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DAILY US OPENING NEWS - 31/05/12

· EU Commission says we do not see the possibility of direct recapitalization of banks from the Eurozone's permanent bailout fund.

· Both the EU and ECB's Draghi stress the need for a European banking union.

· Ireland is set to go to the polls in their EU fiscal pact referendum today. Results expected in tomorrow's European session.

· RANsquawk European Morning Briefing Video: http://youtu.be/5vf5qT4O0tU

Market Re-Cap

European equities are reversing the trend of the past few sessions and are seen modestly higher in both the futures and the cash as the US comes to market. The Oil & Gas sector leads the corrective bounce in moves not driven by fundamental newsflow, but a lack of bad news has helped sooth sentiment. However recent comments from the EU Commission have halted the gains, saying that they do not see the possibility of direct recapitalization of banks from the Eurozone's permanent bailout fund, countering reports seen yesterday.

The general theme throughout the morning has aided a tightening in yield spreads against the German 10-year across Europe without interruption, however these movements may not last as the US comes to market and reacts to the latest headlines from the EU Commission. The EUR currency has also seen support this morning, moving in line with European stocks, but has moved back to the 1.2400 level in recent trade.

Looking ahead in the session, the next risk events look to be the weekly labour market data as well as the secondary GDP reading from the US, all due at 1330BST/0730CDT.

Asian Headlines

Japanese Industrial Production (Apr P) M/M 0.2% vs. Exp. 0.5% (Prev. 1.3%)

Japanese Industrial Production (Apr P) Y/Y 13.4% vs. Exp. 13.7% (Prev. 14.2%) (Newswires)

China should use fiscal measures to boost growth, as loose monetary policy alone will not be effective, according to a government researcher. (China Daily) World Bank Chief Zoellick has said further stimulus would be appropriate for China, and Beijing should focus any new efforts on longer-term investments. (Newswires)

US Headlines

RealtyTrac have shown in a survey that sales of homes that were in some stage of foreclosure or bank owned accounted for 26% of all US residential sales during Q1, up from 22% of all sales in Q4 last year. The average sales price of homes in foreclosure or bank-owned during Q1 USD 161,214, down 1% from Q4 last year and down 2% from a year earlier. CEO of RealtyTrac Moore has said the pickup in foreclosure-related sales was particularly concentrated in pre-foreclosure sales where a distressed homeowner is selling to avoid foreclosure, typically via a short sale. (Newswires)

BarCap US Treasury month end extension seen at +0.06yrs

EU and UK Headlines

Contrary to reports from other European leaders including the Italian PM Monti, the EU Commission have said they do not see the possibility of direct recapitalisation of banks from the Eurozone's permanent bailout fund. These reports run contrary to comments we saw yesterday from the EU stating that they are willing to envisage direct ESM banking recapitalisations. Following the reports, the fast money move saw EUR/USD break the 1.2400 level to the downside, with Bund futures gaining immediate support in a move to the upside of 15 ticks. The gains were quickly pared, but some residual remains.

Commentary regarding a European banking union continues to garner attention as the EU Commission says a banking union is about avoiding future crises, not the current one, adding to earlier comments from the ECB's Draghi who commented that creating a banking union could be the first step. Draghi also said greater centralisation of banking supervision is needed, along with a banking resolution fund and a deposit insurance guarantee fund. (Newswires)

Dublin has made a last ditch effort to persuade voters to back the EU's new fiscal treaty ahead of a referendum today, warning that a no vote would derail Ireland's recovery and leave it as isolated as Greece. (FT-More) Dublin has also warned that a rejection risks undermining the Euro at a time when Brussels is struggling to contain a banking crisis in Spain and political gridlock in Greece. Ireland's government is confident of victory in today's referendum as secret official polling forecasts that over 60% of Irish voters will tick the Yes box. Polling stations are due to close at 2200BST today. (Telegraph)

German Unemployment Change (000's) (May) M/M 0k vs. Exp. -7k (Prev. 19k, Rev. to 18k) - Unadjusted jobless total falls to a 20-year low

Unemployment Rate SA (May) M/M 6.7% vs. Exp. 6.8% (Prev. 6.8%) (Newswires)

Eurozone CPI Estimate (May) M/M 2.4% vs. Exp. 2.5% (Prev. 2.6%) (Newswires)

BarCap Pan Euro Agg month end extension seen at +0.04yrs

iBoxx UK Agg month end extension seen at +0.06yrs

EQUITIES

European equities are seen higher in both futures and cash, with a lack of bad news from the European governments helping assist tentative risk-on sentiment throughout the morning in a corrective bounce from the past few sessions of losses. All sectors are in the green with the exception of industrials at the midway point, as Oil & Gas leads the way, up over 1%. US stock futures currently suggest a higher open across the Atlantic, with all three major indices seen higher.

In individual stocks news, Telefonica opened sharply higher today following aftermarket reports yesterday that they are to plan a German IPO and hold the option to list in Latin America in an effort to raise cash to restore their debt ratings that have been weighed upon by the Spanish debt crisis. Following a morning's trade, Telefonica shares are seen higher by 1.5%.

One of the top losers in Europe so far this morning is FTSE-listed ITV, following the publication of research note indicating that July and August TV advertising markets may be weaker than expected, with a number of cancellations of planned campaigns speculated. As such, ITV experience the second day of losses, currently lower by over 4.8%.

 

 

Index

DAX

CAC

FTSE

EUROSTOXX

SMI

Level

6300.49

3033.18

5338.55

2128.85

5902.25

Change (ticks)

19.69

17.60

41.27

12.67

-0.57

Click to enlarge

**Note: For US equity news in detail, refer to the RANsquawk Daily US Equity Opening News report.

FX

EUR/USD is seeing some tentative support going into the US open, trading off the 22-month lows witnessed in yesterday's session. The pair has weakened somewhat from its high print of 1.2429, seeing initial weakness following the EU Commission comments. Going into the US open, EUR/USD trades close to the 1.2400 mark, but may see movements alongside the USD-index with the a raft of key data expected later in the session from the US, including the second print of GDP. As such, EUR/GBP is observed in a relatively tight range, currently in close proximity to an option expiry at 80.00 for the 10am NY cut.

The pessimistic view towards the EUR currency continues, with both Barclays and HSBC cutting their forecasts for EUR/USD at year end, with Barclays estimating EUR/USD at 1.1500 and HSBC at 1.3500 for the close of 2012. (Newswires)

Currency

EURUSD

GBPUSD

USDJPY

Level

1.2410

1.5511

78.79

Change (pips)

0.0043

0.0033

-0.2800

Click to enlarge

COMMODITIES

WTI and Brent crude futures are seen modestly higher ahead of the NYMEX pit open, moving in line with European equities. Energy participants now look forward to the key DOE inventory data due at 1600BST/1000CDT today due to the Memorial Day holiday in the US on Monday.

Oil & Gas News:

· Bidding for Iraqi exploration blocks began for the second day, with the Iraqi oil ministry awarding one of six blocks, with four failing to attract bids. The remaining block bid was rejected because the bidder demanded a higher renumeration fee than the Iraqi oil ministry was willing to grant. Company executives have said more companies are expected to submit bids today. Iraq are to open its fifth energy bidding round soon, with 10-15 new oil and gas blocks, according to the Iraqi oil minister.

· The Iraqi oil minister has also said Iraqi oil output is below the OPEC quota.

· UK's DECC says UK North Sea gas production fell 14% in Q1.

· Japan's imports of oil for power generation rose by over three times in April, as the idling of nuclear reactors leaves the country with little alternative.

· The US Department of Energy has said the consideration of licenses to export natural gas from the US will have to wait until the completion of a study this summer that has been delayed by several months.

Geopolitical News:

· A US security institute has published satellite images which it said increased concerns that Iran was trying to destroy evidence of suspected past research relevant for developing a nuclear weapons capability.

**Note:

Heating Oil & RBOB June futures expiry (1930BST/1330CDT)

Commodity

WTI Nymex

OTC Spot Gold

 

Level

87.96

1564.58

 

Change (NYSEARCA:USD)

0.14

1.20

 
Click to enlarge

**Note: For commodities news in detail, refer to the RANsquawk Daily Energy Commentary report

LOOKING AHEAD

Economic Releases

CDT

BST

 

DATA

EXP

PREV

0715

1315

US

ADP Employment Change M/M (May)

150K

119K

0730

1330

US

Initial Jobless Claims W/W (May 26)

370K

370K

0730

1330

US

Continuing Claims W/W (May 19)

3250K

3260K

0730

1330

US

GDP (Annualised) Q/Q (Q1 S)

1.9%

2.2%

0730

1330

US

GDP Price Index Q/Q (Q1 S)

1.5%

1.5%

0730

1330

US

Personal Consumption Q/Q (Q1 S)

2.9%

2.9%

0730

1330

US

Core PCE Q/Q (Q1 S)

2.1%

2.1%

0730

1330

CA

Current Acc. (BOP) (USD) Q/Q (Q1)

-10.9B

-10.3B

0845

1445

US

Chicago PMI M/M (May)

56.8

56.2

0900

1500

US

NAPM - Milwaukee M/M (May)

53.4

52.9

0930

1530

US

EIA NatGas Storage W/W (May 25)

66

77

1000

1600

US

DOE Crude Oil Invent. W/W (May 25)

1000K

883K

1000

1600

US

DOE Gasoline Invent. W/W (May 25)

-750K

-3299K

1000

1600

US

DOE Distillate Inventory W/W (May 25)

250K

-309K

1000

1600

US

DOE Cush. OK Crude Inv. W/W (May 25)

 

1668K

1000

1600

US

DOE US Refinery Util. W/W (May 25)

0.40%

-0.20%

 

0700

1300

EU

EU's Van Rompuy speaks in London

0700

1300

US

Fed's Pianalto speaks on monetary policy in Cleveland

0930

1530

WLD

OECD's Padoan speaks in Brussels

0930

1530

WLD

IMF's Rice holds bi-monthly press conference

1100

1700

EU

EU's Van Rompuy speaks in Berlin

1110

1710

EU

EU's Rehn speaks in Brussels

N/A

N/A

EU

Brussels Economic Forum

N/A

N/A

IR

Irish referendum on fiscal compact

 

0930

1530

UK

Publication of the gilt operations calendar for July-September 2012

1000

1600

US

Fed's Trea. Coup. Purch. Feb'36-May'42 (USD 1.5-2.0bln)

1300

1900

US

Fed releases tentative outright treasury coupon schedule

 

Earnings

UK

N/A

EU

N/A

SZ

N/A

US

SAIC

Click to enlarge

Prices taken at 1252BST

**'Market talk' - Signifies information that has not been formally tested through traditional journalistic channels and therefore is to be treated as unsubstantiated. Any interpretation of the talk is taken at the readers own risk and is a representation of the rumours within the market place and never generated by ourselves.