31 Aug 2012 – “ Dust in the Wind " (Kansas, 1978)
Let’s call it a flat open. Eventually, the US didn’t manage to close up and the S&P settled below the 1400-mark. Asia, by and large closed flat, with the exception of Japan taking a 1.5% beating on surprisingly low IP numbers (-1% YOY versus +1.7% fcst after -1.5%) and consistently low PMI (47.7 after 47.9), a level last seen Q2/2011 and before that fall 2010.
Hence all markers mostly were left yesterday at close. Periphery maybe out by a couple of ticks with 2-10s hitting 300 for both.
German Retail Sales a miss at -0.9% MoM/+0.1% YoY (fcst +0.2%, but June revised up to +0.5% after -0.1%), as were Spanish figures at -6.9% YoY. With not much else to chew on, one would need to settle down ahead of the weekend and wait for rumours or eventually the probable lack of revelations of Bernanke’s afternoon speech in Jackson Hole.
Wait and See.
EZ CPI ticking up to 2.6% (fcst 2.5% after 2.4%). Hawk fodder for next week. EZ unemployment now at record 11.3% (as fcst) with June revised up to 11.3% as well (from 11.2%).
Morning session getting the slightest positive edge with equities up 0.25% and EGBs generally a little softer. Credit unchanged. EUR up, but no discernable reason (Not really priced ECB rate cut off the table given higher inflation?). ECB Coeuré interview confirming work on the bond buying programme maybe a “feel good” catalyst, too, although this is not exactly fresh news. In any case, conditionality is stressed again Add this to Asmussen comments yesterday of IMF involvement in case of bond buying and the hope for unlimited and condition-less automatic support can only be smoked. Oh, and Draghi’s first outline of the programme said just the same. Rumour has it that there will be a ECOFIN meeting on 14 Sep to finalize the plans (subject to 12 Sep German Court ruling). EU pushing for the ECB to have sole power to grant banking licenses under proposals to give it supervisory powers and kick starting EZ banking union. – which the Germans don’t want that way.
More haggling ahead.
Nothing on the government supply front. Next week will be busy again, throughout the EGB curve and countries with Spain’s sales on the short end (2-3 YRS), just a couple of hours ahead of the ECB meeting, a seriously mega coin tossing opportunity… Make or break your Primary Dealer’s desk on an auction…
Interesting midday constellation: EGB softer with Bund yields up 7 to 1.39%, Spain out by 11 to 6.68% (too near to 6.75% not to be tested soon and 7% thereafter). Rumours that Spain would rather recap Bankia on its own (outside the agreed EUR 100bn bank bail-out) in order to avoid losses of retail hybrid debt holders obviously raise the question where to take that money from. Soft Core holding a little better and Italy stable on the new reference but softer on the former one. Risk On in equities up by 1%. Credit tighter by 3 ticks and EUR crawling higher. Or is it the crawling higher EUR that inspired ROn? Whatever… Interesting picture. All set for Ben’s speech. Just the popcorn missing.
US data just in time for the release of Bernanke’s speech with a Chicago PM miss at 53.0 (fcst 53.3 after 53.7), Michigan Confidence better at 74.3 (fcst 73.6 unchanged) and a stronger rise in Factory Orders to 2.8% (fcst +2% after -0.5%).
And obviously no quick QE… Immediately shaving (only) 0.75% off equities and 50 ticks of the EUR, which had risen past the 1.2620.
“(…) nontraditional policies share the limitations of monetary policy more generally: Monetary policy cannot achieve by itself what a broader and more balanced set of economic policies might achieve; in particular, it cannot neutralize the fiscal and financial risks that the country faces. It certainly cannot fine-tune economic outcomes.” Bernanke speech link, for weekend readers.
Like I said yesterday: Upcoming calls from Ben and Mario to the governments? Get your act together, there’s just so much that can be done.
So, with this out of the way: Next ray of hope dope to be scrutinized at Thursday’s ECB conference. In the meantime, ESM’s Regling confirmed that the ESM banking licence a discussion is off the table and that both the EFSF’s and the ESM’s lending capacities are fixed.
Interesting squeeze back 20 minutes after release with the EUR back to 1.263 from 1.257 and equities taking the lead back up from it. And back… Hmmm. Algos gone wild?
In the meantime, most EGBs made back lost ground with the exception of Spain heading North (yield-wise) and adding further 10bp, past 6.75% after EcoM Guindos’ earlier presentation of the bank resolution plans with additional details to limit the FROB take to 50% and to involve private investors. The FROB’s funding limit is to be raised to EUR 120bn for this year (but it hasn’t issued any public debt since Oct 2011). Furthermore, if the “bad bank” may pay assets in share, does this mean that the relieved banks will become those private investors? Questions raised that probably explains the sell-off. In the meantime, the spread to Bunds, which had gone from 475 starting July to hit 635 on 24 Jul and then tanked to 465 on 21 Aug is back over 550, pretty much its mid-level. Ouch!
Hmmm… Odd and contradictory ROn / ROff close. Bunds at 1.34% (+2). (New) BKO at -0.035% (+0.7). OBLs at 0.33% (+2).
Spain at 6.86% (+29). New Italy 5.94% (+7). Old ref 5.85% (+8). Italian 2-10s 318 (from 299). Spanish 2-10s 327 (from 294). Spanish 2s 3.59% (-4).
Equities and Credit firmer by 1%.
New Issue supply courtesy of Deutsche Bank with EUR 750m 8 YRS mortgage Pfandbriefe at MS +1 and TeliaSonera with EUR 500m 15 YRS at MS +95.
Closing levels:
10 YRS Yields: Germany 1,34% (+2); Luxembourg 1,56% (+4); Swaps 1,72% (+3); Finland 1,73% (+1); Netherlands 1,71% (-2); EU 1,82% (+2), Austria 2,02% (-2); EIB 2,06% (+2); France 2,15% (unch); EFSF 2,33% (+2); Belgium 2,55% (-1); Italy 5,94% (+7); Spain 6,86% (+29).
10 YRS Spreads: Luxembourg 22bp (+2); Swaps 38bp (+1); Finland 39bp (-1); Netherlands 37bp (-4); EU 48bp (unch); Austria 68bp (-4); EIB 72bp (unch); France 81bp (-2); EFSF 99bp (unch); Belgium 121bp (-3); Italy 460bp (+5); Spain 552bp (+27).
EUR swap curve 2-5 YRS 45bp (+2,0); 5-10 YRS 77bp (unch) 10-30 YRS 48bp (+1,0).
2 YRS German BKOs closed -0,035% (+0,7) and 5 YRS OBLs 0,33% (+2).
Main at 149 from 151 (1,3% tighter); Financials at 248 after 251 (1,2% tighter). SovX at 233 from 233. Cross at 591 from 596.
Stoxx Futures at 2437 / +1,2% (from 2408) with S&P minis at 1410 (+0,8% from 1399, at European close).
VIX index at 17,0 after 17,8 yesterday same time.
Oil 96,2/113,8 (WTI/Brent) from 94,3/112,5 (+2,0%/+1,2%). Gold at 1676 after 1656 (+1,2%). Copper at 344 from 344 (unch). CRB at EU COB 308,0 from 306,0 (+0,7%).
Baltic Dry back in reverse mode at 703 from at 707 yesterday, a new late low on its way to the 647 Feb low.
EUR 1,260 from 1,250
ECB deposits at EUR 330bn after EUR 334bn.
Greek bonds guesstimates: 2023s at 23.25% from 23.50% and 2042s unchanged at 19.25%
All levels COB 17:30 CET
Over the last two weeks (compared to Fri 17 Aug COB):
Personally vacation shortened week that only started yesterday with "For Heaven's Sake" (Bunds 1,32% -17; Spain 6,57% +15; Stoxx 2408% -2,4%; EUR 1,25), which made me wonder about what markets were expecting from the Central Banks (probably too much) and what Spain was up to (probably too little).
Obviously the summer lightness of being and associated complacency have started to wane; and Spanish 10s after bouncing off the over-optimistic 6.05% on Aug 22 have been subject to daily doses of heaviness, which leaves then subject to small acceleration spurts like today (…) with first in sight 6.750% (taken) and then 7%.
Credit torsion with the Soft Core acting as stable pivot.
New Supply out of Finland, Italy and from the EFSF in 10s explains some upside corrections in my references (New Finnish 10s trading 7bp over the interpolated reference; New Italy Nov 2022 10 wider than Sep 2022; EFSF issue pricing on the upper end of range with some new issue premium against the already discounted former reference).
Italian and Spanish curves are steeper than 2 weeks ago, with the short end not performing in mind-blowing manner, but upheld by the possible ECB buying outlook. Trashy long end action. Both Italian and Spanish 2-10s now way past 300. Had closed in the 290s a fortnight ago.
Credit indices by and large just a little weaker (+2%). European equities a bit softer with the reversal of the daily small grind on shorts we witnessed in the first half of August, which has become a daily grind on longs.
Major movements hence only in Hard Core EGBs with Bunds back in the 1.30s after flirting with the 1.60% barrier 2 weeks ago; Gold looks like a decent flight into the unknown and is up over 3.7% (despite no QE)(yet); the EUR, of course, looks healthier at 1.26 then when it was flirting on the 23 handle; and with stable Oil, Brent paid in EUR around 90 looks less threatening than over EUR 94 per barrel (116.40 high traded on 23 Aug / All-time high EUR 96.3 on front month early March & EUR 94.6 per barrel on 15 Aug). Finally, despite the painfully low volatility and lack of volume, VIX seems to wake up to September / October uneasiness and has staged a healthy comeback.
10 YRS Yields: Germany 1,34% (-15); Luxembourg 1,56% (-13); Swaps 1,72% (-13); Finland 1,73% (-3); Netherlands 1,71% (-14); EU 1,82% (-12); Austria 2,02% (-5); EIB 2,06% (-8); France 2,15% (+3); EFSF 2,33% (+12); Belgium 2,55% (-3); Italy 5,94% (+16); Spain 6,86% (+44).
10 YRS Spreads: Luxembourg 22bp (+2); Swaps 38bp (+2); Finland 39bp (+12); Netherlands 37bp (+1); EU 48bp (+3); Austria 68bp (+10); EIB 72bp (+7); France 81bp (+18); EFSF 99bp (+27); Belgium 121bp (+12); Italy 460bp (+31); Spain 552bp (+59).
EUR swap curve 2-5 YRS 45bp (-4,0); 5-10 YRS 77bp (-4,0) 10-30 YRS 48bp (+2,0).
2 YRS German BKOs closed -0,035% (+1) and 5 YRS OBLs 0,33% (-8), on the week.
Swiss 2-years down to -0.48% from -0.38% 2 weeks ago.
Main at 149 from 145 (2,8%); Financials at 248 after 242 (2,5%). SovX at 233 from 241. Cross at 591 from 583.
Stoxx Futures at 2437 / -1,2% from 2467 with S&P minis at 1410 / -0,2% from 1413, at European COB last week.
VIX index at 17,0 after 14,2 a fortnight ago.
Oil 96,2/113,8 (WTI/Brent) from 95,8/113,9 (+0,4%/0,0%). Gold at 1676 after 1617 (+3,7%). Copper at 344 from 342 (+0,6%) . CRB closes 308,0 from 304,0 (+1,3%).
EUR 1,260 after 1,231 2 weeks ago.
Greek bonds guesstimates: Had 2 good weeks with 2023s at 23.25% from 24.25% and 2042s at 19.25% after 20.00%.
All levels Friday COB 17:30 CET
Next Week:
US closed for Labour Day coming Monday. ECB on Thursday. Spanish 2-4 YRS auction on Thursday, just hours before the ECB meeting, probably the most exciting govie auction of the week.
EZ: Mon Final Manu PMI 45.3 Wed Final Serv & Comp PMI Retail Sales Fri Q2 GDP fcst -0.2% unch
Germany: Mon Final Manu PMI 45.1 Wed Final Serv PMI 48.3 Thu Jul Factory Orders fcst +0.8% MoM after -1.7%
France: Mon Final Manu PMI 46.2 Wed Final Serv PMI 50.2 Fri Q2 Unemployment 10%
Italy: Mon Final Manu PMI Tue Final Serv PMI
Spain: Fri Retail Sales (-5.2% Jul)
US: Tue Final PMI; Manu ISM fcst 49.9 after 49.8 ISM PX 47.5 after 39.5%; Constr Spending +0.5% after +0.4% Tue Final Productivity & Unit Labour Costs; Wed ADP Employment fcst +130k after 163k Claims (372K) Non Manu ISM fcst 52.5 after 52.6
Asia: Japan Indu Production fcst +1.7% after +0.4% MoM China Sat Manu PMI fcst 50 after 50.1 Mon HSBC PMI
Click link on title or below for today’s musical support:
Not that I reaaaaaaaaally like it, but fitting…
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