Shuffle Rewind 08-12 Oct " Sleeping Satellite " (Tasmin Archer, 1992)
On the week (compared to Fri 05 Oct COB):
Click on day for related post, on title for song.
Last week was “Good Enough for Rock ‘n Roll”, not magnificent, but good enough for some stability and ending with a 2% Friday squeeze after the NFP figures, chanting "Let's Work Together" (Bunds 1,52% +8; Spain 5,67% -21; Stoxx 2525% +1,9%; EUR 1,305), although the US close was a drag.
This week has been more a recurrent series of corrections of bouts of European over-optimism, essentially on US data: Monday was a rougher start, as Europe had closed in a Bull Trap and corrected its optimistic assessment of the US, swearing "Won't Get Fooled Again" (Bunds 1,47% -5; Spain 5,70% +3; Stoxx 2499% -1,0%; EUR 1,297). Tuesday saw the IMF turning quite bearish with its latest WEO, still markets seemed to cling to last weeks’ spirit that things were fixed and faced a "Wall of Denial" (Bunds 1,47% unch; Spain 5,8% +10; Stoxx 2462% -1,5%; EUR 1,288), before giving in. Then again, you can’t always have a view and Wednesday was rather directionless and for once "She Went Quietly" (Bunds 1,49% +2; Spain 5,78% -2; Stoxx 2453% -0,4%; EUR 1,290). What could have been a bad day with S&P ticking 2 notches off Spain’s rating, ahead of an Italian auction, ended with a "Jump" (Bunds 1,51% +2; Spain 5,75% -3; Stoxx 2482% +1,2%; EUR 1,293) on Thursday, as Risk managed to rebound from this week’s low, mainly as all bad news seems to have been spilled out. Friday morning saw once more Risk getting dragged off the previous day’s closing, as the US didn’t share the willingness for rebound. Some joyful Spanish bond squeeze, but Risk under pressure, despite another set of stronger confidence numbers in the US. US eventually closing flat again with the S&P right on 50d average for some quality "Sleepy Time Time" (Bunds 1,45% -6; Spain 560% +55425; Stoxx 2465% -0,7%; EUR 1,294).
Particularly light on hard data, take away from this week’s action was reduced volatility in the EGB world (unlike rather more jumpy and eventually depressed equities). After rainy weeks, better weeks, we pretty much had a rather sleepy week. Bouts of optimism, but fading equities. Still waiting for Spain to get along with a demand for assistance. OMT and QE signed, but underused, not used at all. The IMF confirming a nighty night outlook for almost everyone. Gravity forces taking US equities back to 50d average. And then?
EGBs still mainly range-bound. Germany pretty much gaining (-7 to 1.45%) what was lost last week (+8 to 1.52%), same for the Hard Core gang. Soft Core and Agencies outperforming the wings with Austria now back through 2% and France catching up. Belgium closing at historic lows in 10s at 2.37%. France, EIB and the EFSF bonds star performer of the week in 10 YRS, closing 13-14 tighter and tightening by about 7 to Bunds.
EUR swap curve flattening on equity fatigue and closing again at 128 (after widening last week from 128 to 1.33). Very long end unchanged to 10s, though. Good 5-year flight to quality move, although the week didn’t feel panicky as such.
Italy weathered the S&P downgrade of Spain rather well with a healthy 3 YRS auction, although the auction result would point out a larger sponsor rather than an overall scrambling to load up on Italian debt. But, so be it, well done. Closing below 5%, but at unchanged spread to Germany.
Spain managing to squeeze out some performance in an empty market on Friday, closing at 5.60% (-7 on the week after -24 the week before), spread to Bund however unchanged at 415.
Having closed up 3% last week, essentially on Friday with the NFP, from a 4.5% correction the weak earlier, European equities shed back pretty much everything on Monday and Tuesday, before recouping half these losses Thursday and drifting back a little on Friday and closing the week down 2.4%. Equity-fatigue, similar to the US (-2.5%).
Credit, on the other side, remains on its stability, even tightening trend. All is good. While not explosive, it is consistent and somehow reflects the diminishing volatility (Everything relative, of course) in Periphery bonds. About unchanged on the week (+/- 1), after a 7% tightening on the Main and 13% in Financials the week before. Still in line with end of Sep levels. Outpacing equities again.
Commodities once more overall flat on the week with the CRB about unchanged for the second week. Oil (+2.5-3%) roughly made good on last week’s losses, while Gold (1%) did the contrary. Copper likewise range-bound.
EUR giving back a little to the USD.
Better and more diversified New Issues activity than last week. Had slightly over EUR 18bn in 22 deals, of which EUR 5bn for KfW’s latest 7 YRS benchmark. EUR 5.5bn for Periphery issuers with Infrastructure / Utility names much sought after (EUR 2bn 2-trancher for ENEL, EUR 750m for Terna, EUR 750m for Portugal Telecom, among others). Senior financial issues with EUR 1.25bn for Intesa and EUR 1.5bn for Crédit Agricole. Allianz with EUR 1.5bn subordinated 30 YRS.
Gold goes to Nestlé for EUR 500m 4 YRS at MS+5, a mere 0.75% in yield. Probably the lowest or one of the lowest corporate coupons ever. It should be noted, though, that two transactions were pulled this week, which is rare (UniCredit Austria and Banco Popolare).
Closing levels (compared to Fri 05 Oct COB):
10 YRS Yields: Germany 1,45% (-7); Luxembourg 1,57% (-7); Netherlands 1,70% (-8); Swaps 1,74% (-6); Finland 1,71% (-10); EU 1,87% (-9); Austria 1,95% (-9); EIB 2,11% (-13); France 2,15% (-13); EFSF 2,26% (-14); Belgium 2,37% (-9); Italy 4,97% (-7); Spain 5,60% (-7).
10 YRS Spreads: Luxembourg 12bp (unch); Netherlands 25bp (-1); Swaps 29bp (+1); Finland 26bp (-3); EU 42bp (-2); Austria 50bp (-2); EIB 66bp (-6); France 70bp (-6); EFSF 81bp (-7); Belgium 92bp (-2); Italy 352bp (unch); Spain 415bp (unch).
EUR swap curve 2-5 YRS 46bp (-4,0); 5-10 YRS 82bp (-1,0) 10-30 YRS 60bp (unch).
2 YRS German BKOs closed 0,039% (-2) and 5 YRS OBLs 0,50% (-7), on the week. with UST at 1,64% (-7)
Swiss 2-years ticking tighter and tighter, step by step, -0.20% (-2).
Main at 127 from 126 (0,8% wider); Financials at 178 after 178 (unch). SovX at 135 from 138. Cross at 540 from 531.
Stoxx Futures at 2465 / -2,4% from 2525 with S&P minis at 1426 / -2,5% from 1463, at European COB last week.
VIX index at 15,6 after 14,3 last week.
Oil 91,9/114,3 (WTI/Brent) from 90,2/111,8 (+1,9%/+2,2%). Gold at 1762 after 1782 (-1,1%). Copper at 371 from 379 (-2,1%) . CRB closes 309,0 from 310,0 (-0,3%).
After last week(s 14% surge to 875, the BDY added again 51 ticks (5.8%) to close at 926. Summer rebound peak had been 1162 early July (25.5% away). Feb low of 647 (30% away). Sep low was 661.
EUR 1,294 after 1,305 last Friday
Greek bonds guesstimates: Having traded totally sideways throughout the week, Greek bonds closed on some good Friday performance with 2023s at 17.75% (-25) and 2042s even at 15.5% (-100). Traded 19.25% and 18% 2 weeks ago. SOMEHOW.GREECE.WILL.BE.SAVED. Somehow… Unlikely.
All levels Friday COB 17:30 CET
Next Week Macro Data:
Looking forward to next week doesn’t make for an exciting reading. European data mostly minor. German ZEW sentiment indicator. Chinese massive data dump on Thursday 18 Oct. US IP and housing in the widest sense.
Auction supply with attention on Spanish 18m bills next Wed and especially the 3, 4 and 10 YRS BONO auction on Thursday.
Trading will remain rather technical, subject to Periphery rumours and jitters.
EZ: Tue EZ CPI Final +2.7%; Wed Construction Output
GE: Tue ZEW (last Current 12.6, Sentiment -18.2); Fri PPI (last +0.5% MoM)
FR: Pffff… Rien
Italy: Fri Indu Orders (last -4.9 YoY), Sales (last -5.3% YoY)
Spain: Thu Q3 House Prices (last -2.5%, QoQ, -8.3% YoY)
US: Mon Empire Manu, Retail Sales, Biz Inventories, Tue CPI, IP, Wed Housing Starts & Building Permits Thu Claims, Philly FED, Leading Ind, Fri Home Sales
China : Sat 13 Trade (fcst Exports +5.6% after 2.7%, Imports +2.4% after -2.6% YoY); Mon CPI fcst +1.9% after +2%; Thu Q3 GDP fcst +7.4% after +7.6% YoY, +2% after +1.8% QoQ, IP fcst +9% after +8.9% YoY, Retail Sales +13.2% unch YoY.
Click link under title or below for this week's musical support:
Did we fly to the moon too soon?
Did we squander the chance? In the rush of the race
The reason we chase is lost in romance
And still we try to justify the waste
For a taste of man's greatest adventure
Is that a song about Risk chasing Central Bank liquidity???