** Owing to Martin Luther King, Jr., Day, floor trading is closed in the US and electronic trade is operating on a reduced schedule. For further details, please refer to the “Looking Ahead” section of this report**
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- ECB's Orphanides stressed that measures of underlying inflation are rather low, adding that the ECB sees no need to change monetary accommodation, and that the market over reacted to Trichet’s comments last week
- Irish Prime Minister Brian Cowen said he would call for a motion of confidence on Tuesday
- French finance minister Lagarde said that the EFSF should be replaced and reinforced; however the German finance minister said he sees no need to extend the programme
- RANsquawk European Morning Briefing Video: http://www.youtube.com/watch?v=mgsjCvwN99o
Market Re-Cap
One of the main market moving events today came from ECB's Orphanides who stressed that measures of underlying inflation are rather low, and markets may have overreacted to ECB's Trichet comments following the rate-decision last week. He also said that the ECB sees no need to change monetary accommodation. As such bunds and Euribor futures moved higher following these comments, reflecting the fact the ECB is not overly hawkish in its language, and noting that these comments were made by an ECB hawk.
Looking ahead, the economic calendar remains light, owing to Martin Luther King, Jr., holiday in the US, however we may see some comments from Fed's Plosser later in the session.
Asia Headlines:
Ba Shusong, a researcher at the State Council’s Development Research Center, said China should push forward with interest rate liberalization as the country’s credit loan control can’t reflect the real situation of market liquidity. (Securities Times)
US Headlines:
Former Treasury Secretary, Lawrence Summers, said the US economy probably will grow between 3%-4% annually over the next several years. (Sources)
In other news, New York governor Andrew Cuomo said that he will shut down the state’s government in April if the Legislature refuses to approve USD 10bln in budget cuts, according to sources. (New York Post)
EU and UK Headlines:
Embattled Irish Prime Minister Brian Cowen said he would call for a motion of confidence on Tuesday in his leadership of the Fianna Fail party and that he plans to remain in office for the next general election. However, cabinet members including the trade minister said that he won’t support Cowen. (WSJ/Sources)
In other news, Spain cancelled government auctions of January 20th, and replaced that with syndication of a new 10-year benchmark. (Sources)
· Germany sells EUR 1.935bln 9-month Bubills, bid/cover 2.9 vs. (Prev. 1.8), yield 0.6839% (Prev. 0.8521%) (RTRS)
EQUITIES
European bourses traded mixed during the session, with particular strength seen in BP shares after the co. unveiled a GBP 10bln share swap with Rosneft, which led the FTSE 100 index to outperform its European peers. Also, Smith & Nephew's shares, in the FTSE 100 index, rose on news that Johnson & Johnson is reportedly considering making a formal takeover approach to the co. at GBP 8 per share. In terms of sector performance, financials and basic materials remained the worst performing sectors in Europe while healthcare outperformed.
Index | DAX | CAC | FTSE | EUROSTOXX | SMI |
Level | 7075.24 | 3977.68 | 6003.04 | 2911.95 | 6577.37 |
Change (ticks) | -0.46 | -5.60 | 0.97 | -8.45 | 21.28 |
FX
The situation surrounding the EFSF remained broadly unchanged from Friday, with German opposition to the expansion of the fund persisting, which in turn weighed upon EUR/USD, allied with strength in the USD-index.
In other news, China won’t take giant steps on the CNY issue during President Hu Jintao’s state visit to the US this week, director of the China Center for Economic Research. Also, President Hu Jintao rejected US arguments that allowing the CNY to appreciate against the USD would help the government in Beijing tame inflation. (China Daily)
Currency | EURUSD | GBPUSD | USDJPY |
Level | 1.3324 | 1.5935 | 82.51 |
Change (pips) | -0.0064 | 0.0065 | -0.3600 |
COMMMODITIES
Heading into the North American open, WTI crude futures trended lower throughout the session and briefly slipped below USD 91 level amid a stronger USD which rose as markets continue to speculate whether the EU policy makers will move to expand the use of the European Financial Stability Facility (EFSF).
Oil & Gas News:
- Iran sees no need for the producer group (OPEC) to hold an emergency meeting if crude prices rise to USD 100 a barrel. Iran oil minister also said a new onshore gas field has been explored in the southern part of the country with 210bln cubic metres of recoverable gas.
- IEA says OPEC should be “alarmed” by current oil price. IEA also adds that global crude oil inventories still high but declining. In addition, head of the organisation says that OPEC spare capacity is diminishing and supply buffer for market is getting lower.
- UAE oil minister says market very well supplied, current prices reflect market conditions. Says monitoring the market very closely but not concerned about rising oil price.
- OPEC’s secretary general Badri says that oil market is well supplied and OPEC is waiting and watching market developments. He also added that it was speculators which had recently driven the oil price higher.
- China’s total apparent oil demand will likely rise 6.2% this year to 483mln tonnes, or 9.66mln bpd, off an 11.4% growth last year, according CNPC research arm.
Geopolitical News:
- Iran oil minister said that Iran will finally become self-sufficient in gasoline later this year, no longer reliant on imports or “emergency” fuel produced in the petrochemical plants.
Commodity | WTI Nymex | OTC Spot Gold |
Level | 91.17 | 1359.98 |
Change (USD) | -0.37 | -1.75 |
LOOKING AHEAD
Economic Releases
CST | GMT |
| DATA | EXP | PREV |
0730 | 1330 | CA | Int’l Securities Transactions M/M (Nov) |
| 9.507B |
| |||||
Auctions | |||||
0800 | 1400 | FR | EUR 8bln combined 84-, 174-, and 357-day T-Bills | ||
N/A | N/A | EU | EUR 3-5bln EFSF New Bond* | ||
US Martin Luther King Day Schedule:
- Floor Trade: CME/CBOT (Closed), NYMEX (Closed)
- Electronic Trade:
Ø CME Globex – Equity (Early Close 1030CST/1630GMT till 1700CST/2300GMT), Interest Rate (Early Close 1200CST/1800GMT till 1700CST/2300GMT), FX (Early Close 1200CST/1800GMT till 1700CST/2300GMT), NYMEX (Early Close 1215CST/1815GMT till 1700CST/2300GMT), NYSE (Closed)
*UK and European markets operate normal.
*CME Eurodollar January futures expiry
Prices taken at 1237 GMT