09 Jul 2012 – " Call It Stormy Monday " (Albert King & Stevie Ray Vaughan , 1983)
Soft Asian close, especially during the afternoon session, on the heels of Friday’s negative market action. ROff sentiment increased by much worse than foreseen Japanese Machine orders, which decreased by a record 14.8% MoM (fcst -2.6% after +5.7%), such a slide unseen to this date. Likewise, current account balance at -62.6% YoY (fcst -13.6% after -21.2%). 10 YRS JGB at 0.79% at the lowest since Aug 2003. Chinese CPI at 2.2% a tick below fcst and down from 3%. Chinese equities crashing 2% plus, heading for early Jan lows at 2148. EUR had a bout of overnight weakness, hitting 1.2230, a level last seen end of Jun 2010, before reopening on the 23 handle in Europe.
European open relatively tame, mostly unchanged through all asset classes, but Peripheral bonds (+7), ahead of the afternoon ECOFIN (knowing that a follow-up meeting seems already determined for 20 Jul). Italy stuck slightly above the 6%-mark, Spain slightly below the 7%-mark. Still, more worrying is short end weakness with both 2 YRS initially out by 20bp, eventually kicking 10s out by further 5 an hour later.
Credit only a couple of ticks weaker with Financials holding despite the widening Libor-gate, its possible fall-out described by The Economist as the banks’ possible “tobacco moment” with regards to future litigations. Certainly not needed in actual circumstances, but too late now…
German trade data resilient and stronger than expected with May Exports up 3.9% (fcst 0.2% after -1.7%) and Imports up 6.3% (fcst +08% after -4.9%). French Jun Biz sentiment weak, faced with the first decisions by the new government, coming in at 91 (fcst 92 after 93, eventually revised down to 92). This is pretty much the mood of Aug 2009, but was then in an uptrend from the post-Lehman depression. Sentix EZ investor sentiment at -29.6 (fcst -26.6 after -28.9), so not the rebound that was expected…
Minor data week, which will leave market action subject to jitters and rumours, technicals and charts. Tricky auctions of the week will be the one for EUR 8bn Italian bills on Thu and Italian 3 YRS to close the week on a Friday 13th (amount still open; were EUR 3bn 3s and 1.5bn 7 and 8 –year bonds last month). One will bear in mind that the holiday season, which slowly but surely starts to kick in, will further diminish what’s left of liquidity, exacerbating any given move.
ECB wires and weekend snippets from Coeuré and Nowotny in line with last week’s Draghi stand: no more funky stuff for the moment, responsibility to fix things in politicians’ hands. Aware that there ARE “execution problems”, which were announced. Long, hot summer…
Otherwise, rather quiet wires. Bowing out to reality, the EU was said to give Spain an additional year to hit the 3% deficit target (6.3% for this year, then 4.5% and 2.8%). Fair enough. Cyprus, assuming the rotating presidency of the EU Council, still running bail-out discussions with Russia. Draghi Ctrl-C Ctrl-V on Thu comments ahead of the ECOFIN and doing a Nike-call to politics on implementation. And sees the ECB, as one of the few euro institutions that works…
Government supply restricted to German and French bills. Germany opening the dance with EUR 4bn sold (EUR 700m retained for market interventions) at record -0.0344%. Already had one negative auction at -0.012% in Jan. June levels were 0.007%. BC 1.7. 2 YRS BKOs at -0.005%.
French bills: EUR 3.9bn at -0.005% (0.048%, EUR 2bn 6m at -0.006% (from 0.096%) and EUR 1.8bn 12m at 0.013% (from 0.163% last Mon). Félicitations! France has entered the negative funding cost club as well (at least on the short end). Needless to say these are record lows. Making the money market industry a touch… hmmm… oh, well... As PIMCO’s Gross keeps saying, it’s about the return OF the money (although here it’s not even in full anymore), not ON the money these days.
Will have the Netherlands selling up to EUR 3.5bn 3 YRS tomorrow (0.235% at COB). As well as EUR 1bn Greek 6m bills (last 4.73%).
Late morning situation about same with a bit more of ROff spin. Equities down 0.75%. Italy 6.13%. Spain 7.06%, then drifting back towards little changed during the mid-day break, but with Italian 2s still 30 wider, while Spanish held better being out 15-20. 5% threshold at around 3.5 years. 6% at 3 YRS in Spain. Softer EGB belly (Soft Cores) with Austria and France out by 5.
No major US data to trade, outside Consumer Credit numbers (after EU close, as for Alcoa kicking off Q2 earning season). With the ECOFIN to start at 17CET, this left the full afternoon to drift and delve on restricted titbits.
Not much going. Markets treading water in sync. Going RN, simply on lower levels. The calm before the Storm?
Flat close in Bunds at 1.33%. Flat in Credit. It’s just the EUR that is trading a bit better, taking commodities along. As people get used to it, it’s less of an event, but the Spanish spread to Bunds re-traded the early June high at 575 and hit 580…. Italian 2s out by 30, Spanish one by 15. Italy 6.09%. Spain 7.02%.
“Weaker” German short end with BKOs at 0.000%. OBLs 0.34%
After last week’s compression (AFB tighter by 13-15 on Fri alone), we got some reversal and quite a soft Soft Core today at +6-8.
New Issues on hold in EUR, with the exception of the EFSF that has started marketing a new 5 YRS deal soon around MS low 50s (Outstanding 5s quoted MS +37 / OBL +116, so there’s room to tighten here until tomorrow).
10 YRS Yields: Germany 1,33% (+0); Finland 1,68% (+0); Luxembourg 1,74% (+2); Netherlands 1,75% (+2); Swaps 1,82% (+1); EU 2,22% (+3), Austria 2,27% (+8); France 2,42% (+6); EIB 2,45% (+2); EFSF 2,56% (+2); Belgium 2,85% (+8); Italy 6,09% (+8); Spain 7,02% (+11).
10 YRS Spreads: Finland 50bp (+2); Luxembourg 41bp (+2); Netherlands 42bp (+2); Swaps 49bp (+1); EU 89bp (+3); Austria 94bp (+8); France 109bp (+6); EIB 112bp (+2); EFSF 123bp (+2); Belgium 152bp (+8); Italy 476bp (+8); Spain 569bp (+11).
EUR swap curve 2-5 YRS 36bp (+0,0); 5-10 YRS 70bp (-2,0) 10-30 YRS 41bp (-2,0).
2 YRS German BKOs closed 0,000% (+1,6) and 5 YRS OBLs 0,34% (+1).
Main at 173 from 172 (0,6%); Financials at 282 after 283 (-0,4%). SovX at 285 from 284. Cross at 678 from 684.
Stoxx Futures at 2226 / -0,3% (from 2232) with S&P minis at 1345 (-0,2% from 1348, at European close).
VIX index at 18,1 after 18,1 yesterday same time.
Oil 85,2/99,1 (WTI/Brent) from 84,6/98,3 (+0,8%/+0,8%). Gold at 1587 after 1587 (+0,0%). Copper at 342 from 341 (+0,3%). CRB closes 291,0 from 290,0 (+0,3%).
Baltic Dry still profiting still on the rise, by 5 to 1162. High point in the last recovery from the Q4/2011 slide was 1165. So we’re about there.
EUR 1,230 from 1,230
ECB deposits at EUR 795bn after EUR 791bn. The 0% deposit rate starting as of today, we’ll see in the coming days whether or not this will push some banks to put money at work elsewhere.
This being also the start of the new reserve maintenance period, we ought to get the usual EUR 120-130bn pull back or so, knowing, too, that the last drop was of “only” EUR 95bn.
Of course, as stated last week, the SMP is fast asleep, hence no buying last week.
Greek bonds guesstimates: Greece 2023s 25 bp tighter at 25.5% and 2042s unchanged at 21.5%.
All levels COB 17:30 CET
Pfff.. Next to nothing on the data front. Minor stuff here and there. Rather uneventful auction front to start the week (Dutch 3s, German 10s). Will have Italy selling bills on 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: Wed Final CPI Thu Wholesale prices
France: Tue IP fcst -1.5% after +0.9% YoY Thu CPI
Periphery: Italy Tue IP fcst -9% after -9.2% YoY Fri CPI // Spain Wed Housing Fri CPI // Greece Tue IP Wed Unemployment
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:
Always difficult to find song titles on quieter days. And it does feel a little stormy… Like in eerily quiet…