In the newspapers, the Wall Street Journal wrote overnight that Ford (NYSE:F) is looking to cut its production of Volvos. The move could impact 1/3 of the workers at one of Ford's two Volvo plants in Europe. The Wall Street Journal was positive on Westpac (NYSE:WBK) overnight, noting that Westpac's subprime exposure is low when compared with many international banks. The article said that although Australian credit growth is expected to slow, banks in the country are not reporting any systemic signs of stress in their loan books According to the Financial Times, Goldman Sachs (NYSE:GS), Morgan Stanley (NYSE:MS) and UBS (NYSE:UBS) plan to link their private stock trading operations. The move is aimed at improving liquidity. The Telegraph looked at the possibility of Barclays (NYSE:BCS) launching a large rights issue with the purpose of both improving its capital position and funding an acquisition. The article said that the firm may target Lehman (LEH) or UBS (UBS). Some sources, according to the article, believe that Barclays may try to acquire an investment bank Financieele Dagblad wrote overnight that Deutsche Bank (NYSE:DB) and BNP Paribas [BNP.FR] are interested in buying ABN assets that Fortis [FORB.BE] must sell.
In energy news overnight, President Bush signed a measure to halt oil shipments to SPR (as expected). The Times looked at Iraq's oil reserves noting that Iraq's Deputy PM said that new exploration showed that the country has the world's largest proven oil reserves, with as much as 350B barrels. The IEA's Birol said overnight that the oil market will remain tight for a few years.
In fixed income news, the minutes of the DMO/GEMMs meeting showed that majority of the GEMMs favored two 4.5% 2013 sales, and were divided on the reopening of the 2030 gilt. The minutes also showed that there were mixed views on medium-term gilt issuance, and there was little support for a new linker gilt in the second-quarter. Most GEMMs also called for a new 2040 or 2060 gilt, and expressed a strong bias towards a long-dated linker issuance. The Financial Times noted overnight that investors are more skeptical of the BOE's ability to deal with inflation than at any time since it gained its independence. The article cites the widening gap between the yields on index-linked government bonds and conventional gilts indicates that bond-market investors are willing to pay much higher prices for inflation protection.
In currencies, the debate continued on whether the market will focus on the hawkish inflationary concerns or the growing prospects of slowing Euro-Zone economic momentum as highlighted by the German Bundesbank on Monday. The EUR/USD re-approached the 1.56-level during the earlier portion of the European session aided by stronger-than-expected German producer prices for the month of April. The pair was holding above the 1.56-area as the May ZEW economic sentiment was released and came in worse than expected with its -41.4 reading. The CHF was firmer in Europe aided by Swiss producer & import price data, which came in above expectations. The USD/CHF is around 1.0420, lower by over 100 pips. UBS updated some of its currency forecasts overnight. UBS said that it expects the YEN to decline citing the slowing of the Japanese economy, and now puts its 3-month USD/JPY forecast at 105, up from the previous forecast of 100. UBS also said that it expects the Pound to decline. UBS expects the GBP to slide to 80p/Euro in one month, and to $1.88 in 3 months.
On the speaker front, the IMF's Lipsky said overnight that the USD is around its "medium-term equilibrium,” adding that we may still need extraordinary steps for financial markets. Lipsky said that he wants more flexible currencies in China and emerging Asia. Lipsky added that the US current account drop may lead to new imbalances, pointing out that serious risks remain to global financial stability. Lipsky speculated that global growth may weaken even more than anticipated, and said of the Euro that it is on strong side relative to its medium-term equilibrium. Following the release of the May ZEW survey ZEW economists said that inflation risks remain high, and will negatively impact German private consumption, adding that the German economy will eventually cool down. The ZEW economists said that rising refinancing costs and the strong Euro have a negative impact in Germany, adding that high GDP growth rate in Q1 will not continue and Q2 might me near zero growth. The ZEW said that the ECB should hold rates until there is evidence that the market crisis has passed, adding that they can see the ECB raising interest rates in the near future.
On the data front, German producer prices were stronger than expected, reaching their highest m/m level since January of 2006 overnight, while the Y/Y reading was at its highest level since September of 2006. Italian industrial orders are always pretty much a non-event, however the y/y reading did decline to its lowest level since January of 2004 overnight. The German ZEW survey was the main piece of economic data released overnight. The headline economic sentiment reading came in at -41.4, below estimates of -37.0, while the current situation rose to 38.6, well above estimates of 32.0.
Looking ahead, April PPI data is dues out in the US this morning at 8:30 ET, and will be followed by the May IBD/TIPP economic optimism at 10:00 ET. In Fed speak the Fed vice-chairman Kohn is due to speak about the US economy in New Orleans at 9:00 ET. On the earnings front, there are a few notables expected in the pre-market today including Dow component Home Depot (NYSE:HD), as well as Autozone (AZ), Medtronic (NYSE:MDT), Saks Incorporate (NYSE:SKS), Staples (NASDAQ:SPLS), and Target (NYSE:TGT).