20 Nov 2012 – “ A Tout Le Monde (Set Me Free) ” (Megadeth, 1995)
Uh… Very uncomfortable French downgrade. Not
surprising per se, but uncomfortable. Ask the EFSF… Brings back the question of
“Who’s Next”? European Risk (Equities
& Credit), however, oblivious and taking rising yields as a sure sign for
Risk On. I’d see the risk of France (and everyone else) starting to count contingent
costs.
"A Tout Le Monde" (Bunds 1,41% +6; Spain 5,79%
-9; Stoxx 2509 +0,6%; EUR 1,281 unch)
---
The Monday (European
squeeze) kept its stamina into the remaining US session yesterday with indices
adding a further 0.3% into the close. Apple finally closed on a really positive
note with a 7.2% rebound (after an over 3% in opening gap), up over 12% from
Friday afternoon’s low. Not much else. Good enough.
Fri low to Mon Hi /
close: INDU close +2.6, S&P +3.3%, NASDAQ +3.7%. EStoxx +3.1%, DAX +2.8%,
CAC +3.2%, MIB +3.4%, IBEX +2.7%. To complete: Nikkei (Thu low to high) +6% and
to today’s close +5.3%. Shanghai Mon low to Today’s close +0.6%. Feeling
there’s anything odd out there? Yeah. Me,
too.
Asian session
mixed, flattish to (slightly) negative after the Moody’s downgrade of France
to Aa1 neg (on negative watch since mid Feb and after S&P’s downgrade to
AA+ mid Jan).
Trigger factors: Economic
growth affected by structural challenges (loss of competitiveness, labour
market rigidities); uncertain fiscal outlook; France’s disproportionally high
exposure to the Periphery through trade and banks.
Bit of a dampener,
that Moody’s downgrade. European equities down 0.3% in pre-market.10 YRS OATs,
which just yesterday had brushed (but not touched) their all-time low again at
2.055%, before widening a little in the equity rally, out to 2.10% to start the
day. Limited initial fall-out, though. Equity cash open a bit harsher, though,
but fast settling on earlier levels (-0.3%). Bunds tighter by 1 to the
now-accustomed 1.34% level, USTs like-wise -1 to 1.61%.France to Spain +2
(5.90%). Credit by and large flat. Commodities a touch weaker, noting the late
US pick up in CRB (+1.4%).
EUR 1.278 – as in
“couldn’t really care”.
Let’ see, if we’ll
get the usual end of day comments of politicians that the rating downgrade and
the markets’ shoulder shrug is a proof of their lack of credibility. But then
again, what was Cassandra’s credibility? And people seriously disliked her,
too.
German PPI a tick
under consensus at flat MoM (fcst +0.1% after +0.3%) / +1.5% YoY (after +1.7%).
Nothing else on the macro slate.
French bonds
confirmed as being kicked out of the BofA/ML AAA index. Need to check that fall
out. As well as further trickle down effects on French and related entities
(for instance the Supras).
Spain
sold more than its targeted EUR 4.5bn of bills with EUR 4.2bn of 12m at 2.797%
(after 2.823%) and a slice of EUR 713m of 18m at 3.034% (after 3.022% last
month). Bid-to-cover in 12m unimpressive at 2.12 (after 2.71). Given the small
longer allocation, BC stood at 5.7 after 3.0. This will be followed by EUR
3.5bn in 3, 5 & 9 YRS BONOs on Thursday.
Just shy of EUR 2bn
EFSF 6m at -0.005% (last -0.024%).
10 YRS Bund
increase tomorrow (COB 1.415%. Last 1.56% and 1.52% end of Oct and Sep, before
that 1.42% early Sep and Aug and an all-time low at 1.31% mid-July)) next to EUR
2bn Portuguese bills (3,6 and 18m, last 1.37%, 1.84% and 2.97%).
The syndicated EFSF
3 YRS that was due to pop out today with initial pricing thoughts around swap
to swaps / MS-2 was postponed, given the rating implications. Seemed like
rather reasonable levels, though.
Market moving into
some Risk On spirit by mid-morning
with equities recovering some colour (to tick closing levels), the Periphery
back to unchanged after the Spanish auction and EGBs softer (fear of domino
effect) with Bunds and France adding 4bp (to 1.39% and 2.11% respectively, and
unchanged spread).
Midday picture
showing Risk On, but not completely On.
Equities down 0.3%. Credit still better bid, especially with financials ticking
6 tighter (3.5%).
EGBs 3-4 wider on
average with France
at 2.12% (+5), having nearly taken out the 2.055% all-time low yesterday
morning. Pas de chance…
Bunds down 40 ticks
(like yesterday for the whole day, despite equities surging 3%). Contingent
rating risk to all exposed to helping out the weak hands. ESM & EFSF under
Moody’s review, too. Might hit Supras, too. Hence, all weaker.
Periphery back a
little tighter on the long end and especially in 2s for Spain (knowing
that this the correction of yesterday’s +8 widening to 3.30% ahead of the
auction).
Bunds 1,39% (+4),
OBLs 0,40% (+3), BKOs -0,015% (+1). UST at 1,63% (+1).
Spanish 2s at 3,23%
(-7), 10s at 5,87% (-1). Spanish 2-10s 264bp (+6).
Italian 2s at 2,03%
(-4), 10s at 4,89% (-1). Italian 2-10s 286bp (+3).
EUR back to 1.281,
where left at COB. Commodities eventually just right on COB level, too.
Eventually “Rather Not Really Risk On” than “Risk On” or “Risk Off” after lunch. On second thought.
And with Cyprus
(Oh, yeah. Them…) having serious
issues with the Troika (Go ask the Greeks how they feel about it…).
Plenty of stuff to
chat about at the Eurogroup Inn tonight: Latest Greek protests on Troika
measures, PSI / buy-back at 25% (which is market price solely from 20 RS on),
interest moratorium (…).
On cue, Juncker
doing some pep-talk about a conclusive evening, however “not entirely” certain
(…).
HP going down in
pre-open on impairment charges following its Autonomy acquisition.
America, America! Give
us a lead!
US data to kick-off
the afternoon and ahead of US cash open with Housing Starts at 894k/+3.6% MoM
(fcst 840k after 872k, rev. 863k / -3.7% after +15%, rev. 15.1%) and Building
Permits of 866k / -2.7% MoM (fcst 864k after 894k, rev. 890k / -2.9% after rev.
+11.1%), after yesterday’s mixed Home Sales figures. Would tend to show an
on-going recovery.
US cash open only
slightly lower from yesterday, but near European Monday COB levels, giving
European even more solace in being correctly priced (about unchanged).
Slight uptick a reason
to test positive territory (+0.6%) with the CAC adding the luxury to test its
highest levels in 2 weeks and the DAX adding 1% from Mon COB I the peak.
Odd world… Downgrade
= ROn, because it didn’t matter in
the past. Softer EGBs on credit issues taken as granted sign for Risk On?!
10 YRS OAT trading one-way
since this morning and adding 8bp to 2.145%, the highest level since 09 Nov. No
price rebound since this morning. Pretty even shift 5 YRS out, short end
holding a tick better. But while giving French OATs a little plus (It’s their
downgrade after all…), it’s the whole of EGBs (ex Periphery) that has been held
hostage.
Periphery moving
into “Risk On” – as obviously all EGBs are sold. Claro!
Equities closing
HOD +0.6%, of course. Credit sill in tightening mode. Of course. It’s Risk On, dummy! The reason will simply
be found at a later stage. There goes my mind.
Bunds closed at
1,41% (+6), OBLs at 0,42% (+5) and BKOs -0,002% (+2,2) with UST at 1,65% (+3).
Spanish 2s at 3,17%
(-13), 10s at 5,79% (-9). Spanish 2-10s 262bp (+4).
Italian 2s at 1,99%
(-8), 10s at 4,85% (-5). Italian 2-10s 286bp (+3).
Commodities now decorrelating,
given a quieter Middle East. EUR unchanged. Odd. Odd. Odd.
Take-away: Uh…
Very uncomfortable French downgrade. Not surprising per se, but
uncomfortable. Ask the EFSF… Brings back the question of “Who’s Next”? European Risk (Equities & Credit), however,
oblivious and taking rising yields as a sure sign for Risk On. I’d see the risk
of France (and everyone else) starting to count contingent costs.
Outlook: Toss a
coin? EUR 4bn 10 YRS Bund auction (COB 1.415%). Some more rating changes? No
hard European data. US data dump before Thanksgiving and then no more data
until next Monday. PMI fcst 51 after 51.3, Claims fcst 410k after 439k,
Michigan U fcst 84.5 after 8.9, Leading Indicators fcst 0.1% after 0.6%.
European 50d & 100d: EStoxx 2513/2437 (50d/100d), DAX
7283/7041, CAC 3452/3394 , MIB 15667/15002, IBEX 7856/7429.
US 100d & 200d for
INDU 13126/12992, SPX 1405/1382 and NASDAQ 3016/2985, as Apple-challenged (200d
596).
EUR: 100d 1.265& 200d 1.281. Fibo retracement (of May 2011 1.494 & Jul 2012 1.204
down-leg) at 1.273& 1.315. Jul
2012 to Sep rebound levels: 1.231 – 1.247 – 1.261 – 1.274 – 1.291.
New Issue supply
from Danone with EUR 750m 5 YRS at MS +30 (30bp over France) and Norwegian utility
Statkraft with EUR 700m 10 YRS at MS+85. Standard Chartered with EUR 750m 10
YRS sub debt at MS +200.
Closing
levels:
10 YRS Yields:
Germany 1,41% (+6); Luxembourg 1,54% (+5); Netherlands 1,67% (+6); Finland
1,68% (+5); Swaps 1,72% (+4); EU 1,77% (+4), Austria 1,84% (+6); EIB 1,93%
(+4); EFSF 2,06% (+5); France 2,15% (+8); Belgium 2,32% (+6); Italy 4,85% (-5);
Spain 5,79% (-9).
10 YRS Spreads:
Luxembourg 13bp (-1); Netherlands 26bp (unch); Finland 27bp (-1); Swaps 31bp
(-2); EU 36bp (-2); Austria 43bp (unch); EIB 52bp (-2); EFSF 65bp (-1); France
74bp (+2); Belgium 91bp (unch); Italy 344bp (-11); Spain 438bp (-15).
EUR swap curve 2-5
YRS 48bp (+2,0); 5-10 YRS 83bp (+1,0) 10-30 YRS 61bp (unch).
2 YRS German BKOs
closed -0,002% (+2,2) and 5 YRS OBLs 0,42% (+5).
Main -3 to 128
(-2,3% tighter); Financials -6 to 171 (-3,4% tighter); Cross -15 to 522 (-2,8%
tighter).
Stoxx Futures at 2509
/ +0,6% (from 2495) with S&P minis at 1384 (+0,4% from 1379, at European
close).
VIX index at 15,4 after
15,9 yesterday same time.
Oil 87,4/110,2
(WTI/Brent) from 89,1/111,4 (-1,9%/-1,0%). Gold at 1731 after 1734 (-0,1%).
Copper at 353 from 354 (-0,3%). CRB at EU COB 298,0 from 294,0 (+1,4%).
BDIY, up 12 to 1066
(+1.1). Up and up and higher. And higher… Target is now the 1162-high seen in
July, post-Chinese New year slide.
EUR 1,281 from
1,281
Greek guesstimate: Greek bonds 17.00% (-25)
for 2023s and 14.50% for 2042s. Positive outcome, certainly wished for, but far
from certain…
All levels COB
17:30 CET
Fast-forward
Macro and Events:
Not much in terms
of European data until Thursday, which will be PMI day, generally seen juuust a little better everywhere.
Crowded data dump tomorrow
ahead of Thursday’s Thanksgiving holiday and Black Friday.
Wed 10 YRS Bund
increase and Portuguese bills; EUR 3.5bn 2015 2017 & 2021 BONOs on
Thursday.
Talking of which,
elections in Catalonia will take place coming Sunday.
EZ: Thu Comp / Manu
/ Services PMI last 45.7, fcst 45.5 after 45.4 and 46 unch, EZ Consumer Conf
fcst -25.5 after -25.7
GE: Thu PMI Manu fcst
46 after 46 Services fcst 48.3 after 48.4; Fri 23 Final GDP, IFO Nov Biz Climate fcst
99.5 after last, Current fcst 106.3 after 107.3, Expectations fcst 93 after
93.2
FR: Thu PMI Manu fcst
44 after 43.7, Services fcst 45 after 44.6; Fri Biz Conffcst 87 after 85
Italy: Fri Retail
Sales last +0.% MoM
Spain: Wed Trade;
Fri PPI
US: Wed PMI fcst 51
after 51.3, Claims fcst 410k after 439k, Michigan U fcst 84.5 after 8.9,
Leading Indicators fcst 0.1% after 0.6%. No more data until next Monday 26 Nov
(Dallas and Chicago Fed indices) and then Durable Goods, Case Schiller,
Consumer Confidence and Beige Book on
Tuesday 27 Nov.
CH: Thu HSBC PMI
Click
link under title or below for today’s musical support:
A tout le monde / A tous mes amis
Je vous aime / Je dois partir (du BofA ML index)
These
are the last words / I'll ever speak
And
they'll set me free (from rating constraints)
No comments:
Post a Comment