29 Jun 2012 – " One Step Beyond " (Madness, 1979)
Understands who can… The Brussels nightly drama yielded first tweeted “results”, then none, then yes. Then some bickering, Southern drama, then truce. Then they still were not done haggling.
In any case, first white smoke signals 30 minutes ahead of the US close managed to turn around the equity market sharply by over 1%, leading to an only mild negative close. Asian stocks up 1.5% as a whole, leaving Q1 behind and heading into the weekend. Overnight data showing stable CPI and employment figures in Japan, but disappointing IP readings slowing to 6.2% YoY (fcst 6.7% after 12.9%. Don’t forget the Fukushima base effect, here) and PMI slipping just below the 50 mark at 49.9 after 50.7, its weakest reading since Dec 2011.
Roaring ROn start in Europe with equities gapping up 3%, Core EGBs wider by a good 15bp. Italy and Spain tighter by 40 and 50 bp respectively in 10s, taking BTPs back through 6% and BONOs through 6.50%. The effect was even more explosive in 2s, down by 70 bp and 85bp, taking the latter respectively back to the 3.75% and 4.50% area. Then again, it’s certainly a big move, but on second thought these remain HIGH yields.
Main and Financials tighter by 10 and 20. Tamer commodities reaction with 1.5%-2% upswing. EUR out to the 26 handle.
German Retail Sales hit hard in May and at -1.1% YoY a huge miss of the +1.9% forecast. Previous data was as well revised lower from -3.8% to -4.3%. Same picture on a MoM basis at -0.3% (fcst +0.2% after prior +0.6% revised to -0.2%). Another sign that Germany is running out of steam, too. French PPI below forecast as well at 2.2% YoY (fcst 2.7% unchanged). Doesn’t seem to worry French consumers, who unexpectedly increased spending in May MoM by 0.4% (fcst was 0% after revised +0.7%). Good headline stuff for musings about freewheeling French and austere Germans. In any case, price pressure seems to diminish here and there, which should give the ECB the opportunity next week to add a stone to the rescue by lowering rates a little. If it wasn’t for that M3 growth that came out at much higher than expected +2.9% YoY (fcst 2.3% after 2.5%)… Then again, given the capital flight stories of late, one could expect that all that money sloshing back and forth ends messing up statistics. EZ CPI unchanged at 2.4%, as expected. Sticky above 2%, but with lower outlook.
And then? Once the initial ROn Rocket launched, stops triggered and shorts covered, people started poring over the docs and statements and things went “static to less ecstatic”. That EUR 120bn growth package happened to have been the one already pitched last Friday and mainly coming courtesy of a capital-increased EIB, some frontloaded spending and from the private sector. So no real new cash here. As this being a 2-day exercise and still ongoing, different titbits and comments, bickering about details, seniority or not questions et al started to somewhat sap the mood. Southern European popular press headlines certainly not helping the cohesion process, either. As details were still hammered out, Core EZ Front adjustments and setting things straight comments had the ROn fizzle out a bit at the end of the morning.
Most to the point morning comment du jour, certainly reflecting many views at that stage: A decisive solution: using a fund that doesn't exist to buy debt that won't be repaid via a mechanism that hasn't been agreed.
End of morning static stand-by with the Core EZ EGB gang wider by 10bp, Italy down a good 20bp to 5.95% and Spain down 30bp to 6.60% EUR off highs at 1.258. Equities about 2.5% from COB. Credit quite static after the initial tightening of 10 and 20 in Main and Financials. Waiting for whatever happens next – and details… Story of everyone’s life in the markets these days.
European equities gained 1% over lunch, as practical details were hammered out, and added another 1% at US open.
Strong Milwaukee NAPM at 60.2 (fcst 55.1 after 57.7). Not sure this would have mattered in normal times, but on such a strong ROn day, it just added to the positive attitude. Personal Income and spending at 0.2% and 0.0% as forecasted. Chicago Purchasing better at 52.9 (fcst 52.3 after 52.7) with final Michigan Confidence undershooting at 73.2 (fcst 74.1).
Tailor-made ESM non-seniority for the Spanish intervention, but conditionality attached, so a bit for everyone. Finnish and probable Dutch collateral demands. German opposition in arms over the German attitude U-turn (small tail risk, but the ESM still needs to be ratified in Germany).
The whole summit is certainly a strong Italo-Spanish political achievement. But, hell, from here on things ought not to derail anymore, as, despite contrary assertions, it does look like the German front was cornered and pushed to its limits. Difficult to expect further concessions, comes the next crisis. Italian 2-10 steeper by 40 bp and Spanish equivalent by 50bp. Strong Irish performance, too, with long benchmarks down by 60 bp on the day, now trading low 6.40% as that bespoke ESM banking thing can certainly be applied elsewhere, too.
Seemingly Greece was either not discussed at all or not seen as imminent threat enough at this summit.
A definitive step towards a banking union, but the final target just seems highly improbable on a short outlook and will take years of further bickering.
Question is how many more times can this be done, as the whole sovereignty-solidarity-federalism-deficit-bank loop-risk adverseness is certainly not off the table for good.
Good close of the week. Certainly one step beyond
… on a long and winding roa
Had New Issue from Nordea testing waters for a senior double-trancher with EUR 1.25bn long 5 YRS at MS +100 and EUR 1bn 10 YRS at MS +135 and fellow Nordic Sparebanken 1 tapping EUR 250m on an outstanding 2016 covered bond at MS +27.
10 YRS Yields: Germany 1,58% (+7); Luxembourg 1,91% (+5); Swaps 2,02% (+9); Finland 2,04% (+5); Netherlands 2,09% (+3); EU 2,40% (+4), Austria 2,52% (+2); EIB 2,61% (+4); France 2,68% (+1); EFSF 2,72% (+2); Belgium 3,18% (-3); Italy 5,78% (-40); Spain 6,29% (-60).
10 YRS Spreads: Luxembourg 33bp (-2); Swaps 44bp (+2); Finland 40bp (-8); Netherlands 51bp (-4); EU 82bp (-3); Austria 94bp (-5); EIB 103bp (-3); France 110bp (-6); EFSF 114bp (-5); Belgium 160bp (-10); Italy 420bp (-47); Spain 471bp (-67).
Switched Belgium ref to Sep 2022.
EUR swap curve 2-5 YRS 47bp (+3,0); 5-10 YRS 69bp (+4,0) 10-30 YRS 30bp (-1,0).
2 YRS German BKOs closed 0,120% (+1,6) and 5 YRS OBLs 0,61% (+4).
Main at 166 from 178 (6,7% tighter); Financials at 261 after 289 (tighter by 9,7%). SovX at 282 from 298. Cross at 662 from 705.
Stoxx Futures at 2255 / +4,7% (from 2153) with S&P minis at 1349 (+2,9% from 1311, at European close). Well that’s an impressive 5.7% rally from yesterday’s lows.
VIX index at 19,7 after 20,6 yesterday same time.
Oil 82,3/95,4 (WTI/Brent) from 78,5/92,0 (+4,8%/+3,7%). Gold at 1598 after 1555 (+2,8%). Copper at 347 from 332 (+4,5%). CRB closes 278,0 from 272,0 (+2,2%).
Baltic Dry up 10 to 1004, back over the 4-digit mark.
EUR 1,267 from 1,244
ECB deposits at EUR 782bn after EUR 773bn.
Greek bonds guesstimates: Greece down 50 bp with 2023s at 26% from 26.50% and 2042s at 22% from 22.50%.
(20.25% and 16.75% before the first election round).
All levels COB 17:30 CET
On the week (compared to Fri 22 Jun COB):
Another week, another story. Stop! It’s the same story, but just told differently, over and over… Friday
had seen some of the spirit “Shot Down in Flames
” to start the day as the Spanish banking bail-out doubts were abounding (Bunds +5 / Spain -25 / Stoxx -0.6%). Following a European quartet meeting in Rome and a EUR 120bn infra pack announcement, things closed about ok, especially for Spain, which staged a one-man rally in an empty Friday afternoon market. The whole thing was of course reversed by Monday
and Risk went tanking, hoping for someone to “Catch My Fall
” (Bunds -12 / Spain +29 / Stoxx -2.5%). Eventually, Cypriot and Spanish bail-out demands went official. As things can’t always be wholly manic-depressive all times, markets too a breather on Tuesday
in a “Quiet Times
” session, which for once was rather risk neutral, although things went soft into the close (Bunds +4 / Spain +28 / Stoxx -0.2%). Ahead of the EU summit, it seemed that everyone wanted not to “Never Make Your Move Too Soon
” on Wednesday
, with exception of equities, which felt that something good would certainly happen (Bunds +6 / Spain +4 / Stoxx +1.6%). As, first EU titbits were only to appear later at night, yesterday
was a day with “Nothing to Say
”, at least not much (Bunds -6 / Spain unch / Stoxx -0.2%).
Unimaginable as this may seem, at first glance, nothing happened in European bonds… Just kidding. But just half.
On the week, we’d note that the trend of 10 YRS EGB softening across the board has continued. While stress behaviour still regularly yields a retreat into Core EZ bonds, there’s an underlying heaviness in here for the moment. Best and sole performer of the week in absolute and relative terms? Belgium. Caught between the Soft Core and the Periphery, it managed to issue well on Monday, is mostly out of the limelight, except when hosting all these summits and, if my numbers are right, has now covered 72% of its funding needs with some EUR 9bn to go for the rest of the year).
Sad looser left on the side of the road: the Soft Core, when considering that on a week on week basis, the wings didn’t really move. Tout ça pour ça???
With regards to the Periphery, total meltdown risk seems averted, but given what has been put on the table, the market reaction, as seen by this week’s closing levels, is far from being convinced yet.
Comeback kid of the week? The EUR, considering the 300 pip rally today.
10 YRS Yields: Germany 1,58% (unch); Luxembourg 1,91% (+1); Swaps 2,02% (+4); Finland 2,04% (+1); Netherlands 2,09% (+0); EU 2,40% (+2);Austria 2,52% (+11); EIB 2,61% (+3); France 2,68% (+9); EFSF 2,72% (unch); Belgium 3,18% (-6); Italy 5,78% (+1); Spain 6,29% (-2).
10 YRS Spreads: Luxembourg 33bp (+1); Swaps 44bp (+4); Finland 40bp (-5); Netherlands 51bp (+0); EU 82bp (+2); Austria 94bp (+11); EIB 103bp (+3); France 110bp (+9); EFSF 114bp (unch); Belgium 160bp (-6); Italy 420bp (+1); Spain 471bp (-2).
EUR swap curve 2-5 YRS 47bp (-1,0); 5-10 YRS 69bp (+5,0) 10-30 YRS 30bp (+4,0).
2 YRS German BKOs closed 0,12% (-1) and 5 YRS OBLs 0,61% (-3), on the week.
Swiss 2-years flat at -0.28%, but having traded a record low -0.38% yesterday.
Main at 166 from 170 (2,4% tighter); Financials at 261 after 276 (5,4% tighter). SovX at 282 from 295. Cross at 662 from 680.
Stoxx Futures at 2255 / +3,4% from 2181 with S&P minis at 1349 / +1,9% from 1324, at European COB last week.
VIX index at 19,7 after 19,2 last week.
Oil 82,3/95,4 (WTI/Brent) from 79,2/90,6 (+3,8%/+5,3%). Gold at 1598 after 1562 (+2,3%). Copper at 347 from 330 (+5,2%) . CRB at 278,0 from 268,0 (+3,7%) at European COB.
Commodities by and large correcting the prior week’s slide with the exception of precious metals that remain (relatively) under pressure.
Baltic Dry back to 1004 from 978 (+2.7%), after last week’s 5.8% rise. Need to watch seasonal behaviour starting July.
EUR 1,267 after 1,253 last Friday
Greek bonds guesstimates: Down to 26% from 26.50% for 2023s and 22% from 22.25% for the 2042s (20.25% and 16.75% before elections).
All levels Friday COB 17:30 CET
Very, very light on European data. Very heavy end of the week US data supply, following the 4th of July holiday.
Germany: Thu Factory Orders May fcst -5.8% YoY after -3.8% Fri IP fcst -1.2% after -0.7%
France: Presque rien
EZ: Tue EZ PPI fcst 2.5% YoY after 2.6%. Wed Final PMIs. EZ Retail Sales fcst -0.6% after revised -2.7%. Thu ECB
Periphery: IT Mon Manu PMI fcst 44.5 after 44.8 Wed Services PMI fcst 42.5 after 42.8. Deficit/GDP Q1. Spain next to nada Wed Unemployment Fri Indu Output fcst -8% after -8.3%
US: Mon Manu ISM fcst 52 after 53.5 Px ISM 45.9 after 47.5 Construction Spend fcst 0.2 after 0.3% Tue Factory Orders Wed closed Thu MBA mortgages; Claims; Non-Man ISM; Chain Store sales; Fri Payrolls & Unemployment
Asia: China leading indicators
Click link on title or below for today’s musical support:
(So if you've come in off the street / And you're beginning to feel the heat / Well listen buster/ You better start to move your feet/ To the rockinest, rock-steady beat)
(Yep, there’s some Heat in the Street these days…)