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 7 September 2012

07 Sep 2012 – “ It’s So Easy " (Guns ‘N Roses, 1987)

07 Sep 2012 – “ It’s So Easy " (Guns ‘N Roses, 1987)

Sailing in a sea of love and happiness Friday morning open. After yesterday’s explosive afternoon, the US followed the lead closing up 2% to hit the highest levels since 2008 (Nasdaq even on end 2000 levels). Not to be left alone, China announced a CHN 1trn infrastructure plan, which propelled the indices up 4% with many construction stocks stuck at +10% circuit-breaker levels. So all is good to close the week. Markets finally see the light at the end of the tunnel (, which could as well just be an oncoming train) and are waiting for today’s NFP numbers. Knowing that this number is subject to a two-edged interpretation: if too good, it might refrain the FED from triggering at too early QE. But in the current mood, if good, then good, if bad, then QE, so good. Easy.

Yep, a roaring start. Tentatively opening up 0.50%, European equities rapidly added an additional 1%. Risk On torsion in EGBs, led by ever tighter Periphery bonds (Italian 10s down 25, Spain 30 tighter, down to 5.15% and 5.70% respectively), dragging the Soft Core along, down 5bp. Periphery movement pretty even across the curve with the short end down 20bp, leading to some further flattening with both 2-10s now in the low 300.
Hard Core only mildly wider, which is surprising. German bonds 1 to 2 wider, across the curve.
EUR ripping higher. Commodities softer along the way (odd) with solely copper slightly up (thus not profiting from China input). On the Risk On stories, we have as well rumours that the SNB is looking to re-peg the CHF to 1.22, leading it to meet more than halfway over 1.212. Central Banks United have the upper hand these days. 
So don’t mess with them…
At least not this week…

Data front positive with German trade beating estimates with exports rising 0.5% MoM (fcst -0.5% after revised slightly better -1.4%) and imports up 0.9% (fcst -0.3% after -2.9%). One, not only the Bundesbank, would note that German Labour Q2 costs remain on the rise, up 2.5% from previous 1.8%.
Spanish Industrial output sinking further to -5.4% (fcst -5.2%), but unnoticed in the Periphery joy.
Had final pre-launch smoothy with German July IP up 1.3% (fcst was 0% after -0.9%n subsequently revised better to -0.5%). All is good.

No government auctions, but a flurry of (largely smaller) new issues. Santander drawing an instant response of EUR 4bn in orders for a 3.5 YRS deal initially touted at 400 over swaps, allowing a EUR 2.5bn transaction at +390. Has as well Italian toll-road operator Atlantia issuing EUR 750m Mar 2020 at +295.
Next week is rather light on EGB supply with mainly bills on the plate. Dutch 10 YRS on Tuesday. OBLs on Wednesday.  Will check the Italian 3YRS auction on Thursday to assess the Draghi put after one week

Midday levels still showing healthy risk appetite, albeit with equities 0.5% off highs.
Credit through the roof, though. Financials down 50bp on the week to hit end of March levels and now 20 over this year’s lows (180). Likewise for Main (12m low 110). Crossover on the 12m lows of 500 (crossed to the upside in Aug 2011).
German Bunds +2 to 4, depending on maturities.
Spanish 2s 2,76% (-11) and 10s 5,71% (-28).  Italian 10s 5,20% (-17). Spanish 2-10s 296bp (-16). Italian 2-10s 300bp (-12).
Stoxx Futures +1,3%. Main at 124 from 132 (6,1% tighter); Financials at 202 after 217 (6,9% tighter)
Oil 95,8/113,9 (WTI/Brent) (-1,3%/-0,6%). Gold 1695 (-0,6%). Copper 358 (+1,4%)
EUR 1,269, having touched 1.27 for the first time since end of May.

All US data at 14:30 CET close the week with a NFP print of only 96k (fcst 130k after 163k, revised lower to 141k), private payrolls below fcst, manufacturing actually diminishing. Add lower than foreseen hourly earnings and weekly hours. Only positive is an unemployment rate nevertheless falling to 8.1% (fcst unchanged 8.3%), but most probably due to enough people falling out of the stats to do so…
Sent equities tanking 0.50% and EUR up to 1.2750 in initial reaction. But then again, it’s the New Normal: Bad is good, as triggering QE. Call the Central Banks! 
Wait! Can you justify a further QE with stocks a 4-year highs and unemployment coming down (at least in the arcane statistical data…). So flattish US open after all.

Peeling lustre off the Risk On mood and taking Bunds down 6 basis points from their widest levels (1.61%). Gold up $30, as in, if everyone starts to debase…Copper getting traction.

EUR trailblazing to 1.28, as / despite equities getting softer…

Spanish deputy PM Saenz on the tapes: budget to be approve 27 Sep. “Possible” rescue to be discussed at the Ecofin. Will be checked with rigor.

Bunds closed at 1,52% (-5), down 10bp from today’s wides. OBLs at 0,44% (-3). BKOs 0,030% (-0,2).
Spanish 2s closed at 2,67% (-20) and 10 YRS BONOs at 5,61% (-38). 10 YRS Italy down to 5.15% (-22).
Spanish 2-10s 294bp (-18). Italian 2-10s 295bp (-17).
Equities still up 0.75% on the day, but closing off highs. Credit likewise off tightest prints, but huge outperformer.

Turning to those sovereigns probably running their abacus on OTM opportunities: Irish 5 to 10s down 20 to 25bp. Portugal down 40 to 50bp (Good call yesterday…) with 2, 5 and 10s now nearing the 4%, 6 and 8% mark.

Closing levels:
New Sep 2022 as German ref (Jul 2022 +3)
10 YRS Yields: Germany 1,52% (-5); Luxembourg 1,66% (-1); Finland 1,82% (-4); Swaps 1,83% (-1); Netherlands 1,85% (-5); EU 1,95% (-4), Austria 2,08% (-1); France 2,20% (-5); EIB 2,21% (-3); EFSF 2,48% (-3); Belgium 2,62% (-6); Italy 5,15% (-22); Spain 5,61% (-38).

10 YRS Spreads: Luxembourg 14bp (+4); Finland 30bp (+1); Swaps 31bp (+4); Netherlands 33bp (+0); EU 43bp (+1); Austria 56bp (+4); France 68bp (+0); EIB 69bp (+2); EFSF 96bp (+2); Belgium 110bp (-1); Italy 363bp (-17); Spain 409bp (-33).

EUR swap curve 2-5 YRS 50bp (-1,0); 5-10 YRS 81bp (+0,0) 10-30 YRS 55bp (+1,0).
2 YRS German BKOs closed 0,030% (-0,2) and 5 YRS OBLs 0,44% (-3).

Main at 126 from 132 (-4,5%); Financials at 204 after 217 (-6,0%). SovX at 189 from 210. Cross at 508 from 537.
Stoxx Futures at 2544 / +0,8% (from 2524) with S&P minis at 1434 (+0,5% from 1427, at European close).
VIX index at 14,8 after 16,2 yesterday same time.

Oil 95,6/113,6 (WTI/Brent) from 97,0/114,6 (-1,4%/-0,9%). Gold at 1735 after 1706 (+1,7%). Copper at 364 from 353 (+3,1%). CRB at EU COB 310,0 from 310,0 (+0,0%).
Baltic Dry down 0.9% to 669 from 675. Another 3.3% until hitting the Feb low at 647. 

EUR 1,279 from 1,263

ECB deposits at EUR 342bn after EUR 347bn.

Greek bonds guesstimates: Unchanged with 2023s at 21.50% and 2042s at 18.25%.

All levels COB 17:30 CET

On the week (compared to Fri 31 Aug COB):

The end of last week had initially an air of "Dust in the Wind" (Bunds 1,34% +2; Spain 6,86% +29; Stoxx 2437% +1,2%; EUR 1,26) as Bernanke didn’t deliver (immediately) on QE hopes, still things felt good for risk and eventually the market decided to take further central bank support for granted and closed on a positive note, ahead of the US Labor Day weekend, putting aside Spanish woes. Monday started with "No Money Down" (Bunds 1,38% +4; Spain 6,84% -2; Stoxx 2460% +0,9%; EUR 1,26), rather wobbly with Manu PMIs all around on the soft side. Still, as Mario stared to leak his plans and that buying up to 3 YRS was granted, Risk became more courageous. Tuesday had people "Shake Your Money Maker" (Bunds 1,39% +1; Spain 6,54% -30; Stoxx 2436% -1,0%; EUR 1,256) for further details. Wednesday remained thus choppy, with once more soft Serv PMIs and despite the OMT getting widely leaked, players felt like "(Shake, Shake, Shake) Shake Your Booty" (Bunds 1,48% +9; Spain 6,38% -16; Stoxx 2441% +0,2%; EUR 1,261) Eventually, the Bund auction was a disaster, too. Yesterday, finally, was the big day and Draghi deliver on some shock and awe. While most had been leaked before, markets went positively "Shock Me" (Bunds 1,57% +9; Spain 5,99% -39; Stoxx 2524% +3,4%; EUR 1,263). All is good!

Well, a hell of a positive week, we had. All is well, all is fixed. After having decided that the FED hadn’t ended support yet, it was the ECB’s turn to deliver and “Believe me, it will be enough” turned out initially good. Although one will have to admit that nothing has actually been done so far. But should it be needed, something could be done. Final picture of the week is some serious ROn. Bunds went softer by over 20 basis points on the old reference with the new 10 YRS benchmark off to a choppy start, having met a failed auction. Other Hard Core, swaps and associated agencies got trashed 10 to 15 bp, as well while the Soft Core fared okay-ish. Star Performers were obviously Periphery bonds with Spain leading with a 125 bp tightening.
Flight to security bonds lost their flair with 2 YRS BKOs trading again in positively territory.
The swap curve steepened quite substantially, while the Periphery curves, after a round of early bear steepening, flattened back to just under 300bp.
Needless to say that this was a field week for equities, up 4.5% on the week, but it is credit that reacted most fiercely to the new feeling of security with the Main tighter by 15%, as Financials ripped 18% tighter.
Commodities less sparkling or interesting. Note that Gold ventured past the 1700-mark for a while and ends the week positively. Copper the most impressive, although mostly in the run-up to the end of the week and not much inspired by the Chinese infra projects (yet). Iron Ore sinking. Baltic Dry sinking.
EUR positive, although far less than the week before, often choppy, but mostly tightly range-bound until the squeeze out of this afternoon following the NFP.

All is well. But where do we go from here??? As seen today things a running a bit out of steam…

10 YRS Yields: Germany 1,52% (+18); Luxembourg 1,66% (+10); Finland 1,82% (+9); Swaps 1,83% (+11); Netherlands 1,85% (+14); EU 1,95% (+13); Austria 2,08% (+6); France 2,20% (+5); EIB 2,21% (+15); EFSF 2,48% (+15); Belgium 2,62% (+7); Italy 5,15% (-79); Spain 5,61% (-125).
New Sep 2022 as German ref (Jul 2022 +3)

10 YRS Spreads: Luxembourg 14bp (-8); Finland 30bp (-9); Swaps 31bp (-7); Netherlands 33bp (-4); EU 43bp (-5);  Austria 56bp (-12); France 68bp (-13); EIB 69bp (-3); EFSF 96bp (-3); Belgium 110bp (-11); Italy 363bp (-97); Spain 409bp (-143).

EUR swap curve 2-5 YRS 50bp (+5,0); 5-10 YRS 81bp (+4,0) 10-30 YRS 55bp (+7,0).
2 YRS German BKOs closed 0,030% (+6) and 5 YRS OBLs 0,44% (+11), on the week.
Swiss 2-years trashed to -0.18% from  -0.48%. No need for security no more.

Main at 126 from 149 (-15,4%); Financials at 204 after 248 (-17,7%). SovX at 189 from 233. Cross at 508 from 591.
Stoxx Futures at 2544 / +4,4% from 2437 with S&P minis at 1434 / +1,7% from 1410, at European COB last week.
VIX index at 14,8 after 17,0 last week.

Oil 95,6/113,6 (WTI/Brent) from 96,2/113,8 (-0,6%/-0,2%). Gold at 1735 after 1676 (+3,5%). Copper at 364 from 344 (+5,8%) . CRB closes 310,0 from 308,0 (+0,6%).
Baltic Dry down 4.8% to 669 from 703 on its relentless slide towards February’s century low of 647.. Just another 3.3%.

EUR 1,279 after 1,260 last Friday

Greek bonds guesstimates: Another good week with 2023s down to 21.5% from 23.25% and 2042s at 18.25% from 19.25%

All levels Friday COB 17:30 CET

Next Week:
Pretty much a minor macro week. Raft of Chinese data on Sunday. End of week brisker in the US, but subordinated to the FED decision and possible announcements on Thu 13 Sep (Yes, Thursday).
No exciting auctions. Will check the Italian 3YRS auction on Thursday to assess the Draghi put after one week.

EZ: Mon Investor Conf Sep fcst -28.3 after -30.3; Wed Jul IP fcst -3.4% after -2.1%; Fri EZ Aug CPI fcst +2.6% after +2.4%
Germany: Mon Wholesale PX; Wed final CPI 2.2%
France: Aug Biz Sentiment prior 90 (Jul), IP fcst -0.6% Mom after flat / -2.3 YoY, Man Prod prior -2.6%; final CPI +2.3%
Italy: Mon final Q2 GDP -2.5% YoY; Wed IP fcst -0.5% Mom after -1.4% / -7.6% YoY after -8.2%, Thu final CPI +3.5%, Gov Debt
Spain: Tue Aug House transactions prior -11.4%; Wed final CPI +2.7%; Fri Q2 House prices prior -12.6% YoY
US: Mon cons credits; Tue Trade Balance; Wed Imp Prices, Jul Inventories  fcst +0.3% after -0.2%; Thu PPI fcst +1.7% after +0.5% YoY; Claims fcst +370k after 365k; Fri Aug CPI fcst +1.6% after +1.4%, Retail Sales fcst +0.6% after +0.8%; IP +0.2% after +0.6%, Mich Conf 74 after 74.3
China: Sun CPI fcst +2% YoY after 1.8%, PPI fcst -3.2% YoY after -2.9; IP fcst +9% YoY after +9.2%, Retail sales fcst +13.2% YoY after 13.1%; Mon Trade balance

Click link on title or below for today’s musical support:
Easy? Hum. Maybe not. Need to confirm…

Thursday 6 September 2012

06 Sep 2012 – “ Shock Me " ( KISS, 1977)

06 Sep 2012 – “ Shock Me " ( KISS, 1977)

Aaah… It has finally arrived: the day of Great Expectations! US flat Wednesday close. Asia flat plus close. Europe flat to positive open ahead of the afternoon press conference from Mighty Draghi. Most expectations probably set after the last days of targeted leaks, although what is really expected, what is already priced in and what the reaction will be remains an unknown.
En attendant Mario”, some more ROn torsion in EGBs with Bunds off by 3 basis points in 10s and Spain tighter by 6. German 2 YRS trading above 0% for the first time since early July and even, believe it or not,  the CHF giving back 4 full pips to trade 1.205. Basking in serious Risk On… European equities up 0.25%, mainly to hark back to levels before yesterday’s choppy closing hour.
On the commodity side, we notice that Gold is back above the 1700-mark (Distrusting both EUR solutions and the US QE cum Fiscal Cliff?).

Data front light and subordinated to the ECB announcements anyway. French Q2 unemployment at 10.2%, a level last seen in Q4/1999.
Swedish quarter point rate cut to 1.25% (slowing data stream lately) good for an additional 0.5% in European equities. Plus up to another quarter on stops.

Spanish auction results showed a total of EUR 3.5bn (so no massive over-allotment, as often seen this year when bids were plenty), split into EUR 0.7bn 2014 at 2.798% (versus COB level of 2.96%), EUR 1.4bn 2015 at 3.676% (COB 3.90%) and EUR 1.4bn 2016 at 4.603% (COB 4.85%). So well overbid on a priced basis (compared to COB) but with bid to covers ranging from 2 to 1.8, much lower (of course, given absolute levels reached by now) than past auctions in the 2.5/3 range.
Tails remain huge with 23 cts in 2s (15bp), 26 cts in 3s (10bp) and a massive 53 cts in 4s (9bp), showing that one could drive a truck between average and cut-off bids. Explains why the Tesoro didn’t sell much more either.
In the end, it’s needless to point out that today’s results were far better than at the last auction that showed 4.79%, 5.20% and 6.06% for similar maturities, “Believe me, it will be enough” having passed since. So the question is now were the “right” spread might be for the ECB to act (if demanded). Auction passed, thumb sideways.
Officially, the Spanish Treasury has now raised 76.8% of its targeted bond issuance (without everyone else’s contingent funding) needs) and is in “comfortable” position. Hmmm… Well, if that doesn’t bode for an extension of the game of chicken with potential bail-out creditors.
Mid-market levels of the auctioned bond in Spain hurting within one hour:
2 YRS 3.09% (2.80% auction 2.96% COB), 3 YRS 3.88% (3.68% auction, 3.90% COB) and 4 YRS 4.82% (4.60% auction, 4.85% COB). Being a Spanish primary dealer is really a Sancho Panza kind of job…

French auction results published on the heels with about the targeted EUR 8bn sold with EUR 1.5bn in 5 YRS Oct 2017 at 1.05% (COB was 1.05%. Sorry, had mistakenly mentioned Apr 2017 COB level yesterday), EUR 3bn 10s at record low auction level of 2.21% (COB 2.23%, last 2.53% in July) and EUR 3.45bn new 15 YRS at 2.85% (COB 2.86%). So all bids in line with closing levels. No discount despite ROn morning or supply.
Then again, French 10s (despite the record low auction level) at the highest since end of July, having touched 2% mid July, as well as early and end of August. Intermediate high in-between had been 2.30% on 25 Jul. Relatively speaking an opportunity.

Further macro data: EZ Q2 preliminary GDP confirmed as foreseen at -0.2% QoQ. A tick weaker on a YoY basis at -0.5%. German Factory orders not that bad, after all, with a 0.5% MoM rise in July (fcst +0.3%) and prior data revised up one tick to -1.6%.  Still, it remains a 4.5% drop on a YoY basis (after revised -7.6%). Probably mirrors (more recent) PMI data showing some bottoming out, that shouldn’t mask the fact that we remain in serious contraction territory.
Greek June unemployment at record 24.4% (was 17.2% in 2011, 12.4% in 2010 and 9.3% in 2009. All time low was during Summer 2008 at 7.3%).

Settling in post-auction / pre-ECB modus with most EGBs 3-6 wider in 10s (but France trading tighter after a comfortable auction). Italian 10s keeping the 7 tighter reached earlier, just over 5.50%, and Spain the 13 bp likewise reached earlier to 6.25%.
Note that both the Italian and Spanish short end rapidly traded on the heavier side, despite (because) of a price-wise overbid auction (see above), leading to 2-10 curves flattening by roughly 15 bp on the day. Spanish 2-10s down to 318 from Monday’s 355 high. Periphery short end treading water with so much ECB support already priced-in and now in need for confirmation.

13 CET levels
10 YRS: Germany 1,50% (+2); Swaps 1,81% (+5); France 2,21% (-2); EFSF 2,47% (+3); Italy 5,51% (-8); Spain 6,19% (-19).
2 YRS Germany 0,007% (+2,2). 5 YRS OBLs 0,41% (+2).
Spanish 2s at 3,11% (+8). Spanish 2-10s 308bp (-27). Italian 2-10s 297bp (-21).
Spanish auctioned bonds 3.02%, 3.84% and 4.80% (8 bp off the post-auction highs of 3.10%, 3.93% and 4.89%). Choppy.
Stoxx Futures 2470 (+1,2%). Credit Main139 (-1); Financials 229 (-4). SovX 216 (-3). Cross at 556 (-2).
EUR 1,262. Oil 96,5/114,0 (WTI/Brent). Gold 1710.
Bank of England unchanged at 0.5%.

Probably barely noticed (as minutes before the rate announcement) and unnecessary fanning of convertibility risk discussions from opposition leader in Spain commenting that yields would be lower, if Spain was outside the EUR – but that the EUR is good for Spain. Can certainly only boomerang, if back in charge of affairs one day.

And unchanged ECB rates, that is ALL rates (my call)… So Refi 0.75% and deposits NOT going negative.
Triggering, hum, no immediate reaction whatsoever… Plus, 1 basis point in German 2s and 5s, if you need a reaction. 10 pips in EUR. Probably awaiting goodies at the press conference.
15 minutes later, still no reaction, outside EUR up to 1.264 and equities up 0.3%...Spanish 10s squeezed down 3.
Add another 15 minutes of mulling, Spanish bonds tighter by another 5 on screens, 10 YRS Bunds add one bp and the EUR is back to 1.263. Everything else ghostly static. If you shake all contributing cells one by one, Gold back to 1705 from 1712 spike. Freeze frame, but for Spain ripping tighter.

US figures: ADP Employment widely beating fcst +143 after 163k with +201k after 173k. ;Claims better, to, at +365 (fcst +370 (from 374k, revised to 377k), although Continuous Claims rose to 3322k (fcst 3315k after revised higher 3328k).
Non Manu ISM beating estimates at 53.7 (fcst 52.5 after 52.6). All is good!

ECB Conf starting with pointing to separate press releases on OMT etc. before continuing to point out to a dire economic outlook with further lowered growth projections (now mid -0.4%, down a tick, from prior -0.5% for 2012 and down to +0.5% from 1% for 2013), but higher inflation (put on energy cost rises) now +2.5% for 2012 and +1.7% in 2013. Low M3 and loan growth (…). Aaaand, then, usual call for fiscal reasonability and structural reforms. Before outlining the (by now widely leaked) OMT (link):
1- Conditionality, 2- Full or precautionary intervention, 3 -Backed by ESM/ESFS primary buying, 4- Backed by IMF monitoring support , 5- Will stop if conditions not met (all as leaked).
Only for future cases, unless bailed-out countries can access markets (Ireland, maybe Portugal).
1-3 YRS, unlimited amounts
Pari-passu to other holders
Sterilized amounts. Old SMP is dead, long live the OMT.
Break-down and average maturities will be published, which will show who’s been supported (so a far cry from hopes of unlimited and secretive ECB buying until things are seen as being put to the “right” level). So, if there’s a fear of stigma, that won’t help either. Any request for help will very much be made public and, if not accountable, it should clearly appear in the ECB books.
On collateral: No minimum credit threshold on sovereigns is no huge step forward, as rating dependent haircuts will remain. Expansion to non-EUR security, of course, a plus for banks and their USD funding (see Financial Credits performance today).

At 15 CET, half an hour into the press conference, the only thing really changing was long end Spanish 10s. As side-show, Portuguese bonds tightening by up to 25 bp, as probably eligible to some support. EUR back through 1.26.

Not sure much came out of the press conference per se. Obviously dissenting German view. So, it’s up to the countries to ask for intervention. Oh, isn’t that what hasn’t happen so far? And first comments by Rajoy, after meeting with Merkel, was that he hadn’t read the full announcement yet. Given the publicity need for intervention, and the fear of stigma, not sure this will happen soon. And there is risk of unbalancing the funding structure, if sovereigns were to hit the “short only’ button.

End of conference coinciding with huge short squeeze in equities with EStoxx up 2%, as the Dow opened up 1%, hitting a 5-m high at 2500. Eventually, Spanish 10s went down to just over 6%, finally triggering the short end to move, too, giving finally an opportunity to hold the Spanish auction supply at no costs (2.83%, 3.63%, 4.56%)

Honestly I can’t make much out of the whole thing. So, ok, yes, there’s a huge conditional bazooka out there, but who wants to really use it? The IMF involvement means further pain, especially on pensions (a no-go for the moment in Spain). Even the Bankia recap has been done off programme so far, in order to keep things under Spanish control. Yes, remember, the bank-bailout MoU. Difficult. Good back-stop, though. But if triggered, and given the transparency, the such bailed-out will lose sovereignty to the creditor nations (and especially the latter’s public opinions), as everyone will know what is due etc. Lack of seniority is likewise tricky, if the thing was to blow up, as we’re not talking about shady Target 2 imbalances anymore, but about very accountable bills. And even then, if the whole funding is skewed to the shorter end, who will want to bet and go beyond the roll-over dates a couple of years from now??? Seems like a huge defibrilattor. Good to have, but beware of not shocking the patient too much.
Ok, good Periphery performance and huge equity surge, but the sell-off in Core EGBs seems limited for the moment, given the relief mood. Have seen harsher reactions. Oh, and the short end of the Periphery only had a limited way down from here (albeit a lot had been discounted). Next hick-up, if curves steepen back from here, we’ll have Italy back to 6 and Spain to 7%. On the other hand, I do see the case for Ireland and Portugal to push forward, issue some bonds and ask for support. Hey, a huge opportunity to bring down costs to a decent level. No stigma attached, as beyond that anyway. Buying Portugal 2s and 3s at 4.70% and 10s at 8.70% might be worth a thought.
I’m puzzled.

Final comment of the day by the Bundesbank stating that it really, really, really doesn’t like the whole thing an obvious reminder of further implementation risks. Shock Me!

Bunds closed at 1,57% (+9), OBLs at 0,48% (+9) and BKOs 0,032% (+4,7).
Spanish 2s closed at 2,87% (-16) and 10 YRS BONOs at 5,99% (-39). Spanish 2-10s 312bp (-23). Italian 2-10s 312bp (-6).
Auctioned BONOs at 2.83%, 3.60% and 4.48% (versus auction at 2.80%, 3.68% and 4.60%), so worth the trouble. Spain closing symbolically below 6%, the lows seen in May / June. Seems a life time away, but isn’t after all.
EStoxx up nearly 3.5%. Credit massively tighter (Main 5.7%, Financials nearly 7%). Shock Me!

New Issues totally on hold.

Closing levels:
New Sep 2022 as German ref (Jul 2022 +4)
10 YRS Yields: Germany 1,57% (+9); Luxembourg 1,67% (+6); Finland 1,79% (+5); Swaps 1,84% (+8); Netherlands 1,90% (+8); EU 1,99% (+8), Austria 2,09% (+5); EIB 2,24% (+8); France 2,25% (+2); EFSF 2,51% (+7); Belgium 2,68% (+3); Italy 5,37% (-22); Spain 5,99% (-39).
Note the huge Portugal performance with 3-10 YRS tighter by 50 to 70 bp, 5 YRS back in the 6.40s and 10 YRS well inside 9%.

10 YRS Spreads: Luxembourg 10bp (-3); Finland 22bp (-4); Swaps 27bp (-1); Netherlands 33bp (-1); EU 42bp (-1); Austria 52bp (-4); EIB 67bp (-1); France 68bp (-7); EFSF 94bp (-2); Belgium 111bp (-6); Italy 380bp (-31); Spain 442bp (-48).

EUR swap curve 2-5 YRS 51bp (+6,0); 5-10 YRS 81bp (+1,0) 10-30 YRS 54bp (+1,0).
2 YRS German BKOs closed 0,032% (+4,7) and 5 YRS OBLs 0,48% (+9).

Main at 132 from 140 (5,7% tighter); Financials at 217 after 233 (6,9% tighter). SovX at 210 from 219. Cross at 537 from 558.
Stoxx Futures at 2524 / +3,4% (from 2441) with S&P minis at 1427 (+1,6% from 1404, at European close).
VIX index at 16,2 after 17,6 yesterday same time.

Oil 97,0/114,6 (WTI/Brent) from 94,9/113,6 (+2,2%/+0,9%). Gold at 1706 after 1694 (+0,7%). Copper at 353 from 353 (+0,0%). CRB at EU COB 310,0 from 308,0 (+0,6%). More sedated world.
Baltic Dry on steady slide, now at 675 from 684. Another 4.2% until hitting the Feb low at 647. 

EUR 1,263 from 1,261

ECB deposits at EUR 347bn after EUR 342bn.

Greek bonds guesstimates: Down 25 bp with the overall relief with 2023s at 21.50% and 2042s at 18.25%.

All levels COB 17:30 CET


Spain: Fri Ind Output fcst -5.2% Jul after -6.3% YoY
US: Thu Friday NFP fcst +125k (after 163k), Unemployment fcst unch 8.3%

Click link on title or below for today’s musical support:
KISS rules!
Shock Me, make me feel better!

Was initially going for “Great Expectations”, as these are still around, but equity reaction shows more of a shock for some parts of the market

Wednesday 5 September 2012

05 Sep 2012 – “ (Shake, Shake, Shake) Shake Your Booty" ( KC & The Sunshine Band, 1976)

05 Sep 2012 – “ (Shake, Shake, Shake) Shake Your Booty" ( KC & The Sunshine Band, 1976)

Flat opening quotes to start the day in Europe. EGBs mostly unchanged. Equities up 0.25% from the sell-off close yesterday evening, as US equities regained some colour later in the session (although, mostly driven by Apple, surprise, announcing its upcoming conference). Asia softer overnight,  trailing Europe and chewing softer Chinese Service MI at 52 after 53.1 and Australian Q2 GDP popping up softer than expected (+0.6% against +0.7 fcst after Q1 revised up a tick to 1.4% QoQ / 4.4% YoY).

Not much else to kick off the day. Will await the German Bund auction, as well as possible further leaks and comments from the political European criss-crossing meetings. “En attendant Mario”. Keep in mind, though, that Beckett’s play ends with a broken belt and some more waiting…

Final PMI data a reminder that while things seem to bottom out somehow in the Periphery; we remain in a seriously contracting environment on a larger scale: Composite revised lower to 46.3 and Services to 47.2 (flash were 46.6 and 47.5 after 46.5 and 47.9). Final August German Services PMI confirmed at 48.3 ( prior 50.3), French revised 1 point lower to 49.2 (prior 50.0), Italy revised slightly higher to 44 from 43.3 after 43) as was Spain’s at 44 from 43.4 (43.7 in July).
EZ July Retail Sales as expected -0.2% MoM / -1.7% YoY with June revised up to +0.2% from +0.1% MoM and from -1.2% to -0.9%. Makes the drop just more depressing.

Had bit of further Risk Off pressure on that basis. Overnight weakened EUR pushed to test 1.25 and equities down 0.75% from early morning quotes / 0.5% from close. Credit softer after yesterday’s relative outperformance. EGBs in usual ROff torsion around the Soft Core (-3 / +3): bit better on the Core, bit softer in the Periphery. Italian short end soft, too.

Lasted until the German auction failed, miserably, with solely EUR 3.9bn in bids for targeted EUR 5bn sales. EUR 3.6bn issued with the BuBa retaining EUR 1.4bn. Average yield 1.42% (unchanged from August last increase). 4 bp to the outstanding July 2022. 
While technically, the Bundesbank only acts as agent, and discards the retained amounts in market interventions, this will certainly trigger talks of debt monetization and some Schadenfreude elsewhere. Hadn’t had that for a while, but in absence of a very strict Primary Dealer organization, this has happened before. Last time for 10s in April 2011, for 5s in Sep 2011 and for 2s in Nov 2011. Such results should therefore not be over-interpreted.
This bond might actually become rapidly delicate to trade, given the squeeze potential at any given hick-up.
Trigger for a Risk On move in equities – but what have equities ever realty understood of bonds? So no ROff torsion anymore, but all EGBs at +2 at the end of the morning, as Bunds traded off 3 bps.

Otherwise on the EGB side, the Dutch took the USD route and closed a 3 YRS auction at MS +5 with over USD 7bn in (large) orders. This in turn triggered a Belgian shotgun mandate for a 3 YRS USD deal for same-day execution with an initial MS +low 50 guidance (EUR 3 YRS spread is about 45), eventually was closed at MS +50 for USD 1.25bn.
Good timing to scoop up the USD 4bn of redeeming Germany USD bonds on 21 Sep.
As comparables 3 YRS UK Mar 2015 is at MS -13, KfW Apr 2015 minus low single digit, Finnish Oct 2015 about flat to swaps.

Toss-a-coin Spanish auction tomorrow with EUR 3.5bn 2-4 YRS (3.4% Apr 2014, closing today at 2.96%, 4% Jul 2015 @ 3.90% & 4.25% Oct 2016 @ 4.85%). Last Spanish shorter auction was on 05 July with 3s at 5.086% and Oct 16 at 5.54%. Results around 10:45 CET. 
French OATs as well with EUR 8bn Oct 2017, Apr 2022 (last 2.3% in July) and a new 15 YRS Oct 2027 benchmark (COB levels 0.88%, 2.23% & 2.86%) French results 11:00 CET.

Had comments out of Germany’s CDU party re-spoil the party in equities a little with EGBs finally inverting their torsion the other way round with Bunds wider by 2, still hurting from the auction, albeit in subdued emotion (given the above mentioned precedents) and the Periphery now tighter a couple of ticks with Spain hovering just above the symbolic 6.500%-mark in 10s. Periphery short end running out of steam and 2-10s flatter by 10, respectively 15 from yesterday’s record steep curves.
Credit unchanged. Commodities about unchanged. EUR unchanged.

After lunch dessert with further “Draghi leaks” of “Monetary Outright Transactions” (Moths??? Like those burning up on light bulbs??? Or like in “to mothball”, buy and store?): 
Discretionary, unlimited amounts, sterilized (there are EUR 800bn plus in ECB deposits and Current Accounts, so sterilizing has room to go before getting stopped), no cap, up to 3 YRS and no seniority. Conditionality, of course.
That the ECB could sell the bonds in case of non-compliance seems like an impressive bazooka to the sovereigns’ heads, but sounds utterly unconvincing... 
But it’s only a blue print (What about the other already bailed-out countries? What about the seniority on Greek holdings? Other types of non-sovereign securities?)
Whatever, it stirs the spirits and adds (limited) volatility: up / down in equities & down / up in Bunds – and back to square 2, meaning midday levels ahead of US figures with final Q2 NF productivity higher than expected at +2.2% (fcst 1.8% from 1.6%) and Unit Labour Costs at 1.5% (fcst 1.4% after 1.7%).

Gave some traction to Periphery (longer) bonds, though, with Italian and Spanish 10s down another 5-7 to -12 and -9 on the day. 2s on stand-still or even a bit wobbly in both countries. 
And, honestly who wants to pay again double or nothing on Spanish auction cum ECB day (as reminder 05 July: Spanish 10s +37bp, 02 Aug +50 bp).
Risk On in equities and credit on the back of that anyway. EUR back up to 1.26.
NY ISM at 51.4 after 55.2 in July a bit of a dampener for US equities, after all. Up. Down. Down. EUR 1.259
Merkel backing both Draghi AND Weidman. No contradiction in dual support. Up. Down. Up. EUR spikes 1.262
Merkel is said not to like unlimited, but rather temporary (short end) buying. And down…EUR 1.258. Nice equity / EUR sync.
Oh, and that was all second-hand reporting…
EStoxx futures crossed the closing line over a dozen times today (HiLo 1.75%, but average right on closing level).
Had finally a magnitude 7.9 earthquake off Costa Rica and Caribbean Tsunami warning (later widened, then cancelled), as well as news of a fire at French nuclear plant Fessenheim as final downer.
“Unidentified sources” in the know the ECB won’t discuss rate cuts, as crossed the wires, gave equities the final push lower back to yesterday’s closing, but propped the EUR. Up. Down. Up. Down.
Choppy close all over.
Shake shake shake!

(New) Bunds closed at 1,48% (+6), OBLs at 0,39% (+4) and BKOs -0,015% (+2).“Old” Jul 22 Bunds closed at 1.44% (+4).
Spanish 2s closed at 3,03% (+2) and 10 YRS BONOs at 6,38% (-16). Spanish 2-10s 335bp (-18). Italian 2-10s 318bp (-23). Another good day for the Periphery on the long end. Short end running out of steam. Late low Spanish 10s was 6.05% on 22 Aug.
Equities in final plus, but Credit surging ahead (over 2% tighter).

Mario on the ticker tomorrow.

New Issues still bubbling, although in less ebullient manner than yesterday’s cumulated EUR 13bn prints: EUR SSA supply restricted to French OSEO EUR 1.25bn of short 10 YRS at OAT +23 / MS +76. Corporate deals for Linde with EUR 1bn 8 YRS at MS +35, Telefonica EUR 750m 5 YRS at MS +485 and France Telecom EUR 500m Mar 2023 at MS +80. Another sub bank deal with SE Banken EUR 1bn Tier 2 10nc5 YRS at MS +310.

Closing levels:
New Sep 2022 as German ref (Jul 2022 +4)
10 YRS Yields: Germany 1,48% (+6); Luxembourg 1,61% (+3); Finland 1,74% (+2); Swaps 1,76% (+3); Netherlands 1,82% (+5); EU 1,91% (+4), Austria 2,04% (unch); EIB 2,16% (+6); France 2,23% (+2); EFSF 2,44% (+5); Belgium 2,65% (+2); Italy 5,59% (-15); Spain 6,38% (-16).

10 YRS Spreads: Luxembourg 13bp (-3); Finland 26bp (-4); Swaps 28bp (-3); Netherlands 34bp (-1); EU 43bp (-2); Austria 56bp (-6); EIB 68bp (unch); France 75bp (-4); EFSF 96bp (-1); Belgium 117bp (-4); Italy 411bp (-21); Spain 490bp (-22).

EUR swap curve 2-5 YRS 45bp (unch); 5-10 YRS 80bp (+2,0) 10-30 YRS 53bp (+2,0).
2 YRS German BKOs closed -0,015% (+2) and 5 YRS OBLs 0,39% (+4).

Main at 140 from 143 (2,1% tighter); Financials at 233 after 239 (2,5% tighter). SovX at 219 from 225. Cross at 558 from 569.
Stoxx Futures at 2441 / +0,3% (from 2433) with S&P minis at 1404 (+0,4% from 1398, at European close).
VIX index at 17,6 after 18,6 yesterday same time.

Oil 94,9/113,6 (WTI/Brent) from 95,3/114,8 (-0,4%/-1,1%). Gold at 1694 after 1692 (+0,1%). Copper at 353 from 347 (+1,7%). CRB at EU COB 308,0 from 309,0 (-0,3%).
Baltic Dry on now usual slide towards its late lows, now at 684 after 693. Another 5.4% until hitting the Feb low at 647. 

EUR 1,261 from 1,257

ECB deposits at EUR 342bn after EUR 341bn.

Greek bonds guesstimates: 2023s paring late performance at 21.75% after 21.50% and 2042s stable at 18.50%.

All levels COB 17:30 CET

Rest of the Week:
ECB tomorrow
Spanish 2-4 YRS tomorrow, just hours before the ECB meeting, probably the most exciting govie auction of the week.
US NFP on Friday.

EZ: Fri Q2 GDP fcst -0.2% unch
Germany: Thu Jul Factory Orders fcst +0.8% MoM after -1.7%
France: Fri Q2 Unemployment 10%
Spain: Fri Ind Output fcst -5.2% Jul after -6.3% YoY
US: Wed Final Productivity & Unit Labour Costs & NY ISM; Thu ADP Employment fcst +143 after 163k ;Claims fcst +370 (from 374k) Non Manu ISM fcst 52.5 after 52.6, Friday NFP fcst +125k (after 163k), Unemployment fcst unch 8.3%

Click link on title or below for today’s musical support:
Aah, You can, you can do it very well.
You're the best in the world, I can tell.

Tuesday 4 September 2012

04 Sep 2012 – “ Shake Your Moneymaker " (Elmor James, 1961)

04 Sep 2012 – “ Shake Your Moneymaker " (Elmor James, 1961)

Split open in Europe after yesterday’s evening surge on the Draghi up to 3 YRS buying “leak”, as equities are giving back 0.25%, while in EGBs, after initially ticking firmer, were shoved into Risk On modus (3-4 bp softer). Spanish bonds tighter by over 10bp across the curve (keeping the record steep 2-10 spread of 340), while Italian short end bonds outperformed the longer end (moving Italian 2-10s about 10 wider to 335). Credit indices in ROn as well with a 2% plus tightening.
Moody’s negative outlook on the EU all but ignored (then again the EU, as well as EIB have been put on negative outlook by S&P in January).

All is well! Nothing has been done for real so far in terms of interventions, but by now Italian 2s have come back down to below 2.50%.
Knowing that the average 2 YRS BKO yield since 1999 has been 2.70% (1.62% for the last 5 YRS and 0.91% since post-Lehman 2009 with a top at 1.91% in April 2011). For France, the picture is rather similar with a post EUR introduction average of 2.83%, last 5 YRS 1.83% and 2009-onwards average of 1.14% and one will notice a rather consistent long-term average spread of roughly 20 basis points.
So, very obviously there is still some compression margin, but where would one decide to put the credit spread, both real, be it simply from a rating or credit quality point of view, or “perceived”, from a (real) default possibility point of view or even from the shunned convertibility point of view? Italian 2s are now roughly at 240 over Bunds / 225 over France with Spain about 90 bp wider. How much tighter should be an “unfragmented” EZ?
Other question: What if the long-end doesn’t follow, despite massive possible roll-down gains? Better a recurrent roll of short maturities than no funding at all, but it won’t make things easier on the long term, will it?
Questions over questions… Wait-and-see time spending strategy until next Thursday.
Talking of non-standard measures, we note that ECB deposits, since crashing down after the ECB cut its rate to zero, have become a quite boring thing to watch, averaging EUR 335bn with only limited volatility.

Not much data to speak off, outside further soaring Spanish unemployment, which added over 38k jobless in August, the first rise since April, as the tourism season helped to lower numbers through July.
EZ PPI rose above consensus to 0.4% MoM / 1.8% YoY (fcst 0.2% after -0.5% / 1.6% after 1.8%), confirming some stickiness in price rises seen in the CPI data, too. Hawk fodder to keep main ECB rates unchanged on Thursday.

Massive New Issue supply in the morning, profiting from the increased mood (see below) – and low risk government supply limited to Austria selling EUR 550m of 5 YRS at 0.829% and EUR 660m 2019s at 1.344% with the bill side occupied by Belgium with EUR 1.3bn 3m at -0.021% (after prior -0.012%) and EUR 1.3bn 6m at 0.004% (after +0.002%) and the EFSF with EUR 2bn 3m at -0.045% (after -0.022%).
Greece, still a side-show these days, sold more than the targeted EUR 875m with EUR 1.14bn of 3m bills at 4.54% (after 4.68% in August).
All is well!

New 10 YRS 1.500% 04 Sep 2022 Bunds on tomorrow. Will become the newest reference. Trades about 3bp to July 2022. Last auction was at 1.42% early August.  ISIN DE0001135499
French OATs on Thursday.
Toss-a-coin Spanish EUR 3.5bn 2-4 YRS on Thursday morning will be the one to focus on.

Noon levels showing a disparate picture of slight ROff in equities (down about 0.5%), a flattish EGB curve (but for the new Finland deal sticking out as heavy), after initial weaker Hard Core. Periphery driven by hyped-up Spanish 2s, which tightened by over 30bps, pulling 10s tighter by over 20, as 2-10s held the 350 mark. Italy better in tag-along. Credit eventually paring some of the morning strength.
Commodities and EUR roughly unchanged from closing levels.

Interestingly, Bank of Italy responded to my questions about the fair spread in the afternoon, stating that fundamentals and fiscal outlook suggest 200 basis points over Bunds in 10 years (180 in 2s and 270 in 5s). The rest is convertibility risk… Opening offer to the ECB? Ready to haggle?
ECB Asmussen stating at about the same time that these spreads were unacceptable, as resulting of a EUR-break up pricing. Convertibility back on the table.  “The risk premia of sovereign bonds don’t only reflect the default risk of individual states but also an exchange-rate risk, which shouldn’t technically exist in a currency union. Markets are pricing in a breakup of the euro area. For a currency union, such systemic doubts are unacceptable.” Hence the calls for a fiscal union…which he calls upon, too, as the whole speech ends with the statement that Banking Union cannot solve all imbalances and that there’s a need for 1) fiscal union, 2) Economic Union and 3) democratically legitimate political Union to move on. Otherwise, ditch it. Uh, that’s a mountain of conditions. 

No early afternoon US figures, which were misses on a softer open anyway. Final US PMI at 51.5 (flash 51.9), followed by Manu ISM at 49.6 (fcst 50 after 49.8) and surprising Px ISM at 54 (fcst 46 after 39.5). Construction Spending fell unexpectedly 0.9% MoM (fcst was 0.4% unch). Pushed S&P below the 1400-mark. And no immediate QE in sight. Where are Central Bankers when you need them? Tsss. Has some dubious “Japan ambassador shot in China” rumours circulated as explanation for the weakness (stupid twitter hoax), but some correction was probably overdue with equities anyway less confident at these levels. So that one was just good excuse. S&P 50d MOV and 100 actually only at 1378 (1.5%) and 1361 (2.8%)
Good kicker for EGBs.

Final leak of the day from Draghi:  “Frankly, all this also has to do very much with the continuing existence of the euro.” Can be viewed in all possible ways. Would tend to see it the Asmussen sense of a need for the Full European Monthy.

Bunds closed at 1,40% (+2), ahead of tomorrow’s auction, OBLs at 0,36% (0) and BKOs -0,037% (+0,2).
Spanish 2s closed at 3,01% (-43) and 10 YRS BONOs at 6,54% (-30). Spanish 2-10s 354bp (+14). Italian 2-10s 341bp (+15).
Good day for the Periphery. Equities decoupled from that, though.

New Issue flood. Take what is possible, as one never knows: GIPPS issuers in senior financials and corporates via ENEL EUR 1bn Mar 2020 at MS+360 (some 15bp through BTPs), UniCredit EUR 1bn 3.5 YRS MS +390, ESB (Irish Electricity) EUR 600m 5 YRS at 6.25% (or about MS +525, some good 100 over Ireland).
A further raft of corporates with a chunky EDF EUR 2bn long 10s at MS +105, Daimler EUR 750m 10 YRS at MS +77, Volkswagen with a EUR 500m 2 YRS FRN at E +35 as well as Swedish SKF with EUR 500m 7 YRS at MS +60.
SSA supply courtesy of a massive German GG FMS issue with EUR 2.5bn Jan 2020 at MS +10, Land NRW with EUR 500m 10 YRS at MS +14, KfW with a EUR 750m 7 YRS FRN at E flat and the City of Stockholm with EUR 500m 10 YRS at MS +45. Further supply coming from a EUR 750m increase of Romania’s 2018 benchmark around MS +400.
Finally, Austrian Raiffeisen LB NÖ closed EUR 500m of 5 YRS covered bonds at MS +42 and Deutsche Pfandbriefbank with a EUR 500m 3 YRS senior deal at MS +195.
To round this off, Rabobank issued EUR 1bn 10 YRS LT2 at MS+245, next to GBP 500m LT2 15 YRS at UKT +305.
Total EUR supply of the day: EUR 13.35bn… Wow…

Closing levels:
10 YRS Yields: Germany 1,39% (+1); Luxembourg 1,58% (+0); Swaps 1,73% (-2); Finland 1,71% (+4); Netherlands 1,77% (unch); EU 1,87% (+1), Austria 2,03% (-1); EIB 2,11% (+1); France 2,21% (+1); EFSF 2,39% (+1); Belgium 2,63% (+2); Italy 5,74% (-11); Spain 6,54% (-30).

10 YRS Spreads: Luxembourg 19bp (-1); Swaps 34bp (-3); Finland 32bp (+3); Netherlands 38bp (-1); EU 48bp (+0); Austria 64bp (-2); EIB 72bp (+0); France 82bp (unch); EFSF 100bp (unch); Belgium 124bp (+1); Italy 435bp (-12); Spain 515bp (-31).

EUR swap curve 2-5 YRS 45bp (-1,0); 5-10 YRS 78bp (+unch) 10-30 YRS 51bp (+3,0).
2 YRS German BKOs closed -0,037% (+0,3) and 5 YRS OBLs 0,35% (unch).

Main at 143 from 145 (1,4% tighter); Financials at 238 after 240 (0,8% tighter). SovX at 225 from 231. Cross at 568 from 233.
Stoxx Futures at 2436 / -1,0% (from 2460) with S&P minis at 1398 (-0,7% from 1408, at European close).
VIX index at 18,7 after 17,5 yesterday same time.
Oil 95,6/115,1 (WTI/Brent) from 96,7/115,5 (-1,1%/-0,4%). Gold at 1693 after 1693 (0,0%). Copper at 347 from 349 (-0,6%). CRB at EU COB 310,0 from 310,0 (unch).
Baltic Dry now at 693 from 698 from 703, another 6.6% until hitting the 647 Feb low. 

EUR 1,256 from 1,260

ECB deposits at EUR 341bn after EUR 346bn.

Greek bonds guesstimates: 2023s down further to 21.50% from to 22.75% and 2042s down to to 18.50% from 18.75%.

All levels COB 17:30 CET

This Week:
ECB on Thursday.
Spanish 2-4 YRS auction on Thursday, just hours before the ECB meeting, probably the most exciting govie auction of the week.
US NFP on Friday.

EZ: Wed Final Serv & Comp PMI Retail Sales  Fri Q2 GDP fcst -0.2% unch
Germany: Wed Final Serv PMI 48.3 Thu Jul Factory Orders fcst +0.8% MoM after -1.7%
France: Wed Final Serv PMI 50.2 Fri Q2 Unemployment 10%
Italy: Tue Final Serv PMI
Spain: Fri Retail Sales (-5.2% Jul)
US: Wed Final Productivity & Unit Labour Costs & NY ISM; Thu ADP Employment fcst +145 after 163k ;Claims fcst +370 (from 374k) Non Manu ISM fcst 52.5 after 52.6, Friday NFP fcst +125k (after 163k), Unemployment fcst unch 8.3%

Click link on title or below for today’s musical support:
Need to shake someone…
Original footage not readily available. Have Black Crowes and his Highness Jimmy Page as stand-in…

Still, here’s the original:

And the Fleetwood Mac version

As well as Eric Clapton & Jeff Beck

Monday 3 September 2012

03 Sep 2012 – “ No Money Down " (Chuck Berry, 1957)

03 Sep 2012 – “ No Money Down " (Chuck Berry, 1957)

Wobbly start of the week on roughly unchanged levels. Initial low prints in equity futures on the back of negative Asian numbers, especially out of China (, which didn’t hinder a positive close there, for once). Chinese PMI figures, official and private, showed further contraction (HSBC PMI 47.6 after 49.3, Manu at 49.2 after 50.1), joining last week’s slower Japanese numbers – and probably today’s final European ones. Obviously an official print below 50 is tough for China.
Weekend final consensus of Bernanke’s comments a mix of no QE yet, but still QE sometime, if needed. This, in a nutshell, is just in line with the last weeks / months line of thought, which has upheld markets so far: Things don’t look good, but central bank money might fix it. Not having had to stand up to it for the moment, Ben and Mario’s strategy looks efficient. US equities closed positive, but off highs.
European equities opened positive, after pre-open negative trading, up a good 0.5%. Credit unchanged. Commodities unchanged with only Copper sticking out, up 1%. EGBs mainly in line with the Periphery a couple of bps better. Spain doing fine despite Bankia recap numbers and Rajoy’s assertion that funding was dire, this, then again, is just stating the obvious. Catalonia junked to by S&P, joining Moody’s June move. EUR 26bn of outstanding bonds, of which EUR 3bn due this year and next to EUR 7bn next year.
France 2 bp softer on weekend CIF bail-out needs, maybe as well on Belgian auction hedging. Belgium a tad weaker ahead of its auction.
ECB bond buying cliff hanger: options go out tomorrow to the NCBs to chew over for Thursday’s show-down – or not.

Final Manufacturing PMI round: Germany 44.7 (after 45.1 flash, prior 43), France 46 (after 46.2 flash, prior 43.4), Italy 43.6 (after prior 44.3), Spain better at 44 (after 42.3). Overall EZ 45.1 (from 45.3 flash and 44 in July), seventh month of contraction. Only Ireland prints above 50.
So, most flash estimates revised lower, but still bottoming out from July, but not wildly… Half full, half empty glass.
Will have final Services PMI on Wednesday, otherwise European data fodder will be scarce.

Belgium sold the targeted EUR 3.2bn with EUR 1.4bn 2019 at 2.004%, EUR 1.1bn 10s at 2.584% (from 2.624% in July) and EUR 700m 2041s at 3.445%. Record lows. B/C stable.
Otherwise bill assault with the Dutch selling EUR 1.6bn 3m sold at -0.063% (from -0.043% in August) and EUR 1.1bn 6m sold at -0.023% (from -0.021% previously) and France raising EUR 4bn 3m at -0.014%, EUR 1.6bn 6m at -0.008% and EUR 1.2bn 12m at +0.002%. Basically unchanged levels. 
Will have Austria selling EUR 1.2bn in 5s and 7s tomorrow, hardly a market-mover, next to 3 and 6m Belgian bills (last -0.012% in August and +0.002% in July), as well as EUR 875m Greek 6m (last 4.68% in Aug) and EUR 2bn EFSF 3m bills. So nothing earth shattering out there. 10 YRS Bunds on Wednesday. French OATs on Thursday.
Toss-a-coin Spanish EUR 3.5bn 2-4 YRS on Thursday morning will be the one to focus on.

Midday picture showing Bunds out by 1, other Hard Core tighter, Soft Core out by 3 and the Periphery a good 5 tighter, but off tightest levels. Good short end performance in Spain with 2s trading down 15 bp to 3.48%. Belgium softer by 5 in 10s on supply. Equities up 0.5%. Credit a tick tighter. Commodities a bit firmer. Nothing major.

With the US closed, the afternoon was expected to be rather uneventful, unless some news was to pop up to stir spirits. Yawn!

Leaves time to muse about what people can really expect from the ECB.
Rate cut? Nah! Why now, as all CPI figures ticked higher lately, and not later, when things might get awry?
A miracle on the bond buying side? Hardly possible. The game of chicken with the Periphery is still ongoing (“Ask first, you’ll get conditions then” against “Show us the conditions and we’ll have a thought about them and revert later – if needed.”) and will last until either Periphery Debt suddenly gets a fan base again or, most probable, markets get jittery again, because of the uncertainty, and dumps what is left.
A further LTRO? Wouldn’t help the Periphery. Local banks can’t load up anymore and finally the whole stuff ends at the ECB. If you spin this further, it IS already an indirect enough financing anyway.
“Believe me, it will be enough!” will request some massive outside-the-box thinking…

Andalucia has become the latest Spanish region asking for a EUR 1bn “advance” (next to Catalonia for EUR 5bn, Valencia for EUR 4.5bn and Murcia for EUR 300m), while waiting to see the conditions for further amounts.

As it happens, while equities remained in their own lofty world, the Periphery started to pare its morning gains, leading to a firmer Core EGBs. All that despite Schäuble signalling (in near undemocratic manner from a German constitutionalist’s point of view) that he was sure the ESM would not be ruled unconstitutional (from his personal point of view to keep the split of powers) Had likewise Merkel on the wires several times today, but nothing really new outside the usual pro-Europe / pro-debt reduction talks. Still, very spend thrift. As it happens, Van Rompuy announced a summit on EU finances for Nov 22 & 23.

Had finally leaks of a closed door Draghi meeting with euro-MPs that he was comfortable with 3 YRS bonds, which will certainly trigger some heated discussions, where money-markets and their transmission into the economy end. Might embolden some buying at the Spanish auction, but the immediate market reaction initially was muted, as most of the Periphery short end performance took place in the morning.
Still, eventually good for a bit of Risk On into the close, although rather dispersed with equities up and EGBs down, thus shaving a couple of bps of the Spanish spread to Bunds.

Bunds at 1.38% (+4). BKO at -0.040% (-0.5). OBLs at 0.36% (+2).
Spain at 6.84% (-2).  Spanish 2s 3.44% (-15).New Italy 5.85% (-9). Italian 2-10s 326 (from 318). Spanish 2-10s 340 (from 327). 
Equities firmer by 1%, Credit by 2%. Mostly end of day movement, following the Draghi leak.

Healthy New Issue supply with a German sub-Euribor Pfandbrief trade of EUR 500m Münch Hyp 5 YRS at MS -14 (seems pretty much record-breaking), EUR 500m 10s from HVB UniCredit at MS +22, some senior supply with EUR 900m 3.5 YRS from French BPCE at MS +120 and a EUR 250m increase for 7 YRS ING at MS +120. On the Public Sector front Land Niedersachsen raised a EUR 600m 8 YRS FRN at 3mE +5, while German GG FMS announced an upcoming long 7 YRS trade to be closed tomorrow.
Sugar Baby of the day was a EUR 850m 10 YRS at MS +15 from Nestlé (Aa2/AA). Won’t make anybody fat with a yield of a mere 1.86%...

Closing levels:
10 YRS Yields: Germany 1,38% (+4); Luxembourg 1,58% (+2); Swaps 1,75% (+3); Finland 1,67% (-6); Netherlands 1,77% (+6); EU 1,86% (+4), Austria 2,04% (+2); EIB 2,10% (+4); France 2,20% (+5); EFSF 2,38% (+5); Belgium 2,61% (+6); Italy 5,85% (-9); Spain 6,84% (-2).

10 YRS Spreads: Luxembourg 20bp (-2); Swaps 37bp (-1); Finland 29bp (-10); Netherlands 39bp (+2); EU 48bp (+0); Austria 66bp (-2); EIB 72bp (+0); France 82bp (+1); EFSF 100bp (+1); Belgium 123bp (+2); Italy 447bp (-13); Spain 546bp (-6).

EUR swap curve 2-5 YRS 46bp (+1,0); 5-10 YRS 78bp (+1,0) 10-30 YRS 48bp (+0,0).
2 YRS German BKOs closed -0,040% (-0,5) and 5 YRS OBLs 0,36% (+2).

Main at 145 from 149 (-2,7%); Financials at 240 after 248 (-3,2%). SovX at 231 from 233. Cross at 574 from 591.
Stoxx Futures at 2460 / +0,9% (from 2437) with S&P minis at 1408 (-0,1% from 1410, at European close).
VIX index at 17,5 after 17,0 yesterday same time.

Oil 96,7/115,5 (WTI/Brent) from 96,2/113,8 (+0,5%/+1,5%). Gold at 1693 after 1676 (+1,0%). Copper at 349 from 344 (+1,5%)
CRB at EU COB 310,0 from 308,0 (+0,6%).
Baltic Dry falling back below the 700-mark at 698 from 703, another 7.3% until hitting the 647 Feb low. Then again, given tanking Iron Ore and tanking Chinese exports, no wonder!

EUR 1,260 from 1,260

ECB deposits at EUR 346bn after EUR 330bn.
No SMP buying last week.

Greek bonds guesstimates: 2023s down to 22.75% from 23.25% from 23.50% and 2042s down to 18.75% at 19.25%, as Schäuble said that everything possible was done for Greece.

All levels COB 17:30 CET

This Week:
ECB on Thursday.
Spanish 2-4 YRS auction on Thursday, just hours before the ECB meeting, probably the most exciting govie auction of the week.

EZ: Wed Final Serv & Comp PMI Retail Sales  Fri Q2 GDP fcst -0.2% unch
Germany: Wed Final Serv PMI 48.3 Thu Jul Factory Orders fcst +0.8% MoM after -1.7%
France: Wed Final Serv PMI 50.2 Fri Q2 Unemployment 10%
Italy: Tue Final Serv PMI
Spain: Fri Retail Sales (-5.2% Jul)
US: Tue Final PMI; Manu ISM fcst 49.9 after 49.8 ISM PX 47.5 after 39.5%; Constr Spending +0.5% after +0.4% Tue Final Productivity & Unit Labour Costs; Wed ADP Employment fcst +130k after 163k Claims (372K) Non Manu ISM fcst 52.5 after 52.6

Click link on title or below for today’s musical support:
Not easy to find an inspiring title related to today… A bit of Master Berry can never harm, though.And the title is appropriate enough to fight the tight-fisted Northern front…