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 25 May 2012

25 May 2012 – " Mala Vida " (La Mano Negra, 1988)

25 May 2012 – " Mala Vida " (La Mano Negra, 1988)

Markets just remaining on the look out for every bit of Greek news and whiplashing back and forth on it. Had opinion polls showing Syrza in the lead as well as Monti stating the Greeks could remain in the EUR – or not – killing the European close rally mood and, after recovery, leading to a pretty flattish US close. Thus warned, and undecided, Asia went flat to slightly negative into the weekend, sparing itself manic-depressive swings.
Not much macro data to chew on to open the day. German consumer confidence flattish plus at 5.7 (fcst 5.6 unchanged, but prior revised to 5.7, too). French consumers a little more upbeat at 90 versus 88 unchanged fcst (here as well prior revised up one notch to 89). Italian Mar retails sales as expected down 0.2% MoM from a revised +0.9%.

Rather upbeat European open, after some pre-market future wobbles. Equities slightly stronger. Credit a tick tighter, financials catching up.

Again, after yesterday’s surge, French bonds had an explosive start, trading down up to 15 bp to hit new all-time lows at 2.415%. 5 YRS BTAN down through 1.25% and 2 YRS hitting 0.30%.
Zis ees zee Squeeeze! Haven’t yet been able to get to the real bottom of things. In my eyes, this looks far less like a sudden, fundamental change of view on France following the EU summit than some serious stop-out of major shorts. Given the speed and violence of the movement, this is a stop-loss situation, triggering stops on further shorts. There had been some discussions some months ago about how French bonds had become the collateral of choice to post (liquid, cheaper than Germany, but unlike Italy or Spain, less likely to suffer from a rise in haircuts). Might have been a major pre-election short gone sour, too. Or forced investment stops of lifers that had raised the foot from the pedal ahead of the elections. Whatever. I’d say there must be some blood on the wall somewhere, given the violence of the movement. Asian buying heard, too.
Whatever. Some respite from the French highs nevertheless by mid-morning.
Belgium to Spain in line with the movement, which had the advantage of taking Belgium through 3% (all-time low 2.83% in Aug 2010), Italy through 5.50% (all-time low 3.22% 21 Sep 2005) and Spain back to near 6% (all-time low here was 3.000% 22 Sep 2005).
For Financial Trivia freaks, Bunds were at 3.02% as well on 21 Sep 2005 and France was at 3.07%. Si! Spain traded negatively to Germany throughout the Summer of 2005…These were the days… (Source: Bloomberg)

Unsurprisingly, the upbeat mood didn’t withstand Belgium’s Reynders pondering Grexit, BuBa’s Weidman stating that the ECB had done all it could or other “contingency” (probably word of the week) musings or exhortations to the Greeks to remain on board.
So by lunchtime, things on my screens pretty much stood where there were at COB yesterday. France 4 tighter with Belgium. Italy and Austria 2 tighter. Bunds a tick wider. Financials 4 tighter. Spain flat.
After lunchtime, reverse time again: equities down 0.75%, credit flipping back to unchanged, Bunds and Core gaining a little and the Periphery out by 5 for Italy and 10 for Spain. No specifics: Cyprus bail-out, Grexit fatigue, Spanish region Catalunya vying for government help, US pre-open. Quite gloomy DB co-CEO outlook on Greece, Spain, banks. No data.
The question of Spanish contingent debt somewhat went under lately, even if the regions were asked to come up with figures Wednesday evening that showed a deficit of EUR 36bn (instead of the ear-marked EUR 8bn), next to EUR 15bn that were signed-off, these are some EUR 50bn that will need to be raised somehow.

EUR flirting with the 1.25 handle. The currency had tried to retake out the 1.26 at the open, having tested 1.253 on the latest Grexit comment in US trading and stuck there overnight in Asian trading, but failed to maintain the level.

US figures restricted to final University of Michigan confidence surprisingly posted at 79.3 on 77.8 unchanged fcst, helping RISK a leg up to close the week. At least for a while... Then everything drifting sideways into a sunny, extend weekend...

No government supply. Next to nothing in New Issues. As expected the UNEDIC deal was a nice windfall profit, on the back of the French squeeze (Priced MS +73 yesterday, now MS +60).
Large parts of Continental Europe are at least partially closed on Monday for Whit Monday. US closed for Memorial Day. Will thus be reduced activity or taking place in low volume. Periphery & UK open. Bund futures open.

Greek bonds guestimates: unchanged with 2023s at 30.0% and 2042s at 24.0%. Stable on all-time lows on exchanged bonds. Quotes were 20.25% and 16.75% before the elections.

Closing levels:
10 YRS Yields: Germany 1,37% (-2); Finland 1,76% (-2); Luxembourg 1,81% (-2); Swaps 1,80% (-3); Netherlands 1,87% (-1); Austria 2,33% (-3); France 2,51% (-3); EIB 2,54% (-3); EFSF 2,69% (-4); Belgium 3,05% (-2); Italy 5,65% (+8); Spain 6,30% (+16).
10 YRS Spreads: Finland 39bp (-1); Luxembourg 44bp (unch); Swaps 43bp (-1); Netherlands 49bp (+1); Austria 96bp (-1); France 114bp (-1); EIB 116bp (-1); EFSF 132bp (-2); Belgium 168bp (unch); Italy 427bp (+10); Spain 493bp (+17).

French bonds had an explosive start, trading down up to 15 bp to hit new all-time lows at 2.415%. 5 YRS BTAN down through 1.25% and 2 YRS hitting 0.30%. Bunds closing near 1.35% all-time low of yesterday.
Spain heavy. Had seen 6.45% at the worst last week, but had closed much better around 6.05%. Today started well and ended bad. Italy tagging along

EUR swap curve 2-5 YRS 37,1bp (-0,5); 5-10 YRS 59,9bp (-0,9) 10-30 YRS 19,1bp (+2,5).
2 YRS German BKOs closed 0,05% (-1) and 5 YRS OBLs 0,45% (-1).
OBL new low 0.42% yesterday and 2 YRS 0.03% this morning.

Main at 174 from 174 (unch); Financials at 297 after 293 (1,2% softer). SovX at 316 from 311. Cross at 717 from 716.

Stoxx Futures at 2154 / +0,4% (from 2146) with S&P minis at 1320 (+0,0% from 1319, at European close).
VIX index at 22,1 after 22,2 yesterday same time.

Oil 91,0/106,8 (WTI/Brent) from 91,2/106,6 (-0,2%/+0,3%). Gold at 1567 after 1572 (-0,3%). Copper at 345 from 345 (+0,2%). CRB closes 282,1 from 283,2 (-0,4%). About okay day here.
My canary is starting to lose colour, as the Baltic Dry fell again from 1058 to 1034. Had fixed at 1141 last Friday after an already wobbly week, so down 9%. Not good.

EUR 1,253 from 1,259
ECB deposits at EUR 761bn after EUR 766bn.
All levels European COB 17:30 CET

On the week (compared to Fri 18 May close):

We had closed last week on a “Last Dance” to reopen with “Money for Nothing” (at least when you’re the German Debt Agency) in a sideways market on Monday. Markets were “Back in the Saddle” for a full RISK ON day on Tuesday, which was totally over the top, as Wednesday’s “Paranoimia” induced by Grexit reversed the previous day’s rally pretty much in full. For yet no obvious reason, Thursday was sideways to positive, except for the French Debt Agency, which went “Ca plane pour moi”, given the huge OAT rally. Friday nearly started on “Le Freak, c’est Chic”, but I had to change that in the afternoon. Will keep it for future use.

10 YRS Yields: Germany 1,37% (-5); Finland 1,76% (-10); Luxembourg 1,81% (-9); Swaps 1,87% (-9); Netherlands 1,80% (-11); Austria 2,33% (-25);France 2,51% (-33); EIB 2,54% (-10); EFSF 2,69% (-12); Belgium 3,05% (-26); Italy 5,65% (-13); Spain 6,30% (+7).
10 YRS Spreads: Finland 39bp (-5); Luxembourg 44bp (-4); Swaps 49bp (-5); Netherlands 43bp (-6); Austria 96bp (-20); EFSF 132bp (-7); EIB 116bp (-5); Belgium 168bp (-21); Italy 427bp (-8); Spain 493bp (+12).

Did we mention the recurrent new lows in Bunds and the EZ Hard Core? Ah, yes, repeatedly, so we won’t do again. Soft core EZ zone doing the same now with France at the forefront of “near periphery rally in good days”. Periphery closing mixed with Italy lagging the Soft Core because of Spain that just went the other way round.

EUR swap curve 2-5 YRS 37,1bp (+0,5); 5-10 YRS 59,9bp (-0,6) 10-30 YRS 19,1bp (-3,1).
2 YRS German BKOs closed 0,05% (-1) and 5 YRS OBLs 0,45% (-4), on the week.
OBL new low 0.42% yesterday and 2 YRS 0.03% this morning.

Main at 174 from 181 (-3,6% tighter); Financials at 297 after 306 (-3,2% tighter). SovX at 316 from 311. Cross at 717 from 750. Credit still feels quite heavy and lagging most equity spurts.

Stoxx Futures at 2154 / +1,4% from 2124 with S&P minis at 1320 / +1,2% from 1304, at European COB last week.
VIX index at 22,1 after 22,3 last week.
Strange equity world. Market stress somehow not seen in the closing picture. VIX comfortable above 20

Oil 91,0/106,8 (WTI/Brent) from 92,2/107,3 (-1,2%/-0,5%). Gold at 1567 after 1596 (-1,8%). Copper at 345 from 350 (-1,4%) . CRB closes 282,1 from 289,4 (-2,5%).
Rough ride on commodities. Gold off lows, but heavy. Surprising in the ambient flight to quality mood. Need QE announcement. Copper fundamentally heavy on dire growth outlook, including China. Broad CRB shows the picture.
My canary is starting to lose colour, as the Baltic Dry fixed at1034, down from 1141 last Friday after an already wobbly week, so down 9%. Not good.

EUR 1,253 after 1,273 last Friday. Ugly, ugly, ugly...

Next week:
Long weekend with Monday off in some of Continental Europe & Memorial Day in the US. Running out of hard data. Market subject to latest rumour in one way or another. Flip a coin – or stay at home…
EZ hard data starting mid week. Big Friday US data dump!

Germany: Tue CPI fcst 2.2% unch YoY, Thu Retails Sales fcst +0.2% after 0.8% MoM & Unemployment fcst 6.8% unch
France:  Wed Apr jobseekers fcst 2904k after 2884k, Thu Cons spending fcst +0.3% Mom after -2.9%
EZ: Wed M3 fcst 3.4% after 3.2%. EZ confidence, Wed EZ CPI fcst 2.5% after 2.6%. Fri Unemployment and PMI confirmation
Periphery: IT Mon Biz conf 88.7 fcst after 89.5, Thu CPI fcst 3.6% YoY after 3.7%, Fri unemployment & Budget SP Tue Retails sales, Wed CPI fcst 2.0%, Thu Housing permits. GR Retail sales Thu. PMI Fri
US : Tue Case Shiller housing, Cons conf fcst 69.5 after 69.2, Wed MBA mortgages & Home Sales, Thu Claims, Chicago Purchasing. Fri non-farm payrolls, personal income, ISM, Constr Spending

Click link on title or below for today’s musical support:
(Tough situation in Spain...)

Thursday 24 May 2012

24 May 2012 – " Ca Plane Pour Moi " (Plastic Bertrand, 1977)

24 May 2012 – " Ca Plane Pour Moi " (Plastic Bertrand, 1977)

Aaand... Reverse the reverse? Eventually not. Well, somewhat. There was a 1% plus US closing rebound (on unfounded rumours that all would be well after all) that brought US equities back to about their previous day closing level. Asia knew better this time and just closed unchanged, despite negative data (which probably has gone under in the prevailing mood) coming out of China with a 48.7 Flash PMI (down from 49.3). Then again, late whispers about the need for infra stimulus can only be strengthen by that.
EU summit results? None.
Markets opening on closing levels throughout all asset classes. Give or take. Maybe Gold a bit stronger, rebounding from Sep and Dec lows in the 1520/30s.

German GDP numbers confirmed at +1.7% YoY with not much surprise (construction and domestic demand numbers weaker, though, while export print revised higher). Manufacturing PMI at 45 lower than the 47 forecast (prior 46.2). Services unchanged and about on forecast. French Man PMI readings much softer than expected at 44.4 (fcst 47 after 46.9). Services, too, on the light side at unchanged 45.2 (fcst 45.7). In the same line, French Biz confidence lower at 93 (fcst 94 after 95) with quite depressed production outlook. Round up the depression with rising Dutch unemployment and falling producer confidence. Nothing upbeat round here.
Markets turning soft on this. You know the drill: EUR testing mid 25 handle. Core bonds tighter by 2, Periphery wider by over 5, equities turning soft and credit adding 5. Bunds trading new lows (1.35% in 10s). Yada yada yada…And that was even before dismal German IFO reading hit the screens with epic forecast fails at 106.9 / 113.3 / 100.9 for Biz climate, current and expectations (fcst 109.4 / 117.1 / 102 after prior 109.9 / 117.5 / 102.7). Expectations had only been for some slight corrections, not for gloom & doom.
And the Swissie? Stuck at 1.201. How much can the SNB sell, what do they buy against? Bunds? Had a spike the other way round, for once, in the afternoon on a rumour Greece and Switzerland were to negotiate taxing Greek holdings.

And yet, somehow, nerve-wrecking material having been burned through at this stage, markets bottomed out and rebounded rather sharply in equities (up 2% from the lows), a little in credit, but not for financials.
European bank resolution pitches will probably hit the same hurdles as “Eurobonds”, who pays for whom or in this case for whose banks that bought whose debt...

Should the EUR persistently fail to hold the 1.26 level, after this morning’s downside test, the picture looks quite ugly with June 2010 lows at 1.1875 as next real support. No holiday’s in California this summer. Will need to profit from falling Brent to travel Europe, although the latter is still trading at EUR 85/b versus last summer EUR 75/b... Austerity bites.

Ahead of US figures, very strong intermediate / Soft Core performance with Austria, Belgium and especially France tighter by 10 to 15 bp. Periphery just so so. Moody’s non-active on France and obviously undecided. Outlook could be raised or lowered, depending on finances.
Not sure about the reason for France’s outperformance. Raising Livret A (tax-free saving accounts totalling over EUR 220bn in France) would actually rather trigger a bid for inflation–linked bonds (as part of the remuneration is linked to inflation) and paying 2.25% tax-free and immediately available, this should be quite detrimental to life insurance policies. It’s not like the total amount would suddenly double, I’m puzzled. In any case, once squeezed, it did squeeze big time with 10 YRS French yields dropping like a stone, triggering stops, and taking 10s down 25 bp to 2.50%, taking Austria and Belgium and then the Periphery on the run. Nearing all time lows just below 2.50% traded respectively in Sep 2010 and 2011. 5 YRS BTANS down to new historic lows at 1.34% (from a 1.50% close yesterday). Likewise, French 2s hitting bottom at former low of 0.46%.
Obviously, France has lagged Germany, and Austria, for a while, but why the catch up today? And somehow, I doubt this is linked to yesterday’s performance at the EU summit… Big programme trade? Good for the French taxpayers!
Talking of lifers: need to wonder when the first German insurer, Dutch pension fund and then French lifer will cry out in pain given actual yield levels.

Durable good orders disappointing: headline figures in line (+0.2% after prior -4.2% revised to -3.7%), but ex trans down 0.6% instead of +0.4% (after -1.1%, revised -0.8%). Claims as expected at 370k, but prior data revised (again) higher by 2k to 372k. US preliminary PMI at 54 (new data set, no prior history).
European markets dampened a little as US opened just about flat without joining the relief party. Euh… What was the relief trigger again??? And then closing on the stronger side in equities.

No government supply for the rest of the week, bar the EFSF syndicated 3 YRS deal. Talking of which, there won’t be much on the block next week either: just French bills on Monday and Italian zeros, followed by Italian bills on Tuesday. Busy first week of June, though. EFSF still needs to raise a further EUR 30bn this year, so will remain a frequent guest.
Large parts of Continental Europe closed on Monday for holiday.
New Issues activity with EFSF EUR 3bn 3 YRS at MS +18, French UNEDIC EUR 1bn 6 YRS at MS +73, together with a double serving of German Pfandbrief “jumbolinos” (EUR 500m benchmarks), following this week’s BHH deal, with LBBW at 6 YRS at MS +7 and Deutsche Pfandbriefbank at 7 YRS at MS +60. Given the afternoon squeeze, probably some huge windfall profit for the UNEDIC buyers…

Greek bonds guestimates: unchanged with 2023s at 30.0% and 2042s at 24.0%. Stable on all-time lows on exchanged bonds. Quotes were 20.25% and 16.75% before the elections.

Closing levels:
10 YRS Yields: Germany 1,39% (unch); Finland 1,78% (-3); Luxembourg 1,83% (-1); Swaps 1,83% (-4); Netherlands 1,88% (-1); Austria 2,35% (-14); France 2,54% (-20); EIB 2,57% (-4); EFSF 2,73% (-3); Belgium 3,07% (-16); Italy 5,56% (-8); Spain 6,14% (-4).

10 YRS Spreads: Finland 39bp (-3); Luxembourg 44bp (-2); Swaps 44bp (-4); Netherlands 48bp (-3); Austria 96bp (-14); France 115bp (-20); EIB 118bp (-4); EFSF 134bp (-3); Belgium 168bp (-16); Italy 417bp (-9); Spain 475bp (-4).
What a day for Bunds (New 1.35% low). What a Day for France (New 2.50% low, before correcting!)! Austria and Belgium riding on the coat tails with Austria back through 100 to Bunds. Belgium nearing 3% mark. Periphery lukewarm and tightening a little in sympathy.

EUR swap curve 2-5 YRS 37,6bp (+1,9); 5-10 YRS 60,8bp (-0,2) 10-30 YRS 16,6bp (-0,1).
2 YRS German BKOs closed 0,06% (unch) and 5 YRS OBLs 0,47% (+2).

Main at 174 from 180 (3,5% tighter); Financials at 293 after 297 (-1,3%). SovX at 311 from 315. Cross at 716 from 740.
Financials still underlying heavy. Didn’t profit from European bank resolution pitches.

Stoxx Futures at 2146 / +0,9% (from 2126) with S&P minis at 1319 (+1,7% from 1297, at European close).
VIX index at 22,2 after 24,3 yesterday same time.

Oil 91,2/106,6 (WTI/Brent) from 90,5/106,3 (+0,8%/+0,2%). Gold at 1572 after 1540 (+2,1%). Copper at 345 from 340 (+1,2%). CRB closes 283,2 from 282,1 (+0,4%). Good Gold performance. Rebound.
Baltic Dry once more down from 1100 to 1058. Coalmine canary tweeting…

EUR 1,259 from 1,258
ECB deposits at EUR 766bn after EUR 764bn.
All levels European COB 17:30 CET
Long weekend with Monday off in some of Continental Europe. Running out of hard data. Market subject to latest rumour in one way or another. Flip a coin – or stay at home…

Germany: Consumer confidence fcst 5.6 unchanged (consensus probably too high again)
France:  Consumer confidence fcst 88 unchanged (Like for Germany, probably too high, given late data)
Other EZ: IT retail sales fcst -0.2% after +0.6% MoM SP mortgages tomorrow, PPI Fri
US : University of Michigan confidence fcst 77.8 unchanged.

Click link on title or below for today’s musical support:nb
(French MoF to stage a huge pogo party at Bercy tonight to celebrate the savings attained today!)

Wednesday 23 May 2012

23 May 2012 – " Paranoimia " (Art of Noise feat. Max Headroom, 1986)

23 May 2012 – " Paranoimia " (Art of Noise feat. Max Headroom, 1986)


Aaaand…. Reverse, all! Whether or not former Greek PM explicitly said that Grexit preparations were ongoing, as soon as this went over the tickers, US equities, which hadn’t had time to fully bask in yesterday’s RISK ON mood gave back their gains, traded off 1% and rebounded in the closing minutes to end about unchanged to slightly negative. The EUR, which was already trading on the weak side, immediately traded off 50 pips, trailing lower throughout the Asian session, before rebounding off its 1.265 area support. Asian session pretty muck giving back all of Tuesday’s gains.
European session unsurprisingly opening down about -1.5%. Initial reaction on bonds was surprisingly tame with the Core initially opening a little tighter and the Periphery a bit wider, but neither too much, although Credit indices, which in turn had gone a little over the top yesterday, came in weaker than equities.
Italian consumer confidence lower than expected at 86.5, but the 89.5 forecast was beating prior data at 89 (revised 88.8), which seemed quite optimistic. Dutch consumer spending lower than expected, as well, in the long line of droopy Dutch data. Down 2.1%, after -1.5% (revised) YoY. Not much more on the data front. Japanese trade figures on the weak (Apr exports +7.9% YoY, after prior +5.9% and fcst over 11%. Imports likewise underachieving at +8%, after 10.6%). Hmmm… Baltic Dry???
Periphery and Credit drifting wider, tick by tick, as equities weakened further, as was the EUR, once broken the 1.265 support.

On today’s government sales menu the new 0% 13 Jun 2014 BKO. Of course, you want to own Germany; hence the good auction result (Record low at 0.07%, as yesterday’s close. +1.5bp spread to the outstanding reference. B/C1.7. EU 5bn issued, of which a small EUR 500m retained for market interventions. Last month auction level was 0.14 %.)
But a 0% coupon, not a zero discount note, redeeming on a Friday the 13th??? In the meantime, rest assured, the German debt agency has confirmed not planning on setting negative coupons. So there’s a floor to all things
Totally absurd discussion on Germany announcing not to issue negative coupons, as a) there's no practical way for clearing houses to get the negative coupon back from the bond holders and b) even if there was, Germany would run a credit risk on all bondholders. Unless deducting the negative coupon from the principal, in which case you run in other technical problems, there is no practical way to issue a negative coupon. You can auction at negative yields, though... 0% sold over par.
Question is how do you spell that out in Central Bank speak??? Must be something like “accommodative” - at least for Germany.
Which brings us back to the question of the currency union, its governance and rules… After dinner musings at tonight’s informal EU meeting, maybe.

Grexit back on everyone’s mind and spoiling the party for the rest of the day. Of course, reports now leak that task forces exist to cater for that possibility at the ECB and other national central banks. Normal, but adding to the stress.
It would be nice to avoid an exit, even Syriza says so. Sure. Postponing the pain or spread it out over time. However, let’s face it, unless the Greek debt burden was to be massively reduced once and for all (and thus indirectly footed by those European taxpayer that can still afford it, in the name of European solidarity), and the really needed reforms implemented already yesterday, there’s no way for Greece to gain back competitiveness for any future positive traction. Defaulting further and staying in the EUR is technically easier and less painful for all, but wouldn’t add devaluation to gain further traction. And, if defaulting, then for real and full. Contagion risk is, of course, huge. Spexit next, then?

New Issues getting done for German SSA names EEA and Land Lower Saxony. Commodity-name BHP Billiton managed to get EUR 1.25bn long 6 YRS and EUR 750m 12 YRS off the ground at MS +65 and +100 bp. That was the tight end of the initial talk, despite the gloomy environment for credit AND commodities.

Drifting ever lower in equities, somehow in straight line, with no further acceleration. Credit rapidly giving back yesterday’s gain. Bunds ever tighter. Periphery surprisingly resilient, as in just slightly wider, and with widening spreads, but not (yet) subject to negative acceleration. Obviously, hopes were still set for some EU summit goodies coming out overnight, hence capping the rise.
Temporary market support from Hollande voicing strong support for Greece and denying Greek contingency plans, while sources said the Eurogroup working group was pushing for preparation of such plans.
Respite just didn’t last. 10 YRS Bunds trading below 1.40% for the first time and 30 YRS below 2%. Likewise, periphery “stability” yielding to pressure and drifting wider.
US New Home sales and prior upside revision a bit of help, was the only lenient weak US open.
Market close very weak. Rebound short-lived and to no avail with the EUR trashed 90 pips from a 1.268 rebound through 1.26 (Aug 2010 levels). EUR/CHF stable.
All commodities getting beaten up, too. WTI flirting with the 90 level.
10 YRS periphery 10 to 15 softer and spreads to Germany up to 20 wider. To top it off, periphery curve flattening some 5 bps with Italian 5s now 5.00% and Spain at 5.50%. Credit and Financials trading like mattresses again, after the last 2 days optimistic tightening. Bunds closing near their all-time low at 1.39%. Quite stable spreads outside Belgium, Italy and Spain.

Greek bonds guestimates: 2023s 0.50% wider to 30.0% and 2042s at 24.0%. New all-time lows on exchanged bonds. Quotes were 20.25% and 16.75% before the elections.

Closing levels:

10 YRS Yields: Germany 1,39% (-9); Finland 1,81% (-8); Luxembourg 1,84% (-9); Swaps 1,87% (-7); Netherlands 1,88% (-9); Austria 2,49% (-5); EIB 2,60% (-8); France 2,73% (-5); EFSF 2,76% (-8); Belgium 3,23% (-1); Italy 5,65% (+8); Spain 6,18% (+13).

10 YRS Spreads: Finland 42bp (+0); Luxembourg 45bp (0); Swaps 48bp (+1); Netherlands 51bp (+1); Austria 110bp (+3); EIB 122bp (+1); France 135bp (+4); EFSF 137bp (+1); Belgium 184bp (+8); Italy 426bp (+17); Spain 479bp (+21).

EUR swap curve 2-5 YRS 35,7bp (-3,6); 5-10 YRS 61bp (-1,1) 10-30 YRS 16,7bp (-4,6).
New 2 YRS German BKOs closed 0,05% (-2) and 5 YRS OBLs 0,45% (-7). Old 2 YRS at 0.03%.

Main at 180 from 171 (5,7% wider); Financials at 297 after 280 (6,0% wider). SovX at 315 from 311. Cross at 740 from 706.

Stoxx Futures at 2126 / -2,5% (from 2180) with S&P minis at 1297 (-2,1% from 1326, at European close).
VIX index at 24,3 after 20,4 yesterday same time. Reflating

Oil 90,5/106,3 (WTI/Brent) from 92,5/108,9 (-2,2%/-2,3%). Gold at 1540 after 1588 (-3,0%). Copper at 340 from 350 (-2,8%). CRB closes 281,9 from 289,4 (-2,6%). Ugly
Baltic Dry once more down 2.4% to 1100 from1127. Coalmine canary flying again?

EUR 1,258 from 1,275
ECB deposits back at EUR 764bn EUR 768bn.
All levels European COB 17:30 CET

Rest of the week:
EFSF 3 YRS to be launched tomorrow. MS mid to high teens probable.
Raft of PMI data. German PMIs fcst 47 after 46.2 and 52 after 52.2 for Manu and Serv . IFO expected at 109.4 after 109.9.  GDP 0.5% QoQ sa. French  Biz confidence fcst 94 after 95 and Serv PMI fcst 45.7 after 45.2.  EZ Composite PMI 46.6 fcst after 46.7.
Initial publication of a US PMI. Durable goods ex fcst +0.2% after -1.1% & claims fcst unchanged at 370k

Germany: Cons conf on Fri.
France: Thu production outlook,. Cons conf Fri.
Other EZ: IT Fri retail sales and biz conf. SP mortgages tomorrow, PPI Fri
US : Fri Michigan conf
Asia: China Flash PMI

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

You're quite safe here ...)

Tuesday 22 May 2012

22 May 2012 – " Back in the Saddle " (Aerosmith, 1976)

22 May 2012 – " Back in the Saddle " (Aerosmith, 1976)

Finally a supportive RISK ON day start on the back of US equities ignoring FB woes (-11% close) and closing up 1 to over 2% for the Nasdaq, which similar components had been dragged lower on Friday. Asia equally strong and closing in 1%+ mode. China infrastructure stimulus rumours / hopes.
European futures all continuing on their evening higher close to start the day. EUR crawling back over 1.28 in Asian trading.
Mood boosted by lack of mayhem and renewed optimism that EU head-banging might yield a solution, with the “Eurobonds” / structural bonds discussion getting traction, although very much against German statements. Can’t find any more specific reason, outside the fact that the correction of the last days might be seen as bottom-fishing opportunity. Italy and Spain very strong in tandem at open, tightening back over 15 bp ahead of the Spanish bill auction. Hard Core EZ 3 to 5 bp softer, swaps unchanged and Soft Core EZ 3 bp tighter.
Equally strong credit performance, for once, finally, with especially banks down over 10 bp (3.5%), and back well within 300, as are Main and XO (3.5%). Banks profiting from pitches of European-wide deposit guarantees.

Very vocal OECD on downside risks in and because of Europe. Negative on the periphery outlook. Pitches lower ECB rates, eurobonds, eurobonds for bank recaps, support for Greece. (link) Hmm... Weren’t these already Obama / Geithner demands? Hollande’s play-book? In bizarre turn-around, the IMF pushes for more stimulus in the UK.
Well, anyhow: Tomorrow’s informal EU meeting (stress that is “informal”) will give everyone a chance to add a stone to the European disharmony. Knowing that eurobonds will NOT be a subject, for the Germany’s spokesman, and that the meeting will not solely be on Greece. So what will there be to bicker about??? Growth?

Otherwise, no strong data flow. Noting Dutch consumer confidence lower again. Haven’t heard back for a while what the Netherlands are up to with regards to deficit and recession. Erstwhile soft patch totally over and Dutch 10s trade back in line with Finland (interpolated) and Luxembourg (mid to high 40s over Bunds). Wouldn’t be surprised, if the subject came on the table at some time (Normally, as things are when nobody needs it...).

In the meantime, EUR 3bn Dutch 3 YRS easily done and dusted at 0.46% (after mid March 0.62%), compares to German 3 YRS trading 0.17%.
Spanish 3 and 6m bills finally raising EUR 2.53bn and hailed as having raised MORE than intended (EUR 2.5bn were targeted), which given the maturities and amounts is as ridiculous than the scaremonger, who cry out when the result is a hundred million below target. Bills are just bills… Nevertheless, one will note that once more the price tag has increased to 0.85% (from 0.63%) for EUR 1.5bn 3m and to 1.74% (against 1.58%) for EUR 1bn 6m bills.
Finally, the EFSF raised short of EUR 1.5bn of 6m bills at 0.20% (after 0.25% last month).
Talking of government supply, we duly note that the new German 2 YRS, while not intended as a zero-coupon per se, will carry a 0% coupon…So you’ll get paid ZERO for holding that bond every 13th of June… As fate throws the dice, the 13th of June 2014 happens to be a Friday. This is screaming “Bad karma!”… Don’t buy! Quoted 0.07% in grey market.

New Issues jumping on the positive bandwagon with initially KfW offering EUR 3 YRS, BHH closing a EUR 1bn 5 YRS at MS +9 Pfandbrief sales and Ph. Morris filling the spot for corporates with a 2-tranche deal, totalling EUR 1.25bn. As markets were hanging in there, French SME bank OSEO and GDF joined the party for respectively EUR 900m 5 YRS at MS+64 and respectively EUR 3bn, for a hefty triple-trancher in 3s, 6s and 10s. Getting very much US-style multi-tranche offerings out there. Then again, windows have become small lately, you’d rather fill them.
Note that most issuers remain very well noted. So maybe there’s a little RISK ON mood, but very much controlled at this stage.

By mid morning, things got rapidly static with not much really moving anywhere until midday. Japan’s downgrade to A+ with negative outlook (from AA LT foreign) was shrugged off in a blip and didn’t really damp the mood much. Had a 1% surge during lunch on Germany signalling “more agreement then conflict with France” and first American reactions. Bunds a bit softer still and the Periphery adding further 5 bp in performance. Greek EUR 18bn bank recap on track for Friday. Waiting for US open and again drifting sideways ahead of US figures. Uneven open a bit of a short term dampener. US existing home sales figures and revisions in line, so non-event.
EZ consumer confidence at -19.3 beating -20.5 forecast after -19.9. Not huge number, but good enough to maintain the mood.
Strong credit outperformance (4-5% tightening). A 15 bp swing on financials looks big, but has been more frequent than one would think over the last year, either way.

Back in the Saddle? Positive close in any case. Expectations might be a bit overblown, but late weakness was maybe overdone – at this stage. Doubtful the EU summit pulls a rabbit out of the hat we wouldn’t have seen before. Spain and Italy still above lofty 6% and 5.50%. EUR dragging at 1.275.

Greek twist and turns with Tsipras now pitching his stance as EUR guardianship. Keeping Greece in the EUR and softening Troika pressure can realistically only mean some form of additional debt relief.
Greek bonds guestimates: 2023s probably back 0.75% wider to 29.50% and 2042s hurting at 23.50%. Hitting all-time lows on exchanged bonds. Quotes were 20.25% and 16.75% before the elections.

Closing levels:
10 YRS Yields: Germany 1,47% (+4); Finland 1,89% (+3); Luxembourg 1,93% (+1); Swaps 1,94% (+2); Netherlands 1,97% (0); Austria 2,54% (-5); EIB 2,68% (-1); France 2,78% (-6); EFSF 2,84% (+0); Belgium 3,24% (-5); Italy 5,57% (-21); Spain 6,06% (-19).

10 YRS Spreads: Finland 42bp (-2); Luxembourg 46bp (-4); Swaps 47bp (-3); Netherlands 50bp (-5); Austria 107bp (-9); EIB 121bp (-5); France 131bp (-11); EFSF 136bp (-4); Belgium 176bp (-9); Italy 409bp (-25); Spain 458bp (-24).
Ok, easy: Periphery good, Bunds hit, Soft Core EZ good...

EUR swap curve 2-5 YRS 39,3bp (+1,4); 5-10 YRS 62,1bp (+1,1) 10-30 YRS 21,3bp (+0,5).
2 YRS German BKOs closed 0,06% (+1) and 5 YRS OBLs 0,52% (+3). New 2 YRS ZERO BKOs at 0.07%.

Main at 171 from 180 (tighter by 5,4%); Financials at 280 after 299 (tighter 6,4%). SovX at 311 from 317. Cross at 706 from 744.

Stoxx Futures at 2180 / +1,7% (from 2143) with S&P minis at 1326 (+1,5% from 1306, at European close).
VIX index at 20,4 after 23,0 yesterday same time. Deflating...

Oil 92,5/108,9 (WTI/Brent) from 92,2/108,3 (+0,4%/+0,5%). Gold at 1588 after 1593 (-0,3%). Copper at 350 from 350 (+0,1%). CRB closes 289,4 from 289,9 (-0,2%).
Baltic Dry dropping 27 to 1127 from Friday’s and Monday’s 1141 fixing. Oops…

EUR 1,275 from 1,278
ECB deposits back to EUR 768bn after yesterday’s surge to EUR 790bn.
All levels European COB 17:30 CET

Rest of the week:
Very light in terms of hard data or auctions. Getting numbers starting Thu and not that many either.
German EUR 5bn 2-year auction tomorrow.
EFSF expected to syndicate some 3 YRS this week.

Germany: Data flow on Thu with GDP 0.5% QoQ sa, PMIs and IFO. Con conf on Fri.
France: Thu production outlook, Biz confidence and PMI. Cons conf Fri.
Other EZ: IT cons conf Wed, Fri retail sales and biz conf. SP mortgages on Thu, PPI Fri. GR current account Wed
US Wed House prices & home sales, Thu durable goods & claims, Fri Michigan conf
Asia: CH Flash PMI Wed Japan not much.

Click link on title or below for today’s musical support:
(Talking about major sustainability here. Rockers DO outlast them all...)

Monday 21 May 2012

21 May 2012 – "Money for Nothing " (Dire Straits, 1985)

21 May 2012 – "Money for Nothing " (Dire Straits, 1985)

Despite the weak US close, weighted down by the lukewarm Facebook IPO (Close on IPO price) (Needless to say that I did NOT wear a hoodie this weekend, nor flip-flops...) and the lack of notable positives coming out of the G8 session, Asia closed slightly positive.
The European open, a little wobbly in pre-open equity futures, was then on the positive side, too.

Friday evening news of Spain’s 2011 deficit revised upwards to 8.9% (from 8.5%), mainly on the back of regional debt (Yes, there it is again that contingent liability to will keep on weighting down Spain) and the LCH margin hike on Spanish debt (expected to pop up at some time) have been taken rather bravely by the masses. Interesting to note that one of the first Hollande proposals in a wider international circle was to seemingly push for Spain’s banks to be recapitalized. As Bunds opened the day on the slightly heavy side, Spain just tagged along with most spreads about unchanged. Italian BTPs sticking out on the positive side. For once, credit taking a breather from the widening and a tick tighter. Commodities about where we left on Friday evening.

Light data flow this week, be it in Europe or in the US, so the focus will remain on Greece (latest polls are split between the pro- and anti-bailout supporters) and certainly on Spain. While everyone mulls support for Greece to remain within the eurozone (at what price and supported by whom?), Spain keep struggling with negative data and negative news. Sentiment here can shift rapidly. Infra / “Eurobonds” project pitched during the G8 with everyone agreeing that, yes, Surprise!, growth is certainly something to aim for.
EZ construction output was down solely 3.8% YoY after -12.9% in Feb; however that was revised to -16.3%. Still, on a MoM basis, there is a rebound from the lows. Dutch housing trailing lower.

Government bill day out of Germany, France and the Netherlands. EUR 3bn German 12m at 0.026%. Netherlands EUR 1.2bn 3m at 0.014% and EUR 1.1bn 6m at 0.025%. France closed the ball with EUR 4.2bn 3m at 0.07%, EUR 2.2bn 6m at 0.10% and EUR 2bn 12m at 0.17%. All issues a bit lower than mid last month.
Basically very cheap money... Money for nothing and the chicks for free...
Belgian auction in 5s, 10s and 15s raising EUR 510m 5s at 2.38% (after 2.62% in Feb) , EUR 1bn 10s at 3.45% (after 3.74% in Feb) and EUR 1bn 15 YRS at 3.64% in stable bid to covers (except for 2025s, which were slightly less bid). Total of EUR 2.55bn in the middle of the targeted EUR 2 to 3bn range.

By the end of the morning, markets had reverted somewhat with Spain trailing a little wider and BTPs giving back some their gains. EU and Eurostat to pay a visit to Madrid on that data revision. Surprised the markets didn’t react more. Data revision, especially to worst than already bad data, has a Greek flavour to it. Players probably blasé. Then again, as previously stated in this wrap (16 May on periphery haircuts and 17 May on regions), Spain’s contingent liabilities (assumed or not) are no secret either, although not widely talked about.
Markets reverted to slightly negative on equities and Bunds unchanged by mid afternoon and then floored by US equities opening slightly positive, too.

US Treasuries probably held back this week on upcoming auctions (USD 35bn 2s tomorrow, USD 35bn 5s on Wed, USD 29bn 7s on Thu). So under-performance will not necessary mean that the market has shifted RISK ON.

The ECB SMP outstanding remained, unsurprisingly, about unchanged at EUR 212bn, as EUR 2bn were redeemed. As a reminder the last major additions ended in Dec last year.

Nothing in terms of EUR new issue supply. IADB following other SSA names in 3 YRS dollars as flight to quality shelter. Nothing in EUR. Need to have markets settle somewhat before anyone will venture out. EFSF 3 YRS syndicated EUR deal is rumoured.

Risk appetite finally cooled off again with Tsipras game of chicken statements (bail-out not sustainable, but Grexit painful for Europe). To round up soft sentiment, FB down 10% at open.

Greek bonds guestimates: 2023s probably 0.75% tighter at 28.75% from 29.50% and 2042s down to 22% from 22.25%. Quotes were 20.25% and 16.75% before the elections.

Closing levels:
10 YRS Yields: Germany 1,44% (+2); Finland 1,87% (+1); Luxembourg 1,92% (+3); Swaps 1,93% (+2); Netherlands 1,97% (+2); Austria 2,58% (+0); EIB 2,69% (+5); France 2,83% (-1); EFSF 2,84% (+3); Belgium 3,29% (-2); Italy 5,76% (-1); Spain 6,24% (+1).

10 YRS Spreads: Finland 43bp (0); Luxembourg 48bp (+1); Swaps 49bp (+0); Netherlands 55bp (+1); Austria 114bp (-1); EIB 125bp (+4); France 139bp (-3); EFSF 140bp (+2); Belgium 185bp (-3); Italy 432bp (-3); Spain 480bp (-1).

EUR swap curve 2-5 YRS 38,4bp (+1,8); 5-10 YRS 61,3bp (+0,8) 10-30 YRS 21,4bp (-0,8).
2 YRS German BKOs closed 0,04% (-1) and 5 YRS OBLs 0,50% (+1).

Main at 181 from 181 (unch); Financials at 304 after 306 (-0,9%). SovX at 316 from 311. Cross at 748 from 750.

Stoxx Futures at 2135 / +0,5% (from 2124) with S&P minis at 1294 (-0,7% from 1304, at European close).
VIX index at 25,1 after 22,3 yesterday same time.

Oil 91,6/107,8 (WTI/Brent) from 92,2/107,3 (-0,6%/+0,4%). Gold at 1589 after 1596 (-0,4%). Copper at 348 from 350 (-0,5%). CRB closes 290,4 from 289,4 (+0,4%).
Baltic Dry unchanged from Friday’s 1141. Feels like the pretty much non-stop rally from early Feb’s lows has stalled, having 1165 early May.

EUR 1,274 after 1,273
ECB deposits at EUR 790bn after EUR 762bn.
All levels European COB 17:30 CET

This week:
Very light in terms of hard data or auctions. Getting numbers starting Thu and not that many either.
Netherlands selling EUR 3.5bn 3 YRS tomorrow. Spain in EUR 2.5bn 3 and 6m bills sales. EFSF EUR 1.5bn 6m bills. EFSF expected to syndicate some 3 YRS this week.

Germany: Data flow on Thu with GDP 0.5% QoQ sa, PMIs and IFO. Con conf on Fri.
France: Tue production outlook, Biz confidence and PMI. Cons conf Fri.
EZ May consumer confidence expected at -20.5 after 19.9 on Tue. EZ PMI Thu.  OECD outlook on Tuesday.
Other EZ: IT cons conf Wed, Fri retail sales and biz conf. SP mortgages on Thu, PPI Fri. GR current account Wed
US Tue Home Sales 4.6m after 4.5m, Wed House prices & home sales, Thu durable goods & claims, Fri Michigan conf
Asia: CH Flash PMI Wed Japan not much.

Click link on title or below for today’s musical support:
(Amzing version: Knopfler, Sting, Clapton, Phil Collins... Quite a line up! You gotta love that battered Les Paul of Knopfler.)