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


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!

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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”

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