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

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

http://youtu.be/B9-s79Ek1CE

First pre-open quotes in ROff mood to close the week: EGBs a little tighter, Peripherals out by 7-8 past the 6% and 6.80%-marks. Credit a tick or two wider. Equities down half a percentage. EUR ailing below 24 handle. Friday pre-NFP / post-ECB blues morning.

Asia closed the week on a soft note with exception of China, for once, closing 2% higher after yesterday’s POBC cut. At least they seem to value their central bank’s surprises.

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

No eco data outside Spanish IP, which did better then expected, sliding “only” 6.1% YoY (fcst -8.1% after a fierce-8.3%, levels last seen in the Q3/2009 recovery).

No government supply. Need to see how negative German 6m bills will be auctioned off, given actual BKO levels. Already had one negative aution at -0.012% in Jan. June levels were 0.007%.

Quiet wires with exception of ECB’s Asmussen repeating for those who might have missed yesterday’s press conference “The ECB cannot compensate for what others - notably political authorities - fail to do. There is no substitute for good policies.”

Had Finland FM quoted as saying in quite frank manner that it wouldn’t cling to the EUR at all costs; later denied / mellowed down to a more “pc” commitment to EUR membership, but stressing its unwillingness to add further liabilities. Must have been a translation error, Suomi being tough on Google translator…

Heading into lunch / pre-NFP with some more EGB spread compression with Germany a tick tighter, Hard Core 5-7 tighter, Soft Core a small 10 tighter after the initial squeeze waned. Italy out by 8 just above 6% and Spain by over 20, hovering just below the 7% mark.

German May IP, which rose higher than foreseen at 1.6% sa MoM (fcst 0.2% after -2.1%) didn’t really floor the slight slide in equities.

Had ECOFIN 09 Jul pre-meeting leaks mentioning the Spanish bail-out would after all be EFSF-driven lifting BONOs a bit (cuts the ESM seniority discussion), pushing out decisions to late in the month.

Final potentially market moving data shot of the week: US non-farm payrolls ticking in at only 80k (fcst 100k after 69k, revised to 77k) with the Unemployment Rate at 8.2% (fcst 8.2% unch). Mixed results after revisions and some stronger components. Drop, bounce, drop. ROff.

ROff.

Sliding…

Slowly…

But certainly ROff. Closing on the lows. Note that Credit remains weaker than equities. Bunds down to 1.33%. Italy stuck slightly over 6% and Spain slightly below 7%. Peripheral curves still flattening: 2 YRS Italy at 4%, 2 YRS Spain at 5%.

BKOs -0.020%. OBLs 0.34%.

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

Fundamentals? Pfffffhhh…

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

Closing levels:

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

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

EUR swap curve 2-5 YRS 36bp (-3,0); 5-10 YRS 72bp (+1,0) 10-30 YRS 43bp (-1,0).

2 YRS German BKOs closed -0,020% (-2,6) and 5 YRS OBLs 0,34% (-6).

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

Stoxx Futures at 2232 / -2,2% (from 2283) with S&P minis at 1348 (-1,2% from 1365, at European close).

VIX index at 18,1 after 18,1 yesterday same time.

Oil 84,6/98,3 (WTI/Brent) from 87,6/101,0 (-3,4%/-2,7%). Gold at 1587 after 1609 (-1,4%). Copper at 341 from 348 (-2,0%). CRB closes 290,0 from 294,0 (-1,4%). Yep that recovery was a short one. Independence from the EUR was an illusion…

Baltic Dry still profiting from the late commodity recovery and adding another 1.7% to 1157 from 1138. High point in the last recovery from the Q4/2011 slide was 1165. 8 ticks. Best weekly performance since Mar 2011.

EUR 1,230 from 1,238

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

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

All levels COB 17:30 CET

On the week (compared to Fri 29 Jun COB):

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

So where does this leave us, knowing that despite all the exuberant highs and depressed lows, we had ended the previous week pretty much in unchanged matter?

Well, after a 10-day period that had not one but 2 bail-outs announced, a EU summit that initially seemed to good to be true, results-wise, and then ended up just being that, and a triplet of Central Bank cuts cum QE supportive measures, things don’t look much better…

The Core is back grinding tighter, although given absolute levels, things are a little slower. Started last week (and continuing) with Belgium, the Soft Core is getting back to record lows in catch-up yield buying. Italy lags, at best, and Spain is back just below the 7%-mark. Credit is little changed to a bit wider. Stocks just a touch softer on the week, but still about 4% over pre-EU summit levels. Commodities have shaken out their depression (and are celebrating EUR independence) with Oil (and soft commodities) back with a vengeance, while metals have been drifting sideways.

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

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

EUR swap curve 2-5 YRS 36bp (-11,0); 5-10 YRS 72bp (+3,0) 10-30 YRS 43bp (+13,0).

2 YRS German BKOs closed -0,020% (-14) and 5 YRS OBLs 0,34% (-27), on the week.

Swiss 2-years stuck at near record lows at -0.38%. Did weaken into low negative 30s, at worst.

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

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

VIX index at 18,1 after 19,7 last week.

Oil 84,6/98,3 (WTI/Brent) from 82,3/95,4 (+2,8%/+3,0%). Gold at 1587 after 1598 (-0,7%). Copper at 341 from 347 (-1,7%) . CRB closes 290,0 from 278,0 (+4,3%).

Baltic Dry surged to 1157 from 1004 (+15.2%). Best weekly performance since Mar 2011, probably on back of the commodity rebound. Would still be careful and watch for seasonal behaviour starting July.

EUR 1,230 after 1,267 last Friday

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

All levels Friday COB 17:30 CET

Next week:

Pfff.. Next to nothing on the data front. Minor stuff here and there. Rather uneventful auction front to start the week (German and French bills, Dutch 3s, German 10s). Will have Italy selling bills o Thu and especially Bonds on Friday the 13th. Scary.

Will leave the market basically finding direction from whatever bits and pieces it can find, probably mainly Periphery-driven

Germany: Mon Exports fcst 0.1% after -1.7% MoM & trade balance Wed Final CPI Thu Wholesale prices

France: Mon BIZ sentiment (last 93) Tue IP fcst -1.5% after +0.9% YoY Thu CPI

Periphery: Italy IP fcst -9% after -9.2% YoY Fri CPI // Spain Wed Housing Fri CPI // Greece Tue IP Wed Unemployment

US: Fri Payrolls fcst 93 after 69k & Unemployment fcst unch 8.2%; Hourly Earnings fcst unch 1.7% YoY

US: Mon Consumer Credit Tue Small Biz optimism Wed Trade balance & Inventories, FOMC minutes Thu Claims Fri PPI

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

http://youtu.be/B9-s79Ek1CE

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

Need a song about liquidity…

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

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

http://youtu.be/4B2a6l6wM2k

Opening quotes ahead of the ECB meeting (plus BoE) plus auction: split RN/ROff. Everything mostly unchanged, but Italy and Spain out by 5 and 10, respectively. Credit somewhat wider, too. Equities and EUR about unchanged. Commodities right where left at European COB.

Asia closed about flat to slightly negative, too, under pressure by weaker China equities, where stimulus measures, were they to come, will probably meet new bank liquidity ratios to keep things under control. Might drag us down back to YTD / 1-year lows at 2132. So, no free-for-all liquidity…

Troika in Greece for the first meetings with the new government. New new new Greek FM to be sworn in just before. Oh, dear, oh, dear. Come on, haggle! (Life of Brian)

No eco data to speak of.

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

Spanish bonds to be auctioned softer by about 10bp at 4.99%, 5.56% and 6.48% (from COB 4.88%, 5.45% and 6.37%). Added a couple of bps ahead of auction results publication.

Auction results were on target for a EUR 3bn scoop of 1.24bn 3s at 5.086% (5.46% 2 weeks ago), EUR 1bn Oct 16s at 5.536% (last 5.35% early June) and a slice of EUR 747m 10s at 6.43% (last 6.04% early June), so hefty concessions to yesterday’s closing prices and on the short end even to this morning’s quotes. As a reminder, these are average rates. The stop-out rates were at 5.197%, 5.621% and 6.505%, so consequent tails of 11, 8.5 and 7.5bp were needed to reach the targeted amount. Explains why the immediate post-auction wasn’t a huge relief rally and the short end getting further weighted down.

French auction on the heels with slightly EUR 7.8bn with EUR 1.75bn 2019 at 2.02% (1.92% on 07Jun), EUR 4.7bn 10s at 2.53% (last 2.46%) and 1.4bn 2023s at 2.70%. Pretty much a non-event. Wider levels, but Bunds are equally wider since the 1.37% 07 Jun close).

Positively, Ireland came back in style and delivered EUR 500m 3m bills at 1.8%. Nice come back! (Last 3m bills Italy 0.87%, Portugal 2.17%, Spain 2.36%, Greece 4.31%).

Heading into lunch / pre-ECB stand-by on the same levels. Everything about unchanged. Italy out by 5 in about unchanged curve and Spain symbolically at 6.50% (+13) in 10s but with the short end trading up to 25bp weaker and flattening. EUR flirting with the 25 handle.

Good strike-related traction on Oil with Brent hurdling first 100, then 101.

German Factory orders better at -5.4% YoY (fcst -6% after revised better -3.4%). Finnish FM talking of “long, hard collateral talks” in the coming weeks. Oh, dear, oh, dear. Come on, haggle! (Life of Brian)

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

ECB quarter cut and BoE GBP 50bn additional QE to GBP 375bn both already in the valuation ramp-out of late.

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

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

Then came the ECB press conference…

Fierce Super Mario show: Draghi squarely sending responsibilities back to political / governmental senders. The ECB’s (independent) job is to channel money to banks. Final. And is responsible for price stability. That’s the mandate. Basta. And the ECB counterparts are to be solvent.

No goodies. No sweetener. None. Non-conventional measures not even discussed.

Message to the world: GET OFF OUR BACK! The ECB is not there to fix things. Fix things on political basis, haggle it out, redraft rules and mandate, if must be, and then come back! Oh, dear, oh, dear. Come on, haggle! (Life of Brian)

Interesting comment on lack of capital flight out of the EZ per se, so there is capital flight, just from the softer countries to the Core.

Year-end economic recovery seen by Draghi on the back of low nominal and negative real rates. Not certain the market will see this as being the most convincing argument to pile in on risk.

And the ECB is definitively on a more relaxed schedule than the borrowers with regards to new functions.

The ECB stand can be summarized in the very Northern sounding “There’s nothing without conditionality!” (Immediate reaction to this comment were additional 5 bp on the Peripherals to start with and twice that on the short end).

Standing firm and delivering stern. Ouch!

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

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

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

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

Closing levels:

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

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

EUR swap curve 2-5 YRS 39bp (-2,0); 5-10 YRS 71bp (+1,0) 10-30 YRS 44bp (+2,0).

2 YRS German BKOs closed 0,010% (-6) and 5 YRS OBLs 0,39% (-9).

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

Stoxx Futures at 2283 / -1,0% (from 2305) with S&P minis at 1365 (-0,2% from 1368 on Tue, at European close).

VIX index at 18,1 after 16,7 yesterday same time.

Oil 87,6/101,0 (WTI/Brent) from 87,0/99,5 (+0,7%/+1,5%). Gold at 1609 after 1615 (-0,4%). Copper at 348 from 350 (-0,6%). CRB closes 294,0 from 293,0 (+0,3%) on Tue.

Baltic Dry profiting from the late commodity recovery and adding 3.2% to 1138 from 1103. High point in the last recovery from the Q4/2011 slide was 1165.

EUR 1,238 from 1,252

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

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

All levels COB 17:30 CET

Tomorrow:

Germany: Fri IP fcst -1.2% after -0.7%

Periphery: Spain Fri Indu Output fcst -8.1% after -8.3%

US: Fri Payrolls fcst 93 after 69k & Unemployment fcst unch 8.2%; Hourly Earnings fcst unch 1.7% YoY

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

http://youtu.be/4B2a6l6wM2k

Da diddley qa qa da diddley qa qa...

With regards to yesterday’s choice of Springsteen: The Boss is THE Boss. Watched Springsteen play a 3h30 gig to a sold-out crowd in Paris yesterday… Must be among his longest concerts ever!

Not much talk, just R ‘n R, non-stop. And THAT is impressive, whether you like him personally or not!
http://youtu.be/FBRawhXHOmo