RANsquawk's  Instablog

• Moody's downgraded Spain to Aa1 outlook stable; from Aaa outlook negative

• Irish central bank said a restructured Anglo Irish Bank needs EUR 34.3bln under stress scenario

• ECB’s 6-day tender operation saw a total allotted amount of EUR 29.44bln, which was much less than the expected EUR 50bln

• RANsquawk European Morning Briefing Video: http://www.youtube.com/watch?v=88BkN3Q4iow

Overnight News

ASIA

JGBs dipped overnight on profit taking after a rally, although weak industrial output data further clouded Japan’s economic outlook and helped to curb losses, with the benchmark yield still poised to show a drop of about 15 basis points this quarter. Nikkei slid 2%, hit by a late JPY rise, but still booked its best monthly performance in six months, helped by hopes the central bank will ease policy further and that the JPY’s rapid advance could be curbed by more intervention by the authorities. (RTRS)

In other news, the BOJ is considering lowering its GDP forecast for the fiscal year ending next March due to a rising JPY, a slowing US economy and other downside risks to growth, according to Yomiuri newspaper.

·   Japanese Nomura/JMMA Manufacturing PMI (Sep) M/M 49.5 vs. Prev. 50.1

·   Japanese Industrial Production (Aug P) M/M -0.3% vs. Exp. 1.1% (Prev. -0.2%)

·   Japanese Industrial Production (Aug P) Y/Y 15.4% vs. Exp. 16.9% (Prev. 14.2%) (RTRS)

US

Fed’s Bernanke pledged to work with other US regulators to carry out the Dodd-Frank law overhauling financial rules that was enacted in July. (Sources)

In other news, the US Senate approved two of President Obama’s three nominees to the Federal Reserve, including San Francisco Fed’s chief Janet Yellen to serve as vice chairman. The Senate also approved state banking regulator Sarah Raskin to serve as a member of the Fed’s Washington based board. (RTRS)

Bonds

EUROPEAN GOVERNMENT BONDS

Bund futures briefly gained strength in early European trade on the back of comments from Irish central bank that a restructured Anglo Irish Bank needs EUR 29.3bln in capital under a base scenario and would need an additional EUR 5bln under a stress scenario, allied with Moody's downgrade of Spain to Aa1 outlook stable; from Aaa outlook negative. However, prices soon pared back earlier gains as the Spanish downgrade was expected, and the Anglo Irish restructuring cost of less than EUR 35bln eased concerns of further Irish sovereign downgrade, which resurfaced yesterday when the S&P said that restructuring cost in excess of EUR 35bln would prompt further downgrades. Bunds weakened further following the result of ECB’s 6-day tender which saw a total allotted amount of EUR 29.44bln, which was much less than the expected EUR 50bln, waning concerns surrounding EU banks. The tender result also led December Euribor futures to trade down 6 ticks post announcement. European peripheral 10-year bond yield spreads with respect to bund observed continuous tightening as the European session progressed.

·   German Unemployment Change (000's) (Sep) M/M -40K vs. Exp. -20K (Prev. -17K, Rev. to -20K)

·   German Unemployment Rate SA (Sep) M/M 7.5% vs. Exp. 7.6% (Prev. 7.6%)

·   Eurozone CPI Estimate (Sep) Y/Y 1.8% vs. Exp. 1.8% (Prev. 1.6%)

GILTS

NYSE LIFFE Gilt futures traded in tandem with bunds, and moving into the North American open, prices are trading in minor positive territory.

In other news, international investors are buying record amounts of government bonds amid rising expectations that the Bank of England will start printing money again to kick-start the faltering economic revival. Gilts are also benefiting from their status as safe investments in times of stress as fears grow that the Eurozone debt crisis may deepen and the world could be plunged into a double-dip recession. (FT)

·   Nationwide House Prices SA (Sep) M/M 0.1% vs. Exp. -0.3% (Prev. -0.9% Rev. -0.8%)

·   Nationwide House Prices NSA (Sep) Y/Y 3.1% vs. Exp. 2.6% (Prev. 3.9%)

·   GfK Consumer Confidence Survey (Sep) M/M -20 vs. Exp. -19 (Prev. -18) (RTRS)

EQUITIES

European bourses traded in negative territory for a majority of the European session, however as the session progressed, equities did come off their worst levels. In early European trade, basic materials traded lower on the back of comments from the IMF calling for a broader tax on Australia’s resource industry, saying it should be extended to producers of more commodities, allied with news that BHP Billiton and Rio Tinto joint iron ore venture in Australia could be delayed. However, as the session progressed, basic materials gained strength following market talk that the Chinese manufacturing PMI data, to be released tomorrow, may be stronger than expected, as well as continued weakness in the USD index. In other equity specific news, SocGen shares observed strength following news that the company will not need capital increase for Basel III. Moving into the North American open, equities are trading in minor negative territory.

FX

EUR gained across the board following ECB’s 6-day tender operation, where banks bid much less than anticipated, and EUR/USD printed a five month high at 1.3677 shortly after the results.

In other currency moves of note the GBP continues to be one of the beneficiaries of 'not' being in the spotlight and with stronger Nationwide house prices today has managed to briefly test around 1.5900 before touted selling from Asian sovereign names. Of note, Adam Posen, who was very dovish earlier in the week in his call for further QE seemed to temper down his rhetoric as he said this morning that he could be persuaded that any further QE may be premature.

Elsewhere, the US House of Representatives stepped up pressure on China to let its currency rise faster, passing a bill that could penalise Chinese goods, as lawmakers blamed it for lost jobs in America. China said the US Congress Bill could seriously affect bilateral relations and economic ties, and urged the US Congress to avoid steps that could harm ties with China. (RTRS)

COMMMODITIES

WTI Crude futures traded higher during the European session, crossing the USD 78 level, supported by a weaker USD Index which reached an 8 month low.

Oil & Gas News:

• According to a new survey, OPEC crude oil output fell in September by 145,000 BPD to 29.055mln BPD, an 8 month low.
• A French port rolling strike at the Fos-Lavera oil hub has entered a fourth day, now blocking 9 crude oil tankers, 8 gas tankers and 15 oil product vessels. The French oil industry body has said that operations at seven European refineries were being seriously threatened by the strike. Strikes are due to meet port management at 13:00BST today.
• The Algerian energy minister has said he will look at the case for a cut in OPEC output before the group’s next meeting.
• The Tangguh LNG plant in Indonesia, owned by BP was not affected by the 7.2 magnitude earthquake that struck the region, according to Indonesian Oil and Gas regulator spokesman.

Geopolitical News:

• Inpex is likely to withdrawal from Iran’s Azadegan oil field project, following a request from the US, due to sanctions on Iran.

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NYSE Liffe is offering free trading in EURIBOR during Asian trading hours (between the hours of 0100 - 0600 London time) from Friday 1 October 2010 for a six month period. This fee holiday applies to all EURIBOR business traded during Asian hours will be rebated direct to the Clearing Member.  No registration is required and NYSE Liffe will carry out all rebate calculations via existing post-trade account references. No additional set-up is required.

NYSE Euronext and its affiliates (hereafter “NYSE Euronext”) shall not be liable, except where required by law, for any loss arising from the use or misuse of the information provided to Real-time Analysis and News Limited for transmission via its “Squawk” service (“a Communication”) howsoever arising. NYSE Euronext shall not be responsible for any errors or omissions contained in any Communication. Those wishing either to trade in any products available through NYSE Euronext or to offer and sell them to others should consider both their legal and regulatory position in the relevant jurisdiction and the risks associated with such products before doing so and are urged to take advice in this regard.  A Communication shall not constitute or contain investment advice nor be an invitation or inducement to engage in investment activity

• ECB allocated EUR 104bln in its 3-months LTRO operation, much less than market expectations

• S&P downgraded Anglo Irish Bank’s tier 2 debt to CCC from B

• German IFO said that German firms’ access to credit improved for the 9th month in a row in September

• RANsquawk European Morning Briefing Video: http://www.youtube.com/watch?v=WCz5LvdF6cg

Overnight News

ASIA

JGBs extended gains overnight with futures hitting a seven-year high, after a dour outlook in a key business sentiment survey added to prospects of more monetary easing, including a possible boost in bond purchases. Nikkei clawed up 0.7% on window-dressing before the end of Japan’s fiscal first half, but it pared earlier gains as the JPY’s retreat faded and resistance held strong. An additional boost came from a poor December outlook in the Bank of Japan’s tankan survey of business sentiment, which some market players said could increase expectations the central bank will discuss further moves to ease monetary policy at its meeting next week. (RTRS)

·   Japanese Tankan Large Manufacturing Outlook (Q3) Q/Q -1 vs. Exp. 3 (Prev. 3)

·   Japanese Tankan Large Manufacturers Index (Q3) Q/Q 8 vs. Exp. 7 (Prev. 1)

·   Japanese Tankan Large All Industry Capex (Q3) Q/Q 2.4% vs. Exp. 3.0% (Prev. 2.7%)

·   Chinese HSBC Manufacturing PMI (Sep) M/M 52.9 vs. Prev. 51.9, rose to a five month high. (RTRS)

US

Fed’s Lockhart said that he has yet to make up his mind whether further monetary easing is needed, despite weakening US economy and some risk of deflation. He further added that given disagreements about the reasons behind the economic slowdown , the best policy prescription is not yet clear.  Lockhart also said that the debate over whether policy markers should undertake a new round of asset purchases will intensify soon, and officials have the will to act as needed to support the flagging US recovery. (RTRS/Sources)

·   MBA Mortgage Applications (Sep 24) W/W -0.8% Prev. -1.4%

·   ABC Consumer Confidence (Sep 26) W/W -45 vs. Prev. -46 (RTRS)

Bonds

EUROPEAN GOVERNMENT BONDS

Bund futures opened lower however as the European session progressed prices came off their worst levels and ventured into positive territory. Prices came under pressure following the allocation of EUR 104bln in ECB’s 3-month LTRO operation, which was only 45% of the EUR 225bln maturing debt tomorrow, portraying a much healthier picture of EU banks than perceived. The LTRO result also saw a sharp downtick in the December Euribor futures. However, the weakness in bunds was short lived because soon after the LTRO results S&P downgraded Anglo Irish Bank’s tier 2 debt to CCC from B, which helped bunds to retrace earlier losses. Moving into the North American open, bunds are trading in minor negative territory, with peripheral European 10-year bond yield spreads with respect to bunds generally widen.

In other news, Ireland will on Thursday unveil a fresh taxpayer-funded recapitalisation of Anglo Irish Bank. The Irish Central Bank’s additional capital injection is expected to be about EUR 5bln. That would bring the bail-out costs for Anglo Irish to EUR 30bln, shy of the EUR 35bln forecast by credit rating agency Standard & Poor’s. (FT FrontPage)

·   Eurozone Business Climate Indicator (Aug) M/M 0.77 vs. Exp. 0.58 (Prev. 0.61, Rev. to 0.72)

·   Eurozone Consumer Confidence (Aug F) M/M -11 vs. Exp. -11 (Prev. -11)

·   Eurozone Industrial Confidence (Aug) M/M -2 vs. Exp. -5 (Prev. -4, Rev. to -3)

·   Eurozone Economic Confidence (Aug) M/M 103.2 vs. Exp. 101.3 (Prev. 101.8, Rev. to 102.3)

·   Eurozone Services Confidence (Aug) M/M 8 vs. Exp. 7 (Prev. 7) (RTRS)

GILTS

NYSE LIFFE Gilt futures traded in a tight range throughout the European session, and moving into the North American open, prices are trading in minor positive territory.

·   Net Consumer Credit (Aug) M/M -0.1bln vs. Exp. 0.1bln (Prev. 0.2bln), weakest since November 2009

·   Net Lending Sec. on Dwellings (Aug) M/M 1.7bln vs. Exp. 0.3bln (Prev. 0.1bln, Rev. to 0.0bln), highest since Feb

·   Mortgage Approvals (Aug) M/M 47.4K vs. Exp. 47.0K (Prev. 48.7K, Rev. to 48.3K), weakest since Feb (RTRS)

EQUITIES

European bourses lacked any clear direction throughout the session. Equities opened higher on the back of better than expected Chinese HSBC manufacturing PMI as well as a drop in Japanese tankan survey’s outlook suggesting possibility of further monetary easing by the BOJ, which in particular helped oil & gas and industrials sectors. However, financials showed muted reaction to ECB’s LTRO operation results as well as positive comments from the German IFO. Moving into the North American open, equities are trading in minor negative territory with financials and consumer services being the worst performing sectors.

FX

EUR gained strength across the board on the back of ECB’s LTRO operation that waned some concerns surrounding EU banks, better than expected data from Eurozone as well as comments from German IFO that German firms’ access to credit improved for the 9th month in a row in September. However, EUR did come under some pressure following S&P downgrade of tier 2 debt of Anglo Irish bank. In other news, weakness in the USD index helped EUR/USD and GBP/USD, with GBP/USD receiving further support from on-going Asian sovereign diversification of USD FX proceeds according to analysts at IFR markets.

Elsewhere, AUD strengthened on the back of a sharp jump in Australian Conference board leading index, allied with market talk of an Asian sovereign buying in AUD/USD, and with spot Gold hitting another record high of USD 1330.00.

·   Australian Conference Board Leading Index (Jul) M/M 0.8 (Prev. 0.1%, Rev. to 0.6%) (RTRS)

COMMMODITIES

WTI Crude futures have traded with little direction ahead of today’s DOE Inventory data due at 15:30 BST

Oil & Gas News:

·   The IEA said today that oil prices may rise above USD 80 if global growth exceeds 3-3.5%. They also said that the fact that oil is between USD 70 and USD 80 with a week global economy and low capacity usage shows that the period for cheap oil is over.

·   Iran’s OPEC governor says he sees oil at USD 80 by the start of winter.

·   BP’s Chief Economist said that oil prices are expected to stay within their current corridor of around USD 75 until mid 2011 and to remain stable in the mid term.

·   Standard Chartered said that Brent Crude futures may break out of their current range and average USD 93 in Q1 2011 due to increasing winter demand.

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NYSE Liffe is offering free trading in EURIBOR during Asian trading hours (between the hours of 0100 - 0600 London time) from Friday 1 October 2010 for a six month period. This fee holiday applies to all EURIBOR business traded during Asian hours will be rebated direct to the Clearing Member.  No registration is required and NYSE Liffe will carry out all rebate calculations via existing post-trade account references. No additional set-up is required.

NYSE Euronext and its affiliates (hereafter “NYSE Euronext”) shall not be liable, except where required by law, for any loss arising from the use or misuse of the information provided to Real-time Analysis and News Limited for transmission via its “Squawk” service (“a Communication”) howsoever arising. NYSE Euronext shall not be responsible for any errors or omissions contained in any Communication. Those wishing either to trade in any products available through NYSE Euronext or to offer and sell them to others should consider both their legal and regulatory position in the relevant jurisdiction and the risks associated with such products before doing so and are urged to take advice in this regard.  A Communication shall not constitute or contain investment advice nor be an invitation or inducement to engage in investment activity

• S&P say that cost of Anglo Irish Bank recapitalisation could exceed EUR 35bln

• Fitch say that said that Ireland may avoid further downgrades if the country comes out with a credible cost plan for Anglo Irish Bank

• ECB’s Stark said that in Q4 a number of non-standard measures will expire and will not be renewed.

• RANsquawk European Morning Briefing Video: http://www.youtube.com/watch?v=JyPyGcPLXe4

Overnight News

ASIA

JGBs gained overnight and futures hit a one-month high, buoyed after a report of further policy easing by Japan’s central bank and an anxiety over Ireland’s finances supported debt globally. (Nikkei)

Bank of Japan will discuss taking further steps to ease monetary policy at its Oct. 4-5 policy board meeting. (Nikkei)

The BOJ may consider pumping relatively longer-term funds into money market to lower interest rates and may increase lending of fixed-rate loans maturing in three to six months to financial institutions. In addition, the BOJ may also step up buying of short term government debt securities. 

Bonds

EUROPEAN GOVERNMENT BONDS

An article in the Expansion newspaper in Spain set the tone for the day, reminding the market that the Moody’s 3 month period on putting Spain on a negative outlook ends this week and a sovereign downgrade from the existing Aaa rating being likely. Risk averse moves promoted Bund futures to move higher and the peripheral spreads to widen.

Comments from S&P saying that the cost of the Anglo Irish Bank recapitalisation could exceed EUR 35bln, which could lead to further rating downgrades helped push Bund futures to new highs. However, further comments out of S&P analyst Cullinan saying that these costs are in line with S&P estimates helped to slow this move.

However, the markets negative tone was reversed following generally stronger than expected economic releases from across the Eurozone and UK, with Bund futures retracing the earlier gains, aided further by strong results in the Spanish t-bill auction and furthermore when Fitch eased Irish fears when they said that Ireland may avoid further downgrades if the country comes out with a credible cost plan for Anglo Irish Bank. Bund futures are now pretty much flat on the session.

The Irish/German 10 year government bond yield spread reached all new EUR lifetime highs during the session, however has since tightened slightly following market talk of the ECB buying of Irish government debt.

We have also seen comments from ECB’s Stark said that in Q4 a number of non-standard measures will expire and will not be renewed.

• German GfK Consumer Confidence Survey (Oct) M/M 4.9 vs. Exp. 4.2 (Prev. 4.1, Rev. to 4.3)
• French Consumer Spending (Aug) M/M -1.6%% vs. Exp. -0.2% (Prev. -1.4%)
• French Consumer Spending (Aug) Y/Y 1.2% vs. Exp. 0.9% (Prev. -1.9%)
• German CPI - Brandenburg (Sep) M/M -0.3% vs. Prev. 0.0%
• German CPI - Brandenburg (Sep) Y/Y 1.0% vs. Prev. 1.1%
• German CPI - Saxony (Sep) M/M 0.1% vs. Prev. 0.0%
• German CPI - Saxony (Sep) Y/Y 1.5% vs. Prev. 1.1%
• German CPI - North Rhine West (Sep) M/M -0.2% vs. Prev. 0.2%
• German CPI - North Rhine West (Sep) Y/Y 1.1% vs. Prev. 1.0%
• German CPI - Hesse (Sep) M/M -0.1%% vs. Prev. 0.1%
• German CPI - Hesse (Sep) Y/Y - 1.1% vs. Prev. 0.7%
• German CPI - Bavaria (Sep) M/M -0.3% Prev. 0.1%
• German CPI - Bavaria (Sep) Y/Y 1.4% Prev. 1.1%

• Dutch state sells EUR 500mln in 3.25% Jul'15, average yield 1.492% vs. Prev. 1.943%
• Dutch state sells EUR 500mln in 4% Jul'15, average yield 2.155% vs. Prev. 2.639%
• Spanish 3m T-Bill auction for EUR 1.174bln, b/c 3.0 vs. Prev. 2.2 (yield 0.685% vs. Prev. 0.624%)
• Spanish 6m T-Bill auction for EUR 1.805bln, b/c 2.0 vs. Prev. 3.9 (yield 1.180% vs. Prev. 1.037%)

GILTS

Despite opening higher following the general market tone, strong data from the UK sent Gilt futures trading lower into negative territory. The CBI reported sales for September was at the higher level since May 2004.

• UK GDP (Q2 F) Q/Q 1.2% vs. Exp. 1.2% (Prev. 1.2%)
• UK GDP (Q2 F) Y/Y 1.7% vs. Exp. 1.7% (Prev. 1.7%)
• UK Total Business Investment (Q2F) Q/Q 0.7% vs. Exp. -1.6% Prev. -1.6%
• UK Total Business Investment (Q2F) Y/Y 1.9% vs. Exp. 1.9% Prev. 1.9%
• UK Current Account (GBP) Q/Q (Q2) -7.4bln vs. Exp. -8.2bln (Prev. -9.6bln, -11.3bln)
• UK CBI Reported Sales (Sep) M/M 49 vs. Exp. 25 (Prev. 35); Highest since May 2004

EQUITIES

Stocks initially traded lower following the article in Spanish newspaper Expansion about the likelihood of a sovereign downgrade of Spain. This has led to a continued under performance from the Spanish IBEX35 index throughout the session. However, a reversal in risk appetite as outlined in the European government bond section has sent stocks higher and as we head into the US open, European Stock Indices are trading pretty much flat for the session. One stock of note is Michelin in France which is down over 11% this morning following the announcement this morning of a EUR 1.2bln rights issue to finance future growth.

FX

Despite initial weakness in the EUR, following the Expansion newspaper article and Irish Sovereign fears, EUR/USD has moved higher following the successful Spanish auction, Fitch comments and positive economic data, to test the 1.3500 level, where an intraday option expiry is located.

GBP has been strong throughout the session, driven by the strong data seen from the UK throughout the session to test the 7 week high at 1.5900 where stops are beloved to be located above.

Former PBOC advisor Yu Yongding has said that the USD is one step closer to a crisis and it is inevitable the currency may be devalued.

COMMMODITIES

WTI Crude futures have traded lower throughout the European session, crossing below the USD 76 level, as continued Eurozone sovereign fears weighed on investor’s appetites for riskier assets. However, as we head into the US session general market tone has improved helped prices move back to the USD 76 level.

Oil & Gas News:

• Qatar’s oil minister has said that an oil price of between USD 70 and 80 is ‘very comfortable’ for consumers.
• Nigerian Oil Minister Diezani Alison-Madueke said yesterday that she expects Nigeria's OPEC quota to be increased when the oil producer group next meets in December, however the Qatar oil minister has said that he does not think that OPEC will change their supply policy at the next meeting.
• Enbridge Energy Partners have said that the gradual restart of their 290,000 BPD Line 6B pipeline which links Griffith, Indiana and Sarnia, Ontario has begun.
• ConocoPhillips has said it is idled some North American natural gas wells due to low prices making other projects more attractive. Conoco’s CEO added that gas at USD 4 / BTU is not sustainable.
• President Barack Obama’s moratorium on deep-water drilling is likely to end before it is set to expire 30 November, said William Reilly, co-chairman of a presidential panel probing the BP spill.

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NYSE Liffe is offering free trading in EURIBOR during Asian trading hours (between the hours of 0100 - 0600 London time) from Friday 1 October 2010 for a six month period. This fee holiday applies to all EURIBOR business traded during Asian hours will be rebated direct to the Clearing Member.  No registration is required and NYSE Liffe will carry out all rebate calculations via existing post-trade account references. No additional set-up is required.

NYSE Euronext and its affiliates (hereafter “NYSE Euronext”) shall not be liable, except where required by law, for any loss arising from the use or misuse of the information provided to Real-time Analysis and News Limited for transmission via its “Squawk” service (“a Communication”) howsoever arising. NYSE Euronext shall not be responsible for any errors or omissions contained in any Communication. Those wishing either to trade in any products available through NYSE Euronext or to offer and sell them to others should consider both their legal and regulatory position in the relevant jurisdiction and the risks associated with such products before doing so and are urged to take advice in this regard.  A Communication shall not constitute or contain investment advice nor be an invitation or inducement to engage in investment activity