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

Saturday 30 June 2012

30 Jun 2012 - " I Thank You " (ZZ Top, 1980)

30 Jun 2012 - " I Thank You " (ZZ Top, 1980)

Past the 3.000 click mark, as of Friday noon.

One small click for you, one step beyond for me?
Just kidding...
By no means a huge number compared to flagship financial blogs, but surprising nevertheless.

Many thanks to all readers for their recurrent interest in my daily musings. As it happens, I just write the stuff to keep myself busy, as I am stuck behind a row of screens with flashing numbers for reasons beyond my control...
As I'm neither research nor analyst, and as this is not in my actual IB job description, I have some liberty of tone and the liberty to delve.
Happy to share my observations, thoughts, surprises with you during these interesting days.

What started as an offshoot of some daily stuff I was circulating has gained a blog traction surprising me. I started crancking up publication and buzz in April / May and audience has been rising for good over the last 2 months.
Slightly over half the clicks seem US-based, 20% French, followed by German and English readers for 10% each, the rest being spread over Russia, Finland, Canada, Greece, Belgium or Switzerland. Hello as well to my Australian, Indian and Turkish mail subscribers. (I think the couple of clicks out of the Maldives were actually my own, when on holiday...).
In any case, an interesting readership mix... Pushing me to make things as interesting - and entertaining - as possible
Trying my best to give you some insights into that European crisis we all seem stuck with.

Thanks to my Finnish friend at MoreLiver (http://morelivers.blogspot.fr/) for providing me with additional traffic and visibility, as well as to FT Alphaville's Long Room.

Looking to increase traffic further in the coming days.

Happy Summer-time to all! I guess it will remain hot.

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

Friday 29 June 2012

29 Jun 2012 – " One Step Beyond " (Madness, 1979)

29 Jun 2012 – " One Step Beyond " (Madness, 1979)

Understands who can… The Brussels nightly drama yielded first tweeted “results”, then none, then yes. Then some bickering, Southern drama, then truce. Then they still were not done haggling.
In any case, first white smoke signals 30 minutes ahead of the US close managed to turn around the equity market sharply by over 1%, leading to an only mild negative close. Asian stocks up 1.5% as a whole, leaving Q1 behind and heading into the weekend. Overnight data showing stable CPI and employment figures in Japan, but disappointing IP readings slowing to 6.2% YoY (fcst 6.7% after 12.9%. Don’t forget the Fukushima base effect, here) and PMI slipping just below the 50 mark at 49.9 after 50.7, its weakest reading since Dec 2011.

Roaring ROn start in Europe with equities gapping up 3%, Core EGBs wider by a good 15bp. Italy and Spain tighter by 40 and 50 bp respectively in 10s, taking BTPs back through 6% and BONOs through 6.50%. The effect was even more explosive in 2s, down by 70 bp and 85bp, taking the latter respectively back to the 3.75% and 4.50% area. Then again, it’s certainly a big move, but on second thought these remain HIGH yields.
Main and Financials tighter by 10 and 20. Tamer commodities reaction with 1.5%-2% upswing. EUR out to the 26 handle.

German Retail Sales hit hard in May and at -1.1% YoY a huge miss of the +1.9% forecast. Previous data was as well revised lower from -3.8% to -4.3%. Same picture on a MoM basis at -0.3% (fcst +0.2% after prior +0.6% revised to -0.2%). Another sign that Germany is running out of steam, too. French PPI below forecast as well at 2.2% YoY (fcst 2.7% unchanged). Doesn’t seem to worry French consumers, who unexpectedly increased spending in May MoM by 0.4% (fcst was 0% after revised +0.7%). Good headline stuff for musings about freewheeling French and austere Germans. In any case, price pressure seems to diminish here and there, which should give the ECB the opportunity next week to add a stone to the rescue by lowering rates a little. If it wasn’t for that M3 growth that came out at much higher than expected +2.9% YoY (fcst 2.3% after 2.5%)… Then again, given the capital flight stories of late, one could expect that all that money sloshing back and forth ends messing up statistics. EZ CPI unchanged at 2.4%, as expected. Sticky above 2%, but with lower outlook.

And then? Once the initial ROn Rocket launched, stops triggered and shorts covered, people started poring over the docs and statements and things went “static to less ecstatic”. That EUR 120bn growth package happened to have been the one already pitched last Friday and mainly coming courtesy of a capital-increased EIB, some frontloaded spending and from the private sector. So no real new cash here. As this being a 2-day exercise and still ongoing, different titbits and comments, bickering about details, seniority or not questions et al started to somewhat sap the mood. Southern European popular press headlines certainly not helping the cohesion process, either. As details were still hammered out, Core EZ Front adjustments and setting things straight comments had the ROn fizzle out a bit at the end of the morning.
Most to the point morning comment du jour, certainly reflecting many views at that stage: A decisive solution: using a fund that doesn't exist to buy debt that won't be repaid via a mechanism that hasn't been agreed.

End of morning static stand-by with the Core EZ EGB gang wider by 10bp, Italy down a good 20bp to 5.95% and Spain down 30bp to 6.60% EUR off highs at 1.258. Equities about 2.5% from COB. Credit quite static after the initial tightening of 10 and 20 in Main and Financials. Waiting for whatever happens next – and details… Story of everyone’s life in the markets these days.
European equities gained 1% over lunch, as practical details were hammered out, and added another 1% at US open.

Strong Milwaukee NAPM at 60.2 (fcst 55.1 after 57.7). Not sure this would have mattered in normal times, but on such a strong ROn day, it just added to the positive attitude. Personal Income and spending at 0.2% and 0.0% as forecasted. Chicago Purchasing better at 52.9 (fcst 52.3 after 52.7) with final Michigan Confidence undershooting at 73.2 (fcst 74.1).

Tailor-made ESM non-seniority for the Spanish intervention, but conditionality attached, so a bit for everyone. Finnish and probable Dutch collateral demands. German opposition in arms over the German attitude U-turn (small tail risk, but the ESM still needs to be ratified in Germany).
The whole summit is certainly a strong Italo-Spanish political achievement. But, hell, from here on things ought not to derail anymore, as, despite contrary assertions, it does look like the German front was cornered and pushed to its limits. Difficult to expect further concessions, comes the next crisis. Italian 2-10 steeper by 40 bp and Spanish equivalent by 50bp. Strong Irish performance, too, with long benchmarks down by 60 bp on the day, now trading low 6.40% as that bespoke ESM banking thing can certainly be applied elsewhere, too.
Seemingly Greece was either not discussed at all or not seen as imminent threat enough at this summit.
A definitive step towards a banking union, but the final target just seems highly improbable on a short outlook and will take years of further bickering.
Question is how many more times can this be done, as the whole sovereignty-solidarity-federalism-deficit-bank loop-risk adverseness is certainly not off the table for good.

Good close of the week. Certainly one step beyond… on a long and winding road.
Had New Issue from Nordea testing waters for a senior double-trancher with EUR 1.25bn long 5 YRS at MS +100 and EUR 1bn 10 YRS at MS +135 and fellow Nordic Sparebanken 1 tapping EUR 250m on an outstanding 2016 covered bond at MS +27.

Closing levels:
10 YRS Yields: Germany 1,58% (+7); Luxembourg 1,91% (+5); Swaps 2,02% (+9); Finland 2,04% (+5); Netherlands 2,09% (+3); EU 2,40% (+4), Austria 2,52% (+2); EIB 2,61% (+4); France 2,68% (+1); EFSF 2,72% (+2); Belgium 3,18% (-3); Italy 5,78% (-40); Spain 6,29% (-60).

10 YRS Spreads: Luxembourg 33bp (-2); Swaps 44bp (+2); Finland 40bp (-8); Netherlands 51bp (-4); EU 82bp (-3); Austria 94bp (-5); EIB 103bp (-3); France 110bp (-6); EFSF 114bp (-5); Belgium 160bp (-10); Italy 420bp (-47); Spain 471bp (-67).
Switched Belgium ref to Sep 2022.

EUR swap curve 2-5 YRS 47bp (+3,0); 5-10 YRS 69bp (+4,0) 10-30 YRS 30bp (-1,0).
2 YRS German BKOs closed 0,120% (+1,6) and 5 YRS OBLs 0,61% (+4).

Main at 166 from 178 (6,7% tighter); Financials at 261 after 289 (tighter by 9,7%). SovX at 282 from 298. Cross at 662 from 705.

Stoxx Futures at 2255 / +4,7% (from 2153) with S&P minis at 1349 (+2,9% from 1311, at European close). Well that’s an impressive 5.7% rally from yesterday’s lows.
VIX index at 19,7 after 20,6 yesterday same time.

Oil 82,3/95,4 (WTI/Brent) from 78,5/92,0 (+4,8%/+3,7%). Gold at 1598 after 1555 (+2,8%). Copper at 347 from 332 (+4,5%). CRB closes 278,0 from 272,0 (+2,2%).
Baltic Dry up 10 to 1004, back over the 4-digit mark.

EUR 1,267 from 1,244
ECB deposits at EUR 782bn after EUR 773bn.

Greek bonds guesstimates: Greece down 50 bp with 2023s at 26% from 26.50% and 2042s at 22% from 22.50%.
(20.25% and 16.75% before the first election round).

All levels COB 17:30 CET

On the week (compared to Fri 22 Jun COB):
Another week, another story. Stop! It’s the same story, but just told differently, over and over… Friday had seen some of the spirit “Shot Down in Flames” to start the day as the Spanish banking bail-out doubts were abounding (Bunds +5 / Spain -25 / Stoxx -0.6%). Following a European quartet meeting in Rome and a EUR 120bn infra pack announcement, things closed about ok, especially for Spain, which staged a one-man rally in an empty Friday afternoon market. The whole thing was of course reversed by Monday and Risk went tanking, hoping for someone to “Catch My Fall ” (Bunds -12 / Spain +29 / Stoxx -2.5%). Eventually, Cypriot and Spanish bail-out demands went official. As things can’t always be wholly manic-depressive all times, markets too a breather on Tuesday in a “Quiet Times” session, which for once was rather risk neutral, although things went soft into the close (Bunds +4 / Spain +28 / Stoxx -0.2%). Ahead of the EU summit, it seemed that everyone wanted not to “Never Make Your Move Too Soon” on Wednesday, with exception of equities, which felt that something good would certainly happen (Bunds +6 / Spain +4 / Stoxx +1.6%). As, first EU titbits were only to appear later at night, yesterday was a day with “Nothing to Say”, at least not much (Bunds -6 / Spain unch / Stoxx -0.2%).

Unimaginable as this may seem, at first glance, nothing happened in European bonds… Just kidding. But just half.
On the week, we’d note that the trend of 10 YRS EGB softening across the board has continued. While stress behaviour still regularly yields a retreat into Core EZ bonds, there’s an underlying heaviness in here for the moment. Best and sole performer of the week in absolute and relative terms? Belgium. Caught between the Soft Core and the Periphery, it managed to issue well on Monday, is mostly out of the limelight, except when hosting all these summits and, if my numbers are right, has now covered 72% of its funding needs with some EUR 9bn to go for the rest of the year).
Sad looser left on the side of the road: the Soft Core, when considering that on a week on week basis, the wings didn’t really move. Tout ça pour ça???
With regards to the Periphery, total meltdown risk seems averted, but given what has been put on the table, the market reaction, as seen by this week’s closing levels, is far from being convinced yet.
Comeback kid of the week? The EUR, considering the 300 pip rally today.

10 YRS Yields: Germany 1,58% (unch); Luxembourg 1,91% (+1); Swaps 2,02% (+4); Finland 2,04% (+1); Netherlands 2,09% (+0); EU 2,40% (+2);Austria 2,52% (+11); EIB 2,61% (+3); France 2,68% (+9); EFSF 2,72% (unch); Belgium 3,18% (-6); Italy 5,78% (+1); Spain 6,29% (-2).

10 YRS Spreads: Luxembourg 33bp (+1); Swaps 44bp (+4); Finland 40bp (-5); Netherlands 51bp (+0); EU 82bp (+2); Austria 94bp (+11); EIB 103bp (+3); France 110bp (+9); EFSF 114bp (unch); Belgium 160bp (-6); Italy 420bp (+1); Spain 471bp (-2).

EUR swap curve 2-5 YRS 47bp (-1,0); 5-10 YRS 69bp (+5,0) 10-30 YRS 30bp (+4,0).
2 YRS German BKOs closed 0,12% (-1) and 5 YRS OBLs 0,61% (-3), on the week.
Swiss 2-years flat at -0.28%, but having traded a record low -0.38% yesterday.

Main at 166 from 170 (2,4% tighter); Financials at 261 after 276 (5,4% tighter). SovX at 282 from 295. Cross at 662 from 680.

Stoxx Futures at 2255 / +3,4% from 2181 with S&P minis at 1349 / +1,9% from 1324, at European COB last week.
VIX index at 19,7 after 19,2 last week.

Oil 82,3/95,4 (WTI/Brent) from 79,2/90,6 (+3,8%/+5,3%). Gold at 1598 after 1562 (+2,3%). Copper at 347 from 330 (+5,2%) . CRB at 278,0 from 268,0 (+3,7%) at European COB.
Commodities by and large correcting the prior week’s slide with the exception of precious metals that remain (relatively) under pressure.
Baltic Dry back to 1004 from 978 (+2.7%), after last week’s 5.8% rise. Need to watch seasonal behaviour starting July.

EUR 1,267 after 1,253 last Friday

Greek bonds guesstimates: Down to 26% from 26.50% for 2023s and 22% from 22.25% for the 2042s (20.25% and 16.75% before elections).

All levels Friday COB 17:30 CET

Next week:
Very, very light on European data. Very heavy end of the week US data supply, following the 4th of July holiday.

Germany: Thu Factory Orders May fcst -5.8% YoY after -3.8% Fri IP fcst -1.2% after -0.7%
France: Presque rien
EZ: Tue EZ PPI fcst 2.5% YoY after 2.6%. Wed Final PMIs. EZ Retail Sales fcst -0.6% after revised -2.7%. Thu ECB
Periphery: IT Mon Manu PMI fcst 44.5 after 44.8 Wed Services PMI fcst 42.5 after 42.8. Deficit/GDP Q1. Spain next to nada Wed Unemployment Fri Indu Output fcst -8% after -8.3%
US: Mon Manu ISM fcst 52 after 53.5 Px ISM 45.9 after 47.5 Construction Spend fcst 0.2 after 0.3% Tue Factory Orders Wed closed Thu MBA mortgages; Claims; Non-Man ISM; Chain Store sales; Fri Payrolls & Unemployment
Asia: China leading indicators

Click link on title or below for today’s musical support:
(So if you've come in off the street / And you're beginning to feel the heat / Well listen buster/ You better start to move your feet/ To the rockinest, rock-steady beat)
(Yep, there’s some Heat in the Street these days…)

Thursday 28 June 2012

28 Jun 2012 – " Nothing to Say " (Slash, 2010)

28 Jun 2012 – " Nothing to Say " (Slash, 2010)

Interesting open, showing yet again a divergence between rates and equities: EGBs start in ROff mode, ahead of the Italian auction, and probably discounting a revelation-less outcome of the next 48 hours, with the Core squeezed tighter and the Peripherals widening with Spain again approaching the 7%-mark. Equities, on the other hand, felt like trailing the US market and matching the slightly higher US close (compared to COB Europe). Credit a tick tighter. Commodities a tick firmer. Asia by and large put with the exception of Japan, following through on yesterday’s rally of 1.5% (plus better retail sales), and China down, again, 0.5%. Knowing that Chinese stimulus rumours were part of yesterday’s hope dope, that one hasn’t zeroed in at the right place.

Light initial data supply: Spanish housing still sliding with housing permits at -32.4% YoY in Apr (after prior -27.8%). German unemployment a tick higher at 6.8% (after prior revised to 6.8%, from what was thought a record low of 6.7% last month), so floored here since Dec 2011. Made later a bigger fuzz and used to explain ROff, but that still is very low.
Italian 5s around 5.98% and 10s around 6.25% in early quotes ahead of this week’s and quarter’s last EGB auction.

EZ indicators all on the softer side: Biz climate missing forecasts at -0.94 (expected -0.87 after revised -0.79), Consumer Confidence -198 (fcst -19.6 unchanged), Eco Conf at 89.9 (fcst 89.6 after revised lower +90.5), Indu Conf -12.7 (fcst -12 after revised lower -11.4) and Service Conf at -7.4 (fcst -6 after revised lower -5.2). As so often lately, all these levels hark back to Q3/2009. Back to the Future.

Markets starting to shift into ROff for good, including equities, with German officials leaking “Nein Nein Nein!”, not that this would be news.

Italy eventually sold EUR 2.5bn 5s at 5.84% (after 5.66% last month and 5.90% yesterday evening) and EUR 2.9bn 10s at 6.19% (after 6.03% and 6.19% COB), so slightly under EUR 3bn target, with both issues bid quite expensively compared to pre-auction levels. First reaction a 5 bp tightening to 6.20%, despite the still rather lame bid to cover ratios (1.5 and 1.28).
To put these levels into context, if it wasn’t for the panicky Nov 2011 auction at 7.56%, this brings us back to Sep 1997, and at that time yields were falling and converging pre-EUR introduction. Likewise for the 5 YRS auction, which levels peaked at 6.29% and then 6.47% in Nov and Dec 2011. The first time 5 YRS BTPs were issued below 6% was at 5.88% in Jul 1997. A sad and worrisome Back to the Future.

Seesawing lunch time session: depending on who spoke last in Brussels, press clippings and official rebuttals. ROff ROn ROff ROn in rapid succession.
Equities up 0.75%, down 1%, up 1.7%, down 1.25%... 10 YRS Bunds up 3 bp, down 4 bp, up 5 bp, down 3 bp… 
Basically ending where we stood around the Italian auction results’ announcement. A lot of movements for no movement going into US jobless claims showing the now usual miss / revision at 386k (fcst 385k after 387k, revised 392k).

Afternoon ROff, mainly trailing weaker US stocks, in the same manner as Europe closed ROn yesterday. EGB and Credit rather static. Roughly back to Tuesday levels. Italian auction papers close 5.82% (-2 bp from auction) and 6.18% (-1 bp), so no harm done, which is as good as it gets these days.

Waiting for whatever happens next…
New Issues market restricted to a EUR 650m CADES 12-YRS ILB increase and a EAA EUR 500m 3 YRS FRN block trade..

Closing levels:
10 YRS Yields: Germany 1,51% (-6); Luxembourg 1,86% (-4); Swaps 1,93% (-4); Finland 1,99% (-5); Netherlands 2,06% (-4); EU 2,36% (-3), Austria 2,50% (+2); EIB 2,57% (-3); France 2,67% (+3); EFSF 2,70% (-3); Belgium 3,11% (+2); Italy 6,18% (unch); Spain 6,89% (unch).

10 YRS Spreads: Luxembourg 36bp (+2); Swaps 42bp (+1); Finland 43bp (+3); Netherlands 55bp (+2); EU 85bp (+3); Austria 99bp (+8); EIB 106bp (+3); France 116bp (+3); EFSF 119bp (+2); Belgium 160bp (+8); Italy 467bp (+5); Spain 538bp (+6).

EUR swap curve 2-5 YRS 44bp (-2,0); 5-10 YRS 65bp (-1,0) 10-30 YRS 31bp (+4,0).
2 YRS German BKOs closed 0,100% (-1,3) and 5 YRS OBLs 0,57% (-5).

Main at 178 from 177; Financials at 289 after 288; SovX at 298 from 297. Cross unch at 705.

Stoxx Futures at 2153 / -0,2% (from 2157) with S&P minis at 1311 (-0,9% from 1323, at European close).
VIX index at 20,6 after 19,7 yesterday same time.

Oil 78,5/92,0 (WTI/Brent) from 79,9/93,1 (-1,8%/-1,2%). Gold at 1555 after 1571 (-1,0%). Copper at 332 from 334 (-0,6%). CRB at COB Europe 272,0 from 276,0 (-1,4%). Still very heavy precious metals...
Baltic Dry rising 6 to 994.

EUR 1,244 from 1,245

ECB deposits at EUR 773bn after EUR 747bn.

Greek bonds guesstimates: Greece little changed with 2023s at 26.50% from 26.75% and 2042s at 22.50%.
(20.25% and 16.75% before the first election round).

All levels COB 17:30 CET

Germany: Fri Retails Sales fcst 1.9% after -3.8% YoY
France: Fri PPI fcst 2.7% unch YoY Cons Spending Fcst 0.1% after 0.4% YoY Final Q1 GDP 0.3% YoY
EZ: M3 fcst 2.3% after 2.5% and CPI 2.4% unch YoY
US: Pers. Income & Spending Chicago PMI Michigan Conf
Asia: China leading indicators

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

Wednesday 27 June 2012

27 Jun 2012 – " Never Make Your Move Too Soon " (BB King, 1978)

27 Jun 2012 – " Never Make Your Move Too Soon " (BB King, 1978)

Looks like markets somehow bottomed-out ahead of the EU meeting. The Peripherals widening didn’t scare the US off a mild ROn close, a mood carried over into most of Asia. No dramatic overnight news. On the rating front, Mauritius got upgraded to Baa1 by Moody’s, which is well deserved for these overly friendly people and consummate hosts. For the anecdote, aggressive second league, but lately prescient Egan Jones, brought down Germany by one notch to A+ neg on contingent EZ exposure (US AA neg, France BBB+ or UK AA- by EJ). But that was as much as one could get in overnight titbits.

Yesterday evening release of May French jobseekers showing the highest number since Sep 1999 at 2922k (after 2889k and 2895k fcst). Low had been 1984k in Feb 2008. Aïe! Mixed minor data showing Finnish Biz confidence recovering, but Consumer tanking (as unemployment jumped). German import prices drifting lower at +2.2% YoY (fcst 2.3% unchanged) and first German Länder CPI readings showing the same trend, which in turn might help follow through on rate cut thoughts at next week's ECB meeting. Italian Jun biz confidence bottoming out and well above forecast (88.9 against an 85.5 outlook after revised 86.6). On the positive Southern European side as well Spanish May Retail Sales decline clocking in only at -4.9% YoY (fcst was -8.1% after revised -10%). Overall German CPI at 2% (fcst 2.1% after 2.2%).

Mild ROn open with stocks trying to follow through US and Asian closes, but not really managing to get past the 0.5-0.75% line before drifting back to COB levels. Peripherals tightening in a little and EGBs softer by as much. Credit close to home. Drifting ahead of the Italian 2 YRS auction.

Italy issued the targeted amount of EUR 9bn 6m bills sold at 2.96% (after 2.10% end of May). Unchanged B/C of 1.6 from disciplined dealer group. Highest level since the 3.25% paid in Dec 2011. Peak stress levels were 6.50% end of Nov 2011, before the first LTRO.
We’ll close Q2 auction supply tomorrow with a final Italian offering of EUR 2.5bn 5s (EUR 3.4bn 5.66% in May, now 5.90%) and EUR 3bn 10s (last EUR 2.3bn at 6.03%, now 6.19%).

No surprise in these levels, hence continuous sideways trailing by mid-morning in slight RN/ROn move and sticking there over lunch.

Franco-German working dinner to prepare “contentious” (sic) discussions over the next two days. Pre-emptively, for those who still haven’t understood the German position, Schäuble is stressing that even the future “Deutschland Bonds” (Bund + Länder) will be without joint liability (Which in turns raises the question about their attractiveness, then, but that’s next year’s business).
Coming back to that Egan Jones assessment, it is very interesting to note that Schäuble has put the weight of contingent liabilities quite bluntly on the table, as well as the fact that Germany’s 2012 budget was calculated on a growth outlook that could be missed (as a reminder Germany’s debt/GDP ratio stood at 81.2% in 2011). In the same vein, the slight increase in Germany’s Q3 funding programme was clearly indicated as coming from EFSF contributions. Finally, it allowed likewise deflating an idea that had been circulating lately that Germany could subsidize the above-average periphery costs with its clearly below-normal rates. Germany’s stance for the next two days seems set in stone.

Big 7.1% dip in US MBA mortgage applications to kick off afternoon proceedings, but this is a very noisy and volatile number. Real leading data were mixed May Durable Goods Orders that came out higher then expected at +1.1% (fcst 0.5% after prior revised lower  to -0.2%) on the headline, but lower on ex transport at 0.4% (fcst +0.7% after -0.6%). Pending home sales in May increased by 5.9% (fcst 1.5% after -5.5%), confirming the previous days' rebound in the sector, triggering a positive shove in equities, albeit not in EGBs and unable to wholly turn around the Peripherals widening to +6 from COB (from a tighter -5 in the morning).

Cyprus bail-out approved by the EU FMs (Size yet unknown). EFSF or ESM provenance of the funds, and seniority questions will probably be part of the coming day’s debates. Tentatively put at via EFSF then transferred to the ESM. Spanish funds to be in any case funnelled through the FROB, as explained in the statement. IMF technical involvement. On Cyprus, the statement looks like a full-out Troika bail-out (statement).

Commodities (ex metals) still recovering. Afternoon ROn driven mostly by housing upbeat US equities (+1.5%), somehow trailed by Credit. ECB rate cut rumours as post-ex-pre-why not explanation, as you need a further one.
Quieter New Issue market after yesterday’s SSA frontal assault of EUR 11bn (including the Dutch auction) mostly in long to ultra-long and USD 5.5bn in shorter maturities. Closing increases of EUR 1bn KfW 2019 at MS -7 and EUR 1bn EIB 2021 at MS +65. Had German PBB issue EUR 500m 5 YRS Pfandbriefe at MS +38.
Placement stats of yesterday’s deals mainly unsurprising, showing German insurer appetite for the long end. Had a whooping 30% of the 7–year Austrian deal sold to Asia, which is interesting.

Closing levels:
10 YRS Yields: Germany 1,56% (+6); Luxembourg 1,90% (+6); Swaps 1,98% (+4); Finland 2,04% (+6); Netherlands 2,10% (+6); EU 2,38% (+5), Austria 2,48% (unch); EIB 2,60% (+5); France 2,64% (+1); EFSF 2,73% (+5); Belgium 3,09% (-1); Italy 6,19% (+2); Spain 6,88% (+4).

10 YRS Spreads: Luxembourg 34bp (-1); Swaps 41bp (-2); Finland 40bp (-1); Netherlands 53bp (unch); EU 82bp (-1); Austria 91bp (-6); EIB 103bp (-1); France 107bp (-5); EFSF 117bp (-1); Belgium 152bp (-8); Italy 462bp (-5); Spain 532bp (-3).

EUR swap curve 2-5 YRS 46bp (+2,0); 5-10 YRS 66bp (+1,0) 10-30 YRS 27bp (unch).
2 YRS German BKOs closed 0,120% (+2,1) and 5 YRS OBLs 0,62% (+6).

Main at 177 from 179 (1,1% tighter); Financials at 288 after 291 (1,0% tighter). SovX at 297 from 300. Cross at 705 from 714.

Stoxx Futures at 2157 / +1,6% (from 2123) with S&P minis at 1323 (+1,3% from 1306, at European close).
VIX index at 19,7 after 20,0 yesterday same time.

Oil 79,9/93,1 (WTI/Brent) from 78,6/91,5 (+1,6%/+1,8%). Gold at 1571 after 1571 (unch). Copper at 334 from 330 (+1,2%). CRB closes 276,0 from 271,0 (+1,8%).
Baltic Dry rising 7 to 988.

EUR 1,245 from 1,246

ECB deposits at EUR 747bn after EUR 750bn.

Greek bonds guesstimates: Greece sideways with 2023s at 26.75% and 2042s at 22.50%.
(20.25% and 16.75% before the first election round).

All levels COB 17:30 CET

Rest of the Week:
Germany: Thu Unemployment fcst +34 after 0. Fri Retails Sales fcst 1.9% after -3.8% YoY
France: Fri PPI fcst 2.7% unch YoY Cons Spending Fcst 0.1% after 0.4% YoY Final Q1 GDP 0.3%
EZ: Thu Biz Climate fcst -0.81 after -0.77, Final Cons Conf, M3 fcst 2.2% after 2.5% and CPI 2.4% unch YoY
Periphery: Italy Thu PPI & CPI / Spain Thu Housing permits & CPI 
US: Thu 3rd Q1 GDP reading & Claims fcst 385k after 387k. Fri Pers. Income & Spending Chicago PMI Michigan Conf
Asia: China leading indicators Japan Thu PMI & Retailers

Click link on title or below for today’s musical support:
(No risk these days…)

Tuesday 26 June 2012

26 Jun 2012 – " Quiet Times " (Dido, 2008)

26 Jun 2012 – " Quiet Times " (Dido, 2008)

Ended up getting all the nasty news that was priced in, at least for the day: Moody mass downgrade of Spanish banks, Cyprus call for bail-out as well as the resignation of the yet not sworn-in Greek FinMin. As you can only get so much, the confirmation of all this didn’t pile up further. US weak close, but better than Europe. Asia tame close, slightly soft, but no more. Shanghai putting a numerically nice 2222 close on the floor. Talking of floor, Chines equities look a bit breathless at their 5m lows. Chart support here 2132 & then 2093 (so about 4% to 6% lower). 

Bits and pieces on the data front: German Consumer Confidence beating estimates at 5.8 (fcst 5.6 after 5.7), visibly on wage hikes, as was the French equivalent, stable at 90 (fcst was 89). On the Dutch side, final Q1 GDP was a positive surprise, as it eventually grew 0.3% QoQ after initial decline of 0.2% readings. Then again, that is backwards looking and Dutch figures have all been on the sad side lately. But still. Finnish unemployment jumping to 9.5% after 8.4%, which puts an ugly double-digit number in sight. Italian Apr Retail Sales further in decline at -1.6% MoM (fcst -0.6% after -0.2%, revised further to -0.8%), gives an ugly -6.8% YoY reading. Steepest MoM drop since May 2004. Largest YoY drop since the series started in 2001.

Uneven start with Peripherals a bit on the weaker side ahead of auction supply. Equities tentative slightly higher at open. Tick better in Credit. Core EZ initially a tick better, too, but giving back some. Maybe due to Dutch 10 YRS auction hedging, as well as announced EU and Austrian then Finnish New Issues on the long end (7 YRS Austria, 2028 EU, 2044 Austria, 2042 Finland).
Let’s settle for Risk Neutral. RN.

This was seen as being a good day to hammer out billions of auctions and syndicated government / SSA bonds…

The Dutch raised EUR 2.2bn in 10s at 1.995% (from 2.14% last month and a 1.98% close yesterday). Again slightly on the tight side amount-wise (had been announced for up to EUR 3bn), but nicely shot through the 2% mark and a historic low yield.
Spain managed to sell slightly over target EUR 3.1bn bills with EUR 1.6bn 3m at 2.36% (after 0.85%) and EUR 1.5bn 6m at 3.24% (after 1.74%). 15 bp tails in much lower bid to cover. No need for an abacus to see costs soaring 2 to 3 times. Brings us back to Oct 2011 levels seen just before the all-out Dec spikes at 5.11% and 5.23% Ouch!
To round up auction supply, Italy sold EUR 3bn at 4.71% (after 4.04%) and just under EUR 1bn in 2016 and 2026 ILBs.
Italy announced a minimum of EUR 30bn in bonds for Q3, of which EUR 12bn new 10s Nov 2022, EUR 9bn new 3s Jul 2015 and EUR 9bn new 2 YRS zeroes Sep 2014. Plus possible taps in 5s, old 10s and old 2s. Well, that is an ambitious summer programme and might leave some dealers feel a bit alone at times.
Wednesday will get a EUR 9bn chunk of Italian 6m bills (last 2.10%) and readying an equally chunky Thursday sales of up to EUR 2.5bn 5s and EUR 3bn 10s.

For the anecdote, the Swiss issued record low CHF 791m 3m bills at -0.85% (-0.62% one month ago, -0.16% two months ago. Went negative for good Q3/2011… Wonder why… Quick check EURCHF at 1.201. Traded down to 1.2004 yesterday, the lowest since the SNB missed a 1.195 quote on 05 Apr. Ooops!)

Ending the morning session after a slightly negative post-auction ROff loop, before going back to RN. Equities about unchanged, Credit flat to tick better. EGBs soft, all of them. Peripherals settling at +5-8 after the auctions, with Italy back over 6%. Core +3/6, probably on hedging / new issues switching. Austria, Finland and the Netherlands a tick weaker still on supply. Belgium best performer at unch, having digested yesterday’s auction (Has now done about EUR 24.7 from an early June upwards revised EUR 34bn 2012 bond programme, so 72%).

Afternoon session mostly bobbling around. Anyone interested in reading “Towards a Genuine Economic and Monetary Union” (an 8-handed pitch by Van Rompuy, Barroso, Juncker and Draghi? 7 pages, but ends with “Further work is necessary to develop a specific and time-bound road map for the achievement of the genuine Economic and Monetary Union.” Seems to have been cut by 3 pages, covering short term solutions, since first circulating yesterday and meeting very unhappy coughs from over the Rhine. Nice belated rule book. Should have existed before and seems difficult to implement post-ex. Will probably allow telling a common ground on a future vision will have been found at the EU meeting, but there won’t be a short –term fix. So we’re not there yet, solution-wise…

US Case Shiller figures second set of positive housing figures in as many days at 0.67% (fcst 0.3% from 0.09% revised upwards to 0.73%) and Apr Home Price index bottoming out to 135.8 (fcst 134.85 after 134.08 revised).
Very quiet and cosy afternoon session for a while, just trailing sideways on noon levels throughout most asset classes with solely the misses of US Consumer Confidence at 62 (fcst 63 after 64.9 revised 64.4) and Rich Fed Manu Index at -3 (fcst 2 after 4) triggering a short-lived downside hick-up and then a slight ROff bias. Too bad.
Getting pressure on the Periphery again with Spain softly widening past 6.75%, pulling Italy further from the 6% mark. Other EGBs still on the soft side, given the sudden EUR 12bn plus AAA/AA+ long end supply.
Bit of gloom added by the ECB reminding that Cypriot bonds wouldn’t be eligible as collateral anymore. Cyprus bailout numbers not spelled out yet, but EUR 6 to 10bn recurrent (35-59% of 2011 EUR 17bn GDP and 2011 debt at EUR 12bn, 71.6% debt/GDP).
Quiet times, if it wasn’t for the Spanish widening. But, what are 25 bp nowadays (+35 in 2 YRS Spain AND Italy) and 50 bp since Friday???
Only asset classes bottoming out today are commodities (but precious metals). Geopolitical risk under-priced, as seen in Oil, mainly Bent, reacting to Syrian tensions.
Crowded House in SSA (Sovereigns, Supras & Agencies) New Issues: Austria and Finland adding to the EU long end supply, while KfW, CADES and OekB were all working on shorter USD. 
Given the bail-outs lining up, the question whether a gift wrapping is needed for the EU funds is probably unnecessary. No, thanks, it’s for immediate consumption. (cleared for Ireland at noon)
EU EUR 2.3bnbn Apr 2028 at MS +68. Austrian EUR 3bn 7 YRS at MS +42 and EUR 2bn 2044s at MS +100. Finland EUR 1.5bn new 30 YRS at MS +45, plus another EIB increase of an outstanding 9 YRS deal at MS +65.
Must have had at least one bookrunner feeling slightly conflicted at times, as running all 3 x-long deals (Hat off, nevertheless!).
On the covered bond side NZ newcomer ABS Bank raised a debut EUR 500m 5 YRS mortgage-backed CB at MS +68, while Carlsberg offered EUR 500m 7 YRS at MS +112 to quench a EUR 4bn thirst for household name corporate issuers.
CADES USD 3bn 3 YRS MS +105. OeKB USD 1.5bn 3 YRS at MS +53. KfW USD 1bn 4s at MS +5. 

Closing levels:
10 YRS Yields: Germany 1,50% (+4); Luxembourg 1,85% (+4); Swaps 1,93% (+4); Finland 1,98% (+7); Netherlands 2,04% (+5); EU 2,33% (+4), Austria 2,47% (+5); EIB 2,54% (+4); France 2,62% (+5); EFSF 2,68% (+4); Belgium 3,10% (-1); Italy 6,17% (+17); Spain 6,85% (+25).

10 YRS Spreads: Luxembourg 34bp (0); Swaps 43bp (unch); Finland 42bp (-1); Netherlands 53bp (+1); EU 83bp (unch); Austria 97bp (+1); EIB 104bp (unch); France 112bp (+1); EFSF 118bp (unch); Belgium 160bp (-4); Italy 467bp (+14); Spain 535bp (+21).

EUR swap curve 2-5 YRS 44bp (+1,0); 5-10 YRS 65bp (+1,0) 10-30 YRS 27bp (unch).
2 YRS German BKOs closed 0,090% (+2,1) and 5 YRS OBLs 0,56% (+3).

Main at 179 from 178. Financials at 291 after 290. SovX at 300 from 298. Cross at 714 from 703.

Stoxx Futures at 2123 / -0,2% (from 2127) with S&P minis at 1306 (-0,2% from 1308, at European close).
VIX index at 20,0 after 18,1 yesterday same time. Finally waking up to sliding markets.

Oil 78,6/91,5 (WTI/Brent) from 78,5/89,9 (+0,2%/+1,8%). Gold at 1571 after 1575 (-0,2%). Copper at 330 from 329 (+0,3%). CRB closes 271,0 from 269,0 (+0,7%). Finally waking up to geo-political risk.
Baltic Dry rising to 981 after being stuck for 3 days at fixed unchanged at 978.

EUR 1,246 from 1,248

ECB deposits at EUR 750bn after EUR 775bn.

Greek bonds guesstimates: Greece sideways with 2023s at 26.75% and 2042s at 22.50%.
(20.25% and 16.75% before the first election round).

All levels COB 17:30 CET

This Week:
Germany: Wed Imp Px fcst 2.3% unch YoY & CPI fcst 2.1% after 2.2 % YoY Thu Unemployment Fri Retails Sales fcst 2.3% after -3.8% YoY
France: Tue evening Jobs Fri PPI fcst 2.7% unch YoY Cons Spending Fcst 0.1% after 0.4% YoY Final Q1 GDP 0.3%
EZ: Thu Biz Climate fcst -0.81 after -0.77, Final Cons Conf, M3 fcst 2.2% after 2.5% and CPI 2.4% unch YoY
Periphery: IT Wed Biz Conf fcst 85.5 after 86.2 Thu PPI & CPI SP Wed Retail Sales fcst -7.9% after -9.8% Thu Housing permits & CPI
US: Tue Case Shiller Cons Conf fcst 64 after 64.9 Wed Durable Goods fcst 0.5% after 0% Thu GDP & Claims Fri Pers. Income & Spending Chicago PMI Michigan Conf
Asia: China leading indicators Japan Thu PMI & Retailers

Click link on title or below for today’s musical support:
 (Can’t always be Rock’ N Roll… Need to relax once in a while)

Monday 25 June 2012

25 Jun 2012 – " Catch My Fall " (Billy Idol, 1983)

25 Jun 2012 – " Catch My Fall " (Billy Idol, 1983)

Sooo… Let’s get started for another week of… waiting for THE solution, knowing that chances are there won’t be one. Asian close slightly in the negative, more for China catching up on Thursday’s sell off (and now back to mid Jan levels). US close on Friday was near highs, but far from making back Thursday losses.

Weekend titbits scarce outside confirmation that the leading Greek government tandem was skipping out on the Brussels bash on Thursday and Friday. And delaying the next Troika visit. Given the stern calls echoing their opening gambit about softening the terms and weekend reports how many civil servants had been hired over the last 2 years, instead of being dismissed, it might just be as well.
Why the ECB hails the soccer semi-finalists in a nightly tweet is a mystery to me. The FIFA doesn’t hail ECB decisions either, does it? 

Finally some federal issuance agreed to in… Germany. In a bizarre twist, the Federal government has finally given in to long lasting calls from the German Länder to be able to profit from its better funding terms, in exchange for ESM support. The whole solidarity against living by the same rules that is so forcefully pushed by Germany upon the EZ might finally yield common domestic issuance after 60 years. And we’re talking about a federal state that has had the strongest horizontal and vertical equalization for decades. And still, we’re talking about mean bickering and support being traded against sending some spending costs back to the Bund etc… So one has to see Germany’s stance in that light: it’s already a nightmare on a small, national scale, hence they DO know what this would give on a broader basis.

Will it impact Bund spreads? This seems doubtful to me at this stage, knowing that details have not been hammered out yet and that Deutschland Bonds will first see the light in 2013.
2011 bond funding for German Länder were about respectable EUR 60bn last year in over 200 deals, led by North Rhine-Westphalia for about a third, followed by Rhineland-Palatinate, Berlin, Lower-Saxony and Hessen for about 10% each. Average maturity was 5.5 years. Länder benchmarks trade roughly about mid-60s over 5 YRS OBLs, as do joint Länder deals, which is about flat to swaps (OBL thus swaps -65). Being stuck around swaps has always been tearful for Länder treasuries, as they rightly see themselves as Bund risk, as the Länder ARE the Bund (Hence Fitch’s all-around AAA for the Länder). So we are roughly speaking of EUR 200m of potential savings if half was raised by the Bund for the Länder.
2012 Finanzagentur funding is pencilled at EUR 252bn (down from EUR 283bn last year), of which EUR 172bn in bonds (after EUR 181bn). As such EUR 30bn (17%) doesn’t seem like a huge dilution, knowing that the Länder supply would be halved as well and that scarcity would lead to tighter prices, too. Might have a bit of a knock-on effect on KfW bonds (trading swaps -25 / OBL +45) and make insurers and German real money buyer whine, where yield ought to come from.
But, by and large, this shouldn’t change the way Bunds trade. Nicht die Welt…

ROff open, given the prospects of the week with the Core rapidly tighter by 5 basis points, Spain wider by 15 and with Italy out by 10. Italy is in for some chunky 14bn of auctions between tomorrow and Thursday to close the quarter. Equities down 1%. Credit equally wider. EUR through 25 handle. ROff.
No hard European data to speak off. Spanish PPI surprisingly 3.2% YoY after 3.0% (fcst was 2.8% after 3.1%). Dutch depressive Producer Confidence bottoming out at -4.8 after -5.

Excitement of the day: the official confirmation of Spain sending a formal request for bank aid to the Eurogroup. Then again. No. Not exciting.
Gloom increasing a little, surprisingly, as Fitch joined its peers in putting Cyprus non-IG, which probably will speed up the next bail out demand.

Government supply out of Germany with EUR 3bn 12m bills sold at 0.019% (after 0.026%), of which EUR 955m retained. Belgium, as lone bond issuer of the day, raised EUR 0.8bn 5 YRS at 2.13 % (after 2.38% last month), EUR 1.3bn 10 YRS at 3.22% (after 3.45%) and EUR 0.7bn 20 YRS at 3.77%, hence profiting nicely from the flight into bonds. France’s weekly bill auction raised EUR 4.7bn 1m at 0.056% (after 0.058%), EUR 1.5bn 3m at 0.104% (0.094%) and EUR 2.2bn 12m at 0.177% (0.19%), so about unchanged on average.
That was the easy part of the week. Will have the Netherlands issue EUR 3bn 10s tomorrow (2.14% last month), which, as of today, shouldn’t be a challenge, but then lining up EUR 3bn 3 and 6m Spanish bills (last 0.85% and 1.74%) and EUR 3bn 2 YRS Italian Zeroes (last 4.04%), as well as EUR 1bn Italian ILBs. Wednesday will get a EUR 9bn chunk of Italian 6m bills (last 2.10%) and Thursday EUR 4bn BTPs.

Morning session in ROff mode, lunch in ROff, pre-US open in ROff… Spain back to 6.50% with Bunds down through 1.50%, so clocking in at 500 over again. Equities down by about 2% and credit wider. Chicago FED activity at -0.45 (fcst -0.3 after revised +0.08) as pre-open downer.
Not much else to chew on… Moody’s rumoured to get medieval on Spanish banks tonight. The Greek pair’s strategy of sitting out the next confrontation confirmed and the Troika visit postponed. Merkel worried that, o surprise, people would likely spend time again discussing Eurobonds, bills or any other attempt to pull support and liquidity out of Germany. The Spanish MOU to be defined by 09 July, which means about when people will flee on holiday… ECB still not adding bonds under the SMP with Nowotny later explicitly stating it rather would have the EFSF do that anyway. Cyprus bail-out seemingly now imminent.
Better than expected US home sales at 369k (fcst 347k after 343k) looked for a short while like putting a floor under equities – but then, after all, no…  ROff

Oh, had Cyprus bailout and Greek FinMin resignation confirmed just after COB... 
New Issues on uneasy ROff Monday action, hence nothing outside a domestic EUR 250m short 5 YRS FRN at 3m flat for NRW.Bank. EU readying a 2028 benchmark for tomorrow on IPTs of MS +70 (Issued 10s at MS +56 and 2032s at +78 in Apr).

Closing levels:
10 YRS Yields: Germany 1,46% (-12); Luxembourg 1,81% (-9); Swaps 1,89% (-9); Finland 1,91% (-11); Netherlands 1,98% (-11); EU 2,29% (-8), Austria 2,42% (+2); EIB 2,51% (-7); France 2,58% (-2); EFSF 2,64% (-8); Belgium 3,11% (-4); Italy 5,99% (+22); Spain 6,59% (+29).
Well. Looks like a reversal from the last movement. Spain especially weak, but had gone solo on Friday afternoon, but dragging Italy all the way back to the 6% mark.

10 YRS Spreads: Luxembourg 35bp (+2); Swaps 43bp (+3); Finland 42bp (+5); Netherlands 52bp (+1); EU 83bp (+3); Austria 96bp (+13); EIB 105bp (+4); France 111bp (+10); EFSF 118bp (+4); Belgium 164bp (+7); Italy 453bp (+34); Spain 513bp (+40).

EUR swap curve 2-5 YRS 43bp (-5,0); 5-10 YRS 64bp (+0,0) 10-30 YRS 27bp (+1,0).
2 YRS German BKOs closed 0,070% (-5,6) and 5 YRS OBLs 0,53% (-11).

Main at 178 from 170 (4,7% wider); Financials at 290 after 276 (5,1% wider). SovX at 298 from 295. Cross at 703 from 680.

Stoxx Futures at 2127 / -2,5% (from 2181) with S&P minis at 1308 (-1,2% from 1324, at European close).
VIX index at 18,1 after 19,2 yesterday same time. Hmmm, can’t explain why that one stays so low. Hammered?

Oil 78,5/89,9 (WTI/Brent) from 79,2/90,6 (-1,0%/-0,8%). Gold at 1575 after 1562 (+0,8%). Copper at 329 from 330 (-0,3%). CRB closes 269,0 from 268,0 (+0,4%). Somehow stable…
Baltic Dry fixed unchanged at 978 for the third time in a row.

EUR 1,248 from 1,253

ECB deposits at EUR 775bn after EUR 769bn.

Greek bonds guesstimates: Greece somewhat weaker with 2023s at 26.75% from 26.50% and 2042s at 22.50% after 22.25% 
(20.25% and 16.75% before the first election round).

All levels COB 17:30 CET

This Week:
Germany: Tue Cons Conf fcst 5.6 after 5.7 Wed Imp Px fcst 2.3% unch YoY & CPI fcst 2.1% after 2.2 % YoY Thu Unemployment Fri Retails Sales fcst 2.3% after -3.8% YoY
France: Tue Cons Conf fcst 89 after 90 & Jobs Fri PPI fcst 2.7% unch YoY Cons Spending Fcst 0.1% after 0.4% YoY Final Q1 GDP 0.3%
EZ: Thu Biz Climate fcst -0.81 after -0.77, Final Cons Conf, M3 fcst 2.2% after 2.5% and CPI 2.4% unch YoY
Periphery: IT Tue Retail Sales Wed Biz Conf fcst 85.5 after 86.2 Thu PPI & CPI SP Mon PPI Tue Budget Wed Retail Sales fcst -7.9% after -9.8% Thu Housing permits & CPI
US: Tue Case Shiller Cons Conf fcst 64 after 64.9 Wed Durable Goods fcst 0.5% after 
0% Thu GDP & Claims Fri Pers. Income & Spending Chicago PMI Michigan Conf
Asia: China leading indicators Japan Thu PMI & Retailers

Click link on title or below for today’s musical support:
 (Agreed. Rebel Yell was way better, but it wouldn’t fit…)