing at the weakest since end of November. LTRO all faded out on the long end. Likewise, Italy dragged back to early Feb levels. Tipping point level discussions to flare soon.
France heavy again with an auction looming tomorrow. Spread widens bit by bit by bit... Like I said, note that Germany and the Core are struggling to push lower for the moment.

EUR swap curve 2-5 YRS 35,7bp (+0,2); 5-10 YRS 61,6bp (+0,5) 10-30 YRS 22,8bp (-0,4).
2 YRS German BKOs closed 0,06% (unch) and 5 YRS OBLs 0,50% (+1).

Main at 175 from 169 (3,5% softer); Financials at 289 after 282 (2,7% softer). SovX at 298 from 294. Cross at 738 from 717.

Stoxx Futures at 2154 / -1,3% (from 2183) with the S&P at 1340 (+0,1% from 1338, at European close).
VIX index at 21,2 after 21,4 yesterday same time.

Oil 94,6/111,9 (WTI/Brent) from 94,3/110,8 (+0,2%/+1,0%). Gold at 1554 after 1561 (-0,4%). Copper at 352 from 356 (-1,1%). CRB closes 288,5 from 288,5 (0,0%).
Baltic Dry index still in reverse gear at 1130 from 1132.

EUR 1,276 after 1,285
ECB deposits at EUR 788bn after EUR 763bn.
All levels European COB 17:30 CET

Rest of week:

As a reminder, Thursday will be Ascension Day in most of Continental Europe and will probably be bridged into an extended weekend by numerous players. Hence a shortened week with quite some heavy auction supply until Wednesday. Spain a little alone with its EUR 2.5bn auction on Thu. French BTAN auction brought forward by one day and together with 10s on Wed.

Germany: Fri PPI
EZ: Wed CPI 2.6% YoY
Other EU: Ind orders Fri. SP GDP on Fri.
US: Wed Housing Starts, Industrial Prod, Thu claims & Leading Ind. Fri nada.
Asia: China light. Japan Wed Machine Orders +4.4% YoY (after +8.9%). Q1 GDP QoQ +0.9% (after -0.2%). Indu Pro

Click link on title or below for today’s musical support:
(No water today...)

Monday 14 May 2012

14 May 2012 – "Holy Diver" (Dio, 1983)

14 May 2012 – "Holy Diver" (Dio, 1983)

Weekend reading full of reports about the life of cetaceans…Fall-out probably on increased Volker rules – and on increased corporate spreads, at least in the US.
Pretty much as expected, given last week’s figures, China cut RRR by 50bp (to 20%. So it’s not like the Chinese economy will be hit with a cash deluge). Asian session actually rather balanced, if not positive. Those in the red are the markets that were not yet closed, when Europe started.

Pre-opening futures down by 1%, and then adding a further 1% in the following hour and tanking further. Greek woes. German NRW election results, which might put Merkel in an uneasier seat to govern. Austerity or not, one certainly doesn’t need inner-German dissent on the matter, as the European tensions are already running high enough.

Then equities had behaved bizarrely optimistic lately against a background of softer US equities and very heavy European credit indices. So that feels about sane.

No European good figures to change the course of things. Note that Italian CPI is still running at the course of 3.7% YoY, which won’t help Italian consumers. EZ Industrial Production diving to -2.2% YoY (after prior revised to -1.5% and a -1.4% forecast).

Spanish bill auction yielded EUR 2.2bn 12m at 2.99% and EUR 700m 18m at 3.30%. Maximum targeted amount had been EUR 3bn, so the usual “they couldn’t raise in full” attitude came through again. Another 20bp or so compared to last month (2.62% and 3.11% respectively) and lower bid to cover ratios. Aye aye aye…

Italy then pacifying things the mood a little with EUR 3.5bn 3 YRS sold at 3.91% (after 3.89% last month) and hitting the targeted EUR 3.5bn, although the BC of 1.5, even if better than last time, doesn’t point to a huge crow pleaser. Rounded up things with EUR 651m 10s at 5.66% and EUR 542m 2020 at 5.33%. BTP yields down over 6bp after auction results publication.
Finland discreetly raised EUR 1bn of 5 YRS via one of its rare auction. Yield of 0.872% with a 2.2 B/C.
To round off sales, France issued in the afternoon about EUR 4bn 3m bills at 0.07%, EUR 1.8bn 6m at 0.11% and EUR 1.5bn 12m at 0.19%. More or less unchanged from last sales. EFSF to auction EUR 1bn of its 5 YRS tomorrow.

New issues restricted to Land NRW (the one that voted yesterday) (Germany’s biggest) with EUR 500m 7 YRS raised at MS +15. Had last issued 6 YRS at +12 end of Mach.

Grexit? Officials definitively talk about the leaving the Club in more and more open manner, be it in Germany (Duh!) or elsewhere. Not sure one really wants to look forward to that (even with further EU support) as reverting to a new currency would entail a stealth decision and implementation, closing banks and ATMs, locking up the country for a couple of days to avoid capital flight (or what’s still left of it) and all sorts of politically and civically doubtful things.

Bund yields down to 1.45% and Spanish yields up one way, adding a staggering 25 bp to 10s. Italy hit, too, same punishment. Although here, auction supply and pre-hedging would explain some of the movement. Contagion is in the room. Getting back to tipping point levels with BTPs trading 5.75% and BONOs 6.25% by late morning.Credit heavy, heavy, heavy… Whale-thing won’t help. Commodities hit in similar manner.
European equities down over 2.5% during the lunch period, before recovering a quarter ahead of US opening (no figures, though). Hovering about 1% above the late lows. Very near Fibonacci retracements of the Sep / Mar move (2192 €Stoxx, 3040 CAC). DAX running a different course. Southern Europe already outside competition and going for no-limit free diving. End of afternoon slightly less distressed, as most ugly news had already been digested.

Afternoon session not really getting off the sea floor. Spain back over 6.25%. Italy 20 bp wider, but under the wides of the morning; France and Belgium as well trading a bit wider, not joining in the Core EZ plus exercise of testing of new lows. German 2 YRS now trading a mere 0.06%.

Credit off highs, but barely so. Main looks technically shaky on the 170-172 retracement. Likewise for financials around 275-280. Breaching these would somehow mean returning to last year / years highs: 220 for Main & 365 for financials. Picture is actually similar for Cross, which has broken the 685-90 area.

Greek bonds quoted ever lower and 2 points lower (in price). 2023s now probably worth 27.5% and 21.5%, up from Friday’s 24.5% and 18.75% (in yield). Quotes were 20.25% and 16.75% before the elections 10 days ago.
Seemingly no decision taken at this stage on the EUR 450m non-PSIed FRNs due tomorrow. Chewing on the docs to see how many days grace period can that be dragged out before calling it a default. Looks like a small month, if I’m not mistaken ( 7. EVENTS OF DEFAULT If any of the following events (each an Event of Default) occurs: (a) the Republic defaults in any payment of interest in respect of any of the Notes or Coupons and such default is not cured by payment thereof within 30 days from the due date for such payment; or(…)).
Well, as it happens, Greece is planning to raise EUR 1bn of 3m bills tomorrow.

Closing levels:
10 YRS Yields: Germany 1,45% (-6); Luxembourg 1,91% (-6); Finland 1,92% (-5); Swaps 1,96% (-6); Netherlands 1,96% (-6); Austria 2,58% (-1); EIB 2,61% (-6); France 2,82% (+2); EFSF 2,81% (-4); Belgium 3,20% (+5); Italy 5,69% (+19); Spain 6,20% (+21).

10 YRS Spreads: Luxembourg 46bp (+0); Finland 46bp (+1); Swaps 51bp (unch); Netherlands 51bp (unch); Austria 113bp (+5); EIB 116bp (unch); France 137bp (+8); EFSF 136bp (+2); Belgium 175bp (+11); Italy 424bp (+25); Spain 475bp (+27).
Today’s candidates for diving below the 2% mark in 10s are the swap market as well as the Netherlands. France not profiting…

EUR swap curve 2-5 YRS 35,4bp (-3,4); 5-10 YRS 61,2bp (-3,8) 10-30 YRS 23,2bp (-0,9).

2 YRS German BKOs closed 0,06% (-2) and 5 YRS OBLs 0,50% (-5). Say didn’t we trade new lows? Again?

Main at 169 from 158 (6,7% wider); Financials at 282 after 265 (6,4% wider). SovX at 294 from 285. Cross 20 wider at 717 from 687.

Stoxx Futures at 2183 / -2,2% (from 2232) with the S&P at 1338 (-1,8% from 1362, at European close).
VIX index at 21,4 after 18,9 yesterday same time. Oops.

EUR 1,285 after 1,294
ECB deposits at EUR 763bn after EUR 703bn. Quite a surge compared to the last beginnings of reserve maintenance period. It’s not like people are serene out there.

Oil 94,3/110,8 (WTI/Brent) from 96,7/112,5 (-2,5%/-1,5%). Gold at 1561 after 1589 (-1,8%). Copper at 356 from 366 (-2,7%). CRB closes 288,5 from 293,1 (-1,5%). Commodities largely hit. Weaker EUR. China. You name it. (Baltic Dry?)
Another fall in the Baltic Dry index taking it back to 1132 from 1138 on Friday. Can’t call it a dive at this stage, but it’s the coal mine canary of world trade.
All levels European COB 17:30 CET

This week:

As a reminder, Thursday will be Ascension Day in most of Continental Europe and will probably be bridged into an extended weekend by numerous players. Hence a shortened week with quite some heavy auction supply until Wednesday. Spain a little alone with its EUR 2.5bn auction on Thu. French BTAN auction brought forward by one day and together with 10s on Wed.in rather light on hard data, although GDP readings across Europe will probably revive growth versus austerity discussions starting tomorrow. Happens to be the official start of the Hollande government: PM nomination and then trip to Berlin. Merkellande, here it comes...

Germany: Tue GDP +0.1% QoQ sa and especially ZEW 40 fcst for current situation. Fri PPI
France: Tue CPI. Wed GDP 0.0% QoQ
EZ: Tue Q1 GDP YOY fcst -0.2%  Wed CPI 2.6% YoY
Other EU: IT CPI on Mon & GDP Wed -0.7% QoQ and Ind orders Fri. SP GDP on Fri. Greek GDP on Tue
US: Tue CPI ex YoY 2.3% fcst. Retail Sales 0.1% after 0.8%, Wed Housing Starts, Industrial Prod, Thu claims & Leading Ind. Fri nada.
Asia: China light. Japan Wed Machine Orders +4.4% YoY (after +8.9%). Q1 GDP QoQ +0.9% (after -0.2%). Indu Pro

Click link on title or below for today’s musical support:
(Yeah. Easy, I know. Sticking to the underwater theme… PADI Divemasters do that...)