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 6 July 2012

06 Jul 2012 – " Money's Too Tight (To Mention) " (Simply Red , 1985)

06 Jul 2012 – " Money's Too Tight (To Mention) " (Simply Red , 1985)

First pre-open quotes in ROff mood to close the week: EGBs a little tighter, Peripherals out by 7-8 past the 6% and 6.80%-marks. Credit a tick or two wider. Equities down half a percentage. EUR ailing below 24 handle. Friday pre-NFP / post-ECB blues morning.
Asia closed the week on a soft note with exception of China, for once, closing 2% higher after yesterday’s POBC cut. At least they seem to value their central bank’s surprises.

Quite noteworthy acceleration of the Soft Core (Buying programme? No visible trigger), as Austria, France and Belgium 10s suddenly lurched tighter by 15 basis points, helping as well Italy to come back to nearly unchanged and Spain to just a little wider from quite wider, but that was only a short-lived support. This massive Belgian catch-up to Austria and France, and the whole pack to the Core, means that Belgium, too, can finally celebrate hitting historic lows in 10s. And in 5s… Oh, and in 2s… Austrian and France deprived from celebrating new 10 YRS lows at this stage, having already had that opportunity early June, before being kicked wider again. But doing so up to 5s. New lows. Then again, German BKOs are now back to negative…

No eco data outside Spanish IP, which did better then expected, sliding “only” 6.1% YoY (fcst -8.1% after a fierce-8.3%, levels last seen in the Q3/2009 recovery).
No government supply. Need to see how negative German 6m bills will be auctioned off, given actual BKO levels. Already had one negative aution at -0.012% in Jan. June levels were 0.007%.

Quiet wires with exception of ECB’s Asmussen repeating for those who might have missed yesterday’s press conference “The ECB cannot compensate for what others - notably political authorities - fail to do. There is no substitute for good policies.”
Had Finland FM quoted as saying in quite frank manner that it wouldn’t cling to the EUR at all costs; later denied / mellowed down to a more “pc” commitment to EUR membership, but stressing its unwillingness to add further liabilities. Must have been a translation error, Suomi being tough on Google translator…

Heading into lunch / pre-NFP with some more EGB spread compression with Germany a tick tighter, Hard Core 5-7 tighter, Soft Core a small 10 tighter after the initial squeeze waned. Italy out by 8 just above 6% and Spain by over 20, hovering just below the 7% mark.
German May IP, which rose higher than foreseen at 1.6% sa MoM (fcst 0.2% after -2.1%) didn’t really floor the slight slide in equities.
Had ECOFIN 09 Jul pre-meeting leaks mentioning the Spanish bail-out would after all be EFSF-driven lifting BONOs a bit (cuts the ESM seniority discussion), pushing out decisions to late in the month.

Final potentially market moving data shot of the week: US non-farm payrolls ticking in at only 80k (fcst 100k after 69k, revised to 77k) with the Unemployment Rate at 8.2% (fcst 8.2% unch). Mixed results after revisions and some stronger components. Drop, bounce, drop. ROff.
But certainly ROff. Closing on the lows. Note that Credit remains weaker than equities. Bunds down to 1.33%. Italy stuck slightly over 6% and Spain slightly below 7%. Peripheral curves still flattening: 2 YRS Italy at 4%, 2 YRS Spain at 5%.
BKOs -0.020%. OBLs 0.34%.

Next week will be much lighter on the data front all around, so sinking teeth into something firm to get a direction won’t be easy. Markets will hence probably keep trading on EZ-related news, rumours, snippets…
Fundamentals? Pfffffhhh

New Issue supply restricted to EUR 500m 10 YRS Nederlandse Gasunie at MS +83.

Closing levels:
10 YRS Yields: Germany 1,33% (-6); Finland 1,68% (-13); Luxembourg 1,72% (-4); Netherlands 1,73% (-11); Swaps 1,81% (-5); EU 2,19% (-5), Austria 2,19% (-15); France 2,36% (-13); EIB 2,43% (-4); EFSF 2,54% (-4); Belgium 2,77% (-14); Italy 6,01% (+5); Spain 6,91% (+17).

10 YRS Spreads: Finland 48bp (+3); Luxembourg 39bp (+2); Netherlands 40bp (-5); Swaps 48bp (+1); EU 86bp (+1); Austria 86bp (-9); France 103bp (-7); EIB 110bp (+2); EFSF 121bp (+2); Belgium 144bp (-8); Italy 468bp (+11); Spain 558bp (+23).

EUR swap curve 2-5 YRS 36bp (-3,0); 5-10 YRS 72bp (+1,0) 10-30 YRS 43bp (-1,0).
2 YRS German BKOs closed -0,020% (-2,6) and 5 YRS OBLs 0,34% (-6).

Main at 172 from 165 (4,2% wider); Financials at 283 after 268 (5,6% wider). SovX at 284 from 280. Cross at 684 from 664.

Stoxx Futures at 2232 / -2,2% (from 2283) with S&P minis at 1348 (-1,2% from 1365, at European close).
VIX index at 18,1 after 18,1 yesterday same time.

Oil 84,6/98,3 (WTI/Brent) from 87,6/101,0 (-3,4%/-2,7%). Gold at 1587 after 1609 (-1,4%). Copper at 341 from 348 (-2,0%). CRB closes 290,0 from 294,0 (-1,4%). Yep that recovery was a short one. Independence from the EUR was an illusion…
Baltic Dry still profiting from the late commodity recovery and adding another 1.7% to 1157 from 1138. High point in the last recovery from the Q4/2011 slide was 1165. 8 ticks. Best weekly performance since Mar 2011.

EUR 1,230 from 1,238

ECB deposits unchanged at EUR 791bn. With deposits at 0% now, need to see what happens. Between 0.25% and nada, what is the fear of another among banks worth? Will check next week as zero rates will apply from the 11th onwards. My guess: Won’t change much.

Greek bonds guesstimates: Greece 2023s unchanged at 25.75% and 2042s back down to 21.5%.

All levels COB 17:30 CET

On the week (compared to Fri 29 Jun COB):
Just to keep track of the EU 2-day meeting, the review will start last Thursday, when there was "Nothing to Say" (Bunds 1,51% -5; Spain 6,89% +1; Stoxx 2153% -0,2%; EUR 1,244). Last Friday, markets thought to have gone "One Step Beyond" (Bunds 1,58% +7; Spain 6,29% -60; Stoxx 2255% +4,7%; EUR 1,267), as the EU meeting yielded results (in the meantime lip commitments) beyond expectations and happily headed into the weekend, forgetting about all the trouble. While the weekend was mostly spent not deepening what had been said - or not said -, Monday was thus still "I Got You (I Feel Good)" (Bunds 1,51% -7; Spain 6,34% +5; Stoxx 2283% +1,2%; EUR 1,258), although first asset class divergences came to light. Tuesday was more of a sideways business ahead of the US holiday and busy following Gem Bankers woes with "Diamonds and Rust" (Bunds 1,54% +3; Spain 6,22% -12; Stoxx 2312% +1,3%; EUR 1,261). With the US celebrating "Independence Day" (Bunds 1,45% -9; Spain 6,37% +15; Stoxx 2305% -0,3%; EUR 1,252) and ahead of the ECB cum Spain auction day, markets became increasingly cautious on Peripheral and risk. One never knows. Some of the hope dope rally was probably overdone, after all. And as it happens, on Thursday Central Banks took a "Stand and Deliver" attitude (Bunds 1,39% -6; Spain 6,74% +37; Stoxx 2283% -1,0%; EUR 1,238) and delivered their goods. Thing is, they didn't do more than that… And Draghi cooled off the mood, Northern style. Much of the risk evaporated in thin air. Although equity remained rather resilient, all things considered.

So where does this leave us, knowing that despite all the exuberant highs and depressed lows, we had ended the previous week pretty much in unchanged matter?
Well, after a 10-day period that had not one but 2 bail-outs announced, a EU summit that initially seemed to good to be true, results-wise, and then ended up just being that, and a triplet of Central Bank cuts cum QE supportive measures, things don’t look much better…
The Core is back grinding tighter, although given absolute levels, things are a little slower. Started last week (and continuing) with Belgium, the Soft Core is getting back to record lows in catch-up yield buying. Italy lags, at best, and Spain is back just below the 7%-mark. Credit is little changed to a bit wider. Stocks just a touch softer on the week, but still about 4% over pre-EU summit levels. Commodities have shaken out their depression (and are celebrating EUR independence) with Oil (and soft commodities) back with a vengeance, while metals have been drifting sideways.

10 YRS Yields: Germany 1,33% (-25); Finland 1,68% (-36); Luxembourg 1,72% (-19); Netherlands 1,73% (-36); Swaps 1,81% (-21); EU 2,19% (-21);Austria 2,19% (-33); France 2,36% (-32); EIB 2,43% (-18); EFSF 2,54% (-18); Belgium 2,77% (-41); Italy 6,01% (+23); Spain 6,91% (+62).

10 YRS Spreads: Finland 48bp (+2); Luxembourg 39bp (+6); Netherlands 40bp (-11); Swaps 48bp (+4); EU 86bp (+4);  Austria 86bp (-8);France 103bp (-7); EIB 110bp (+7); EFSF 121bp (+7); Belgium 144bp (-16); Italy 468bp (+48); Spain 558bp (+87).

EUR swap curve 2-5 YRS 36bp (-11,0); 5-10 YRS 72bp (+3,0) 10-30 YRS 43bp (+13,0).
2 YRS German BKOs closed -0,020% (-14) and 5 YRS OBLs 0,34% (-27), on the week.
Swiss 2-years stuck at near record lows at -0.38%. Did weaken into low negative 30s, at worst.

Main at 172 from 166 (3,6% wider); Financials at 283 after 261 (8,4% wider). SovX at 284 from 282. Cross at 684 from 662.

Stoxx Futures at 2232 / -1,0% from 2255 with S&P minis at 1348 / -0,1% from 1349, at European COB last week.
VIX index at 18,1 after 19,7 last week.

Oil 84,6/98,3 (WTI/Brent) from 82,3/95,4 (+2,8%/+3,0%). Gold at 1587 after 1598 (-0,7%). Copper at 341 from 347 (-1,7%) . CRB closes 290,0 from 278,0 (+4,3%).
Baltic Dry surged to 1157 from 1004 (+15.2%). Best weekly performance since Mar 2011, probably on back of the commodity rebound. Would still be careful and watch for seasonal behaviour starting July.

EUR 1,230 after 1,267 last Friday

Greek bonds guesstimates: Improved just a little to 25.75% from 26.0% for 2023s and 21.5% from 22% for the 2042s (20.25% and 16.75% before elections).

All levels Friday COB 17:30 CET

Next week:
Pfff.. Next to nothing on the data front. Minor stuff here and there. Rather uneventful auction front to start the week (German and French bills, Dutch 3s, German 10s). Will have Italy selling bills o Thu and especially Bonds on Friday the 13th. Scary.
Will leave the market basically finding direction from whatever bits and pieces it can find, probably mainly Periphery-driven

Germany: Mon Exports fcst 0.1% after -1.7% MoM & trade balance Wed Final CPI Thu Wholesale prices
France: Mon BIZ sentiment (last 93) Tue IP fcst -1.5% after +0.9% YoY Thu CPI
Periphery: Italy IP fcst -9% after -9.2% YoY Fri CPI // Spain Wed Housing Fri CPI // Greece Tue IP Wed Unemployment
US: Fri Payrolls fcst 93 after 69k & Unemployment fcst unch 8.2%; Hourly Earnings fcst unch 1.7% YoY
US: Mon Consumer Credit Tue Small Biz optimism Wed Trade balance & Inventories, FOMC minutes Thu Claims Fri PPI

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

About 0% rates all around – unless very much higher… Not worth mentioning. Let’s talk about something else…
Need a song about liquidity…

Thursday 5 July 2012

05 Jul 2012 – " Stand and Deliver " (Adam & The Ants, 1981)

05 Jul 2012 – " Stand and Deliver " (Adam & The Ants, 1981)

Opening quotes ahead of the ECB meeting (plus BoE) plus auction: split RN/ROff. Everything mostly unchanged, but Italy and Spain out by 5 and 10, respectively. Credit somewhat wider, too. Equities and EUR about unchanged. Commodities right where left at European COB.
Asia closed about flat to slightly negative, too, under pressure by weaker China equities, where stimulus measures, were they to come, will probably meet new bank liquidity ratios to keep things under control. Might drag us down back to YTD / 1-year lows at 2132. So, no free-for-all liquidity…
Troika in Greece for the first meetings with the new government. New new new Greek FM to be sworn in just before. Oh, dear, oh, dear. Come on, haggle! (Life of Brian)
No eco data to speak of.

Stand (-by) and (waiting for the CBU Central Banks United to) Deliver…

Spanish bonds to be auctioned softer by about 10bp at 4.99%, 5.56% and 6.48% (from COB 4.88%, 5.45% and 6.37%). Added a couple of bps ahead of auction results publication.
Auction results were on target for a EUR 3bn scoop of 1.24bn 3s at 5.086% (5.46% 2 weeks ago), EUR 1bn Oct 16s at 5.536% (last 5.35% early June) and a slice of EUR 747m 10s at 6.43% (last 6.04% early June), so hefty concessions to yesterday’s closing prices and on the short end even to this morning’s quotes. As a reminder, these are average rates. The stop-out rates were at 5.197%, 5.621% and 6.505%, so consequent tails of 11, 8.5 and 7.5bp were needed to reach the targeted amount. Explains why the immediate post-auction wasn’t a huge relief rally and the short end getting further weighted down.
French auction on the heels with slightly EUR 7.8bn with EUR 1.75bn 2019 at 2.02% (1.92% on 07Jun), EUR 4.7bn 10s at 2.53% (last 2.46%) and 1.4bn 2023s at 2.70%. Pretty much a non-event. Wider levels, but Bunds are equally wider since the 1.37% 07 Jun close).
Positively, Ireland came back in style and delivered EUR 500m 3m bills at 1.8%. Nice come back! (Last 3m bills Italy 0.87%, Portugal 2.17%, Spain 2.36%, Greece 4.31%).

Heading into lunch / pre-ECB stand-by on the same levels. Everything about unchanged. Italy out by 5 in about unchanged curve and Spain symbolically at 6.50% (+13) in 10s but with the short end trading up to 25bp weaker and flattening. EUR flirting with the 25 handle.
Good strike-related traction on Oil with Brent hurdling first 100, then 101.
German Factory orders better at -5.4% YoY (fcst -6% after revised better -3.4%). Finnish FM talking of “long, hard collateral talks” in the coming weeks. Oh, dear, oh, dear. Come on, haggle! (Life of Brian)

Central Banks came, stood and delivered… just not much more, although the (nightly) POBC cut (1 YRS by 31 to 6% and deposits by 25bp to 3%) had not really been foreseen. Second Chinese cut in as many month, the last one having been on 07 Jun (as well just ahead of the ECB meeting, then by 25 basis points to 3.25% and 6.31%). The Chinese move was good for a small uptick, rapidly squashed by the European serving.
ECB quarter cut and BoE GBP 50bn additional QE to GBP 375bn both already in the valuation ramp-out of late.

US data getting outranked by the ECB press conference, although job numbers were better than expected (ADP +176k, fcst 100k after revised 136k, and Claims only 374k, fcst 385k after revised higher 388k). Continuous claims still on the rise, though, with 3306k, fcst 3300k after revised higher 3302k.

Equities down 1.5%-2% from the post-POBC hiccup, before bottoming out. Tame Bund futures behaviour. Down a little on POBC, up a little on ECB and following ROff. Back to morning levels thereafter, even curve wise. Italy a tick weaker still and Spain out by 20 bp. Hmmm… Non-event. Although the EUR crashed 120 pips lower through the 24, weighting on commodities.
Then came the ECB press conference…

Fierce Super Mario show: Draghi squarely sending responsibilities back to political / governmental senders. The ECB’s (independent) job is to channel money to banks. Final. And is responsible for price stability. That’s the mandate. Basta. And the ECB counterparts are to be solvent.
No goodies. No sweetener. None. Non-conventional measures not even discussed.
Message to the world: GET OFF OUR BACK! The ECB is not there to fix things. Fix things on political basis, haggle it out, redraft rules and mandate, if must be, and then come back! Oh, dear, oh, dear. Come on, haggle! (Life of Brian)
Interesting comment on lack of capital flight out of the EZ per se, so there is capital flight, just from the softer countries to the Core.
Year-end economic recovery seen by Draghi on the back of low nominal and negative real rates. Not certain the market will see this as being the most convincing argument to pile in on risk.
And the ECB is definitively on a more relaxed schedule than the borrowers with regards to new functions.
The ECB stand can be summarized in the very Northern sounding “There’s nothing without conditionality!” (Immediate reaction to this comment were additional 5 bp on the Peripherals to start with and twice that on the short end).
Standing firm and delivering stern. Ouch!

We remain in a formal and mental blockade between the North and the South and different opinions on who’s responsible for what. Formalities being what they are, we’re a bit stuck, here. Next step for European leaders: haggle on ESM details. Fast. Oh, dear, oh, dear. Come on, haggle! (Life of Brian)

With Draghi revealing himself and the ECB as wrecking ball to cheap hope dope, looking forward, things don’t look easy. Looks like this could be drawn out into a long, hot summer. Next ECB meeting 02 Aug. After the FOMC on 01 Aug.

ROff of course speeding up during the rest of the afternoon. Weak ISM at 52.1 (fcst 53 after 53.7) not helping, but not adding much either. Witnessing the sell-off in Peripherals, EGB outperformance rather tame (might end up having to pay?) and relative equity resilience surprising (maybe didn’t get the message?). Oh, Equities…  Italy back very close to 6% and Spain at short of 6.75%, too close not to test 7% on any given hick-up.

New Issue supply restricted to a EUR 250m 5 YRS tap by French SME agency OSEO at MS +45.

Closing levels:
10 YRS Yields: Germany 1,39% (-6); Luxembourg 1,76% (-5); Finland 1,81% (-7); Netherlands 1,84% (-8); Swaps 1,86% (-5); EU 2,24% (-6), Austria 2,34% (-6); EIB 2,47% (-5); France 2,49% (-5); EFSF 2,58% (-6); Belgium 2,91% (-2); Italy 5,96% (+20); Spain 6,74% (+37).

10 YRS Spreads: Luxembourg 37bp (+1); Finland 45bp (+1); Netherlands 45bp (-2); Swaps 47bp (+1); EU 85bp (+0); Austria 95bp (+0); EIB 108bp (+1); France 110bp (+1); EFSF 119bp (+0); Belgium 152bp (+4); Italy 457bp (+26); Spain 535bp (+43).

EUR swap curve 2-5 YRS 39bp (-2,0); 5-10 YRS 71bp (+1,0) 10-30 YRS 44bp (+2,0).
2 YRS German BKOs closed 0,010% (-6) and 5 YRS OBLs 0,39% (-9).

Main at 165 from 159 (3,8%); Financials at 268 after 254 (5,5%). SovX at 280 from 271. Cross at 664 from 642.

Stoxx Futures at 2283 / -1,0% (from 2305) with S&P minis at 1365 (-0,2% from 1368 on Tue, at European close).
VIX index at 18,1 after 16,7 yesterday same time.

Oil 87,6/101,0 (WTI/Brent) from 87,0/99,5 (+0,7%/+1,5%). Gold at 1609 after 1615 (-0,4%). Copper at 348 from 350 (-0,6%). CRB closes 294,0 from 293,0 (+0,3%) on Tue.
Baltic Dry profiting from the late commodity recovery and adding 3.2% to 1138 from 1103. High point in the last recovery from the Q4/2011 slide was 1165.

EUR 1,238 from 1,252

ECB deposits at EUR 791bn after EUR 807bn. With deposits at 0% now, need to see what happens. Between 0.25% and nada, what is the fear of another among banks worth?

Greek bonds guesstimates: Greece 2023s unchanged at 25.75% and 2042s back down to 21.5% from  22%

All levels COB 17:30 CET

Germany: Fri IP fcst -1.2% after -0.7%
Periphery: Spain Fri Indu Output fcst -8.1% after -8.3%
US: Fri Payrolls fcst 93 after 69k & Unemployment fcst unch 8.2%; Hourly Earnings fcst unch 1.7% YoY

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

Da diddley qa qa da diddley qa qa...

With regards to yesterday’s choice of Springsteen: The Boss is THE Boss. Watched Springsteen play a 3h30 gig to a sold-out crowd in Paris yesterday… Must be among his longest concerts ever!
Not much talk, just R ‘n R, non-stop. And THAT is impressive, whether you like him personally or not!

Wednesday 4 July 2012

04 Jul 2012 – " Independence Day " (Bruce Springsteen, 1977)

04 Jul 2012 – " Independence Day " (Bruce Springsteen, 1977)

Positive close in the US although half the gains were regained in a closing squeeze in a shortened session ahead of Independence Day. Asia overall about flat with China slightly depressed by a 10m low read in Services PMI (52.3 after 54.7).
Starting the day with a bit of profit taking in European equities, taking Credit a tick wider and EGBs a little tighter and with Spain keeping its tightening bias in a session that shouldn’t be too exiting, given closed US markets and ahead of tomorrow’s ECB (and BoE) meeting.

First Southern European Service PMI readings better than expected (Spain 43.4, first 41.3 after 41.8 and Italy 43.1, first 43.1 after 42.3). Would need confirmation to see whether there’s a bottoming out here. French numbers likewise better at 47.9 (expected 47.3 after 45.1 in May), as was the overall EZ at 46.4 after 46. Germany dipped unexpectedly below the 50 mark, down to 49.9 (expected unch 50.3, down from 51.8 in May). Final EZ Composite PMI at 47.1 after 46.7 in May.
EZ May Retail Sales came out split with sharp downside revisions of prior data: MoM +0.6% (fcst flat after -1% revised to -1.4%), YoY -1.7% (fcst -1% after -2.5% revised -3.4%)

Italian first quarter deficit surged to 8%, the second highest reading since Q1/2009 and third largest reading since EUR introduction, immediately pushing out BTPs by 5 bp, while pushing the Core tighter, and then pulling Spain back to closing levels.

Germany sold EUR 4bn 5 YRS Germany at 0.52% (0.41% in June and 0.56% in May, 0.56% at COB), in today’s sole auction. EUR 800m retained for market interventions.
Bids were impressively slightly over EUR 9bn, one of highest amount in the last 5 years (EUR 9.082bn in May 2011, EUR 9.015bn in Nov 2011 and EUR 10.375bn in Sep 2007). No tail. EUR 4.7bn entered “at market”. Not exactly cheap it may be, sought after it remains… (Last “fail” was Sep 2011). Good post auction performance down to 0.50%, closing at 0.48%.

Most watched supply of the week remains Spain’s EUR 3bn BONO auction in 3 YRS, Oct 2016 and 10s tomorrow, before the ECB (Results 10:40 CET). 3s were sold at 5.457% 2 weeks ago. On-the-run 5 YRS at 6.072%. One month ago 10s were auctioned at 6.044% in 10s (early June). Closing levels today: 4.88%, 5.45% and 6.37% (mid).
Will have as well France with up to EUR 8bn in 2019 (1.92% in June), 2022 (last 2.46%) and 2023 OATs.

ECB officials on the tickers: Once more, no more SMP! Need for deficit cuts, need for fiscal union and discipline. Is now well rehearsed mantra.
Revision of the 2012 French budget: EUR 7.2bn in new and one-off taxes to hit the 4.5% deficit target. State spending foreseen at 52.6% in 2012, 56.1% and 55.4% in the following years to come down to 53.4% by 2017. 0% deficit target postponed to 2017.Debt/GDP to peak next year at 90.6 to hit 82.4 in 5 years. GDP growth assumption is 0.3%, 1.2%, 2% thereafter.
Sprinkled a bit of gloom on the CAC and added 2 bps on OATs in the immediate aftermath.

Ending the morning with Bunds down to 1.48% (-6), Italy out by 10 at 5.72% and Spain by 9 at 6.31%. Other EGBs 3 to 7 tighter, but for France widening a tick. Credit those couple of ticks wider quoted at open. Equities down 0.50%. EUR a bit on the weaker side. Everything else about unchanged.

With the US closed, the afternoon simply dragged on with a light ROff feeling as the Periphery drifted slowly wider, France on stand-still and the Core squeezed tighter. Credit weaker with Financials giving back yesterday’s gains and more. Sudden change of mind in equities, paring morning losses loss ahead of tomorrow in very low volume.
Nothing strong, nor concrete, nor very firm, but Core EZ unease with the ESM discussions of last week, as seen by the South, is just seeping through. Opposition parties, Central Bankers, junior government partners, constitutional issues in the Northern part all seem via titbits and comments ready to sand in some of the discussions or to delay the processes. Give it another 2 weeks and everyone will have gone on holiday (despite the ECOFIN claiming to remain on stand-by).

Closing in unconvinced ROff mode and treading water ahead of tomorrow’s Spanish auction, ECB / BOE meetings and US claims numbers. EUR ticking down to low 25s
Yet another not especially inspirational day to write about. Libor-gate turning into mudslinging contest, with possible further fall-outs on the industry.

Fairly restricted New Issue traffic with Italian Gas distributor SNAM profiting from the better early morning mood on Peripherals to issue EUR 1bn 4 YRS at MS +340 (price talk initially about 20bp back of BTPs; at closing through, given the weaker Italian short end).
The EFSF added EUR 1bn to its recently issued 2037 deal at MS +115. Rentenbank added EUR 250m on a 7-year deal at MS flat. Baylaba issued EUR 500m 10 YRS Pfandbriefe at MS +17. Later joined by Germany GG FMS for EUR 500m long 3s at MS -18. Add yet again German LBank (Land BaWü risk) for a sizeable GBP 450m 2 YRS FRN, and you get the SSA picture of the day.

Closing levels:
10 YRS Yields: Germany 1,45% (-9); Luxembourg 1,81% (-6); Finland 1,88% (-9); Netherlands 1,92% (-8); Swaps 1,91% (-4); EU 2,30% (-6), Austria 2,40% (-3); EIB 2,52% (-6); France 2,54% (+0); EFSF 2,64% (-6); Belgium 2,93% (-1); Italy 5,76% (+14); Spain 6,37% (+15).
Another day of strong Dutch performance, closing in on Finland (interpolated 10s YRS). France relatively softer.

10 YRS Spreads: Luxembourg 36bp (+3); Finland 44bp (+2); Netherlands 47bp (+1); Swaps 46bp (+5); EU 85bp (+3); Austria 95bp (+6); EIB 107bp (+3); France 109bp (+9); EFSF 119bp (+3); Belgium 148bp (+8); Italy 431bp (+23); Spain 492bp (+24).

EUR swap curve 2-5 YRS 41bp (-2,0); 5-10 YRS 70bp (-1,0) 10-30 YRS 42bp (+4,0).
2 YRS German BKOs closed 0,070% (-2,3) and 5 YRS OBLs 0,48% (-8).

Main at 159 from 155 (2,6%); Financials at 254 after 246 (3,3%). SovX at 271 from 267. Cross at 642 from 627.

Stoxx Futures at 2305 / -0,3% (from 2312).

Oil 87,0/99,5 (WTI/Brent) from 87,4/100,5 (-0,4%/-1,0%). Gold at 1615 after 1620 (-0,3%). Copper at 350 from 355 (-1,4%). 

EUR 1,252 from 1,261

ECB deposits at EUR 807bn after EUR 802bn. Anything over EUR 800bn is quite an amount.

Greek bonds guesstimates: Greece softer on the long end with 2023s up to 25.75% unch and 2042s at 22% from 21.5%.

All levels COB 17:30 CET

Rest of week:
Spanish auction. Very heavy end of the week US data supply, following the 4th of July holiday.

Germany: Thu Factory Orders May fcst -6.0% YoY after -3.8% Fri IP fcst -1.2% after -0.7%
EZ:  Thu ECB
Periphery: Spain Fri Indu Output fcst -8.1% after -8.3%
US: Thu MBA mortgages; Claims fcst 385k after 386k; Non-Man ISM fcst 53 after 53.7; Chain Store sales; Fri Payrolls fcst 90 after 69k & Unemployment fcst unch 8.2%; Hourly Earnings fcst unch 1.7% YoY

Click link on title or below for today’s musical support:
(The Boss, on stage, tonight in Paris, France)

Tuesday 3 July 2012

03 Jul 2012 – " Diamonds And Rust " (Judas Priest, 1977)

03 Jul 2012 – " Diamonds And Rust " (Judas Priest, 1977)

A better US close, a positive although not exuberant Asian session were a good backdrop to kick off Tuesday. First quotes about where left yesterday evening with a bit of ROn spin. EGBs about unchanged, Peripherals a bit tighter. Equities up to 0.5% better, matching the US afternoon recovery. Commodities have shaken off the EUR slide back to 26 and closed better in the US session with Oil and Copper up 1.5%. Opening pattern similar to yesterday.

Light data front. China non-manufacturing PMI at 56.7 after 55.2 a welcome change after yesterday’s PMI slaughter. Good fall in Spanish jobless claims. While seasonal patterns are strong here with summer traditionally offering tourism jobs, this decrease was about double the expected number.

Netherlands sold far more than the targeted EUR 4bn with EUR 6bn of the new 5 YRS via its DDA (Dutch Direction Auction, which is midway between auction and syndication), attracting orders beyond EUR 13.5bn. Initial pricing thoughts had been 60-64 over the Jan 2018 Bund, later revised to 60-61 bp over. Priced at the tight end at 1.305% (Monday closing level 1.30%) and trading tighter down to 53 over Bunds by the end of the afternoon (1.22% at COB). Nice job!
Belgium sold EUR 1.3bn 3m bills at 0.21% (after 0.20%) and EUR 1.8bn 6m at 0.27% (unch). The EFSF raised EUR 1.9bn 3m bills at 0.118% (down from 0.14% last month).
On the government supply front, Ireland announced its comeback to the open markets with a EUR 500m 3m bill auction for next Thursday, having stopped issuing in Sep 2010. Nice, although Greece and Portugal never ceased to do so (4.31% and 4.73% for 3 and 6m in June for the first and, out of Lisbon, 2.17% in March for 3m, 2.65% and 2.69% for 6 and 9m in June). Still, nice to have the Irish back. Good performance lately, especially since eyeing an ESM sweetener. Outstanding 8 YRS Oct 2020 (Sorry, no 10s on tap anymore) at 6.20%, flat to Spain. 2 YRS at 4.70% slightly over Spain (4.62%). Last Spanish 3m at 2.36%. Would guess that Ireland can do similar.
Will have a reopening of EUR 4bn 5 YRS Germany tomorrow (0.41% in June and 0.56% in May, 0.56% at COB), as sole auction action tomorrow.
Most watched supply of the week remains Spain’s EUR 3bn BONO auction in 3 YRS, Oct 2016 and 10s on Thursday.

EZ PPI under expectations at -0.5% MoM (fcst -0.3% after revised +0.1%) / +2.3% YoY. Another data piece that will allow the ECB to cut rates by 25 bp on Thursday. Doubtful there will be more, though. Compromise between growth doves and M3 hawks.
Had the Spanish pharma industry ratting out on the unpaid bills by the Spanish regions, which is not nice, as it was decided that things were rosy these days.
EU officials on the tickers: Long road and first steps, flexibility of bail-out instruments, need to speed processes. Ireland to get an improved programme. Portugal, next? And Greece? Slovenia? Not sure that the following Van Rompuy choice of words will really go down well with austerity and sovereignty fans: “Luckily enough, the ESM has a decision-making procedure attached to it so that individual countries cannot block decisions.” Didn’t deter the Dutch Parliament to vote for it today, though. German Constitutional Court hearing on ESM 10 Jul.
ECB officials on the tickers: Need for deficit cuts, need for fiscal union and discipline. Each his role.
Anecdotally, ECB staff unions are warning of operational risks from the crisis-related over-worked staff.
France lowering 2012 growth outlook to 0.3% (Duh!) and 1.2% for 2013. No VAT increase, but targeted taxes to finance what was promised and needs financing. And, of course, will search for those savings of EUR 6-10bn this and EUR 33bn next year.

Entering lunchtime with Core EGBs wider by 2bp, Peripherals tighter by 4bp. Belgium still jogging ahead, tighter by 6bp and now through 3% in 10s. Equities static on the +0.5% open. Credit maybe a tick too tight (around 4% firmer). Oil firmer; give it a shove or a geopolitical spark, like Iran test-firing some missiles, and pronto Brent would hurdle the 3-digit mark with ease, which it did.
Past lunch oil up another 1.5% and everything else rather static.

Light and late US data pack ahead of tomorrow’s 4th of July holiday with NY ISM a low 49.7 (after 49.9) and May Factory orders growing higher than expected 0.7% (fcst +0.1% after revised -0.7%). Thu and Fri action packed with regards to US data.

Peripherals still getting some traction in the afternoon, grinding another couple of basis points down to 5.65% and 6.25%. Again, as yesterday, no necessarily to the detriment of Core EGBs. Factory orders good for a short-lived uptick, but then, pfff…, back to morning levels. Markets tiring out here.

Closing in unconvinced ROn mode. European equities taking their final lead from US peers. Peripherals pushing just the last basis points tighter. Note that these curves are finally steepening through renewed short end strength with both 2-3 YRS area down 20bp on the day. On the other hand, Core EGBs have not been driven into the wall, as one could have expected in full ROn modus. German 2 / 5 / 10s about unchanged from Friday.
Tug of war between wary optimists and tired pessimists? Glass half full or empty? Dusty diamonds, anyone?

Not a highly inspirational day to write about. Reduced volatility and very range-bound. Lack of real news flow. Action more in the financial people press, as it stands. And in EUR New Issues, as borrowers have come to learn that windows of opportunity, when seeing one, should be used. Knowing, too, that new issues will grind to an end probably as of the end of next week. Hence, EUR 7.5bn senior bank debt served in 2 days. Ce qui est pris n’est plus à prendre…

On the New Issue front, we still had borrowers jumping through the senior bank debt window opened up yesterday with ING printing EUR 1.5bn 3 YRS at MS +125, Raiffeisen EUR 750m 5 YRS at MS +165 and Intesa SanPaolo EUR 1bn 3 YRS at MS +410.
And sub debt is staging a come back as well with Generali’s EUR 750m 30nc10 at 10.125% and ABN EUR 1bn 10 YRS Tier 2 at MS +525.
Corporate supply restricted to Brazilian Vale with EUR 750m 10 YRS at MS +180, following yesterday’s American Movil 9 YRS trade.
Outside the Dutch, SSA supply restricted to a USD 500m 5 YRS FRN for Land NRW.

Closing levels:
10 YRS Yields: Germany 1,54% (+3); Luxembourg 1,87% (+2); Swaps 1,95% (+1); Finland 1,97% (+0); Netherlands 2,00% (-1); EU 2,36% (+2), Austria 2,43% (-2); EIB 2,58% (+2); France 2,54% (-4); EFSF 2,70% (+2); Belgium 2,94% (-7); Italy 5,62% (-10); Spain 6,22% (-12).

10 YRS Spreads: Luxembourg 33bp (-1); Swaps 41bp (-2); Finland 41bp (-5); Netherlands 46bp (-4); EU 82bp (-1); Austria 89bp (-5); EIB 104bp (-1); France 100bp (-7); EFSF 116bp (-1); Belgium 140bp (-10); Italy 408bp (-13); Spain 468bp (-15).

EUR swap curve 2-5 YRS 43bp (unch); 5-10 YRS 71bp (+3,0) 10-30 YRS 38bp (+3,0).
2 YRS German BKOs closed 0,090% (-0,5) and 5 YRS OBLs 0,56% (unch).

Main at 155 from 162 (tighter by 4,3%); Financials at 246 after 253 ( tighter by 2,8%). SovX at 267 from 274. Cross at 627 from 647.

Stoxx Futures at 2312 / +1,3% (from 2283) with S&P minis at 1368 (+1,3% from 1351, at European close).
VIX index at 16,7 after 16,7 yesterday same time.

Oil 87,4/100,5 (WTI/Brent) from 83,0/96,2 (+5,2%/+4,4%). Gold at 1620 after 1599 (+1,3%). Copper at 355 from 346 (+2,6%). CRB closes 290,0 from 283,0 (+2,5%).
Nice 12% recovery of Oil, which hit lows at 77.30 / 88.50 10 days ago.
Wow! Even the Baltic Dry got excited by the last days’ action: up 50 ticks to 1063 (+4.9%). High point in the last recovery from the Q4/2011 slide was 1165.

EUR 1,261 from 1,258

ECB deposits at EUR 802bn after EUR 773bn.

Greek bonds guesstimates: Greece a tick softer with 2023s up to 25.75% from 25.5% and 2042s at 21.5% from 21%.

All levels COB 17:30 CET

Rest of week:
Very, very light on European data. Tomorrow final Services PMI for all. Very heavy end of the week US data supply, following the 4th of July holiday.

Germany: Thu Factory Orders May fcst -6.0% YoY after -3.8% Fri IP fcst -1.2% after -0.7%
France:  Final Services PMI
EZ:  Wed Final PMI . EZ Retail Sales fcst -0.6% after revised -2.7%. Thu ECB
Periphery: Wed. Deficit/GDP Q1. Spain Fri Indu Output fcst -8.1% after -8.3%
US: Wed closed Thu MBA mortgages; Claims; Non-Man ISM; Chain Store sales; Fri Payrolls & Unemployment

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

(Diamonds and rust, gain and pain, glory and folly of daily life in the markets…)
(Bow to the original Joan Baez http://youtu.be/GGMHSbcd_qI)
(But, hey, I just like the cover much better…)
(And late 70s Metal is so much more fun to watch… This is Spinal Tap real life)

Monday 2 July 2012

02 Jul 2012 – " I Got You (I Feel Good) " (James Brown, 1965)

02 Jul 2012 – " I Got You (I Feel Good) " (James Brown, 1965)

Given Friday’s announcements and subsequent rally, the relative dearth of weekend snippets and analyses seems a little surprising. As if, overwhelmed but the solutions offered on a Friday, everyone headed home to cool off and forget about the tension, postponing further reasoning to later. Still, there are things about a Pandora Box to recognize when seeing one... That bespoke Spanish ESM bailout might come back as boomerang, more rapidly than expected, as suddenly other European sovereigns will suddenly feel like they, too, have some ailing bank that could profit off that support. Ireland and Greece, of course, Cyprus, too. But in a top down approach, even Champion Germany runs defeasance structures (albeit at cheaper refinancing rates). Let everyone chew on last week's agreements and revert, and we'll be suddenly faced with demands that were not foreseen in the immediate urgency. 
Not that it doesn't make sense, as such, but that wave will be a big one to surf on. Just saying… Shaka sign. Hang loose...
Note as well that over the weekend, the ECB refrained from tweeting any congrats to the winning soccer team…

In the meantime, Fri US closing levels were just a tick higher from EU COB, leaving European outperformance of Friday above 1.5%. Asian equities far more cautious to kick off the week. Far more meaning a flattish reading…
First European quotes pretty much where left Friday. More positive spin on Core EGBs, down a couple of basis points (Bunds 1.55%); Periphery flat to wider (5.78% & 6.30%). Equities flat. Credit a tick firmer, but just so. EUR back to mid-26 handle. Oil gapping up from a European perspective (final squeeze was after COB). EU sanctions on Iran, kicking in for good as of today, should shave about 3% of official OPEC production.
Kicking off the day, week, quarter with a huge PMI data dump: HSBC China down to 48.2 after 48.4, Official PMI on Sunday 50.2, down from 50.4. Both data sets pointing to softer new orders and exports, a trend mirrored elsewhere in Asia, from Taiwan to S Korea. Over in Europe, Spain hitting a 3-year low at 41 (after 42). France and Italy little changed at 45.2 (from 44.7) and 44.6 (from 44.8), Germany beating estimates slightly at 45 (after 44.7) as does the overall EZ print at 45.1 (after 44.8)  Norway wrong-footed with a huge dip to 46.3 from 54.9, against about unchanged expectations.

Had real Periphery ROn kicking in about an hour into the day with the Periphery pushed down 10 bp, overtaking the Core, but actually not pushing the latter out either. Interesting convergence of firmer EGBs across the board and equities surging a further 1.75% by mid-morning. ROn sapping Core EGB, but just so. Italy and Spain short end driving ahead, with 2s double the tightening of 10s.
French Cour des Comptes audit showing need for deficit-cutting measures of EUR 6-10bn in 2012 and EUR 33bn next year to hit the 3% target. That’s about 1.7% on a EUR 2.000bn GDP. Ouch! EZ unemployment rate higher at 11.1% after 11.0% in May. Worrisome, Youth Unemployment now 22.6% (20.5% same time last year) with Spain at 52.1%, Greece 52.1%, Portugal 36.4%, Italy 36.2%, Ireland 28.5%, France 22.7%, UK 21.7%, Germany 7.9%... Ouch!
Finnish statement they would together with the Dutch oppose secondary bond buying a bit of a Nordic refresher and stalling the progression. Bickering Redux. Several stern reminders by the ECB to Greece to meet its programme. Actually several reminders to the Greeks, the subject having been put aside last week. ECB statements it couldn’t control everyone and that unconditional conditionality is wishful thinking. And several statements reminding that the banking supervision project, a pre-requisite, won’t be there before year-end… A lot of echoes on the statement front out there.

Only Dutch and French bills on offer today: The first sold EUR 1.1bn 3m at negative levels of -0.013% (from 0% at the last 2 auctions) and EUR 1bn 12m at 0.05% (unchanged from Jan), while France sold a total of EUR 8.3bn with EUR 4.5bn 3m at 0.048%, EUR 2bn 6m at 0.096% and EUR 1.8bn 12m at 0.163% (compares to 0.056%, 0.104% and 0.177% last week).
Will have a new Dutch 5 YRS 1.250% Jan 2018 for up to EUR 4bn on tap tomorrow, which is sizeable given late Dutch auction amounts that were rather around EUR 2bn plus (closing level 1.30%) . Belgian and EFSF bills tomorrow, too.
Most watched supply of the week will be Spain’s EUR 3bn BONO auction in 3 YRS, Oct 2016 and 10s on Thursday.

Bit of a break of massive ROn to start the lunch period with flat Bunds and The Periphery stronger by “just” 5. Equities still up 1plus %, but all off highs / off tights. Still, markets in good mood and getting some more traction on Risk with the first US accounts entering the market, before losing a little steam. EUR drifting lower to bounce off 26 handle at US open.

US data week kicking off with (,like everyone else, poor) PMI at 52.5 (fcst 52.9 unch), followed by very disappointing Manufacturing ISM at 49.7 (fcst 52 after 53.5) and an especially weak Prices Paid component at 37 (fcst 45.8 after 47.5) Contagion to new orders…Construction Spending rose 0.9% MoM in May (fcst 0.2% after 0.3%, revised 0.6%), showing, as last week, that at least housing is still faring about ok in the US.

US data blowing some ROff on the markets, pushing Spain back above closing levels and Core EGBs lower. Core EZ equity markets holding up, despite Peripherals going negative. Still these odd divergences. Sensing a disturbance in the Force…
Confirming slowdown is spreading everywhere, the Global PMI dipped below 50 for the first time since Summer 2009 at 48.9 after 50.6.

At the end of the day, still a decent close. I Feel Good – at least partially, hum, depending on asset classes…Feels good being a Bund. Feels even better being a Belgian OLO today, as Belgium is still keeping its tightening bias started last week with the whole curve down 12-16 bp. France following, probably on hedge buying. Peripherals short end steepening of the morning session all but gone. Spain closing wider. Credit indices halving gains. Core EZ equities on hope dope. EUR down. Split markets. Each his own.

Strong and diverse New issues traffic, profiting from initial ROn mood, especially in bank senior debt with a two-trancher from SG with EUR 1bn 3s and EUR 750m 10s at MS +148 and +248. Nordics following suit with EUR 1.5bn 3 YRS at MS +60 for Svenska and Danske issuing EUR 1bn 3 YRS at MS +170. Westpac issued EUR 1bn 7 YRS in covered bonds at MS +55.
Insurer Swiss RE reopened the sub debt market with EUR500m at 6.75% with Generali marketing a 30nc10s EUR benchmark.
Bulgaria was on the SSA stage with EUR 950m 5 YRS at MS +320.
Corporates saw American Movil calling in for EUR 1bn 9 YRS at MS +113, while non-IG Lafarge cemented EUR 500m 7 YRS at 6.000% (about MS +440s).

Closing levels:
10 YRS Yields: Germany 1,51% (-7); Luxembourg 1,85% (-6); Swaps 1,94% (-8); Finland 1,97% (-7); Netherlands 2,01% (-8); EU 2,34% (-6), Austria 2,45% (-7); EIB 2,56% (-5); France 2,58% (-10); EFSF 2,68% (-4); Belgium 3,01% (-17); Italy 5,72% (-6); Spain 6,34% (+5).

10 YRS Spreads: Luxembourg 34bp (+1); Swaps 43bp (-1); Finland 42bp (-4); Netherlands 50bp (-1); EU 83bp (+1); Austria 94bp (unch); EIB 105bp (+2); France 107bp (-3); EFSF 117bp (+3); Belgium 150bp (-10); Italy 421bp (+1); Spain 483bp (+12).

EUR swap curve 2-5 YRS 43bp (-4,0); 5-10 YRS 68bp (-1,0) 10-30 YRS 35bp (+5,0).
2 YRS German BKOs closed 0,100% (-2,2) and 5 YRS OBLs 0,56% (-5).

Main at 162 from 166 (2,4% tighter); Financials at 253 after 261 (3,1% tighter). SovX at 274 from 282. Cross at 647 from 662.

Stoxx Futures at 2283 / +1,2% (from 2255) with S&P minis at 1351 (+0,1% from 1349, at European close).
VIX index at 16,7 after 19,7 yesterday same time.

Oil 83,0/96,2 (WTI/Brent) from 82,3/95,4 (+0,9%/+0,9%). Gold at 1599 after 1598 (+0,0%). Copper at 346 from 347 (-0,3%). CRB at 283,0 from 278,0 (+1,8%) at Friday’s COB..
Baltic Dry up once more another 0.9% to 1013 from 1004.

EUR 1,258 from 1,267

ECB deposits at EUR 773bn after EUR 782bn. Unsurprisingly, the SMP settled no transactions last week (Unchanged EUR 210.5bn outstanding). (20.25% and 16.75% before the first election round).

Greek bonds guesstimates: Greece firm 2023s down to 25.5% from 26% and 2042s at 21% from 22%. Best level in 2023s since the post-electoral sell-off.

All levels COB 17:30 CET

This 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:  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: 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: Tue Factory Orders Wed closed Thu MBA mortgages; Claims; Non-Man ISM; Chain Store sales; Fri Payrolls & Unemployment

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

(Grandiose footwork – way before Moonwalking. Need to be as smooth and light-footed to sail the markets these days…)