18 Jun 2012 – " Rescue Me " (Madonna, 1991)

18 Jun 2012 – " Rescue Me " (Madonna, 1991) 

http://youtu.be/1poomgFht8E

Not a single shoe dropped over the weekend, leading to a healthy Risk On call in Asia with indices up 1.5-2%, with the notable exception of China, where data showed still depressed housing prices and YoY decreases on new homes still seen in 56 out of 70 cities.

Initial European quotes about in line with the mood, but somehow off to a more cautious start. Of course, EZ EGBs about 3 to 5 softer, on ROn, but Periphery bonds just a couple of ticks tighter than Friday evening, as solely the Greek black cloud has momentarily dissolved, but with plenty of Spailout and contagion questions open. European equities up 1.5% and credit tighter by about 5 ticks (a good 2%). EUR hitting the 27 handle.

And now? No eco data to chew on. Waiting for things to unravel on Spailout details, G20, Ecofin... Maybe FED QE. Need for the Greeks to actually form a government that will last. Waiting some more.
So, no, no real fireworks to be expected after all and the downside still to be reckoned with and at 6.80s, 10 YRS Spanish yields are far too near from the 7% tipping point to be comfortable with. And it took less than an hour for the market to realize, shifting the Periphery back wider and by and large all indicators back to Friday COB levels.

Add a further 30 minutes to torpedo Italy back past 6% and to send Spain to a new high at 7.10%, past THE mark (and 5 YRS past 6.50%), as data was published showing bad loans rising further to 8.7% (from 8.3%), the highest in 18 years.
For the rest, we now know the drill: Bunds tighter, equities down, credit back up, EUR back to low 26s. Rumours circulating the audit of the Spanish mortgages books could exceed EUR 150bn obviously no help in this situation and fanning the flames.

Eventually a fatalistic, somehow muted market reaction at these levels, as if everyone were just waiting for the Spanish zapato to fall to move on. And that’s how things settled for lunch.
As anecdote, India’s BBB- rating was cut to negative outlook by Fitch, which in turn will not heightened the BRICS' mood at the G20, as a dip back to junk would be a major slap in the face, seen as triggered by the unruly EZ.

Supply only came in form of bills, first sold by the Dutch for EUR 1bn 3m at 0.000% (unch) and 1.4bn 9m at 0.019% (after 0.014% 2 weeks ago) and then by France with a weekly vertical serving totalling EUR 8.6bn of 1 to 12m at 0.049% for EUR 0.9bn 1m,  0.058% for EUR 4.5bn 3m (from 0.075% last week) , 0.094% for EUR 1.7bn 6m (from 0.129%) and 0.19% for EUR 1.5bn for 12m (from 0.214%).

So all tighter, as even short term money seems to flee into quality.

On tomorrow’s plate: bills again, this time from Greece (EUR 1bn 3m, last 4.34% mid May), Spain (EUR 3bn 12 & 18m, last 2.99% and 3.30% mid May) as well as the EFSF ( EUR 1.5bn 6m, last 0.2% 2 weeks ago).

Afternoon session marked by some added weakness with Spain hitting 7.24% in 10s and equities moving into negative territory for good and credit getting soft, alongside EUR and commodities. ROff.

No US figures outside neutral afternoon NAHB homebuilder data at 29 (fcst 28 after 29, revised 28). Small uptick, but highest level in 5 YRS.

ECB confirmed it didn’t buy any bonds for the SMP last week, which is no surprise. On the contrary, it had EUR 1.4bn redeemed of the existing now EUR 210bn stock).

New Issue supply remained German with Deutsche Post taking the limelight, after an absence of over 8 years, with a 2-trancher of EUR 750m 5 YRS at MS +73 and EUR 500m 10 YRS at MS +115. German EAA tapped an outstanding 3 YRS benchmark by EUR 250m at MS +4, while non-IG Kabel Deutschland raised EUR 400m 5 YRS nc2 at 6.50%.
Had likewise, for yield hunters, BG Energy issuing 50 YRS nc5 hybrids at 6.500% for EUR 500m and GBP 600m (same terms).

Soft close on ROff. Equities and Credit on their lows. 1 YR Germany now trading slightly negative, 2 YRS BKO back to 0.028%

And now?  Spain’s curve is still flattening with 2 YRS now at about 5.50%, 3 YRS 6.00%, 4 YRS 6.30% and 5 YRS 6.75%. While closing 10 bp off the widest level, it’s once more a record high close.

#rescate , as they say on Twitter.

Tomorrow: German and EZ ZEW & Spanish bills. Doubtful more will come out of the G20 than bickering and mutual recriminations.

[Swiss 5 YRS spiked out to +0.02% this morning on ROn, but since back to -0.04% in the close]

Closing levels: 
10 YRS Yields: Germany 1,41% (-4); Luxembourg 1,80% (-3); Swaps 1,85% (-3); Finland 1,90% (+2); Netherlands 1,95% (+1); EU 2,30% (-4), Austria 2,36% (+3); EIB 2,51% (-1); France 2,60% (+2); EFSF 2,66% (-1); Belgium 3,12% (+4); Italy 6,04% (+12); Spain 7,12% (+26).
Added EU as issuer

10 YRS Spreads: Luxembourg 38bp (unch); Swaps 43bp (unch); Finland 45bp (+2); Netherlands 54bp (+5); EU 88bp (-1); Austria 94bp (+6); EIB 110bp (+3); France 119bp (+6); EFSF 124bp (+2); Belgium 170bp (+7); Italy 462bp (+15); Spain 570bp (+29).

EUR swap curve 2-5 YRS 41bp (-2,0); 5-10 YRS 59bp (+1,0) 10-30 YRS 24bp (-3,0).
2 YRS German BKOs closed 0,030% (-4) and 5 YRS OBLs 0,47% (-5).

Main at 179 from 175 (2,3% wider); Financials at 288 after 279 (3,2% wider). SovX at 319 from 318. Cross at 686 from 678.

Stoxx Futures at 2148 / -0,9% (from 2167) with S&P minis at 1334 (+0,2% from 1331, at European close).
VIX index at 21,8 after 22,3 yesterday same time.

Oil 83,0/96,0 (WTI/Brent) from 84,0/98,0 (-1,2%/-2,0%). Gold at 1628 after 1627 (+0,0%). Copper at 338 from 340 (-0,6%). CRB closes 271,0 from 273,0 (-0,7%).
Baltic Dry up to 938 from 924 (+1.5%).

EUR 1,257 from 1,264

ECB deposits at EUR 741bn after EUR 700bn. Oumpf! Quite an increase in deposits ahead of the weekend vote.

Greek bonds guesstimates: Very positive reaction to the election outcome with 2023s back down to 25.75% from 27% on Friday a 28.25% and 2042s at 20.75% from 22.75% (20.25% and 16.75% before the first election round).

All levels COB 17:30 CET

This Week: 
Quite light on hard data and mostly sentiment indicators to start the week. FED on Wed. PMI data on Thu. US data dump on Thu.

All about bills until Wed with German 0% Jun 2014 auction. Spanish and French short to medium term bonds on Thu.
Light on hard market data, heavy on political agenda (G20, Ecofin, Greece, Spanish bank audit results)

Germany: Tue ZEW Eco fcst 5 after 10.8 Current 39 after 44.1 Wed PPI fcst 2.3% after 2.4% YoY Thu PMI Manu fcst 45.4 after 45.2 Services fcst 51.7 after 51.8 Fri IFO Biz fcst 105.9 after 106.9 Current fcst 112 after 113.3 Expect 99.9 after 100.9
France: Tue Company / Prod Outlook Biz Conf fcst 92 after 93 Thu PMI Manu fcst 44.7 unch Services fcst 45.2 after 45.1
EZ: Thu Comp PMI fcst 45.8 after 46 Construction -3.8% YoY prior
Periphery: IT Wed Indu Orders prior -14.3% YoY Fri Cons Conf fcst 86 after 86.5 SP Wed trade balance Thu mortgages
US: Tue Housing Starts fcst 720k after 717k Wed Mortgage application & FOMC Thu Claims 386k prior PMI prior  53.9 Philly Fed Home Sales fsct 4.57m after 4.62m Leading Ind fcst +0.1% after -0.1%
Asia: China Flash PMI on Thu, Fri leading indics

Click link on title or below for today’s musical support:
 http://youtu.be/1poomgFht8E
(Rescue me [rescue me, it's hard to believe] /  I'm drowning, baby throw out your rope...)