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
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):
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 bizarro land.
Talking of Mars, here are the first pictures from “Curiosity”