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 20 July 2012

20 Jul 2012 – " Alabama Song (Whisky Bar) " (The Doors, 1967)

20 Jul 2012 – " Alabama Song (Whisky Bar) " (The Doors, 1967)

First time this week European stocks didn’t gap up in slight joyful mood. US closed slightly better, although off highs in low volume and Asia is closing the week on a depressed note (-0.75-1.5%). China’s awaited stimulus, if it were to come, definitively strictly controlled, especially on housing (, where there seems to have been a bottoming out). So no “free for all” cash stimulus to expect, rather than a controlled soft landing.

Risk Neutral opening in attentive mood, knowing there’s next to nothing on the data plate (German PPI turned out lower than expected at 1.6% YoY down from 2.1%, fcst 1.8%) nd the ECOFIN call starting noon. Shouldn’t expect surprises here, unless last minute bickering starts. For the Northerners, the final lien for the banking bail-out remains with the sovereign.
No auctions.
Flat EGB open with Bunds a tick firmer and the Periphery a tick softer right on 6% and 7%. Equities flat to a tick lower. Credit flat. EUR over mid 22s.

Leaves time to reflect about the next to 15% rise in the CRB from its lows one month ago, having slid next to 25% from the Summer 2011 post-Lehman highs. In EUR terms, the rise is a couple of% higher; still. Brent in EUR at 87.5, up from a 71.5 low one month ago (+22%). Holiday season having started in Europe, people will realize at the pump that some expenses have just risen unexpectedly.

Few titbits: Slovenia “hoping” to issue in fall and acknowledging a serious financial situation. ESM passing the Finnish parliament (at 109 to 73 less supportive than Germany’s 473 to 97 vote yesterday). Italian government still trying to catch Sicily before default. Spanish EUR 18bn possible funding need for the regions to be covered by EUR 6bn from the state lottery and EUR 12bn from the sovereign, although for the moment this is (surprisingly) not foreseen to increase funding needs. Given the travails of each auction, another 4 to 5 auctions would really be a pain. Spain has now done 68.6% of its intended EUR 86bn (so ex those additional EUR 12bn) of medium and long-term debt, as released yesterday. So another EUR 27bn to go. Portugal pitching its intention to issue on a bespoke, reverse-enquiry basis, if markets permit.

Late morning picture with Core EGBs tighter by a couple of bps (wit Bunds back below 1.20%), Soft Core tighter by some more. Italy after trying to join the Soft Core back wider just over 6% and Spain a little wider as well on 7% mark, re-hitting 580 to Bunds, the newest new high. Equities a shade lower. EUR through mid 22s. 
Then ROff accelerating and feeding on itself with Spain and Italy both given another jolt 5-10 wider and EGBs some tighter, hence Spain widening to 588. Equities down 0.75% and the EUR low 1.22s.
(NB: previous Spanish 10 YRS intraday high was 18 Jun at 7.15%. German intraday low at 1.13% on 01 Jun).
Hair of the Dog…
The news that Valencia (BBG ticker VALMUN) was asking for financial support, while not a surprise (see above) came out right after the ECOFIN call had about approved the bail-out pushed things a little further still. That is next to the economic outlook Spain just released (2013 GDP down to -0.5% from+0.2%, Unemployment at 24.6%, Domestic demand expected at -2.8% from -1.7%... Oh dear, oh dear… Hard times ahead).
Risk Off with stocks plunging additional 1% (that is past 3% for periphery exchanges). Bund yield tanking and the Peripherals out by over 15 bp and Spain hitting 600 to Bunds, past the former 7.15% high. EUR through 22 handle.

Of course, weaker US open. Goes without saying, this time… With this time no data and probably no further constructive comments to hold up spirits ahead of the weekend. Too much partying. Hangover mood.
Time to panic? Or heading to the next whisky bar? Question is now what next? Somehow, we’ve been here before, but since then we had LTRO1, LTRO2, a (bank) bail-out, lots of European haggling and bickering… Hot Summer.

Bunds ticking new lows, Spain new wides. 5 YRS Jul 2017 at 6.94%. Spread-eagled…

BKO closing at -0.075%. OBLs at tick at 0.24%

New Issues drought interrupted by an explosive Akzo Nobel issuing a 10 YRS EUR benchmark at MS +105, next to a GBP 1bn increase of a long 3 YRS FRN EIB at 3mL +45.

Closing levels:
10 YRS Yields: Germany 1,16% (-6); Finland 1,54% (-3); Luxembourg 1,56% (-5); Netherlands 1,60% (-4); Swaps 1,70% (-6); EU 1,93% (-6), Austria 1,88% (-9); France 2,06% (+0); EIB 2,15% (-6); EFSF 2,23% (-5); Belgium 2,45% (+1); Italy 6,14% (+15); Spain 7,24% (+27).

10 YRS Spreads: Finland 38bp (+3); Luxembourg 40bp (+1); Netherlands 44bp (+2); Swaps 54bp (+0); EU 77bp (+0); Austria 72bp (-3); France 90bp (+6); EIB 99bp (+0); EFSF 107bp (+1); Belgium 129bp (+7); Italy 498bp (+21); Spain 608bp (+33).

EUR swap curve 2-5 YRS 36bp (-3,0); 5-10 YRS 70bp (+0,0) 10-30 YRS 45bp (+2,0).
2 YRS German BKOs closed -0,075% (-1,9) and 5 YRS OBLs 0,24% (-4).

Main at 169 from 162 (4,3%); Financials at 284 after 272 (4,4%). SovX at 270 from 262. Cross at 662 from 644.
Stoxx Futures at 2236 / -2,7% (from 2299) with S&P minis at 1363 (-0,6% from 1371, at European close).
VIX index at 16,5 after 16,1 yesterday same time.

Oil 91,0/106,5 (WTI/Brent) from 91,8/107,3 (-0,9%/-0,7%). Gold at 1581 after 1588 (-0,5%). Copper at 345 from 353 (-2,3%). CRB at EU COB 303,7 from 302,0 (+0,6%).
Baltic Dry down for the 9th day in a row, down 1,5% to 1037.

EUR 1,217 from 1,226

ECB deposits at EUR 357bn after EUR 360bn.

Greek bonds guesstimates: Still, no one speaks about Greece anymore… 2023s back to 25.50% from 24.50% and 2042s up 50bp to 21.50%.

All levels COB 17:30 CET

On the week (compared to Fri 13 Jul COB):
Last Friday mostly felt "Slow & Low" (Bunds 1,25% unch; Spain 6,62% +2; Stoxx 2251% +1,2%; EUR 1,223) for most of the day with things just dragging on. If it hadn’t been for a furious NY opening, it would have stayed that way. Monday was definitively quieter with markets trading sideways with "Sloe Gin" (Bunds 1,23% -2; Spain 6,76% +14; Stoxx 2247% -0,2%; EUR 1,222). In absence of real news, Tuesday was Ben’s day and initially he poured some Cold Gin" (Bunds 1,23% unch; Spain 6,76% +0; Stoxx 2247% +0,0%; EUR 1,222) and refreshed the mood by his cautious call. Still, once over the first disappointment, markets got a high on hope dope and saw helicopters, hidden behind clouds. Wednesday was time to raise a glass of "Eisgekühlter Bommerlunder" (Bunds 1,20% -3; Spain 6,92% +16; Stoxx 2281% +1,5%; EUR 1,226) to Germany’s longest contribution to negative rates, as 2 YRS were issued at -0.06%. While Ben didn’t deliver any more than previously, markets remained in seemingly inebriated mood. Still, Thursday felt heavier and in need of "One Bourbon, One Scotch, One Beer" (Bunds 1,22% +2; Spain 6,97% +5; Stoxx 2299% +0,8%; EUR 1,226) to swallow the Spanish auction with a 5 YRS issued at record high at 6.46% and in lower bid to cover demand. A TUI (Trading UI) week finishing with a slight hangs over…

Take away of the week? It was another fairly good week for equities and credit, despite contrary data, hooked on the hope that Central Banks will manage (what exactly?). That is before this afternoon. Bonds always took a different view of things and traded in flight to quality mode. Given record record record lows in the Hard Core, we again saw the Soft Core in a huge catch-up, led from behind by Belgium and France. Agencies and Swaps were in line with the Hard Core performance, as was actually Italy. This leaves ailing Spain once more an outlier with 10 YRS back (+71bp after last week’s -25bp) to the 7%-mark (ahead of the finalizing its bank bail-out). We note that Hard Core EGBs have gone negative up to flat up to 2 YRS, 3 YRS for Germany.
It’s been a massive week for Commodities (ex soft metals) with Oil up over 5% and Soft Commodities soaring, for a while. That is before this afternoon.

10 YRS Yields: Germany 1,16% (-9); Finland 1,54% (-7); Luxembourg 1,56% (-11); Netherlands 1,60% (-9); Swaps 1,70% (-6); EU 1,93% (-19);Austria 1,88% (-25); France 2,06% (-16); EIB 2,15% (-20); EFSF 2,23% (-24); Belgium 2,45% (-19); Italy 6,14% (+10); Spain 7,24% (+62).

10 YRS Spreads: Finland 38bp (-14); Luxembourg 40bp (-2); Netherlands 44bp (+0); Swaps 54bp (+3); EU 77bp (-10); Austria 72bp (-16);France 90bp (-7); EIB 99bp (-11); EFSF 107bp (-15); Belgium 129bp (-10); Italy 498bp (+19); Spain 608bp (+71).

EUR swap curve 2-5 YRS 36bp (-2,0); 5-10 YRS 70bp (+1,0) 10-30 YRS 45bp (+3,0).
2 YRS German BKOs closed -0,08% (-3) and 5 YRS OBLs 0,24% (-6), on the week.
Swiss 2-years stable at -0.49%.

Main at 169 from 166 (1,8%); Financials at 284 after 273 (4,0%). SovX at 270 from 272. Cross at 662 from 665.
Stoxx Futures at 2236 / -0,7% from 2251 with S&P minis at 1363 / +1,3% from 1346, at European COB last week.
VIX index at 16,5 after 18,3 last week.

Oil 91,0/106,5 (WTI/Brent) from 86,8/102,3 (+4,8%/+4,2%). Gold at 1581 after 1590 (-0,6%). Copper at 345 from 349 (-1,1%) . CRB closes 303,7 from 293,0 (+3,7%).

EUR 1,217 after 1,223 last Friday

Greek bonds guesstimates: Back to 25.50% from 24.5% for 2023s and to 21.50% for the 2042s (20.25% and 16.75% before elections).

Baltic Dry has gone back into reverse and ended the week at 1037 from 1110.

All levels Friday COB 17:30 CET

Next Week:
German and French bills on Monday. Up to EUR 2.5bn Dutch 2s and 2024 bonds on Tuesday. Spanish bills on Wed. EUR 3bn 30 YRS Bunds at record low on Wed. Italian 2 YRS Zeroes on Thu and closing the month with Italian bills on Fri.
Not much outside the global PMI data round on Tuesday, IFO on Wed in Germany. New Homes in the US on Wed, Durable Goods and Claims on Thu, Pending Home Sales Fri.

Click link on title or below for today’s musical support:
From Gin to Gin to Bommerlunder. Round up with the above mentioned combination… All that ends bad with a hangover…

Thursday 19 July 2012

19 Jul 2012 – " One Bourbon, One Scotch, One Beer " (John Lee Hooker, 1966)

19 Jul 2012 – " One Bourbon, One Scotch, One Beer " (John Lee Hooker, 1966)

Mild Risk On mood to open Europe after the last two day of gains. US closed near their highs, Asia eventually succumbed as well to the party mood (which didn’t hinder a new low of 0.74% in JGBs). It’s not like Ben on his second day said much more than on Tuesday, but Risk felt comforted nevertheless.

Equities up another 0.5% by mid-morning. Hard Core a bit softer, Soft Core still squeezing in. Peripherals about put with Italy slightly tighter, but still over 6%, and Spain (ahead of the auction) slightly wider, but still under 7%. EUR, while overshooting at open to 1.2325 back 50 pips lower.
New French 5s trading 0.85% ahead of the auction (and 2s now below 0.10%)

No data to speak off. Action, if any, to come from parliamentary debates in Spain, Germany, Italy and Finland or from the Spanish auction results.
There’s no money in the public coffers”, as stated by Montoro, probably not the best sales pitch to get an auction going.

Spain sold just under the targeted amount of EUR 3bn in off-the-runs with EUR 1.36bn 2 YRS at 5.20% (up from earlier in the month 3 YRS at 5.09%), EUR 1.07bn 5s at 6.46% (from 5.54% for long 4s 2 weeks ago and 6.07% last month) and EUR 0.55bn 7s at 6.70%, which capped the mood, given the low overall bid to cover and the 10bp tails (stop-out rates were 5.30% 6.54% and 6.80%). Especially the 2 YRS B/C got halved to 1.9.
While no surprise as such, this is a record high for Spanish 5 YRS (Q4/2011 peak had been 5.54%, thereafter the highest paid had been 6.07% end of June). 
Will need a couple of drinks to swallow that one…
Had Bunds immediately shooting up 20 cts on that, Spanish 2-10 flattening 20 bp and 10 YRS BONOs tickling 7%. 

French BTANs fared better with EUR 1.8bn 3 YRS at 0.12% (down from 0.83%), EUR 2.65bn 4 YRS at 0.53% (down from 1.05%) and EUR 4.5bn of new 5 YRS 0.86% (COB yesterday 0.93%). Needless to point out that these are all record lows.
France also sold EUR 1.5bn ILBs, split in 2019, 2022 and 2040s

(Re-leaked) News that the draft bail-out MOU would allow the EFSF to buy Spanish bonds were good for equities, but didn’t impact Spanish bonds, still reeling from the auction. Odd world. Anyhow, the EU later confirmed that actual bail-out funds could only be used for Spanish banks, as requested. That news was either not read, or simply ignored.
Midday picture with Core EGBs wider by a couple of bps, Soft Core tighter by the same. Italy faring ok and back just through 6% in 10s and Spain wider just below the 7% mark, having spiked through for a short while after the auction results (hitting 580 to Bunds, a new high). Equities up 1%. Credit grinding tighter.

Italian Parliament signing off Fiscal Compact and ESM.

Claims came out higher then expected at 386k (fcst 365 after 350, revised to 352) with Continuing Claims now at 3314k (fcst 3300k after 3304, revised 3313). No immediate reaction… Anyhow, the mood is that if figures are bad, Ben will help…

Positive US open. Pretty static markets in EGBs, though. Note a weaker EUR and stronger commodities, especially Oil with Brent at 107 now at EUR 87.5/brl.(94 high was in Mar this year, having bounced off the 72 support of the last18 months). Getting some traction from ME tensions.
The final data round for the week delivered only misses: Philly Fed at -12.9 (fcst -8 after -16.6). Homes sales declining 5.4% (fcst +1.5% after 0% revised to +1.5%) and finally leading indicators dipping to -0.3% (fcst -0.1% after 0.3%, revised 0.4%). Prompting only muted disappointment…

Still the divergent world views between equity and rates as during the last days. EGBs better supported. Equities, too… 

Had Bunds a bit on the softer side throughout the day, but upheld by recurrent shakes. Soft Core still on the mend with Austria at +75 to Bunds and France less than 10 wider, well back through the 100-mark. Italy ok. Question is whether there will be (positive) contagion from the Soft Core for yield hunters and, in the other direction, from Spain. Spain held so so today, did overshoot 7%, but closed back below. The level itself is just symbolic; we all know…Fact is, Spanish funding is a costly thing. Credit feeling slightly heavier than equities.
BKO closing at -0.056%. OBLs at tick softer at 0.28%

No data from nowhere tomorrow (but German PPI). ECOFIN conf call to start at lunchtime.

New Issues on hold in EUR. EIB out for a USD 5 YRS benchmark at MS +40 (from +33 end of March).

Closing levels:
10 YRS Yields: Germany 1,22% (+2); Finland 1,57% (unch); Luxembourg 1,61% (+1); Netherlands 1,64% (unch); Swaps 1,76% (-2); Austria 1,97% (-2), EU 1,99% (-1); France 2,06% (-4); EIB 2,21% (+1); EFSF 2,28% (-1); Belgium 2,44% (-4); Italy 5,99% (-7); Spain 6,97% (+5).

10 YRS Spreads: Finland 53bp (unch); Luxembourg 39bp (-1); Netherlands 42bp (-2); Swaps 54bp (-4); Austria 75bp (-4); EU 77bp (-3); France 84bp (-6); EIB 99bp (-1); EFSF 106bp (-3); Belgium 122bp (-6); Italy 477bp (-9); Spain 575bp (+3).

EUR swap curve 2-5 YRS 39bp (+3,0); 5-10 YRS 70bp (-4,0) 10-30 YRS 43bp (+0,0).
2 YRS German BKOs closed -0,056% (+0,8) and 5 YRS OBLs 0,28% (+1).

Main at 162 from 164 (1,2% tighter); Financials at 272 after 273 (-0,4%). SovX at 262 from 264. Cross at 644 from 654.

Stoxx Futures at 2299 / +0,8% (from 2281) with S&P minis at 1371 (+0,4% from 1365, at European close).
VIX index at 16,1 after 17,0 yesterday same time.

Oil 91,8/107,3 (WTI/Brent) from 89,6/104,9 (+2,5%/+2,3%). Gold at 1588 after 1580 (+0,6%). Copper at 353 from 346 (+2,0%). CRB at EU COB 302,0 from 297,0 (+1,7%). Brent in EUR now at 87.50.
Baltic Dry down for the 8th day in a row, down 2% to 1053 from 1074.

EUR 1,226 from 1,226

ECB deposits at EUR 360bn after EUR 382bn.

Greek bonds guesstimates: Still, no one speaks about Greece anymore… 2023s back to 24.50% from 24.25% and 2042s unchanged at 21%.

All levels COB 17:30 CET

Germany: PPI fcst 1.8% YoY from 2.1%

Next Week:
Not much outside the global PMI data round on Tuesday, IFO on Wed in Germany. New Homes in the US on Wed, Durable Goods and Claims on Thu, Pending Home Sales Fri.

Click link on title or below for today’s musical support:
From Gin to Gin to Bommerlunder. Round up with the above mentioned combination…

Wednesday 18 July 2012

18 Jul 2012 – " Eisgekühlter Bommerlunder " (Die Toten Hosen, 1983)

18 Jul 2012 – " Eisgekühlter Bommerlunder " (Die Toten Hosen, 1983)

It’s always a pain when the mood shifts 5 minutes after sending out a daily close, which was the case yesterday. Had the markets been initially disappointed because Bernanke didn’t spontaneously pull a rabbit out of his hat during the testimony, instead pointing out what everyone knew about sluggish growth and downside risk, they performed a sharp U-turn just after the European close, as he mulled again that the FED could act, if things were to go awry. While this was already said in the opening remarks, a second interpretation validated some hope rally.
Hence, the visual Risk On open in Europe, at least in equities (+0.5-0.75%), ignoring as well a dismal Asian session, further weighted down by Wen comments. 10 YRS JGB at record 0.76%. Not much else. EGBs about flat. Peripherals initially some 5 bp tighter, with Italy visually just under 6%, on ROn sentiment. Credit a couple of ticks tighter. EUR hovering below the 23 mark. German 2 YRS a touch softer at -0.04% ahead of its auction.
No data to speak off, outside Spanish Q2 housing prices remaining on a historic slide at -8.3% YoY (after -7.2%) and Bank of Spain statistics of bad loans now at 8.95% (from 8.72%) or EUR 156bn.

EGB strengthened a little, as soon as equities and EUR came down from their highs.

The German 2 YRS auction was a success, despite (because?) of its negative yield: EUR 5bn sold at -0.06%, of which EUR 827m retained for market interventions. Bids for EUR 8.3bn, of which EUR 3.4bn at market price. A tail of a 10th of a cent. One of the highest bid to cover in a year. Having closed at -0.053% yesterday and trading up to 1bp wider in the morning, the final price was aggressive, too. Previous low had been +0.07% in May, then 0.10% in June. The Rolls-Royce of bonds: everyone thinks it’s too expensive, but wants some nevertheless. Cool. Eiskalt!
Portugal sold its targeted EUR 2bn with EUR 750m 6m at 2.29% (after 2.65%) and EUR 1.25bn 12m at 3.51% (down from 3.83% in June). Slightly decreased B/C in a probably mostly domestic driven auction. Decent result for a bailed-out country under Troika steering. As said yesterday, thoughts are given to extend maturities in the future; even to go as far as to sell notes again (same goes for Ireland).
Will close the week tomorrow with Spain’s (rather large) EUR 3bn auction in 2014 (last 5.09%), 2017 (last 5.54%) & 2019 bonds, as well as French BTANs in 3, 4 and a new 5 YRS (COB 0.93%).

Midday situation with EGBs outside the periphery all 3 to 6 bp firmer and the Periphery struggling. Italy, which 10s had tightened by up to 10bp during the ROn euphoria in the morning, gave back most of these gains, and drifted back above 6%, as Spain went into reverse and drifting out to 6.90%, on above mentioned figures, as well as repeated German calls and doubts about the ESM. Harking back to yesterday’s news about Bavaria challenging the long-lasting inner-German vertical and horizontal equalization. Germans know how a federal state works and know how much even that can be a pain. Hence the strict stance on rules and conditions. That won’t change. Eiskalt!
Was a bit of refresher on Risk and on the EUR.

That Greek bridge loan story is still around with Greece seeking EUR 3.8bn for payment of bonds maturing in August (mostly held by the ECB).

US figures consumption, all pre-open: Mortgage Applications on the rise of refinancing. Mixed then with Housing Starts at 760k (fcst 745k after 708k) & Building permits at 755k (fcst 765k after 784k) .
Ben on the screens later again and Beige Book tonight, knowing that most has probably been spelled out over the two testimonies anyway.

Middle East situation not really in the prices, as the tension in Syria is growing to new heights.
IMF annual review of EZ policies pitches a lot of already pitched ideas (QE, etc etc). No news.
Nothing crisp from Ben – outside comments that “Europe is not close to having a long term solution”… Thanks for the thumb up!

Same divergence between equity and rates as yesterday. EGB well supported. Equities, too… Different worlds…

Hard Core grinding ever tighter (–3 bp), but Soft Core a bit out of steam (+2). Italy stuck above 6% and Spain certainly on its way to re-test 7%, if the auction feels heavy. Near the 575 wides to Germany. European agencies playing catch-up with Soft Core. Credit in line with equities.
EUR undecided at taken the middle way.
BKO closing on yet another historic -0.063% low, as are OBLs at 0.26%

New Issue supply restricted to a EUR 250m increase of an outstanding 2027 issue at MS +51 by Dutch agency NWB.

Closing levels:
10 YRS Yields: Germany 1,20% (-3); Finland 1,57% (-2); Luxembourg 1,60% (-5); Netherlands 1,64% (-1); Swaps 1,78% (unch); Austria 1,99% (unch), EU 2,00% (-6); France 2,10% (+2); EIB 2,20% (-7); EFSF 2,29% (-6); Belgium 2,48% (+3); Italy 6,06% (+3); Spain 6,92% (+15).

10 YRS Spreads: Finland 52bp (-1); Luxembourg 40bp (-2); Netherlands 44bp (+2); Swaps 58bp (+3); Austria 79bp (+3); EU 80bp (-3); France 90bp (+5); EIB 100bp (-4); EFSF 109bp (-3); Belgium 128bp (+6); Italy 486bp (+6); Spain 572bp (+18).

EUR swap curve 2-5 YRS 36bp (-2,0); 5-10 YRS 74bp (+4,0) 10-30 YRS 43bp (+unch).
2 YRS German BKOs closed -0,063% (-1,1) and 5 YRS OBLs 0,26% (-2).

Main at 164 from 167 (1,8% tighter); Financials at 273 after 277 (1,4% tighter). SovX at 264 from 259. Cross at 654 from 665.

Stoxx Futures at 2281 / +1,5% (from 2247) with S&P minis at 1365 (+1,5% from 1345, at European close).
VIX index at 17,0 after 17,0 yesterday same time.

Oil 89,6/104,9 (WTI/Brent) from 88,1/103,6 (+1,7%/+1,2%). Gold at 1580 after 1577 (+0,1%). Copper at 346 from 345 (+0,3%). CRB at EU COB 297,0 from 294,0 (+1,0%). CRB up on Energy and Live Stocks.
Brent in EUR nearing 86.
Baltic Dry down again 1.7% to 1074 from 1093. And it’s not because of falling Commodity prices…

EUR 1,226 from 1,222

ECB deposits at EUR 382bn after EUR 404bn.

Greek bonds guesstimates: Still, no one speaks about Greece anymore… 2023s at 24.25% after 24.5% and 2042s unchanged at 21%.

All levels COB 17:30 CET

Rest of the week:
Germany: Fri PPI fcst 1.8% YoY from 2.1%
Periphery: IT Thu Indu Orders fcst +1.7% after -1.9% MoM / -12.3% YoY
US: Thu Claims fcst 365k after 350k, Ex Home Sales fcst 4.62m after 4.55m, Leading indicators fcst -0.1% after 0.3% & nothing on Friday

Click link on title or below for today’s musical support:
From Gin to Gin to Bommerlunder. A refresher. And R ’n R!

Tuesday 17 July 2012

17 Jul 2012 – " Cold Gin " (KISS, 1974)

17 Jul 2012 – " Cold Gin " (KISS, 1974)

Some more risk resilience at European open, after a muted US close (lower, but above lows) and slightly more upbeat Asian session (+0.25%-0.75% overall with HS 1% above that, spiking on stimulus hope dope). Same goes for the EUR trading on the 23 handle. EGB sluggishly flat with Hard Core a tick softer, the Soft Core outperforming by 5 and Peripherals about put. European equities up 0.3% (a one week high) and Credit a tick or two tighter. Moody’s downgrade of Italian banks taken with a shrug.
Ben to the rescue” remains the driver (report to the Senate today, House tomorrow), in absence of anything else.

Had some further light equity ROn preceding the ZEW publication with an additional quarter point added. EGB “wings” softer with Bunds backing up and Spain drifting to 6.80%. AFB still in catch up mode with Austrian 10s now through 2% and France just 10 wider. Belgium likewise performing and now through 2.50%.

Oil is still staging a discreet comeback with Brent well past the $100-mark. Priced in EUR, we’re now nearing EUR 85/barrel, up from 71 about a month ago. All-time high was 94 mid-March, a little more than peak oil in 2008 (EUR 90/barrel) before the post-Lehman collapse. Will be a costly driving season…

No immediate data stream to feed off with the ZEW figures later in the morning and a flood of bills as potential market movers. German ZEW figures were disappointing with Current fcst at 21 (fcst was 30.0 after 33.2 and already seriously reduced lower over the course of last week), while Economic Sentiment at -19.6 was about in line (fcst -20 after -16.9). Current peaked at 91.5 in May 2011, slid to 26.8 in Dec, rebounded to 44.1 in May. EZ Eco sentiment was down to -22.3 after 20.1. No impact.

On today’s bill menu tomorrow: Spain sold a little over the targeted EUR 3.5bn bills with EUR 2.6bn 12m at 3.92% at & EUR 962m 18m at 4.24% (down from 5.074% & 5.107% in mid June when Spanish 10s were trading 7.10%, just ahead of the bail-out calls). No impact.
Greek EUR 1.625bn (including non-competitive allocation) 3m at 4.28% (last 4.31%);  Belgian EUR 3bn about equally split between 3m at -0.016% after 0.211% (Welcome in the negative class of 2012, les Amis / Vrienden!) and 12m at 0.04% (last 0.561%) as well as the EFSF with EUR 1.49bn 6m bills at -0.011% (last 0.14%) (Welcome, too!).
On tomorrow’s plate: EUR 5bn German 2 YRS (COB -0.053%). Germany still entertaining the competition how low can we issue in negative territory… That low was (positive) 0.07% in May, before being pushed higher to a full 0.10% in June. So to make it up… Will have as well EUR 2bn Portuguese 6m and 12m bills (last 2.65% and 3.83% in June). Portugal will try to extend its funding maturities, as reported by the IMF.

Spain coming to grips that the touted lack of conditionality of the bail-out, initially hailed as a big victory, will not stand as such and that further efforts will certainly steer unhappiness back home, among others the question how to deal with the sub debt placed with retails investors.
Reminiscent of a “Mini Me eurocrisis”, the German State of Bavaria (2011 GDP EUR 446bn, 17% of Germany’s, and a debt/GDP <10%) is challenging inner-German transfer payments (and insisting on Spain being liable for its banking out).

Midday levels about unchanged from morning session. Hard Core slightly wider, Soft Core tighter, followed by the Supras, Spain a bit wider. Equities back to +0.3%, credit a couple of ticks tighter from the previous session. EUR unable to hold onto the 23 mark.

BoS Governor pitching the idea that the SMP, while not foreseen immediately, could be reactivated - if needed, which is not the case…. Not sure this would go down well with Northern members of the ECB. But good for some tightening off wides in the Periphery.
Spain and Finland reached a deal on the collateral issue, up to EUR 770m in cash, to be provided through the deposit guarantee (statement)..
Greece seeking a bridge loan in order to avoid further budget cuts seems the oddest news of the day and will certainly please Troika officials.

US CPI flat MoM, 2.2% ex YoY a non-event. IP +0.4% as fcst after -0.1%, revised to -0.2%. Capacity use slightly under consensus at 78.9 (fcst 79.2 after prior data revised lower 78.7%). Not much impact.
Markets waiting for US equities to open and Ben to speak / to read his comments..

Equities down the 0.50% gained ahead of the release once reading about “frustratingly slow progress” and just twist at this stage (link)… Downside potential and fiscal cliff. Sent the EUR straight down 50 pips, to start with.
Measured disappointment, though, but speeding up throughout the testimony. Ah, and tourism is good…(but getting expensive for Europeans at this rate…). Draghi tactic: a) if push comes to shove, we’ll certainly find something b) fix your fiscal cliff.
Refresher of the Day.

Good traction on Italian 10s for a while in the afternoon, because / despite the BoI seeing growth at -2%, knowing that Q1 was -1.4% and it sees Q2 more than 0.5% down. Means the rest of the year needs to be about flat. Still, recurrent Sicily default rumours, with Monti asking the governor to resign, are a reminder of contingent risk. 

Markets slipping into ROff. Same story again: Recurrent picture of Hard Core grinding slightly tighter (–1 bp), Soft Core doubling down on that (6-8 bp tighter). Italy eventually better today but still over the 6% mark and Spain stuck over 6.75%. Equities just a tick weaker after all. Gold non-QE victim. EUR slammed through 22, but rebounded off 1.219.
BKO eventually NOT closing on its historic -0.060% low, but ¾ bp wider, ahead of tomorrow’s auction. These Hard Core rates movements become very surgical.
Eventually quite resilient markets, given all the expectations…

New Issue of the day was KfW with EUR 3bn 4 YRS issued at MS -31, in line with outstanding benchmarks. A German GG give-away at a yield of 0.59% (compared to Jul 2016 Bunds at 0.12%), so to speak.
NordLB issued EUR 500m 7 YRS covered bonds at MS +9.

Closing levels:
10 YRS Yields: Germany 1,23% (unch); Finland 1,59% (-1); Luxembourg 1,64% (-1); Netherlands 1,65% (-2); Swaps 1,78% (+2); Austria 1,99% (-6), EU 2,06% (-4); France 2,08% (-6); EIB 2,27% (-5); EFSF 2,35% (-7); Belgium 2,45% (-8); Italy 6,03% (-7); Spain 6,76% (-1).

10 YRS Spreads: Finland 54bp (unch); Luxembourg 41bp (-1); Netherlands 42bp (-2); Swaps 55bp (+2); Austria 76bp (-6); EU 83bp (-4); France 85bp (-6); EIB 104bp (-5); EFSF 112bp (-7); Belgium 122bp (-8); Italy 480bp (-7); Spain 553bp (-1).

EUR swap curve 2-5 YRS 38bp (unch); 5-10 YRS 70bp (+1,0) 10-30 YRS 43bp (+1,0).
2 YRS German BKOs closed -0,053% (+0,8) and 5 YRS OBLs 0,29% (+1).

Main at 167 from 169 (1,2% tighter); Financials at 277 after 281 (1,4% tighter). SovX at 259 from 266. Cross at 665 from 672.

Stoxx Futures at 2247 / -0,2% (from 2252) with S&P minis at 1345 (-0,5% from 1352, at European close).
VIX index at 17,0 after 18,3 yesterday same time.

Oil 88,1/103,6 (WTI/Brent) from 87,4/103,3 (+0,8%/+0,3%). Gold at 1577 after 1594 (-1,1%). Copper at 345 from 349 (-1,1%). CRB at EU COB 294,0 from 293,0 (+0,3%).
Baltic Dry down again to 1093 from 1102. Uh, seasonality lurching…

EUR 1,222 from 1,227

ECB deposits at EUR 404bn after EUR 387bn.

Greek bonds guesstimates: Still, no one speaks about Greece anymore… Unchanged. 2023s at 24.5% and 2042s at 21%.

All levels COB 17:30 CET

This week:
Germany: Fri PPI
Periphery: IT Thu Indu Orders & Sales // Spain: We Housing Px
EZ: Wed Construction
US: Wed Mortgage App; Housing Starts fcst 745k after 708k & Building permits fcst 765k after 784k

Click link on title or below for today’s musical support:
From Gin to Gin. A refresher.
An additional one… With Ace & Slash…

On a sadder note, Jon Lords’ passing. His organ intro to Lazy on Made In Japan will always remain with us. Had the day been just sluggish, I’d love to have taken “Lazy” as title, so here it is nevertheless http://youtu.be/kTkKD8BNZgo RIP

Monday 16 July 2012

16 Jul 2012 – " Sloe Gin " (Joe Bonamassa, 2007)

16 Jul 2012 – " Sloe Gin " (Joe Bonamassa, 2007)

Another week, another Ctrl C Ctrl V market open… Friday afternoon’s exuberancia in the US didn’t translate into Asia, which by and large closed weakish - and squarely negative in China, having been a positive outlier on Friday. Wen’s call for more hardship despite stabilization policies, meaning probably more orchestrated soft landing and no flash flush stimulus. Shanghai now through the Jan low of 2148, as well the lowest since Q1/2009, when the post-Lehman rebound took the index to 3472 (-38%).

European open as one could expect: Core a tick bid; Peripherals a couple of bps out; credit, too. Equities a touch lower, but still holding on to most of Friday’s surge. EUR unchanged. Commodities unchanged.
Financials wider, as Libor-gate is spreading on one hand and ECB hinting to see Spanish senior debt holder biting the bullet, too.
No data. Weekend titbits scarce on the official front with Merkel re-drawing a line in the sand (and filling it with concrete?) that there can’t and won’t be any uncontrolled solidarity. From the German side as well, BuBa’s Weidman rejections of using ESM funds to bring down (Italian) yields.
Talking of which the Constitutional Court announcement of a decision for 12 Sep was a bit of a downer, sending EUR and risk testing a little lower. EUR trading back through 22-mark, but without much additional damage to risk. Pushing Core EGBs lower, though.

Solely Core bills on the plate today. Dutch EUR 1.25bn 3m at -0.041% (from -0.013%) and EUR 1.1bn 6m at -0.029% (from +0.019%). France following with its weekly bill auction with EUR 4bn 3m at -0.0015% (last -0.005%), EUR 1.8bn 6m at -0.11% (last -0.006%) and EUR 1.8bn 12m at -0.002% (last +0.013%). So everything negative on that front…
On the menu tomorrow: Spanish EUR 3.5bn 12m & 18m bills (last 5.074% & 5.107% in June); Greek EUR 1.25bn 3m (last 4.31%), Belgian EUR 3bn 3 and 12m (last 0.211% & 0.561%) as well as EFSF EUR 1.5bn 6m bills (last 0.14%) 
Spain EUR 3bn 2014, 2017 and 2019 auction to watch on Thursday. Both Spanish targeted auction amounts seem rather on the high side, given the latest comparable exercises.

Summer time traffic. Low volatility, low volume... Morning session ending where it started, pretty much to the basis point. Soft Core again a little tighter, keeping its compression movement. Italy stuck above 6% and Spain at 6.70%. EUR down to 1.2180, though, before rebounding.
Looks like direction will need to come from US figures and/or earnings. Bernanke testimony on Wed for (unlikely) QE hints. Final (this side of the summer break) ECOFIN on Friday, supposedly to deal only with the Spanish bail-out modalities.

US data showed fair Empire Manu (7.4 versus +4 after 2.3), but it was Retail Sales that people had been looking forward to and expecting a rebound. Here the miss was harsh with -0.5% (fcst had been +0.2% after May’s -0.2%). Pretty much same miss throughout all subcomponents. Last time US retails sales fell 3 months in a row was Q4/2008. Risk a little undecided / unmoved after publication, with exception of the EUR, which was entitled to rise back to past 22, given that obviously the US have problems, too.
Mirroring the decline in sales, Biz Inventories rose 0.3% (fcst 0.2% after revised 0.3%).
IMF obviously cautious and revising everyone’s growth forecast to the downside.
As every bad news seems to get a silver lining, today’s US figures might warrant some QE hopes, hence some resilience in equities on rumours Ben might signal something on Wed. But why should he do more than in the FOMC minutes or as the EB lately? Hints will just be to have something up the sleeve, if push comes to shove.

Europe slipping into (light) ROff (and then out). Recurrent picture of Hard Core grinding tighter (–3 bp), Soft Core doubling down on that (up to 10 bp tighter). Peripherals drifting wider with Italy eventually further off the 6% mark at 6.10% at close and Spain at 6.77% (+15 bp). Equities about unchanged after all.
BKO eventually closing on a historic -0.060% low.
Slow dragging day, if it wasn’t for the EUR jogging back and forth all the time. Something gotta move, I guess.

Will look at tomorrow’s ZEW figures tomorrow (expectations have been quite reduced over the last days) with Current seen at 30 (after 33.2) and Economic seen as slow as -20 (from -16.9). EZ Eco Sentiment was last -20.1.

New Issue activity starting to slip into summer lull. Might be the last week to do something sizeable, if there’s supportive news flow. Otherwise, and outside special or opportunistic situations, benchmark activity should pick up mid-August at the earliest.
Czech Railways in for EUR 300m 7 YRS at MS +275.

Closing levels:
10 YRS Yields: Germany 1,23% (-2); Finland 1,60% (-1); Luxembourg 1,65% (-2); Netherlands 1,67% (-2); Swaps 1,76% (unch); Austria 2,05% (-8), EU 2,10% (-2); France 2,14% (-8); EIB 2,32% (-3); EFSF 2,42% (-5); Belgium 2,53% (-11); Italy 6,10% (+6); Spain 6,77% (+15).

10 YRS Spreads: Finland 54bp (+1); Luxembourg 42bp (unch); Netherlands 44bp (unch); Swaps 53bp (+2); Austria 82bp (-6); EU 87bp (unch); France 91bp (-6); EIB 109bp (-1); EFSF 119bp (-3); Belgium 130bp (-9); Italy 487bp (+8); Spain 554bp (+17).

EUR swap curve 2-5 YRS 38bp (unch); 5-10 YRS 69bp (unch) 10-30 YRS 42bp (unch).
2 YRS German BKOs closed -0,060% (-1,3) and 5 YRS OBLs 0,28% (-2).

Main at 169 from 166 (1,8% wider); Financials at 281 after 273 (2,9% wider). SovX at 266 from 272. Cross at 672 from 665.

Stoxx Futures at 2252 / +0,0% (from 2251) with S&P minis at 1352 (+0,4% from 1346, at European close).
VIX index unchanged at 18,3 yesterday same time.

Oil 87,4/103,3 (WTI/Brent) from 86,8/102,3 (+0,7%/+1,0%). Gold at 1594 after 1590 (+0,3%). Copper at 349 from 349 (unch). CRB unchanged at EU COB 293.
Baltic Dry down again 1% to 1102 from 1010.
EUR 1,227 from 1,223

ECB deposits at EUR 387bn after EUR 366bn.
ECB SMP buying for last week: nada...

Greek bonds guesstimates: No one speaks about Greece anymore… Unchanged. 2023s at 24.5% and 2042s at 21%.

All levels COB 17:30 CET

This week:
Outside the ZEW sentiments, not much out of Europe…Will start the week flooded in a sea of bills on Mon and Tue (More than EUR 16bn out of the Benelux, France, the EFSF, Greece and Spain)
Germany: Tue ZEW Current fcst 30.0 (after 33.2) Sentiment fcst -20 (after -16.9) Fri PPI
France: nothing at all
Periphery: Thu Indu Orders & Sales // Spain: We Housing Px
EZ: Tue ZEW Wed Construction
US: Tue CPI fcst 1.6% after 1.7% YoY; IP +0.4% after -0.1% Wed Mortgage App; Housing Starts fcst 745k after 708k & Building permits fcst 765k after 784k

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

Bonamassa is an absolute Über God of guitar. Master technician. Absolute brilliant.