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 10 August 2012

10 Aug 2012 – “ Rainbows & Pots of Gold " (Stereophonics, 2003)


10 Aug 2012 – “ Rainbows & Pots of Gold " (Stereophonics, 2003)

Ah. A spoiler: Chinese trade date was a huge unexpected miss for Jul as Exports grew a paltry 1% (fcst 8% after 11.3%) and Imports, too, clocked in at solely 4.7% (fcst 7% after 6.3%). Tough end of the week surprise, although Asian equities took the hit rather coolly, closing down 0.5 to 1%. The US closed about unchanged with the S&P clinging to the 1400-mark, after a 7 tick HiLo session.

European open unsurprisingly in (muted) ROff mode. Equities down 0.75%, Credit much wider (correcting last days’ strength) at 3%. Good 5 bp rush into Core EGBs, a bit less in Softs and the Periphery wider by 5 bp (with about unchanged curves). EUR unchanged and Commodities rather brave, outside Copper down 1.5%. Doesn’t seem to qualify as a shoe dropping, rather a flip-flop, at this stage.

Final German Jul CPI at 1.9% YoY. French IP a miss at flat MoM and -2.3% YoY (fcst -1.8% after prior data revised to -3.7% from -3.5%), likewise Manufacturing down -2.6% (fcst -2.1% after yet again revised lower 3.7% from 3.5%). Not boding well for Q3 – and the French government’s budget plans.

Outside that not much else. Drifting ahead of the weekend with the only US figures being import prices. ROff pushing out credit and equities softer. Some limited contagion to the Periphery. Midday levels: Equities down about 1%, Credit out by 3.5. EUR a touch lower. German 10s at 1.37%, tighter by 8, rest of the pack by 4-6, depending on ranking. Italy and Spain out a couple of bp with about unchanged curves.

Had the Spanish Treasury remind everyone, as already done so mid-July, that next week’s bond auction would be cancelled. Fine, fits.
Greece’s 3m auction next Tuesday on the other hand will be for a chunky EUR 3.125bn (in order to repay the bond redemption at the ECB), which is a size, compared to previous 3m auctions (the largest having been EUR 1.95bn in 2010 and EUR 1.5bn 6m in Jan 2011). Obviously probably a pass-through arrangement between the Greek Treasury /domestic banks / ELA / Bank of Greece / ECB, but that chain better not have any weak link.

Otherwise… No titbits… Nada. Rien. Nichts. Nothing.

For your weekend read, a nicely written piece of economic fiction in this week’s The Economist about Grexit and PICS-it. Somehow echoing former ECB member and EUR architect Issing’s comments (link). EUR yes, EUR components… Uhhh… Pfff…

US import prices surprisingly low and below forecast at -0.6% after revised higher -2.4% MoM and even -3.2% after revised -2.5% YoY.
Nothing major, but confirming pressure / ROff. Commodities open in the US in sync, about 1% lower. And US equities joining half a percentage lower.

Can’t explain the sudden spike out in EUR from a 1.224 LOD back to HOD 1.232 in an hour, before drifting back lower. Helped giving equities some colour, but not Periphery EGBs, which drifted wider, with some additional short end flattening.

Bunds at 1.38% (-7). BKO at -0.077% (-4), as well as strong OBLs at 0.34% (-6).
Italy and Spain out by 5 and their curve 7, respectively 11 flatter again.

Won’t have much to chew on Monday either, as of today, in absence of data flow or major auctions. EUR 8bn Italian 1-year paper on the chop. European GDP data and ZEW on Tuesday.
Wednesday closed in 2/3 of Europe. Hitting summer low point. Beware of patchy liquidity.

New Issues summer and Friday lull…

Closing levels:
10 YRS Yields: Germany 1,38% (-7); Finland 1,62% (-7); Luxembourg 1,65% (-5); Netherlands 1,66% (-8); Swaps 1,81% (-5); EU 1,92% (-5), Austria 2,02% (-4); France 2,07% (-4); EIB 2,11% (-6); EFSF 2,21% (-5); Belgium 2,50% (unch); Italy 5,89% (+5); Spain 6,87% (+5).

10 YRS Spreads: Finland 24bp (unch); Luxembourg 27bp (+2); Netherlands 28bp (-1); Swaps 43bp (+2); EU 54bp (+2); Austria 64bp (+3); France 69bp (+3); EIB 73bp (+1); EFSF 83bp (+2); Belgium 112bp (+7); Italy 451bp (+12); Spain 549bp (+12).

EUR swap curve 2-5 YRS 45bp (-2,0); 5-10 YRS 78bp (-1,0) 10-30 YRS 45bp (+1,0).
2 YRS German BKOs closed -0,077% (-1,6) and 5 YRS OBLs 0,34% (-6).

Main at 149 from 146 (2,1% wider); Financials at 246 after 241 (2,1% wider). SovX at 248 from 242. Cross at 589 from 576.
Stoxx Futures at 2424 / -0,5% (from 2435) with S&P minis at 1396 (-0,4% from 1401, at European close).
VIX index at 15,2 after 15,4 yesterday same time. Still under pressure.

Oil 92,7/112,2 (WTI/Brent) from 93,9/112,8 (-1,3%/-0,5%). Gold at 1623 after 1614 (+0,5%). Copper at 339 from 343 (-1,2%). CRB at EU COB 302,0 from 306,0 (-1,3%).
Baltic Dry on its late daily deep dive, down 2% to 774 from 790. Multi-year low at 647 just 16% away. Given the latest rhythm that’s about a week from now…

EUR 1,229 from 1,229, eventually unchanged.

ECB deposits at EUR 289bn after EUR 278bn.

Greek bonds guesstimates: static at 2023s at 24.25% and 2042s at 20.00%

All levels COB 17:30 CET

On the week (compared to Fri 03 Aug COB):
After last Friday’s market re-think of the ECB pledge and subsequent rally in Risk, Monday saw some slight correction of the assessment, at least in EGBs (Bunds 1,39% -3; Spain 6,85% +8; Stoxx 2400% +1,3%; EUR 1,242), although equities had a field day. Anyway, everyone was curious what’s up there…Came Tuesday, one had to ask about "Life on Mars?" (Bunds 1,47% +8; Spain 6,82% -3; Stoxx 2439% +1,6%; EUR 1,242), as xxx. Wednesday gave some more rebalancing, although in an empty market that was demanding to "Pump Up The Volume" (Bunds 1,43% -4; Spain 6,84% +2; Stoxx 2431% -0,3%; EUR 1,237). Yesterday was again more forcefully optimistic and equities intended to enjoy some more "Beautiful Days" (Bunds 1,45% +2; Spain 6,82% -2; Stoxx 2435% +0,2%; EUR 1,229), despite generally adverse data.

Take away of the week? Hmm… After the trashing last week and the subsequent illuminated recovery, things were more balanced in European Government Bonds. Germany has recovered some of its lustre, along with most others.
“Winner” of the week, if you need one, would be Italy (–13), still trying to ride below the screens, and indeed not a 1200 to Bunds (thanks to Monti). Spain remains a laggard (+10), still hovering too close to 7% to be comfortable. Periphery understanding is that they have time (…) and don’t want any conditionality – although this is a pre-condition, so to speak. After last week’s recovery of shorted-dated IT and SP bonds, only Spanish ones actually kept their stance somewhat with 2-10s at 276 (from 289), while the Italian short end gave back over 40 bps with 2-10s flattening to 252 (from 294).
Credit was somehow bouncy in illiquid markets, either overshooting equities or underperforming, but eventually ended the week about unchanged. European equities kept some levitation potential, despite today’s correction, and closed up over 2%. On the commodities front, Oil and soft commodities still stick out and the broader CRB is up 2% on the week.
The EUR shed another 100 pips, which makes Draghi not looking like the best FX trader around, down 160 pips since speaking against shorting the EUR, although he might have cut losses at flat in Tuesday’s upside test.

10 YRS Yields: Germany 1,38% (-4); Finland 1,62% (-3); Luxembourg 1,65% (-6); Netherlands 1,66% (-4); Swaps 1,81% (-7); EU 1,92% (-16); Austria 2,02% (-2); France 2,07% (-4); EIB 2,11% (-16); EFSF 2,21% (-17); Belgium 2,50% (-1); Italy 5,89% (-13); Spain 6,87% (+10).

10 YRS Spreads: Finland 24bp (+1); Luxembourg 27bp (-2); Netherlands 28bp (unch); Swaps 43bp (-3); EU 54bp (-12);  Austria 64bp (+2); France 69bp (unch); EIB 73bp (-12); EFSF 83bp (-13); Belgium 112bp (+3); Italy 451bp (-9); Spain 549bp (+14).

EUR swap curve 2-5 YRS 45bp (-3,0); 5-10 YRS 78bp (+2,0) 10-30 YRS 45bp (+3,0).
2 YRS German BKOs closed -0,077% (-4) and 5 YRS OBLs 0,34% (-8), on the week.
Swiss 2-years down to -0.38% from -0.45% a week ago.

Main at 149 from 151 (1,3% tighter); Financials at 246 after 247 (0,4% tighter). SovX at 248 from 252. Cross at 589 from 597.
Stoxx Futures at 2424 / +2,3% from 2369 with S&P minis at 1396 / +0,6% from 1388, at European COB last week.
VIX index at 15,2 after 16,4 last week.

Oil 92,7/112,2 (WTI/Brent) from 91,0/108,8 (+1,9%/+3,2%). Gold at 1623 after 1602 (+1,3%). Copper at 339 from 336 (+1,0). CRB closes 302,0 from 295,8 (+2,1%). Need to remain wary of Brent even off $113 and a slightly better EUR, we’re still at EUR 91.2 per barrel (All-time high 94.15). 
Baltic Dry has gone back into reverse and ended the week at 774 from 852 (-9.1%).
As a reminder it fell pretty much straight down from a 2173 high in Oct to the 1800-900 area by the end of 2011, then straight down from 1930 to 647 by early Feb, recovered to 1165 early May, plunged back to 872 by early June, then rebounded to 1162 early July and has been correcting since – on a daily basis.
Multi-year low at 647 just 16% away. Given the latest rhythm that’s about a week from now…

EUR 1,229 after 1,237 last Friday

Greek bonds guesstimates: Mostly static at 2023s at 24.25% and 2042s at 20.00%.

All levels Friday COB 17:30 CET

Next Week:
No European long end auctions. Bills only on Monday (Italy, for a chunky EUR 8bn 1-year paper, France, Germany) and Tuesday (Belgium and Greece, for a chunky EUR 3.125bn this time).
Not much in terms of data outside GDP numbers and ZEW on Tuesday in Europe.
Assumption Day on Wed will shot most of Europe (Austria, Belgium, France, Italy, Lux, Portugal, Spain) leaving mostly Germany and Italy to play ball.
Market movements subject to US numbers and European rumours.

Germany: Tue prel. Q2 GDP fcst +0.2% after +0.5%, ZEW Current fcst 18 after 21.1 Sentiment -18.5 after -19.6; Fri PPI fcst +1.1% YoY after +1.6%
France: Tue CPI fcst unch +2.3% YoY, prel. Q2 GDP fcst -0.2% after flat
EZ: Tue Q2 GDP fcst -0.2% after flat, ZEW Thu CPI fcst 1.9% after 1.6%
Periphery: IT Mon Government debt // SP Tue CPI
US: Mon nothing Tue Small Biz optimism, PPI YoY fcst +0.5% after +0.7%, Retail Sales fcst +0.3% after -0.5%, Biz inventories fcst unch +0.3%; Wed CPI YoY fcst +0.2% after flat; Empire Manu, IP fcst +0.5% after +0.4%, Capacity fcst 79.2% after 78.9%; Thu Claims, Housing Starts & Building permits, Philly Fed; Fri Michigan Conf & Leading Indicators

Click link on title or below for today’s musical support:
Well, it’s worth chasing both, I guess…

Other side of Stereophonics “Gimme Shelter”, useful, too, these days…

Thursday 9 August 2012

09 Aug 2012 – “ Beautiful Days " (Venus, 2003)

09 Aug 2012 – “ Beautiful Days " (Venus, 2003)

The US having eventually closed in slight positive territory, with a dismal 10 YRS UST auction to boot, and with a bit of Asian help, supported by lower, but higher than  CPI figures in China (+1.8% after +2.2% with a 1.7% fcst) , European Risk opened on the brighter side. Further Chinese figures up for interpretation (Glass half full, half empty) as IP slowed to 9.2% YoY after 9.5% and a 9.7% fcst, while retail sales slowed to 13.1% after 13.7% and a 13.5% fcst. Slower, but hardly a plunge. Not sure this will trigger massive POBC stimulus. Why would one trigger that in a global slowdown at this stage, especially when trying to contain speculative bubbles? Seems more like the targeted soft landing. Japanese machine orders at -9.9% YoY missing -4.5% estimates after prior +1.0%. As seen in yesterday’s German IP figures, engineering is not at its top these days.
Whatever. Beautiful days in equity land: good figures are hailed, bad figures even more, on stimulus hope dope.

European equities opening up 0.5%, credit reversing yesterday’s softer patch. Commodities and EUR about unchanged from COB. EGBs a bit softer with the Periphery 10s tighter by 7, bringing Italy down to 5.80% and Spain hovering above the 6.75% mark (having briefly traded in the 6.90s, hence close to 7% late morning yesterday). Periphery curves about unchanged. DBRS downgrades of Italy and Spain shrug off, as still in the A bracket (although there’s just 1 notch left for Spain now).
No auctions, nor data. No shoe dropping. Bond bears are from Mars, Equity traders from Venus. Beautiful days…

No major data. Note Dutch CPI sticky at +2.6% (fcst unch 2.5%). Hardly hype- inflated, but sticky. Will have someone soon hark back that the ECB’s mandate (for the moment) is primarily to control inflation. And given soft commodities’ and energy’s trend lately post-summer figures might surprise. Spanish housing transactions for June down -11.4% after -11.6%. Greek May unemployment at new 23.1% high (after prior 22.5% and 16.8% one year ago) with Youth UE now at 55%.

Spoiler came from the ECB monthly survey that a) highlighted growth risk (Duh!), b) expects GDP to fall 0.3% (earlier -0.2% estimates) and c) stated that “The adherence of governments to their commitments and the fulfilment by the European Financial Stability Facility/European Stability Mechanism of their role are necessary conditions”. And then Conditionality reappeared…“Governments must stand ready to activate the EFSF/ESM in the bond market when exceptional financial market circumstances and risks to financial stability exist -- with strict and effective conditionality.” 
ECB to EU governments: “Guys, we won’t fly solo…” 

No further auction supply in the EZ for the week, unless there was demand for Belgian OLOs via an option reverse inquiry (ORI) auction on Friday, which seems doubtful at this stage.

Noon levels about unchanged from COB. Hard Core and Soft Core EGBs about flat, BTPs a touch tighter, BONOs unchanged. Equities flattish to slightly lower. Credit relatively much tighter (-1.5%). EUR on the low 23 handle.
Note that despite the ECB statement and later BdF’s Noyer repeating the message, the short end both in Spain and Italy didn’t tighten a tick and even softened a little in Italy.

ECB to EU governments: “Guys, we won’t fly solo…” 
Bond Market to ECB “Show me the money!”
Equity market “Someone said Money? Buy!”

The Italian government seems to have had discussions about bond buying, but feels it has time before deciding (…) and that current measures undertaken would mean no more further conditionality (…). That “non conditionality” thing seems to be a fixed idea that will break its teeth once September kicks in, as we are not simply discussing drawing money at an ATM, I would say. News coincides with some renewed Periphery short end weakness.

Mixed initial US figures with a lower trade deficit at $42.9bn (fcst $-47.5bn after revised $-48bn), better Claims at 361k (fcst 370k after revised up 367k), but with Continuous Claims at 3332k above consensus of 3275k after revised higher prior 3279k.

With the US opening positive, European Risk got a leg up with the EUR back over the 23 handle, having traded down to 1.2290s. Inventories declined 0.2% against a +0.3% forecast after prior data got revised as well from +0.3% to flat.
US equities in slight positive territory qualify for European risk to go up 1% from today’s lows. Beautiful days…

Bunds at 1.45%. BKO through Friday levels at -0.06%, OBLs at 0.40%.
Spanish and Italian 2-10s flatter by 10 bp.
Estoxx back to early April levels, up 14% since end of June low and 8% from the post-ECB conference lows; Credit at the lowest since early May. Beautiful days…

With Brent still near $113 and a slightly weaker EUR, we’re now at EUR 91.75 per barrel (All-time high 94.15). Still need to hold on onto your shoes in the Middle East…

The New Issues summer drought was interestingly interrupted by two US issuers that hadn’t been seen for ages: Wells Fargo raised EUR 1.5bn 10 YRS at MS +85 (on a EUR 5bn book) and Procter & Gamble cleanly raised EUR 1bn 10s at MS +25 ( a mere 2.094%). The first hadn’t been seen in EUR since 2008, the second since 2007. Yes, feels like ancient times.
Otherwise, Soffin (Germany) guaranteed FMS, the DepFa defeasance structure, increased a 9 YRS deal by EUR 1.5bn at MS +17. German bid.

Closing levels:
10 YRS Yields: Germany 1,45% (+2); Finland 1,69% (+2); Luxembourg 1,70% (-2); Netherlands 1,74% (+1); Swaps 1,86% (-1); EU 1,97% (-3), Austria 2,06% (+1); France 2,11% (unch); EIB 2,17% (-1); EFSF 2,26% (-1); Belgium 2,50% (-2); Italy 5,84% (-3); Spain 6,82% (-2).

10 YRS Spreads: Finland 24bp (unch); Luxembourg 25bp (-4); Netherlands 29bp (-1); Swaps 41bp (-3); EU 52bp (-5); Austria 61bp (-1); France 66bp (-2); EIB 72bp (-3); EFSF 81bp (-3); Belgium 105bp (-4); Italy 439bp (-5); Spain 537bp (-4).

EUR swap curve 2-5 YRS 47bp (unch); 5-10 YRS 79bp (unch) 10-30 YRS 44bp (-1,0).
2 YRS German BKOs closed -0,060% (-1,1) and 5 YRS OBLs 0,40% (unch).

Main at 146 from 149 (2,0% tighter); Financials at 241 after 247 (2,4% tighter). SovX at 242 from 247. Cross at 576 from 578.
Stoxx Futures at 2435 / +0,2% (from 2431) with S&P minis at 1401 (+0,1% from 1399, at European close).
VIX index at 15,4 after 16,0 yesterday same time.

Oil 93,9/112,8 (WTI/Brent) from 94,2/112,9 (-0,3%/-0,1%). Gold at 1614 after 1614 (unch). Copper at 343 from 343 (unch). CRB at EU COB 306,0 from 304,0 (+0,7%).
Baltic Dry once more down 2.7% to 790 from 812.
As a reminder it fell pretty much straight down from a 2173 high in Oct to the 1800-900 area by the end of 2011, then straight down from 1930 to 647 by early Feb, recovered to 1165 early May, plunged back to 872 by early June, then rebounded to 1162 early July and has been correcting since – on a daily basis.

EUR 1,229 from 1,237
ECB deposits at EUR 278bn after EUR 317bn.

Greek bonds guesstimates: unchanged at 2023s at 24.25% and 2042s at 20.00%.

All levels COB 17:30 CET

Tomorrow:
Germany: Fri CPI fcst unch +1.7% YoY
France: Fri IP fcst -1.8% after -3.5% Manu P fcst -2.1% after -4.3%
Periphery: IT Fri CPI fcst unch +3.7% unch
US: Fri Imp / Exp prices

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

And Curiosity has just found out on Mars that what looked like a rock revealed itself as just being a rock…

Wednesday 8 August 2012

08 Aug 2012 – “ Pump Up The Volume " (M|A|R|R|S, 1987)


08 Aug 2012 – “ Pump Up The Volume " (M|A|R|R|S, 1987)

Uneasy open after a positive, yet off high close in the US (dragged by Europe anyway) and an about flat to positive Asian session. No major shoe dropping, however given the lofty highs Risk has reached, something good ought to pop up on the screens at some time, rather than a series of rather muted messages. Late afternoon / overnight titbits and cogitations were rather of the later sort: Grexit, as seen by Junkers (not good, yet manageable); Greece scrambling to get more savings to meet Troika targets; S&P outlook on Greece lowered to negative (Duh!); external pressure on Spain to go for a full bail-out; inner pressure to resist any further conditions (It’s not a game of chicken anymore, rather Angry Birds); Italian tensions and hopes not to get dragged down by Spain etc. etc. etc.
So equities off about 0.5%. EGBs down 1 to 2 bp, ahead of the German 10 YRS auction; Periphery a bit wider; Credit much wider than equities, actually, but having gone a little over the top in the rally of the last 10 days. EUR 1.2375. Commodities a touch softer from COB.

Data sets to open the day all on the disappointing side: German Exports and Imports both below forecasts (-1.5% after revised +4.2% and -3% after +6.2%, respectively) with the German Trade Balance at EUR 17.9bn nearing 5 YRS (and all-time highs). Spanish IP a little below forecast and down 6.3% after sharply revised lower 6.5% for May.  French Biz sentiment as expected at 90 after 91, continuing its steady monthly decline from a Jan 2011 high at 109 to renew with Summer 2009 levels. The BdF actually revised Q3 GDP outlook to -0.1%. Talking of growth, the BoE slashed its outlook, too.
Even if all these figures came pretty much as expected, one can only reckon that low is low.

Good German 10 YRS auction at 1.42% for EUR 4bn, of which 600m retained for market interventions. Over 6bn bids, of which over half at market price. No tail. Had closed at 1.47% yesterday and opened 1.45%, so the auction price was above market. Only a EUR 4bn auction, but bid to cover ratio of 1.8 the highest since Feb and Mar 2011, 3rd highest matching Sep 2010. Final link in the chain, but still getting a bid here. Last auctions were at 1.31% in July and 1.52% in June.
Corresponding with 10 YRS BONOs falling out of favour and wider by 10 into the 6.90s by late morning, as well as renewed short end weakness (+25 in 2s and 3s), after a tame start. Short end weakness in sync with Italy, but with only marginally softer BTPs, still holding a tick below 6%.
Closes auction supply in the EZ for the week, unless there was demand for Belgian OLOs via an option reverse inquiry (ORI) auction on Friday, which seems doubtful at this stage.

Noon levels about in the same vein. Germany giving back a tick or two of its gains, taken over by the Periphery. Credit weakish. Equities down 0.75% EUR down to 1.236. Commodities down 0.5%.
German IP down as expected 0.9% in June after +1.7% in May.

No further notable impact on BONOs of Spain now targeting a wider deficit (link) of 6.3% in 2012 and 4.5% in 2013 on GDP outlooks of -1.5% and -0.5%, as agreed early July with the EU. Nothing new.

US non-farm productivity on the rise at +1.6% (fcst 1.4%) and Q1 revised to -0.5% from -0.9%. Labour costs on the rise, too, at +1.7% (fcst +0.5%) and especially as strong Q1 revision to +5.6% (from 1.3%). Not sure the later is good news for future job creation. Nothing on the slate for later outside oil inventories and the US 10 YRS auction… Will drift.

Won’t help trading volumes…

Flattish to slightly lower US open. Drifting…

Bunds at 1.43% about flat to Friday. BKO and OBL back through Friday levels at -0.049%, as do OBLs at 0.40%.
Italian curve flatter on long BTPs trailing and overtaking Bunds, shrugging off the late morning soft patch, and Spain flatter on shorter end, albeit back from the wides, trading softer with 2s at 4.000% while 10s mostly held onto the Bund spread of 540.
Italian 10s 42bp tighter and Spain 31bp tighter from Friday.

Oil stronger on inventory data. Brent spiking near $113 and over EUR 91 per barrel (All-time high 94.15). Need to hold on onto your shoes in the Middle East…

New Issues summer drought persisting.

Closing levels:
10 YRS Yields: Germany 1,43% (-4); Finland 1,67% (-3); Luxembourg 1,72% (-3); Netherlands 1,73% (-3); Swaps 1,87% (-4); EU 2,00% (-5), Austria 2,05% (-3); France 2,11% (-4); EIB 2,18% (-7); EFSF 2,27% (-6); Belgium 2,52% (-2); Italy 5,87% (-8); Spain 6,84% (+2).

10 YRS Spreads: Finland 24bp (+1); Luxembourg 29bp (+1); Netherlands 30bp (+1); Swaps 44bp (unch); EU 57bp (-1); Austria 62bp (+1); France 68bp (unch); EIB 75bp (-3); EFSF 84bp (-2); Belgium 109bp (+2); Italy 444bp (-4); Spain 541bp (+6).

EUR swap curve 2-5 YRS 47bp (-2,0); 5-10 YRS 79bp (unch) 10-30 YRS 45bp (unch).
2 YRS German BKOs closed -0,049% (-1,2) and 5 YRS OBLs 0,40% (-4).

Main at 149 from 148 (+0,7%); Financials at 247 after 246 (+0,4%). SovX at 247 from 246. Cross at 578 from 582.
EStoxx Futures at 2431 / -0,3% (from 2439) with S&P minis at 1399 (+0,1% from 1398, at European close).
VIX index at 16,0 after 15,8 yesterday same time.

Oil 94,2/112,9 (WTI/Brent) from 93,3/111,4 (+1,0%/+1,3%). Gold at 1614 after 1613 (+0,1%). Copper at 343 from 344 (-0,3%). CRB at EU COB 304,0 from 303,0 (+0,3%).
Baltic Dry down a hefty near 3% to 812 at 836.

EUR 1,237 from 1,242
ECB deposits at EUR 317bn after EUR 312bn.

Greek bonds guesstimates: stable at 2023s at 24.25% and 2042s at 20.00%.

All levels COB 17:30 CET

Rest of this Week:
Light on data and supply. French production figures on Fri.

Germany: Fri CPI fcst unch +1.7% YoY
France: Fri IP fcst -1.8% after -3.5% Manu P fcst -2.1% after -4.3%
Periphery: IT Fri CPI fcst unch +3.7% unch // SP tomorrow House transactions
ECO US: Thu Trade Balance, Claims fcst +370k after +365k, Inventories fcst unch +0.3%; Fri Imp / Exp prices
Asia: CN IP fcst 9.7% YoY after 9.5%, CPI fcst 1.7% after 2.2%, Retail Sales fcst 13.5% after 13.7%

Click link on title or below for today’s musical support:
Given the strange market behaviour…and lack of volume…

Some more “Curiosity” coverage to spend some time…
... and hide that cat – otherwise…
As we’re talking of killing cats…
Even better! Grand Art!

Tuesday 7 August 2012

07 Aug 2012 – “ Life on Mars? " (David Bowie, 1973)


07 Aug 2012 – “ Life on Mars? " (David Bowie, 1973)

Neutral to positive European open, following sanguine US and Asian close on the back of another leg up in EZ yesterday, following the Friday surge. Bonds a tick tighter throughout the EGB spectrum with Italy confirming yesterday’s close below 6% at 5.94% and Spain at 6.67%.
Equities up another 0.5%, before pushing further and weighting on Core bonds. Italian and Spanish 2-10s about flat at 289, respectively 324. EUR above 1.24, after trading a little weaker in Asia.

Still not sure what to make of the last 10 days. Won’t add to the general guessing game, but still remember Draghi’s comment about “There’s nothing without conditionality!” at the July ECB meeting.
Tons of open questions still abound. What is the ECB’s view of which conditions? Germany’s? Full bail-out? How short is the short end? Obviously, if Spain (and Italy) were to refinance themselves on forever rolled 3 to 6 months bridge loans, that won’t do in the long run. Seniority? Same question. Otherwise, we’ll end up with the whole debt in shorter maturities owned solely by the ECB and ESM/ESFS, as well as local banks. Conditions? Conditions?! Condi… What???!!! Nunca!
Add to that major (inner) (and outer) political risks, which would do without Monti suggesting to by-pass parliaments. That (supposed) comment will certainly backlash further (as today’s statement that Italy would now be at 1200 to Bunds with the late government and subsequent apology).
From where left 2 weeks ago, Italy is down some 20bp in 10s, Spain 40bp tighter and Germany is wider by 30bp, as someone will have to pay. The Soft Core weathered the news with a 15 to 20bp trade-off and France held best with under 10bp, which seems odd given the fact that it ranks as number 2 of the possible paymaster list. 
Stunning equity performance with EStoxx up 14% from its lows 10 days ago.
Likewise surprising for the US. It seems odd to price-in both (one set of) good news as well as another round of QE, which is not there yet. That would be serious double-dipping.

As a reminder of the state of things, Italian Industrial production crashed 8.2% YoY (after 6.6%) in June and preliminary GDP data showed a 2.5% YoY decline in Q2 (from -1.4%). This led to a reversal of the earlier Periphery gains and to a sharp decline on the short end with both Italian and Spanish 2-10 curves flattening by 25 to 30 bp. Aiuto!
Took a while for equities to realize and to slowly come back from their 1.5% plus high. Not much reaction either to German Factory orders down a sharp -1.7% MoM after 0.7% and a -0.8% forecast. That’s -7.8% YoY, the worst since Oct 2009. Domestic demand down for the 6th month in a row. Foreign demand for capital goods down over 13% YoY. Engineering especially hit. Aua!
But, all is well; Ben & Mario will juggle it…

On the (short term) auction front, things were muted: Greece issued a small EUR 625m (before non-comps) at 4.68% (after 4.70%), knowing that it will need come back several times in the coming weeks in order to raise EUR 6bn to cover its August bond (at the ECB) and bill redemptions, so that might keep bidding to a strict minimum.
The EFSF accepted EUR 1.4bn of bids at -0.02% (Demand was 3 times the amount).

Germany will reopen its 10 YRS by EUR 4bn tomorrow, probably another reason for relative weakness in Bunds. Last auctions took place at 1.31% in July and 1.52% in June, so we’re closing at the cheaper end of both). COB 1.47%.

Noon picture with Core EGBs tighter by a couple of bps, Soft Core -1 to 2 tighter. Italy tighter by 7 to 5.91%, after having re-hit 6% after the Italian data, but reacting positively to the confidence vote being passed that should allow further spending cuts. Had likewise the short regaining some composure and some of the flattening corrected. Spain wider by a couple of bps, having hit 6.75% and the short end still soft with 2-10s at 300 (from 325 at open).
Equities still up 0.75%. Credit a tick wider, after the late gains. EUR holding above 1.24. Oh, yeah and we had the EU confirm a 120% debt to GDP ratio for Greece by 2020 (Ok, they do acknowledge that this is “ambitious”…) (to say the least) and that no one had yet asked for EFSF bond buying (ROFLOL). This one will remain a serious game of chicken.

To be correct, it is a series of games of chicken, as next to the different sovereigns, the ESM/ESFS, the ECB, and why not the IMF, below the sovereigns there are the regions, be it in Spain or, as it stands, in Germany. Oh, dear, oh, dear. Come on, haggle! (Life of Brian). Of course, one will have to agree that time is the essence, as if your think too long about all the pitfalls, you might end up sinking (link).

Positive US open, trailing along the lightness of being. With no shoe dropping, Risk is having a field day again…But not in Spain (2 YRS +32, 10 YRS +13)
Bunds closing low ahead of tomorrow’s auction (+7 to 1.47%). BKO closing equally soft at -0.037%, as do OBLs at 0.44%.

Brent again above $110 for the first time since mid-May. Even if a EUR that has somewhat recovered, this is nearing EUR 90 per barrel (All-time high 94).

New Issues summer drought

Closing levels:
10 YRS Yields: Germany 1,47% (+7); Finland 1,70% (+7); Luxembourg 1,75% (+4); Netherlands 1,76% (+7); Swaps 1,91% (+5); EU 2,05% (+1), Austria 2,08% (+4); France 2,15% (+5); EIB 2,25% (+0); EFSF 2,33% (+1); Belgium 2,54% (+2); Italy 5,95% (-3); Spain 6,82% (+12).

10 YRS Spreads: Finland 23bp (unch); Luxembourg 28bp (-3); Netherlands 29bp (unch); Swaps 44bp (-2); EU 58bp (-6); Austria 61bp (-3); France 68bp (-2); EIB 78bp (-7); EFSF 86bp (-6); Belgium 107bp (-5); Italy 448bp (-10); Spain 535bp (+5).

EUR swap curve 2-5 YRS 49bp (+2,0); 5-10 YRS 79bp (+1,0) 10-30 YRS 45bp (+1,0).
2 YRS German BKOs closed -0,037% (+2,6) and 5 YRS OBLs 0,44% (+6).

Main at 148 from 148 (unch); Financials at 246 after 243 (1,2% wider). SovX at 246 from 246. Cross at 582 from 586.
Stoxx Futures at 2439 / +1,8% (from 2396) with S&P minis at 1398 (+0,3% from 1394, at European close).
VIX index at 15,8 after 16,2 yesterday same time.

Oil 93,3/111,4 (WTI/Brent) from 91,6/108,9 (+1,8%/+2,3%). Gold at 1613 after 1614 (-0,1%). Copper at 344 from 338 (+1,8%). CRB at EU COB 303,0 from 301,0 (+0,7%).
Baltic Dry still taking a dive at 836 from 843.

EUR 1,242 from 1,242 - unchanged

ECB deposits at EUR 312bn after EUR 300bn.
Yesterday’s ECB SMP numbers, unsurprisingly, showed no buying last week. 

Greek bonds guesstimates: 2023s at 24.25% and 2042s at 20.00%.

All levels COB 17:30 CET

On the last weeks (compared to Fri 28 Jul COB):

We had closed the week ending 28 Jul by heading to the next whisky bar in Alabama (in reality to the Lisbon Coast for some excellent Vino Verde and puzzling insights into Portuguese daily life…).

10 YRS Yields: Germany 1,47% (+31); Finland 1,70% (+16); Luxembourg 1,75% (+19); Netherlands 1,76% (+16); Swaps 1,91% (+21); EU 2,05% (+12); Austria 2,08% (+20); France 2,15% (+9); EIB 2,25% (+10); EFSF 2,33% (+10); Belgium 2,54% (+9); Italy 5,95% (-19); Spain 6,82% (-42).

10 YRS Spreads: Finland 23bp (-15); Luxembourg 28bp (-12); Netherlands 29bp (-15); Swaps 44bp (-10); EU 58bp (-19); Austria 61bp (-11); France 68bp (-22); EIB 78bp (-21); EFSF 86bp (-21); Belgium 107bp (-22); Italy 448bp (-50); Spain 535bp (-73).

EUR swap curve 2-5 YRS 49bp (+13,0); 5-10 YRS 79bp (+9,0) 10-30 YRS 45bp (unch).
2 YRS German BKOs closed -0,037% (+4) and 5 YRS OBLs 0,44% (+20), on the last 2 weeks.

Main at 148 from 169 (12,4% tighter); Financials at 246 after 284 (13,4% tighter). SovX at 246 from 270 (9% tighter). Cross at 582 from 662 (12% tighter). Surprising nearly undistinguished correlation…
Stoxx Futures at 2439 / +9,1% from 2236 with S&P minis at 1398 / +2,6% from 1363, at European COB.
VIX index at 15,8 after 16,5 two weeks ago.

Oil 93,3/111,4 (WTI/Brent) from 91,0/106,5 (+2,5%/+4,6%). Gold at 1613 after 1581 (+2,0%). Copper at 344 from 345 (-0,3%). CRB closes 303,0 from 303,7 (-0,2%), hence about unchanged.
Baltic Dry has gone back into full reverse over the last weeks and is now at 1037 from 1110 (-6.6%).

EUR 1,242 after 1,217 Friday 2 weeks ago (+2%).

Greek bonds guesstimates:  Greek bonds guesstimates: 2023s at 24.25% and 2042s at 20.00% (from 25.50% and 21.50% before bunny time).

All levels Friday COB 17:30 CET

Rest of this Week:
Light on data and supply. Will have Germany increasing its 10 YRS by EUR 4bn tomorrow (last 1.31%, after 1.52%) tomorrow. Need to check Germany’s trade data tomorrow for signs of further weakening, too, and especially IP. Spanish IP tomorrow and housing on Fri. French production figures on Fri.

Germany: Wed Jun Exports fcst 1.3% after 4.2% & Imports fcst -2% after +6.2%, IP fcst 0.3% after 0%; Fri CPI fcst unch +1.7% YoY
France: Wed Biz Sentiment fcst 90 after 91; Fri IP fcst -1.8% after -3.5% Manu P fcst -2.1% after -4.3%
Periphery: IT Fri CPI fcst unch +3.7% unch // SP Wed IP fcst -6.2% after -6.1%; Thu House transactions
ECO US: Wed MBA Mort, NF Productivity fcst +1.4% after -0.9%; Thu Trade Balance, Claims fcst +370k after +365k, Inventories fcst unch +0.3%; Fri Imp / Exp prices

Click link on title or below for today’s musical support:
Given the strange market behaviour…

Check out this outstanding Ukulele Orchestra of Great Britain’s version, as we remain in bizarre land.

Talking of Mars, here are the first pictures from “Curiosity”