03 Dec 2012 – “ Out Of Touch ” (Hall & Oates, 1984)
Fiscal Cliff Discussion Risk Event still very much alive. Spain maths on budget. Italian maths, French… Bah… Still feels like things are a bit out of touch with reality here (equities vs. bonds). And that Greek buy-back looks really, really generous. Outwordly. Then again, best way to get rid of private ownership. After the OMT, the OPM… Obviously, other people’s money. PMI paint a slightly less bleak picture, but on rock bottom levels.
"Out Of Touch" (Bunds 1,41% +3; Spain 5,24% -6; Stoxx 2580 unch; EUR 1,306 +50)
Fiscal Ping-Pong, Part IV on Friday evening, but eventually everyone remained cool and US indices closed about flat with a last hour +0.5% spike and then a -0.25% correction into the close on index rebalancing. Fiscal Cliff Discussion Risk Event (FCDRE) live over the weekend with both parties trading blows and menaces.
Merkel quite realistic that some kind of haircut on Greece will materialize at some stage in time. Obviously, the can-kicking exercise will end up with the totality of the Greek debt held by the official sector and the idea seems to be to bury or postpone any reckoning to whenever it suits all parties (like not before elections, for instance).
ESM & EFSF rating taken down to Aa1 by Moody’s, after the latest move on France, but this is hardly a surprise.
The question of an equally lenient treatment of Ireland and Portugal, in line with the latest conditions reached on supporting Greece, remains open at this stage.
Asian close pretty even, but for China… in red. Talk about a change, here…
Charts look terrible.
Not much around at open.
Opening levels close to home: Equities about unchanged to a tick firmer (matching the slightly better US close), but with EGBs better bid. Bunds 1.36% (-2) / UST 1.61%. Periphery unchanged with Spain at 5.30% in 10s. Credit a tick better, too.
EUR over the 30-handle at 1.303 with Commodities up half a point.
Odd. Everything is shining. Rise and Shine!
Chewing on the Greekbuy-back proposal
, which ended up being an exchange into EFSF 6m bills (up to EUR 10bn, 2023 price range 38.1-40.1% of par, 15.095% - 14.389% in yield, value 17 Dec, 2042 30.2-32.2% in price, 11.951% - 11.372 in yield). Ok. No cash, but well over Friday’s closing levels of 16%, respectively 12.5% in yield (bid). Leading to an instant jump in Greek bonds.
Final Manufacturing PMIs for November with the EZ confirming flash estimates of 46.2 (after 45.4 in Oct). Output revised higher to 46.1 (after 44.8 flash and 45 in Oct) and New Exports at 46.4 (after 45.9 flash and 45.3 prior). German numbers confirming flash estimates of 46.8 from 46, but France slipping to 44.5 (flash 44.7 after 43.7), as for Italy at 45.1 (after 45.5). Spain doing better at 45.3 after 43.5
Bills-only day: Germany with EUR 3bn 6m at -0.0168% (after -0.012%), Dutch combined about EUR 2.4bn of 3 and 6m at -0.34% and -0.016% (after -0.029% and -0.02%), France with short of EUR 6.8bn in 3m at -0.022%, 6m at -0.008% and 12m at +0.016 (after last week-0.020%, -0.008%, +0.019%).
Belgian and EFSF bills tomorrow.
Not a huge week in terms of govie supply: The Spanish auction (exceptionally on Wed) will be for up to EUR 4.5bn in 2015, 2019 and 2022s. On Wed as well EUR 4bn Schätze out of Germany. Thursday will see a rather modest EUR 4bn French auction for 2018, 2019 and 2027 OATs.
Good Risk On
developing in the course of the late morning and during lunchtime.
Equities up a good 0.75%. Credit snapping tighter by 3% (-4- ticks). Hard Core EGBs slammed, Soft Core soft, Periphery on the Ramp and revisiting Thursday’s late morning tightest levels in 10 YRS (before snap-back) at 4.45% and 5.15%
Bunds 1,42% (+4), OBLs at 0,44% (+4) and BKOs 0,025% (+1,7). UST at 1,64% (+3) COB.
Spanish 2s at 2,79% (-4), 10s at 5,17% (-13). 2-10 YRS spread 237bp (-10).
Italian 2s at 1,77% (-3), 10s at 4,39% (-10). 2-10 YRS spread 263bp (-6).
Greek bonds going through the roof to hit the buy-back / exchange levels (Obviously other people’s money… These bonds closed – on a price basis – about 34.3% and 25.7% on Friday 23 Nov and about 35.60% and 28.50% last Friday. Rather the bid side (then), so put the offer 1 point higher, but these prices really seem generous. And somehow 5% above the levels 10 days ago. EUR 5bn difference. No small change…. Obviously, other people’s money… After the OMT, the OPM…
Final US PMI at 52.8 (from 52.4). ISM figures were a miss at 49.5 for Manufacturing and 52.5 for Prices Paid (fcst 51.4 after 51.7 and 53.3 after 55). Put the blame on Sandy. Construction Spending, on the other hand, rose 1.4% in Oct (fcst +0.5% after rev. +0.6%), confirming the latest batch of healthy housing figures.
US cash open rather less eventful. Initially firmer, but holding near / just above Friday’s levels. FCDRE
Putting a bit of a dampener on European risk appetite, too.
Europe running out of steam with the US flashing red. But, but, but… It felt so good this morning, still.
Bah.. Equities closing barely changed, but some damage done to EGBs, still reeling from any further attempt to get debt mutualisation through the back-door. Credit still squeezing, 2.5-3% tighter.
Bunds closed at 1,41% (+3), OBLs at 0,43% (+3) and BKOs 0,022% (+1,5). UST at 1,63% (+2) COB.
Periphery doing well, but, as for the rest of Risk, off late morning tightest levels.
Greek bonds went on the ramp, closing at 39% (14.75% yield) for the 2023s and 30.75% (11.77%) for 2042s, down 125bp, respectively 75bp from last Friday.
Spanish 2s at 2,80% (-3), 10s at 5,24% (-6). 2-10 YRS spread 244bp (-3). Italian 2s at 1,77% (-3), 10s at 4,44% (-5). 2-10 YRS spread 267bp (-2).
EUR 1.306, healthy. Commodities about unchanged to a little tick better.
Take-away: Fiscal Cliff Discussion Risk Event still very much alive. Spain maths on budget. Italian maths, French… Bah… Still feels like things are a bit out of touch with reality here (equities vs. bonds). And that Greek buy-back looks really, really generous. Outwordly. Then again, best way to get rid of private ownership. After the OMT, the OPM… Obviously, other people’s money. PMI paint a slightly less bleak picture, but on rock bottom levels.
Outlook: More of the same. Fiscal Cliff Discussion Risk Event still live. Spain maths on budget. Italian maths, French… Bah… Things are a bit out of touch with reality, here (equities vs. bonds). Spanish unemployment tomorrow. Service PMIs on Wed.
European 50 & 100d averages: EStoxx 2509/2463, DAX 7270/7115, CAC 3448/3422, MIB 15548/15140, IBEX 7821/7522.
US 50, 100 & 200d averages: INDU 13199/13137/12995, S&P 1422/1409/1385, NASDAQ 3024/3019/2987 with AAPL at 613/625/600.
EUR: 50d 1.291, 100d 1.271 & 200d 1.279. Fibo retracement (of May 2011 1.494 & Jul 2012 1.204 down-leg) at 1.273& 1.315, then 1.349 (50%).Jul 2012 to Sep rebound levels: 1.231 – 1.247 – 1.261 – 1.274 – 1.291 -1.317 .
New Issues starting the week mainly with EUR 1.25bn 5 YRS Pfandbrieve (Belgian covered bonds) for KBC at MS +30 (compared to Belfius’ inaugural deal 2 weeks ago at MS +45, now trading about MS +30). Some taps with Unicredit increasing a 10 YRS LT2 by EUR 250m at MS +498 and French unemployment agency UNEDIC adding EUR 300m to its April 207 benchmark at OAT +17 (about MS +5).
Don’t hesitate to exchange with the author. All comments, suggestions, rants are welcome.
10 YRS Yields: Germany 1,41% (+3); Luxembourg 1,51% (+2); Netherlands 1,63% (+2); Finland 1,65% (+3); Swaps 1,70% (+3); EU 1,72% (+2), Austria 1,76% (+2); EIB 1,88% (+2); EFSF 2,01% (+2); France 2,05% (+1); Belgium 2,16% (+0); Italy 4,44% (-5); Spain 5,24% (-6).
10 YRS Spreads: Luxembourg 10bp (-1); Netherlands 22bp (-1); Finland 24bp (unch); Swaps 29bp (unch); EU 31bp (-1); Austria 35bp (-1); EIB 47bp (-1); EFSF 60bp (-1); France 64bp (-2); Belgium 75bp (-3); Italy 303bp (-8); Spain 383bp (-9).
EUR swap curve 2-5 YRS 46bp (+1,0); 5-10 YRS 81bp (unch) 10-30 YRS 63bp (unch).
2 YRS German BKOs closed 0,022% (+1,5) and 5 YRS OBLs 0,43% (+3).
Main -3 to 120 (-2,4% tighter); Financials -5 to 155 (-3,1% tighter); Cross -11 to 486 (-2,2% tighter).
Stoxx Futures at 2580 / +0,0% (from 2580) with S&P minis at 1414 (+0,1% from 1412, at European close).
VIX index at 16,3 after 15,8 yesterday same time.
Oil 89,1/111,0 (WTI/Brent) from 88,5/110,9 (+0,7%/+0,1%). Gold at 1715 after 1712 (+0,2%). Copper at 363 from 361 (+0,6%). CRB at EU COB 299,0 from 299,0 (+0,0%).
BDIY, down 9 to 1077.
EUR 1,306 from 1,301
Greek bonds went on the ramp, closing at 39% (14.75% yield) for the 2023s and 30.75% (11.77%) for 2042s, down 125bp, respectively 75bp from last Friday. Thanks for the wrapping, guys!
All levels COB 17:30 CET
Fast-forward Macro and Events:
Hmm… Only bits and pieces on the macro front. Service PMIs on Wednesday Industrial output in Spain on Wed. Factory Orders in Germany on Thu. Fri NFP in the US.
Thursday ECB& BOE (FED on 12 Dec)
The start of next week remains full of bills (Belgium, EFSF on Tue) and see additional EUR 4bn German 2 YRS on Wednesday. Spain will hold an auction of up to EUR 4.5bn in 3, 7 and (short) 10 YRS on Wednesday as well (as Thursday will be closed), while France will supply its monthly OAT auction on Thursday, albeit for only up to EUR 4bn and without 10 YRS (2018, 2019 & 2027).
EC: Tue PPI fcst +2.5% after +2.7% YoY; Wed Final Comp PMI, Retail Sales; Thu EZ GDP and ECB
GE: Wed Final Serv PMI; Thu Factory Orders last -3.3 MoM, Friday Industrial Production last -1.8% MoM/-1.2% YoY
FR: Wed Final Serv PMI; Thu Q3 unemployment
Italy: Wed Final Serv PMI
Spain: Tue Unemployment; Wed Industrial Output (last 7% wda).
US: Mon Final PMI, MfG ISM & Construction Spending; Tue ISM NY; Wed Factory Orders, Productivity and Labour Costs; Thu Claims; Fri NFP
Click link under title or below for today’s musical support:
Manic moves and drowsy dreams/ Or living in the middle between the two extremes
Don’t hesitate to exchange with the author. All comments, suggestions, rants are welcome