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 8 June 2012

08 Jun 2012 – " Toréador / Votre Toast, je peux vous le rendre " (Bizet, 1875)

08 Jun 2012 – " Toréador / Votre Toast, je peux vous le rendre " (Bizet, 1875)

Well, as it happens, Bernanke’s sequel of the previous day’s jedi mind trick of Draghi (“This is not the crisis you’re looking for...” link, but if there was any, I have a plan...) didn’t pan out as well as the ECB one. US markets closed from their highs, disappointed that nothing concrete was on the table (despite quite some dovish cooing in the ramp-up to his testimony). Add that Fitch 3 notch downgrade to BBB of Spain and closing rumours about Greek municipal employee strikes potentially disrupting the upcoming elections and the US, after a stronger start, pared gains and closed about flat.
Asia quite unhappy and closing the week on a heavy note, with especially Japan softer by 2%.

German trade getting hit strongly, as shown by disappointing Apr numbers: Exports down -1.7% MoM (fcst -0.7% after a revised lower 0.8%) and Imports slid a strong -4.8% (fcst -0.1% after +1.2%, revised +0.9%). Quite volatile numbers, but such strong dips in imports are rare. French Biz Sentiment as expected at 93, but prior revised down 1 tick to 94. These are Q3/2009 levels. Dutch IP sinking in Apr, but Mar revised upwards. Italian IP down a heavy 9.2% (fcst -7.2% YoY after -5.8%, revised to -5.6%).
Final Q1 Greek GDP revised wider to -6.5% YoY from -6.2% flash, Apr IP at -2.2% YoY, one of the “best” numbers since last summer.
IMF, Bundesbank, all forecasts sprinkled with serious doses of salt, euh, uncertainty… BuBa revising inflation upwards a little (OMG!) and shifting GDP growth from 2013 to 2012 (2013 revised to 1.6% from 1.8%, 2012 increased to 1% from 0.6%).

Standard European “Ouch!” open: Equities down 1%, Hard Core EGBs tighter by 3 and the Periphery out by 5 for Italy and over 10 for Spain on early morning quotes, before correcting back (Periphery wider by 10 to Bunds). Credit only slightly wider. EUR back below 1.25 and weighting on Commodities, already hit by non-QE. Round of ROff

Story doing its rounds that Spain will get its banks bailed-out over the weekend (EFSF, ESM, EU…Unclear who the paymaster will be…). ECOFIN conf call said to be planned. Germany pitching its usual “Spain just needs to say the B word”… and with everyone stating that Spain hasn’t asked for anything yet. Yawn…
ESM /EFSF utilization fine-print seemingly a procedural problem for direct bank recap, though.

Whatever, no massive shoe rain by noon: Equities and risk back to flattish. EGB curve unwinding yesterday’s twisting move with the Hard Cord at -7 and the Periphery at +6, Soft core in between. We closed at +7 for Hard Core and -19 for Spain yesterday, with Bunds +7, but with the Soft Core totally trashed after the French auction. No corrective outperformance of AFB today.

Spain 10s then hitting 6.20% highs traded in the morning in the afternoon session, as Spanish officials (No!) and German / EU officials (Si!) bicker over the wires, whether or not a Conf Call / Bail Out plea is supposed to take place this weekend. Seems like Spain wants to postpone anything to after the IMF report on Spanish Banking is due to be released (21 Jun), if possible even after its own consultant-supported test on 21 Jul... Verano caliente!
So, eventually, no, Madrid will not ask. Serious Game of Chicken, euh, Bullfighting. Hemingway would have been proud at this exercise of trying to stare down the Northern Front Bull(y).
Then again Spanish diplomats rumoured to prepare for bail-out plea... Who knows? Will wait for mañana...

US trade balance at USD -50.1bn with prior revised further to USD 52.6bn. USD 52bn-sized deficits were the lows several times since the massive post-Lehman correction, when shifting from an average of about USD 60bn between 2005 and 2008 to hit USD 25bn by mid 2009, before steadily slumping again.
Data week ending with US Apr wholesale inventories, rising higher than expected to 0.6% (fcst 0.4% from 0.3%). US risk trading a bit higher on that before paring gains going into European COB.

Hard Core closing off highs, credit mixed (Main a little up, financials a little down). EUR bounced off 1.255 support. Periphery put near the wides. Anything else, next week...

New Issues floor left to the EIB offering some yield (Well, so to speak, at 2.96%) with a EUR 1bn increase of its 2030 benchmark EARN at MS + 98.

Closing levels:
10 YRS Yields: Germany 1,33% (-4); Luxembourg 1,75% (-5); Finland 1,76% (-3); Netherlands 1,83% (0); Swaps 1,79% (-5); Austria 2,31% (-1); EIB 2,48% (-5); France 2,51% (-5); EFSF 2,60% (-5); Belgium 2,97% (-3); Italy 5,76% (+8); Spain 6,19% (+13).

10 YRS Spreads: Luxembourg 41bp (-1); Finland 43bp (+2); Netherlands 50bp (+4); Swaps 48bp (+1); Austria 98bp (+4); EIB 115bp (unch); France 118bp (-1); EFSF 127bp (0); Belgium 164bp (+1); Italy 443bp (+12); Spain 486bp (+17).

Have switched Italian 10 YRS ref to on-the-run Sep 2022 (14 bp wider).
Greek bonds guesstimates: In absence of fresh news, Greek 2023s stable at 28.5% and 2042s at 23.5% (20.25% and 16.75% before elections).

EUR swap curve 2-5 YRS 39,3bp (+0,8); 5-10 YRS 52,9bp (-0,3) 10-30 YRS 19,3bp (-0,5).
2 YRS German BKOs closed 0,04% (-3) and 5 YRS OBLs 0,44% (-4).

Main at 176 from 174 (2 ticks or 1,1% wider); Financials at 279 after 281 (2 ticks tighter or -0,5%). SovX at 320 from 317. Cross at 697 from 698.

Stoxx Futures at 2143 / +0,0% (from 2142) with S&P minis at 1308 (-0,5% from 1315, at European close).
VIX index at 22,5 after 22,0 yesterday same time.

Oil 83,2/98,0 (WTI/Brent) from 85,2/100,3 (-2,3%/-2,3%). Gold at 1583 after 1590 (-0,5%). Copper at 329 from 338 (-2,7%). CRB closes 270,8 from 274,3 (-1,3%). Trashy oil performance, after not holding above 100-mark. Cooper, too, weak, anticipating Chinese numbers. All very much EUR-related, too.
Baltic Dry finally halted its slide and fixed at 877 from 828.

EUR 1,248 from 1,258
ECB deposits at EUR 757bn after EUR 785bn.

All levels COB 17:30 CET

On the week (compared to Fri 01 Jun COB):
Another week of epic mood variations. We had closed last week on a sad note with markets tanking and going “Back to Black”. Monday morning was harsh, but eventually hopes to fix the Spanish bank capital question, and other funding needs (“Brother, Can You Spare a Dime?”), helped to stage a positive dynamic that lasted until yesterday. Still, it’s all about “Gimme Some Money”, mainly the Northern European one (as well as France’s given its sheer weight in the EZ, which a lot of French seem to underestimate) and the haggling over the conditions attached to that. Thursday woke up to the really good news that “Down Under” GDP was growing quite well. It was such a nice surprise that it kept everyone in the world cheerful for the rest of the day, although how that growth could translate elsewhere remains open. Yesterday’s Spanish auction and hopes of German inflection towards the Spain fixing things “A Mi Manera” was good for up to 25 bp in 10 YRS BONOs. That is, until the mood changed again, but we remain in Spanish musical mode with an ode to courageous Toreros.

And the winner of the week is? Certainly Spain, although no one really knows how and why… Yield in 10s melted away with subsequent squeezes (Mon -11, Tue -8 and Thu ahead of the auction and closing -19). Obviously softer today, but what a catch-up on the week! Have moved away from the uncomfortable zone over 6.5%.
Looser is France, as well as the Dutch. Supras EIB and EFSF still very correlated to swaps, so spreads to “real” EGBs mostly reflecting developments in the swap market and no real own dynamic. Might change if one or both are brought into the “growth, respectively bail-out game” and need to increase presence. Italy mainly driving in the shadow of Spain with lesser volatility.
10 YRS Yields: Germany 1,33% (+16); Luxembourg 1,75% (+15); Finland 1,76% (+23); Netherlands 1,83% (+31); Swaps 1,79% (+12); Austria 2,31% (+24);EIB 2,48% (+15); France 2,51% (+28); EFSF 2,60% (+13); Belgium 2,97% (+17); Italy 5,76% (-7); Spain 6,19% (-28).

Greek bonds guesstimates: Even Greece got carried away in the mood and in absence of fresh news, Greek 2023s performed to 28.5% from 30.5% and 2042s at 23.5% from 25.5% the week before (20.25% and 16.75% before elections).

10 YRS Spreads: Luxembourg 41bp (-1); Finland 43bp (+7); Netherlands 50bp (+15); Swaps 48bp (unch); Austria 98bp (+8); EFSF 127bp (-3); France 118bp (+12); Belgium 164bp (+1); Italy 443bp (-23); Spain 486bp (-44).

EUR swap curve 2-5 YRS 39,3bp (+8,5); 5-10 YRS 52,9bp (+3,6) 10-30 YRS 19,3bp (+4,0).
2 YRS German BKOs closed 0,04% (+4) and 5 YRS OBLs 0,44% (+12), on the week.
5 YRS quite beaten up, in the mid-week flight FROM quality mood, both in swaps and on OBL.

Main at 176 from 184 (-4,2%); Financials at 279 after 302 (-7,5%). SovX at 320 from 330. Cross at 697 from 736.
Credit in line with equities, but not leading. Financials profiting from general support mode. SovX and XO just tagging along.

Stoxx Futures at 2143 / +3,7% from 2066 with S&P minis at 1308 / +1,9% from 1284, at European COB last week.
VIX index at 22,5 after 25,8 last week.
European equities squeezed out. Dow Jones managing to crawl back into positive territory YTD.

Oil 83,2/98,0 (WTI/Brent) from 83,2/98,5 (unch/-0,5%). Gold at 1583 after 1609 (-1,6%). Copper at 329 from 331 (-0,8%) . CRB closes 270,8 from 269,1 (+0,6%).
Commodities whiplashed by EUR up and down trades, China fears, QE on/off hopes…Generally stronger on average, when seeing ALL components (metals, softs, etc).
Baltic Dry finally halted its slide and climbed back to 877 from a 828 low on Thu near last Friday’s 878. 2012 Low was 647 early Feb (would be another 22%). Intermediate high in the rebound was 1165 on 08 May (a 44.4% correction…).

EUR 1,248 after 1,238 last Friday

All levels Friday COB 17:30 CET

Next week:
Need to check out Chinese data over the weekend, given the pre-emptive POBC move. Europe very light on hard data with mainly inflation figures to be released.
Monday bills supply in GE and FR. Tuesday long end offers from Austria (10 & 50 YRS) and 20 YRS Dutch bonds. Greek bills, too. Wednesday 10 YRS BUND auction and Italian bills. Italian Zeroes on Thu.

World Bank Global eco forecast release on Tue
Germany: Mon Wholesale PX fcst 2.4% YoY, Wed May CPI fcst 2.1% unch YoY
France: Mon IP¨, Wed CPI
EZ: Wed EZ Apr IP fcst -2.7% after -2.2%, Thu ECB monthly, EZ CPI fcst 2.4% unch, EZ Q1 employment and trade balance
Periphery: IT Mon Final Q1 GQP, Wed CPI, Thu Gov Debt / SP Mon Housing transactions (Mar -22.7%), Wed CPI, Thu House prices
US: Tue Small Biz Optimism, Wed PPI, Retails Sales and Biz inventories, Thu CPI & Claims, Fri IP, Cap Util & U Michigan
Asia: China WE CPI fcst 3.2% after 3.4%, PPI, IP fcst 10.8 after 11%, Retail Sales fcst 14.6% after 14.7%, Trade balance

Click link on title or below for today’s musical support:
(Toréador! Toréador! / Et songe bien, oui, songe en combattant/ qu'un oeil noir te regarde…)

Thursday 7 June 2012

07 Jun 2012 – " A mi manera" Gipsy Kings, 1988)

07 Jun 2012 – " A mi manera " Gipsy Kings, 1988)

So where to go now, after yesterday’s kangaroo jumps to the upside? Very strong US close on their highs. Asia somewhat tamer, too, with exception of Korea, as it had been in last week’s down-legs, settling in for a good 1% upside on average. Still, China only about flat, although some of the mood was stemming from hopes of financial regulation delays. 
Surge of yesterday’s solely depending on suddenly renewed trust the CBU (Central Banks United) have a plan. A bit weak as fundamental driver...

Opening quotes initially a bit wobbly on the periphery, but as markets set in for an extension of yesterday’s optimistic drive, we had a 0.5% open in equities, credit down a couple of ticks, Core EGBs softer by 1-3 bp and, in turn, the Periphery equally stronger. Commodities taking a breather, as the EUR, which had a brush overnight with the 26 handle, opened tamer in the mid 25s in Europe.
 Parts of Northern Europe off / half off today. No major eco data to speak of anywhere. 
Movement a bit in the void on Spanish banking, not Spain, bail-out pitches, although the Northern front stance seems to remain rather stern on the matter. Ireland already crying out for same lenient treatment. Had Merkel on German TV repeat a call for further political union, before fiscal union. Anyhow, as long as that question is not solved, Europe will keep juggling... 

Hard Core / Periphery twisting motion accelerating with stops triggered in Bunds. Very unthankful to have BTP and especially BONO yields tanking by over 10 bp – just ahead of the auction (some 35 bp tighter than Friday’s close). In any case, caught in the movement, the good news was that the Spanish auction went well, taking out the targeted EUR 2bn amount with EUR 0.6bn 2s sold at average (stress average) 4.34% (after 3.46%), EUR 0.8bn 4s at 5.35% (after 4.32%) and finally EUR 0.6bn of the (slightly dreaded) 10s at 6.04% (after 5.74%), all in good bid to cover ratios. Why somebody would pay so high (pre-auction price 6.11%, 6.25% at yesterday’s closing and 6.46% on Friday) remains a mystery to me… This is further the case, when checking out the tails and stop out yields of 4.48%, 5.44% and 6.12%. So, yeah, EUR 2bn done, but the price is steep, despite today’s tightening. Then again, if it’s not Spain that will pay for its domestic banking bail out, there’s room for catch-up, asmore than 58% of its gross borrowing is by now covered. Will need some good lobbying with the Northern Front, though…

Right on Spain’s heels, France auctioned off EUR 1.7bn 2019 at 1.92%, EUR 3.5bn 2022s at 2.46% (Bund +110; after a 2.40% close and last month’s 2.96%), EUR 2bn 2026s at 2.90% (after 3.46% in Apr) and finally a slice of EUR 0.7bn ultra-long 2060s at 3.27%, about EUR 7.9bn in total. Other story than in Spain: record low price tag and certainly to the satisfaction of the new government, who ascertains that, despite first electoral promises already signed off on lowering back the retirement age, it will hit its deficit targets. The dreaded sell-off has not taken place. 1st assembly election round is this weekend, btw.

All results good for a bit more of RISK ON (Ron), although equities seem a bit out of breath after the 4% sprint since Friday and nearly 6% from Monday morning’s lows). Soft Core suffering most, weighted down by the French auction, with ABF a good 10 bp wider, Hard Core about 5 and the Periphery tighter by (only) 5 for Italy (just below 5.50%) and around 12 for Spain (just on 6.10%).

CBU intervention #1 over lunch with the POBC cutting rates for the first time since Sep 2008 with one-year deposits and one-year lending cut  25 basis points to 3.25% and 6.31%, respectively, starting tomorrow. Surprise timing, ahead of this weekend’s Chinese data dump, triggering a feeling that figures won’t look good. ROn, but ROff…

US claims, once more, were rather a let-down and capped the market progression with 377k claimants (fcst 378k), but with as so often lately past data revised higher (389k after 383k) and continuous claims still rising. Add to this a growing number of statistical drop-outs. So rather ROff…

Risk treading water on equities. Commodities mixed. Merkel acknowledgement of using “existing” instruments (?) (Seems there are some small-print EFSF provision allowing bank recaps) triggering further Spain strength, as well as financials performance. Had by mid-afternoon Spanish 10s down 25bp to 6.00% (helping those who over-paid the auction). Spain-Bund spread down to 461 from 529 at close last Friday. 

Italy slightly better, everyone else on the EGB front hammered about 10 bp +/-. Germany eventually the best performer in the sell-off (One never knows…). EUR squeezed out to low 26s, before dropping back (One never knows…).

End of afternoon tamer with Bernanke echoing Draghi in pitching responsibility back to the government, but ready to do whatever necessary, if necessary. QE off the table for the moment, triggering a reverse in Gold. Fitch raising the US AAA question (for 2013). 
Europe realizing that fine-print reading will be necessary on Spain, lifting Bunds off the ground and pushing Spain back off the 6%. SoftEZ trashed.

New Issues screens blank again for holiday. Small week…

Spain downgraded 3 notches to BBB by Fitch after COB. Too late for impact... 

Closing levels:
Sorry. Ran into WinTel problems into the close, so no numbered update for the moment. Why do financial softs not run on some more reliable???

Closing levels:
10 YRS Yields: Germany 1,37% (+5); Finland 1,79% (+8); Luxembourg 1,80% (+7); Netherlands 1,83% (+8); Swaps 1,84% (+7); Austria 2,31% (+15); France 2,56% (+16); EIB 2,53% (+8); EFSF 2,65% (+7); Belgium 3,00% (+15); Italy 5,55% (+3); Spain 6,06% (-19).

10 YRS Spreads: Finland 41bp (+3); Luxembourg 42bp (+2); Netherlands 46bp (+3); Swaps 47bp (+2); Austria 94bp (+10); France 119bp (+11); EIB 115bp (+3); EFSF 127bp (+2); Belgium 163bp (+10); Italy 418bp (-2); Spain 469bp (-24).

EUR swap curve 2-5 YRS 38,5bp (+1,4); 5-10 YRS 53,2bp (+1,9) 10-30 YRS 19,8bp (+4,1).
2 YRS German BKOs closed 0,07% (+2) and 5 YRS OBLs 0,49% (+2).

Greek bonds guesstimates: Even Greece is getting carried away in the mood and in absence of fresh news. Greek 2023s down to 28.5% from 30% and 2042s to 23.5% from 25%. (20.25% and 16.75% before elections).

Main at 174 from 177 (-1,3%); Financials at 281 after 290 (-3,3%). SovX at 317 from 324. Cross at 698 from 713.

Stoxx Futures at 2142 / +0,3% (from 2135) with S&P minis at 1315 (+0,7% from 1306, at European close).
VIX index at 22,0 after 23,5 yesterday same time.

Oil 85,2/100,3 (WTI/Brent) from 85,8/100,7 (-0,8%/-0,3%). Gold at 1590 after 1637 (-2,8%). Copper at 338 from 335 (+0,8%). CRB closes 274,3 from 274,4 (-0,1%).

Baltic Dry still on the slide, fixed today at 828 after 878 before the long weekend… Low was 647 early Feb ( would be another 22%). Intermediate high in the rebound was 1165 on 08 May ( a 44.4% correction…).

EUR 1,258 from 1,252
ECB deposits at EUR 785bn after EUR 787bn.
All levels Thursday COB 19:15 CET – after winning the fight with the WinTel demon in my pc...

Ending the week with bits and pieces on the data front. German Apr trade data (Ex fcst -0.7% after 0.8%, Imp -0.1% after 1%), French Business sentiment fcst 93 after 95), Italian IP (fcst -7.2% YoY after -5.8%). US trade Apr balance fcst USD -49.5bn and wholesale inventories fcst to grow 0.4% (after 0.3%). 
Nothing that ought to be a market mover, as such. So on look-out for political noise.

Click link on title or below for today’s musical support:
(Well, somehow, we still don’t know how they’ll do it, but certainly they’ll find a way...)

Wednesday 6 June 2012

06 Jun 2012 – "Down Under" (Men At Work, 1981)

06 Jun 2012 – " Down Under" (Men At Work, 1981)

The cheerful news of the day: In a Galaxy far, far away, Growth has been found (The Economist link to the outer space trade deficit link)...But, no, wait! It’s just on another continent, far, far away... Oz surprised markets (and probably its own CB after yesterday’s rate cut to 3.25%) by posting an unexpected Q1 growth spurt of 1.3% QoQ / 4.3% YoY (after revised higher prior 0.6% / 2.5%). Good backdrop, alongside a mildly positive close in the US, bouncing a little from the lows and positive Japanese market reaction to what might have been discussed as yesterday’s G7 conf call. Question now is how to translate that growth over to Europe… (Then again, AC/DC made it big over here, too…). Ok, wishing for Oz growth contagion elsewhere...

Positive start in Europe, now with UK back on board, before having some of Northern Europe taking a day off tomorrow. Ongoing round of Moody’s bank downgrades (up to 3 notches) last night in Austria and Germany, widely ignored, although collateral posting issues after downgrade triggers won’t help to ease the bid on Core EGBs.
EGBs open about 2 bp softer with the Soft Core maybe a bit wider (French banks would probably be next on Moody’s list), equities up a small 1% and risk down 4 to 8, including financials. EUR back on the 25 handle. Commodities recovering lightly, as well, with Brent back on the 99 handle.

Spanish Apr IP down by 8.3% YoY, worse than the forecast to a -6.5% rebound after prior -7.5%. Back to Q4/2009 levels, which were then in a recovery phase. Final EZ Q1 GDP confirmed at 0%, unchanged to prior, minimal changes in break-down.

Switching into RISK ON ahead of the ECB meeting with a quarter cut definitively priced in. Stocks adding another 1% to hit 2% plus. EGBS moving to soft modus against a slightly stronger periphery, with yields dropping to below 5.50% and 6.25% for Italy and Spain, thus compressing spreads by a good 10 bp (below 500 for Spain).

EUR 5bn OBL auction weighting on German appetite under these conditions, but this auction fared better than previous ones that happened to have taken place on RISK ON days. EUR 5bn done, of which EUR 1bn was retained for market interventions. Bids for EUR 6.2bn, of which over EUR 2bn at market. 1ct tail. 0.41%, record low (Ok, that’s nothing exciting anymore…), after 0.56% last month. All-time lows were around 0.29% last Friday and at the open on Monday. 0.41% a pure opportunity, seen like this.
Had Portugal issue EUR 500m 6m at 2.65% (after 2.94% last month) and EUR 1bn 12m at 3.83% (after 3.91%). Decent and unchanged bid to cover ratios. Then again, given this week’s recaps, anything else would have been impolite from the dealers. This Portuguese bill sale is nevertheless a welcome change in Periphery news. Then again – already bailed-out…
German IP lunch time figures were quite disappointing at -2.2% (from prior 2.8%, revised sharply lower to 2.2%). Forecasts had been for a 1% decline.
Outside a Feb soft patch at -0.2%, this is the first negative YoY reading since Dec 2009. Putting a bid of lid on the buoyancy of the market and a floor on dropping bonds, ahead of the ECB verdict, which was … unchanged. Had surprisingly an only limited immediate impact.

Final Q1 Nonfarm productivity (slightly revised) and Labour costs (1.3% from first estimates of 2.1%) were the only major set of US figures, published right away to start the afternoon session.
Same timing as everyone switching on the Super Mario show. ECB press conference with Draghi not especially upbeat, stressing downside, downside, downside (Down under?), no real revelation… Nothing enticing during the call. Felt pretty passive-aggressive. Take-aways: Yes, markets are right to worry. No, there’s no deadline looming for fixing things – and it’s not the ECB’s job to do so. Yes, some council members did push for a rate cut today. BUT, it’s not all our fault (so to the G7/G20 ex EU: “Get lost! Fix your own problems, if you feel concerned...”).
Surprising market resilience, as if seen as show of strength, although it felt more like an attempt to keep powder dry....or good bluff.

Wizard of Oz wish fulfilled in Belgium with Q1 GDP expanding at 0.5% YoY. Knokke-Le-Zoute, new surfer Mecca and diving paradise...and witness accounts of kangaroos hopping around the streets of Brussels!  Need to hope for more Australian stimulus…

Tomorrow is auction day for Spain (2, 4 and 10 YRS) and French long end (EUR 8bn in 2019/ 2022 / 2026 / 2060). French and Spanish bonds surprisingly holding quite well. Maximum auction size has been set defensively at EUR 2bn for Spain. Last Spanish 10 YRS auction was in April at 5.74% (now 6.25%). Last French auction was at 2.96% last month (now 2.40%).
Still can’t make sense of Spain’s government calls: Yes, no, we need help, but not really; the FROB can recap everything, but it would be better if outside help was available, but we don’t need it anyway...

Weak data. Moody’s continuous bank downgrade. ECB non-action: RISK ON seems to get ahead of itself. Hard Core EZ bonds get a beating. FED probably to keep twisting. Equity squeeze and massive bond sell-off into the close. Even Italy sold and closing above 5.50%. Seems quite odd. Very odd.
Australian relaxed attitude face put on.

Slower start in New Issues with mainly CADES increasing a 12 YRS linker by EUR 1.5bn and German Joint-Länder #40 for EUR 1.5bn in 10s at MS +11.

Greek bonds guesstimates: Even Greece is getting carried away in the mood and in absence of fresh news. Greek 2023s down to 28.5% from 30% and 2042s to 23.5% from 25%.
Quotes were 20.25% and 16.75% before the elections.

Closing levels:
10 YRS Yields: Germany 1,32% (+12); Finland 1,71% (+13); Luxembourg 1,72% (+11); Netherlands 1,75% (+14); Swaps 1,77% (+10); Austria 2,16% (+7); France 2,40% (+8); EIB 2,45% (+12); EFSF 2,58% (+10); Belgium 2,85% (+4); Italy 5,52% (+1); Spain 6,25% (-2).

10 YRS Spreads: Finland 38bp (+1); Luxembourg 40bp (-1); Netherlands 43bp (+3); Swaps 45bp (unch); Austria 84bp (-5); France 107bp (-3); EIB 112bp (unch); EFSF 126bp (-1); Belgium 153bp (-8); Italy 420bp (-10); Spain 493bp (-13).

EUR swap curve 2-5 YRS 37,1bp (+4,3); 5-10 YRS 51,4bp (+2,6) 10-30 YRS 15,5bp (+0,4).
2 YRS German BKOs closed 0,06% (+5) and 5 YRS OBLs 0,46% (+10).

Main at 177 from 184 (-4,0%); Financials at 290 after 303 (-4,2%). SovX at 324 from 328. Cross at 713 from 738.

Stoxx Futures at 2135 / +2,5% (from 2083) with S&P minis at 1306 (+1,9% from 1282, at European close).
VIX index at 23,5 after 25,3 yesterday same time.

Oil 85,8/100,7 (WTI/Brent) from 84,1/98,7 (+2,0%/+2,0%). Gold at 1637 after 1619 (+1,1%). Copper at 335 from 331 (+1,4%). CRB closes 274,4 from 270,6 (+1,4%).
Brent back in shape and over the 100-mark.
Baltic Dry reopened with a low 878 fixing, after 904 last Friday (-2.9%). Is there another more convenient way to ship things from Oz to China???

EUR 1,252 from 1,246

ECB deposits at EUR 787bn after EUR 781bn.
End of maintenance period will be 12 Jun, so we might see some acceleration in the built up in the coming days. All-time high was EUR 828bn early March.

All levels Tuesday COB 17:30 CET

Rest of the week:
Tomorrow is auction day for Spain (2, 4 and 10 YRS) and in the French long end (2019/ 2022 / 2026 / 2060). Biggest periphery test this week, although the maximum auction size has been set defensively at EUR 2bn. Parts of northern Europe closed tomorrow.

Germany: Fri Import / Export & trade balance
France: Fri Biz Sentiment
Periphery: IT Fri IP, PMI
US: Thu claims, Fri Inventories

Click link on title or below for today’s musical support:
(“Can't you hear, can't you hear the thunder?/ You better run, you better take cove!” Pan flute solo...)

Tuesday 5 June 2012

05 Jun 2012 – " Gimme Some Money" (This Is Spinal Tap, 1984)

05 Jun 2012 – " Gimme Some Money" (This Is Spinal Tap, 1984)

Well, after some wobbly back and forth, the US just closed where they were left at European COB, meaning more or less unchanged to Friday. Much better Asian session with equities closing about 1% higher, rebounding from Monday’s belated catch-up on risk bashing of Friday in Europe and the US. China service PMI at 54.7 after 54.1, the strongest reading since Q4/2011, counterbalancing the poor PMI data of last week. Had the RBA cutting rates by 25bp to 3.50% in the latest round of acknowledgement that things are getting soft out there (With inflation running at 1.6% YoY, the RBA certainly has way to go, if needed, unlike others...).  Japanese Comp PMI at 50.1 (Apr 51.3). The Song Remains the Same – for everyone...
European open thus cautiously optimistic, albeit staying close to COB. Equities up about 0.5%, EGBs broadly unchanged, maybe one bp tighter or so, as are first quotes in credit indices.
Only strong rebound has taken place in Oil, which opens about 1.75% higher, following the EUR rebound, which was squeezed overnight until 1.250 before starting the European leg just below the 25 handle.

With UK (incidentally downgraded by Egan Jones to AA- from AA last night) still on weekend, liquidity and flows should remain below-average. Markets settling in on neutral ahead of German Factory orders, European Service PMIs, retails sales and the upcoming G7 conf call. Quite doubtful the latter’s results will be earth-shattering and outside calls for growth support, ex-EU members calling the EZ to get its act together and some vague mumblings about being supportive to that, it’s difficult to see anything concrete. Spain now calling out “openly” for EU/ESM support for bailing out its banks (not itself…).
Among the anecdotes of the state of things is the story about EADS wanting to get a banking licence in order to deposit its liquidities (EUR 11.7bn end of 2011) directly at the ECB. Get a grip... It’s a hassle! With money soon at 0%, they’d be better off fixing those A380 wing cracks... or buying German 2 YRS. And with respect to raise short to lend long, outside Basel III coming up, there are already plenty ahead in the line to stop doing this. Looks like the Bafin sees it similarly... Still, a reflection of the mood.

Poor Services PMI at 41.8 (Apr 42.1) for Spain, with activity down at fastest rate since November. Otherwise, Final PMI numbers were close to expected albeit a tad weaker for the Franco-German couple, a tad stronger otherwise (EZ Comp at 46 after 45.9, Services at 46.7 after 46.5; Italy 42.8 after 42.3 and 42 fcst; France 45.1 after 45.2 flash unch and Germany at 51.8 after 52.2 flash unch). Giving a bit of support to the EUR, which was trading back down to 1.245. Everything else mostly unchanged with Core EZ bonds maybe a tick firmer. Overall confirmation of contagion & converging weakness… Add poor EZ retail sales missing -0.1%/-1.1% (MoM/YoY) forecasts with -1% and -2.5% respectively after prior +0.3% and -0.2% and you get the picture where we’re heading on Q2/GDP (probably minus 0.5% from flat)…
Enough to push the mood back into risk off with Core EZ EGBs on the rise, the Periphery softer and Soft Core acting as pivot. Equities back down and EUR testing the lower 24s.

Belgium bills on the chop today with EUR 1.8bn 3m at 0.213% and EUR 6m sold at 0.266% respectively, after 0.201% and 0.226% last month. Not that the couple of basis points do matter. Feels like surgical dissection. EFSF going for EUR 2bn 3m at 0.14% (from 0.17% last month).

Mood turning sombre on leaks that Germany would push for Spain to go for a bailout at the G7 conf call (Set to start at 13 CET). That one will end as verbal food fight on euro-solidarity and burden-sharing… IBEX futures, which were up nearly 2% for a while (after rising nearly 3% yesterday) turned flat over the lunch break. Periphery bonds pretty much unchanged from the late morning twist ( -4 / flat / +4 for Hard / Soft Core / Periphery).
In the meantime, the Finnish ForMin spelt out the obvious and urged for a Greek orderly default.

In absence of any joint comment after the call nor real run-down on its content, markets decided that something might still pop up and went back into neutral, with the Periphery back off wides, awaiting US figures. Had a short-lived spike on JPY from low 78 to the 79 handle, as Japan stated for the second time in as many days its displeasure with the Yen strength.
Yawn... "G7 agreed to monitor developments closely ahead of G20 summit”. Conference call probably yielded that further calls might be needed.
For European history trivia: The "Marshall Plan" speech at Harvard University, 5 June 1947, exactly 65 years ago today (link). And yet some sentences sound terribly up-to-date...

Afternoon figures with US Composite ISM for May rising to 53.7 (fcst was 53.8 after prior 53.5). Some short term solace and a bit of a risk spike, before people started chewing on the weak employment and price components.

Still feels empty without UK input. Tons of writing for not much change (except Spain doing better)... Something wrong about that!
Blank new issue screens.

Let’s see what the ECB has to say tomorrow...

Greek bonds guesstimates: Greek 2023s unchanged at 30% and 2042s at 25%. S&P estimate that there’s one in three chance for Grexit was no shocker either.
Quotes were 20.25% and 16.75% before the elections.

Closing levels:
10 YRS Yields: Germany 1,21% (-1); Finland 1,58% (unch); Netherlands 1,61% (+2); Luxembourg 1,61% (-2); Swaps 1,67% (+0); Austria 2,10% (+1); France 2,31% (+4); EIB 2,33% (-3); EFSF 2,48% (-2); Belgium 2,81% (unch); Italy 5,50% (-2); Spain 6,27% (-8).

10 YRS Spreads: Finland 37bp (+1); Netherlands 40bp (+3); Luxembourg 41bp (-1); Swaps 45bp (-1); Austria 89bp (+2); France 111bp (+4); EIB 112bp (-2); EFSF 127bp (-2); Belgium 160bp (+1); Italy 430bp (-1); Spain 506bp (-7).

EUR swap curve 2-5 YRS 32,8bp (-0,2); 5-10 YRS 48,8bp (+0,1) 10-30 YRS 15,1bp (+0,6).
2 YRS German BKOs closed 0,01% (-1) and 5 YRS OBLs 0,37% (+1).

Main at 184 from 184 (unch); Financials at 303 after 302 (about unch). SovX at 328 from 329. Cross at 738 from 737.

Stoxx Futures at 2083 / +0,3% (from 2076) with S&P minis at 1282 (+0,8% from 1272, at European close).
VIX index at 25,3 after 27,0 yesterday same time.

Oil 84,1/98,7 (WTI/Brent) from 83,0/97,4 (+1,3%/+1,3%). Gold at 1619 after 1615 (+0,2%). Copper at 331 from 333 (-0,6%). CRB closes 270,6 from 268,7 (+0,7%).
Good recovery in Oil on initially stronger EUR. Maintained some presence after the re-slide.
No Baltic Dry fixing given UK holiday. Was at 904 down from 923 (-2.1%) last Friday.

EUR 1,246 from 1,250

ECB deposits at EUR 781bn after EUR 785bn.
End of maintenance period will be 12 Jun, so we might see some acceleration in the built up in the coming days. All-time high was EUR 828bn early March.

All levels Tuesday COB 17:30 CET

This week:
Not really tons of data. Tomorrow, final EZ Q1/2012 & ECB. German 5 YRS auction. French long end on Thursday. Biggest periphery test this week is Spain with a sale of 2022s on Thu, next to some Portuguese bills (tomorrow). Small BONO auction, though (up to EUR 2bn), as if to state how far advanced Spain is in its programme.

Germany: Wed IP (fcst 0.8% after 1.6% YoY), Fri Import / Export & trade balance
France: Fri Biz Sen
EZ: Wed Final Q1 GDP, ECB
Periphery: IT Fri IP, PMI SP,Wed Ind Output
US:, Wed MBA mortg a Q1 Productivity, Thu claims, Fri Inventories.

Click link on title or below for today’s musical support:
Talking of Marshall, they DO go to Eleven!!! (link).
No Marshall without Les Paul, together with Nigel Tufnel, (link) with infinity amp setting and the amp capo...)

Monday 4 June 2012

04 Jun 2012 – " Brother, Can You Spare a Dime" (George Michael, 1999)

04 Jun 2012 – " Brother, Can You Spare a Dime" (George Michael, 1999)

Having remained mostly stoic over the last couple of days, Asia kick-started the week in a sea of red. US reeling from the weak job readings until the close on the lows and the DJI turning negative for the year. S&P still up 1.6% YTD, as is the very wide Russel 3000. Chinese non-manufacturing PMI down to 55.2 from previous 56.1, its lowest reading so far.
Then again, we’ll keep from last week that most PMI readings were beep and showing a worrisome trend.

Nevertheless, pretty uneventful open, in line with the US close and Asian session. Equities half a point weaker than Friday COB. Govies about unchanged, Italy a tick stronger and Spain a tick or two wider (but remaining below 6.50%), as were credit indices. EUR stable to “stronger” on the 24 handle. Commodities still heavy with Oil and Copper down 2%, but with Gold still running a solo show above 1600.
The Greek country debt ceiling was lowered by Moody’s to Caa2 on Friday night, but that doesn’t count as earth-shattering surprise anymore.
With UK still on weekend for the next two days, liquidity and flows should remain below-average.

No shoe dropping Monday morning spirit. Spanish unemployment numbers down a little. Portugal confirmed on EU/IMF track.
EZ investor confidence at -28.9 at the lowest since July 2009, but beating -30 forecasts (after -24.5). EZ PPI, as for last week’s CPI numbers, a tick under expectations at 2.6% YoY (after prior 3.5% revised upwards by 0.2%), which would as well evidence a little room for the ECB to act on Wednesday.
Had risk pick just a tick to have most European equities about unchanged on average (with some strong divergences with the Periphery up 1-1.5%, France flat and Germany down another 1.5%). A bit of softness in the ABF (Austria, Belgium, France) Soft Core.

Next one lining up for (short term) free money: Dutch 3m bills sold at 0.000% for EUR 1.1bn, plus EUR 1bn 6m at 0.014% (after 0.014% and 0.025% two weeks ago). France not there yet, but raising about EUR 8bn with EUR 3.9bn 3m at 0.082% (after 0.084% last week), EUR 2bn 6m at 0.115% (after 0.106%) and EUR 2bn 12m at 0.178% (after 0.18%). So no free money yet, but trying.

Markets getting some steady, albeit non-explosive upwind throughout the session to start the US leg of the day with most EGBs having retreated 4-5 bp, with the exception of Italy having a good 14 bp and Spain a healthy 7 bp tighter bias. Credit indices by and large totally unchanged. Commodities gaining a little, just a little colour.
Support with political noise about the banking union push / use of ESM funds and people getting ahead of themselves every time a German politician acknowledges that growth ought indeed to be pushed. Had some Franco-German ForMin bonding with the new couple testing a pas de deux with mutual acknowledgement of one another’s position.
All good and groovy – until numbers will be put on the table and the tricky question raised who should pay for whom. And by the way, the ECB stayed put on its SMP buying programme for yet another week (12th in a row and not much before since Dec 2011), should you ask...

Had the mood somewhat spoiled as US markets opened and kept sliding, after trading up in pre-market, as  May NY ISM was down to a 6 month low of 49.9 (61.2 prior) and Apr Factory Orders came out at -0.6% (fcst 0.3% after -1.5% further revised to -2.1%). Ex-transport even down 1.1%. So, ouch! So the US will need money, too???? Pass the buck.
Main beneficiary of the data set was the EUR, which was squeezed all the way up to the 25 handle (on record shorts / open interest). Commodities up from early morning, post-Asian depression session lows.
Still, Europe took it on the chin and it barely hurt. Very good Periphery day, although pretty much in parallel shift on both curves. A little steepening  through short end outperformance would have been appreciated for a bullish mood.

 G7 Tuesday conference call announcement to uphold the spirit. Obama administration getting jittery, too?
General feeling of quiet markets, over all. Missing UK input.

Blank new issue screens.

Greek bonds guesstimates: Greek 2023s better at 30% from 30.50% and 2042s at 25% 25.5%.
Quotes were 20.25% and 16.75% before the elections.

Closing levels:
10 YRS Yields: Germany 1,22% (+4); Netherlands 1,59% (+7); Finland 1,58% (+5); Luxembourg 1,63% (+3); Swaps 1,66% (unch); Austria 2,09% (+3); France 2,28% (+5); EIB 2,36% (+3); EFSF 2,50% (+3); Belgium 2,81% (+1); Italy 5,52% (-19); Spain 6,35% (-11).

10 YRS Spreads: Netherlands 37bp (+2); Finland 36bp (unch); Luxembourg 41bp (-1); Swaps 46bp (-1); Austria 87bp (-2); France 106bp (unch); EIB 114bp (-2); EFSF 129bp (-1); Belgium 159bp (-4); Italy 431bp (-23); Spain 513bp (-16).

EUR swap curve 2-5 YRS 33bp (+2,2); 5-10 YRS 48,7bp (-0,6) 10-30 YRS 14,5bp (-0,8).
2 YRS German BKOs closed 0,01% (unch) and 5 YRS OBLs 0,36% (+4).
Ouch! German 2s back to positive at 0.01%... What a beating!

Main at 184 from 184 (unch); Financials at 302 after 302 (unch). SovX at 329 from 330. Cross at 737 from 736.

Stoxx Futures at 2076 / +0,5% (from 2066) with S&P minis at 1272 (-1,0% from 1284, at European close).
VIX index at 27,0 after 25,8 yesterday same time.

Oil 83,0/97,4 (WTI/Brent) from 83,2/98,5 (-0,1%/-1,1%). Gold at 1615 after 1609 (+0,4%). Copper at 333 from 331 (+0,4%). CRB closes 268,7 from 269,1 (-0,1%).
No Baltic Dry fixing given UK holiday. Was at 904 down from 923 (-2.1%) last Friday.

EUR 1,250 from 1,238
ECB deposits at EUR 785bn after EUR 769bn
End of maintenance period will be 12 Jun, so we might see some acceleration in the built up in the coming days. All-time high was EUR 828bn early March.

All levels European COB 17:30 CET

This week:
Will need to live with patchy liquidity with the UK in extended weekend on Mon and Tue. Government supply rush starting again with Spain testing a sale of 2022s on Thu, as biggest test of the week. ECB on Wed.
Not really tons of data.

Germany: Tue Fact Orders (fcst -3.8% after -1.3%) & Service PMI, Wed IP (fcst 0.8% after 1.6% YoY), Fri Import / Export & trade balance
France: Tue Service PMI, Fri Biz Sen
EZ: Tue Comp PMI (fcst 46.5 unch), Retail Sales, Final Q1 GDP, ECB
Periphery: IT Service, Fri IP, PMI SP Tue Ser PMI, Wed Ind Output
US: Tue Comp ISM May (fcst 53.8 after 53.5), Wed MBA mortg a Q1 Productivity, Thu claims, Fri Inventories.

Click link on title or below for today’s musical support:
(International dime chasing season open)