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26 Oct 2012 – “ Doom and Gloom ” (The Rolling Stones, 2012)

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26 Oct 2012 – “ Doom and Gloom ” (The Rolling Stones, 2012)
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The fact that yesterday’s US close was slightly positive, roughly +0.25% on average, is a detail, as Apple disappointed. So back to charts, in expectations of an S&P below 1400 (as right away the case in futures): INDU 100d 13.080 (close 13.104) and S&P 1.396 (close 1.413). Ok, noted. Note that the UST 7 YRS auction was a dud, in line with the recurrent heaviness of USTs (and Bunds) this week. B/C weakest since May 2009.
Asian session weak across the board (but had been rather outperforming the last couple of days), roughly between -1.25% and -1.75%.
Overnight news, next to the Apple getting seedless, were Fitch denying, of course, yesterday’s US downgrade rumours (as we expected) as that won’t happen before 2013 (but will happen then, for sure) as well as S&P lowering some French banks on (unsurprisingly) “the ongoing euro-zone crisis, a more protracted recession across Europe, and lower domestic-growth prospects” as well as  “potentially limited, but still noteworthy, impact from an ongoing correction in the housing market.
Finally, the Stones played an impromptu concert before 700 guests in Paris and their new single sounds pretty much like the good old Stones. The 350 tickets available were sold for EUR 15 each, which is a nice gesture in times of austerity. Don’t be jealous of me, I wasn’t there either, but, hell, this must have been fun.
Oh, and Greece just needs some EUR 30bn, spread who knows how, over how long and certainly no one know from whom, to keep the ball rolling.

German Confidence index at 6.3 (fcst 5.9 unchanged, rev. 6.1) a blessing to kick off the day. Likewise falling Import Prices in Germany at -0.7% MoM (fcst +0.3 after 1.3%), 1.8% YoY after 3.2%. Then again, that’s a mixed blessing, as someone else makes less money here. Most energy-related anyway.
French Consumer Confidence ticking down to 84 after 85, as expected. Had ticked up to 91 in May from a 12m low at 81 in Feb. But then French consumers are chronically depressed and the post-2009 average is at 86.2 anyway. Gloom. French quarterly Biz Demand survey better at -21 from -24, rev. -25 in July, knowing that this was only beaten in early 2009 lately. Spanish Q3 unemployment even the tick worse than expected at 25.02% (fcst 25% after 24.063%), just to be able to write “now over 25%”. Italian Biz Confidence softer at 87.6 (fcst 88.7 after 88.3), no rebound. Gloom. Eco Sentiment better, though, at 76.6 after 75.5, rev. 76.

Fairly rough open in Europe, although pre-market future quotes were more punishing. Eventually, just a mild Risk Off picture painted with Bunds and EGBs about 1 tighter and the Periphery 4-5 wider across the curve. Equities down 0.5%, having tested lower earlier. Credit out 2-3 ticks. Commodities slightly softer only. EUR at 1.293 close to COB levels.
Mid-morning picture still in ROff with Germany really tightening in (-4) and the Periphery really widening (+7) and equities really testing lower and Credit wider.

Italy sold the targeted EUR 3bn 2 YRS zeros at 2.397% (after 2.532% for EUR 3.9bn on 25 Sep). Rather bespoke auctions, disciplined primary dealer group. Same B/C of 1.65 as the last time (for a smaller size). Still, levels are lower and are coming back (finally) to levels already seen this year (2.35% in March), knowing that these were post LTRO and the lowest since the crisis begun end of 2010 (2.31% paid in Nov 2010, before steadily rising thereafter, hitting 7.81% in Nov 2011). Had EUR 1bn in ILBs as well.
Good for a sigh of relief, but no more. Italian 2s stuck at 2.28% (+2) nevertheless, but still better than their Spanish peers at 3.12% (+10). Note that Italian 2s never managed to get through 2% for real and are drifting wider since.

ECB Asmussen speech with 2 interesting points: First, geo-financial, with China bubbling, especially in sub-sovereign financing (“We know how this ends…”). Gloom. Second, aid request will not trigger automatic OMT buying. Hence, the ECB is not an ATM and the ECB council will discuss amounts and timing of intervention, which kind of harks back to my impression that the ECB stand has hardened of late. The longer Client #1 is playing coy, the more time there is to make sure loopholes and back-pedalling possibilities can be avoided. Doom.

Moody’s on Central Banks just buying time and expecting another 3 years of “costly, painful adjustments” for the EZ.

Late morning seeing some balancing out. Usual endorphin-kick after the initial pain. Equities catching back some ground. Periphery one bp or two on the back of the Italian auction.

Endorphins not working that well today. Midday picture rather poor, confirming overall Risk Off: Equities back to around morning lows at -0.75%, Credit as well on morning prints (1.5-3% softer).
Periphery out by 7 in 10s (“only” one would add, considering Spanish 2s performance). Italian 2s not holding the CTZ auction promises. Hard Core EGBs as firm as Bunds. Soft Core a touch back.
Bunds closed 1,52% (-5), OBLs at 0,53% (-5), BKOs 0,051% (-2,8). UST 1,77% (-3)
Spanish 2s 3,16% (+14) and 10s 5,65% (+6). Spanish 2-10s 249bp (-8).
Italian 2s 2,33% (+7) and 10s 4,92% (+7). Italian 2-10s unchanged at 259bp.
Oil unchanged from European COB, Gold 0.7% softer (looking back to 1700), likewise Copper.  EUR sliding through the 29-handle on ROff.
No major earnings release to rock the boat (Merck ok, Goodyear not). European equities turning flat ahead of US figures in solo movement on no specific news.

Key US data in form of advanced Q3 GDP at +2.0% QoQ (fcst 1.8% after +1.3%). Q3 Personal Consumption at 2.0% (fcst +2.1% after 1.6%), triggered a short-lived 0.3% spike in equities, but the detail analysis was less palatable with Federal Spending up 9.6%, adding 0.72% to the GDP figure. Note that exports declined 1.6%, for the first time since Q1/2009 and imports 0.2% (from +5.3% and +1.8% in Q2). Saving rate down to 3.7% from 4%. Biz investments slowing and -1.3%. People are indeed buying iPhones – but not enough.
Had some wobbly up and downs and ups, as people were chewing over the data. Eventually good for 0.+75% on stops from pre-figure levels, as taking out immediate 100d test in US futures, but bond reaction muted. Bunds down 25cts. UST out by less than 2bp. Giving as ell a positive nudge to Periphery bonds.
US cash open around flat worse another burst in European equities. Michigan Consumer Sentiment dipping to 82.6 (fcst 83 after 83.1). No more immediate response than US equities treading water on flat opening levels (hence Wed + 0.25%). Everything then moving in sync, tick up, tick down. Good traction on EUR on Risk On sentiment. And Apple? Mostly unchanged, trading in a -/+ $5 ranging around its closing level…

Spain paring losses on presentation showing an increase in secondary volume and some increase in foreign holdings, as well as supportive IMF comments on the fact that the Bank MOU schedule is in line. Wink, Greece. Talking of which, Schaueble has doubt it has met its commitments (…).

European stamina running out of ammunition with US indices turning red and the INDU under its 100d average.

Better Risk close in Europe, but better EGB close, too. All is good? Or undecided. Good comeback in Spain, Italy lagging throughout the afternoon. France lagging, as so often lately (Belgium now just +20).
Bunds closed at 1,54% (-3), OBLs at 0,54% (-4) and BKOs 0,048% (-3,1) with UST at 1,77% (-3)
Spanish 2s at 3,02% (unch), 10s at 5,57% (-2). Spanish 2-10s 255bp (-2).
Italian 2s at 2,26% (unch), 10s at 4,89% (+4). Italian 2-10s 264bp (+5).
Note the divergence between Credit (wider) and equities.
Commodities eventually better off in the afternoon with Oil rebounding. Gold stable. EUR 1.294, off highs, off lows.

European equities still nervous and fickle with EStoxx trying to stick around 50d average right on 2503 (through), as for the DAX 7227 (on it), CAC 3459 (through), MIB 15622 (through) & IBEX 7771 (through).
To complete average levels: 100d for INDU 13087 (on it at European COB) and SPX 1397, hence not that far. NASDAQ 100d 3007 (through) and 200d 2975 (on it), Apple-challenged (200d 588).
Technical markets in absence of fundamentals (few again next week).

Take-away: If it wasn’t because the government sponsorship doping Q3 US GDP, we wouldn’t have much on the bright side. European equities still desperate to shoot up at any given reason, go up fast every time, trading off lower and then speeding up. Feels like to many fickle shorts and too many uncomfortable longs at the same time. Safe-haven better bid after days of hanging in there. Spain unsolved. Holding ok, for once, no squeeze, no sell off. Markets uneasy after round-tripping back to OMT / QE unleash levels and no follow-up stimuli to be seen.

Outlook for next week: End of month. Low numbers supply. Final PMIs on Friday. Of course, US NFP on Friday after last month’s buzz.
Note that parts of Europe will be closed for the Thu 01 Nov All Saints holiday, leading to patchy liquidity, probably bridged into the weekend. Most business will thus be squashed into the first 3 days with some recurrent long end supply.
French EUR 7.5bn OAT auction (2019, 2022, 2035) pushed forward to Wednesday (from normally Thu), coinciding with EUR 2bn 30 YRS Bunds, so beware of the long end. Will have Belgium as well auctioning some EUR 3.5bn in 2032 and 2035 OLOs, next to 5 and 10 YRS on Monday. Italy in for EUR 4bn 5s and EUR 3bn 10s on Tue. No supply Thu and Fri.

Nada in New Issues to close the week. Small week anyway with the EU sticking out with its EUR 3bn 15 YRS. Total of EUR 10.8bn in 14 EUR deals. Spain delivering EUR 1bn ICO 5 YRS (struggling at SPGB +65, half-placed domestically, some with the leads), but pulling a Madrid 2020 increase, despite initial talks of an 8% area yield. Italy faring better with EUR 1.25bn 10 YRS LT2 for UniCredit (stunning) and EUR 750m for UBI in 3 YRS. Some EUR 1.25bn for German SSA names, EUR 1.8bn for German, French and Dutch corporates. Standard Chart well accepted with a EUR 1.25bn 5 YRS senior deal.

Don’t hesitate to exchange with the author. All comments, suggestions, rants are welcome.

Don’t miss the Shuffle Rewind over the weekend.
Taking next week off, so you’ll need to loop this month’s songs, if you need.

Closing levels:
10 YRS Yields: Germany 1,54% (-3); Luxembourg 1,64% (-2); Finland 1,76% (-3); Netherlands 1,78% (-3); Swaps 1,81% (-5); EU 1,89% (-2), Austria 2,01% (-2); EIB 2,05% (-5); EFSF 2,18% (-2); France 2,25% (unch); Belgium 2,45% (-2); Italy 4,89% (+4); Spain 5,57% (-2).

10 YRS Spreads: Luxembourg 10bp (+1); Finland 22bp (unch); Netherlands 24bp (unch); Swaps 27bp (-2); EU 35bp (+1); Austria 47bp (+1); EIB 51bp (-2); EFSF 64bp (+1); France 71bp (+3); Belgium 91bp (+1); Italy 335bp (+7); Spain 403bp (+1).

EUR swap curve 2-5 YRS 51bp (-1,0); 5-10 YRS 82bp (-2,0) 10-30 YRS 58bp (-1,0).
2 YRS German BKOs closed 0,048% (-3,1) and 5 YRS OBLs 0,54% (-4).

Main at 129 +1 (0,8% wider); Financials at 175 +4 (2,3% wider). Cross at 535 +7.
Stoxx Futures at 2494 / +0,5% (from 2481) with S&P minis at 1403 (-0,4% from 1408, at European close).
VIX index at 18,5 after 18,0 yesterday same time.

Oil 86,1/109,3 (WTI/Brent) from 85,5/107,9 (+0,7%/+1,3%). Gold at 1714 unchanged. Copper at 355 from 356 (-0,3%). CRB at 298 unchanged from EU COB.
BDIY ticking down to 1049 from 1051 (-0.2%). Still a positive week after previously getting over the 4-digit mark to 1010 last Friday (+3.9%).

EUR 1,294 from 1,295

Greek guesstimate: Greek bonds a little softer and waiting for hard, concrete news; +25bp with 2023s at 17.00% and 2042s at 15.00%. SOMEHOW.GREECE.WILL.BE.SAVED.-credo seems to lose a little steam here, especially after last weeks’ furious progression. The discussions and haggling seem to drag on, Spanish-style, with nothing concrete popping up – outside the general view that things won’t be manageable without more cash.

All levels COB 17:30 CET

Upcoming Macro Data:
End of month. Low numbers supply. Final PMIs on Friday. Of course, US NFP on Friday after last month’s buzz.
Note that parts of Europe will be closed for the Thu 01 Nov All Saints holiday, leading to patchy liquidity, probably bridged into the weekend. Most business will thus be squashed into the first 3 days with some recurrent long end supply.
French EUR 7.5bn OAT auction (2019, 2022, 2035) pushed forward to Wednesday (from normally Thu), coinciding with EUR 2bn 30 YRS Bunds, so beware of the long end. Will have Belgium as well auctioning some EUR 3.5bn in 2032 and 2035 OLOs, next to 5 and 10 YRS on Monday. Italy in for EUR 4bn 5s and EUR 3bn 10s on Tue. No supply Thu and Fri.

Trading will remain rather technical, subject to Periphery rumours and jitters.

EZ: Tue Biz Climate Indicators
GE: Mon CPI fcst +2% after 2.1% Tue Unemployment fcst 6.9% after 6.8%, Retail Sales fcst +0.5% after rev. +0.1% MoM. Fri MfG PMI 45.7
FR: Wed PPI fcst +2.5% after rev. 2.5% YoY, Cons Spending fcst -0.1% after -0.8% MoM. Fri MfG PMI 43.5
Italy: Wed Unemployment last 10.7%, CPI last 3.4% YoY, PPI last 3% YoY. Fri MfG PMI 45.7, Budget
Spain: Mon Retail Sales last -2.1% YoY. Tue GDP fcst -0.4% QoQ after -0.4% / -1.7% YoY. Wed Housing Permits. Fri PMI
US: Mon Personal Income and Spending fcst +0.4% after +0.1% and +0.6% after +0.5%. Tue Case Shiller House PX. Cons Conf fcst 72 after 70.3. Wed NAPM, Chicago PM. Thu Claims. Final PMI. ISM. Construction spending.
Ch: Thu final PMIs

Click link under title or below for today’s musical support:
First Stones single in 7 years and, hey, they finally sound like the Stones ages ago! Although reading that Jagger is playing the guitar riff and not Keef is rather odd. Old couple. Keef has rubbed off on Mick???
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