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  1. Risk appetite observed across the board at the North American crossover, with positive earnings on both sides of the Atlantic as well as a stronger EUR soothing investor sentiment.


  1. Both the Spanish and German government deny reports that Spain is being pressed into seeking a full sovereign bailout.


  1. UK GDP registers the third consecutive quarter of negative growth for the UK, -0.7% vs. Exp. -0.2% (Prev. -0.3%).


  1. RANsquawk European Morning Briefing Video:

Market Re-Cap.

European equities are seen higher at the North American crossover as the asset classes benefit from an uptick in risk appetite observed in the European morning. Financials are leading the moves, closely followed by technology as all European sectors, with the exception of defensive healthcare stocks, tip into the green at the midpoint of the European session.

The European trading day got off to a rapid start with an immediate injection of volatility at the cash equity open as comments from ECB's Nowotny arguing the case for an ESM banking licence coincided with a formal denial from the Spanish government that it is to seek a full sovereign bailout, contrary to overnight reports in El Economista. As such, EUR/USD has been observed higher throughout the morning, with European stock futures moving in tandem. The moves were further assisted by a tightening in the peripheral 10yr government bond yield spreads against the Bund, with both the Spanish and Italian 10yr yields declining through the morning alongside unconfirmed market talk of domestic accounts buying the paper.

The Bund is seen lower at the midpoint of the day, as hefty issuance from the Bundesbank in the form of 30-year Buxls weighs, with the auction coming in with a high level of retention at 22.6%. On the lead up to the results, Bund futures were seen taking marked moves to the downside of around 32 ticks on the break of yesterday's low, so the release of the results were met with a more muted reaction.

Growth data from the UK came as a shock, registering a much deeper contraction than street estimates at -0.7% as the additional bank holiday and poor weather took a heavy toll on GDP. As such, initial GBP weakness was observed with a spike higher in Gilt futures, however GBP/USD has recovered as the USD remains lower across the board.

Looking ahead in the session, earnings from the US are due to be thick and fast, with a number of companies set to report ahead of the Wall Street open, followed by New Home Sales figures due at 1500BST/0900CDT.

Asian Headlines

The IMF have said the Chinese economy is making a soft landing, but significant downside risks remain, with inflationary pressures easing. (Newswires) The IMF added that Chinese authorities are ready to apply more stimulus if necessary, and a large external shock could prompt the country to do more on the economy. The fund additionally warned that economic data from the country may deteriorate in the near-term.

US Headlines

According to the WSJ the Fed are moving close to action to spur growth, bond buying, rate guidance and lower reserve rate among Fed options. (WSJ) Amid the recent wave of disappointing economic news, conversation inside the Fed has turned more intensely toward the questions of how and when to move. Central-bank officials could take new steps at their meeting next week, July 31 and Aug. 1, though they might wait until their September meeting to accumulate more information on the pace of growth and job gains before deciding whether to act.

BarCap month end extensions Treasury: +0.02y

EU & UK Headlines

An unsourced report released overnight in Spanish press garnered attention ahead of the European open, stating that the German government is urging Spain to request a EUR 300bln bailout package that would give Spain two years without needing to sell debt. The first EUR 100bln tranche would come from the EFSF, and the rest of the funding would be obtained from the ESM. (El Economista) Both the Spanish and German governments have come out to vehemently deny the reports, somewhat soothing sentiment towards the periphery today.

Moody's have lowered their outlook to negative on the provisional Aaa rating of the EFSF following its steps late on Monday to revise Germany, the Netherlands and Luxembourg's outlooks to negative. (Newswires) The action is to be expected as Finland is now the only

stable Aaa rated contributor to the bailout fund and Germany holds a 29% share.

ECB's Nowotny has said the ECB is not talking about a negative deposit rate for now, adding that he sees the argument for giving the ESM a banking license. Nowotny added that the ECB is not planning on buying more debt. (Newswires)

UK GDP (Q2 A) Q/Q -0.7% vs. Exp. -0.2% (Prev. -0.3%)

UK GDP (Q2 A) Y/Y -0.8% vs. Exp. -0.3% (Prev. -0.2%) (Newswires)
The ONS have said the extra public holiday due to the Queen's Diamond Jubilee and poor weather hurt Q2 GDP and led to additional uncertainty in calculating the figure during June. UK Chancellor Osborne commented that the onus is not on the BoE to provide stimulus.
- UK Q2 service sector output Q/Q -0.1% vs. Q1 0.2%
- UK Q2 industrial output Q/Q -1.3% vs. Q1 -1.5%
- UK Q2 construction Q/Q -5.2% vs. Q1 -4.9%

Bundesbank sells EUR 2.322bln 2.50% Jul '44 Bunds, bid/cover 1.5, Prev. 1.1 (Yield 2.17%, Prev 2.41%, Retention 22.6%, Prev. 19.8%)
Bund futures dropped 32 ticks in the 1 minute leading up to the auction results, on the break of yesterday's low at 144.51 and tripping stops to the downside. On the results a muted reaction was seen although Sep Bund futures still sit down 66 ticks.
Price action in the German 30-year was similar to that in the 10yr, bouncing on the auction result before continuing moves lower.

At the midpoint of the European session, the 30yr yield is seen markedly higher by over 6bps as the longer-end of the curve underperforms.

BarCap month end extensions Pan Euro Agg: +0.09y


Both core and peripheral European indices are making steady gains, with financials observed as the outperforming sector, closely followed by technology. Defensive healthcare stocks are the only sector seen in the red today. The moves higher follow a pick-up in appetite for the riskier assets with a stronger EUR and a tightening in peripheral 10yr government bond yield spreads assisting the moves. US stock futures indicate a higher open on Wall Street today with the exception of the NASDAQ, still weighed upon by last night's earnings miss from Apple.

One of the strongest stocks in Europe today is the German carmaker Daimler, releasing their latest earnings report premarket today. Daimler reported Q2 net income of EUR 1.52bln vs. exp. EUR1.40bln with Q2 sales of EUR 28.9bln vs. exp. EUR 27.9bln, confirming their 2012 forecast. (Newswires) At the North American crossover, Daimler shares trade higher by over 5%.

In individual equities news, Deutsche Bank are severely underperforming the European financials sectors following their unscheduled release late in yesterday's European session wherein they reported higher than expected non-interest expenses, being particularly weighed upon by a weaker EUR. Following this release, JP Morgan have forecast a material EPS cut from the bank as capital concerns are due to linger after they report Q2 earnings. At the midpoint of the European session, Deutsche Bank's shares trade lower by over 5%.


GBP/USD has seen volatile price action, with aggressive weakening in the GBP currency following a weaker advanced Q2 GDP print which came in at -0.7% vs. the expected -0.2%. This caused a 50 pip move to the downside in the pair, and with weakening the GBP, EUR/GBP in parallel saw strengthening following the reading. Despite this, cable has largely recovered with talk of a UK clearer on the bid at the lows. It is worth of note that there is an option expiry in close proximity at 1.5500 for the 10am NY cut (1500BST).

EUR/USD has been seen strengthening throughout most of the European session, shrugging off continued concerns over the periphery as the Eurozone crisis becomes a headline driver once again. A large sized bid was seen on the European cash open of 40 pips, attributed to several reasons but notably comments from ECB's Nowotny who said that the ECB is not talking about a negative deposit rate for now, and he sees an argument for giving the ESM a banking license. The pair trades just off session highs and near an option expiry at 1.2150 for the 10am NY cut.

AUD/USD has been supported in today's session with weakness in the USD-Index (-0.5%). Overnight data in the form of CPIs showed slightly lower readings than forecast but comments from Australian Treasurer Swan who noted the economy is robust did add to support in the AUD currency. Strength in commodity prices also gave strength to the currency throughout the session so far.


WTI and Brent crude futures are seen higher ahead of the NYMEX pit open after spending the much of the overnight Asian session in negative territory as last night's API inventory figures report a US stockpile gain. WTI and Brent futures have made progress throughout the European morning with a weaker USD index and modest risk appetite across the asset classes. The next flashpoint of activity for the energy complex will be the US DOE oil inventories due at 1530BST/0930CDT today.

Oil & Gas News:


  1. Japanese imports of LNG rose 6.7% in June on a yearly basis, while crude purchases increased 5.2% over the same period, according to data released from the Japanese finance ministry.
  2. The smallest OPEC member Ecuador expects to increase average oil production to 530,000BPD in 2013, up from a target of 510,000BPD this year.
  3. National Iranian Oil Co. will introduce a new generation of buy-back contracts 'soon' for its oil and gas fields to attract foreign and domestic investors, according to unsourced reports.
  4. SocGen have reaffirmed their forecast for Brent crude at USD 97-98/BBL for the rest of the year, even as they note that changes in risk appetite heighten price volatility.

Geopolitical News:


  1. Iran is proceeding with its controversial nuclear activities by activating hundreds more uranium enrichment centrifuges, according to the Iranian President in state media reports. The President added that there are currently 11,000 centrifuges active across the country's enrichment facilities.

Last price taken at: 1237BST

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