RANsquawk's  Instablog

• S&P said that the US will need to address its ballooning budget deficit to protect its AAA rating

• A record three year jump in UK’s CBI Distributive Trades

• Eurozone source said joint intervention on JPY is unlikely, more realistic to see the BOJ act alone

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

Overnight News

ASIA

JGBs slipped overnight on profit-taking as US Treasuries retreated and following news a Japanese ruling party heavyweight will challenge the prime minister in a party leadership vote next month, raising the prospect of the government’s fiscal austerity stance being dented. Nikkei (+0.7%) clawed away from 16-month lows, buoyed by short covering after falling more than 500 points over the last week, with buying of futures by long-term domestic investors also providing support. But gains were capped by increasing uncertainty about when the government might hammer out measures to rein in the strong JPY that threatens a fragile economic recovery, after news that Japanese PM Kan faces a challenge for party leadership and hence the premiership. (RTRS)

Overnight Finance Minister Noda said 'I will watch currency moves very carefully with great interest. But when necessary we must respond appropriately’. His strongest language to date.  The Asahi newspaper also reported that the Japanese government will urge the BoJ to ease monetary policy further as part of a package to stem the rise in JPY. However, BoJ Governor Shirakawa is travelling to the Federal Reserve's annual symposium in Jackson Hole, Wyoming, which dampens expectations of an emergency meeting on easing measures. (RTRS/Sources) Also, Japanese Prime Minister Kan and his cabinet are considering a supplementary budget to pay for a package of new economic stimulus, with a draft complete by the end of August. (Nikkei)

Elsewhere, China's government is in a strong enough fiscal position to withstand any sharp slowing in economic growth, while concerns remain over Japan's weak outlook, the chairman of Standard & Poor's sovereign-ratings committee said. (WSJ)

US

S&P’s sovereign ratings committee chief, John Chambers, said that the US will need to address its ballooning budget deficit to protect its AAA rating, urging US lawmakers to consider very carefully recommendations from President Obama’s commission on fiscal responsibility. How Congress responds to the commission’s proposals, which are due by December, will be critical in shaping S&P’s thinking on the outlook for the credit rating of the world’s biggest economy. Chambers said. Asked whether looming mid-term elections and the risk of political uncertainty will hinder any efforts at fiscal consolidation, Chambers said the onus will be on lawmakers to act. “It is very important for Congress to take the required steps”, he said, adding similar commissions in previous decades have proven successful in their mandate. The US economic outlook isn’t as grim as some analysts have warned, and although a slowing in growth there is to be expected as past fiscal stimulus wears off but a double-dip recession in the US is unlikely, he said. (WSJ)

In other news, S&P economist David Wyss has said that the Federal Reserve is likely to hold interest rates at near zero for at least another year, due to the 'slow and fragile' economic recovery. (Sources)

Elsewhere, the Federal Reserve asked a US appeals court to delay implementing a ruling that would force the central bank to disclose details of its emergency lending programmes to banks during the financial crisis. (RTRS)

Bonds

EUROPEAN GOVERNMENT BONDS

Bund futures traded lower in early European trade amid renewed risk-appetite, strength in equities as well as short dated supply from Ireland and Italy. However, as the session progressed and the supply got cleared, prices came off their worst levels, and moving into the North American open, prices are trading near unchanged as the market looks ahead to key jobless figures from the US later in the session.

·   German GfK Consumer Confidence (Sep) M/M 4.1 vs. Exp. 4.0 (Prev. 3.9, Rev. to 4.0) (RTRS)

·   Irish T-Bill auction for EUR 0.2bln, 14-Feb-2011, bid/cover 10.1 vs. Prev. 3.6 (yield 1.978% vs. Prev. 2.458%)

·   Irish T-Bill auction for EUR 0.4bln, 18-Apr-2011, bid/cover 4.1 vs. Prev. 3.1 (yield 2.348% vs. Prev. 2.810%)

·   Italian 6-month T-Bill auction for EUR 9.5bln, bid/cover 1.568 vs. Prev. 1.98 (yield 0.958% vs. Prev. 1.034%) (RTRS)

GILTS

NYSE LIFFE Gilt futures traded in negative territory for the entire European session, pressured by strength in equities and general risk-appetite. Moving into the North American open, prices have come off their worst levels and are trading near unchanged ahead of the jobless figures from the US.

·   CBI Distributive Trades (Aug) M/M 35 vs. Exp. 18 (Prev. 33), highest since April 2007 (RTRS)

EQUITIES

European bourses traded higher throughout the European session amid general risk-appetite. Better than expected German consumer confidence, well received Irish and Italian auctions, a record jump in UK’s CBI distributive trades all helped the positive sentiment. Strong corporate earnings from Credit Agricole helped financials, which performed well during the session. Elsewhere, weakness in the USD index buoyed commodities, which in turn strengthened the basic materials sector. Moving into the North American open, equities are off their best levels but still in positive territory with basic materials and industrials as the best performing sectors.

FX

Renewed risk-appetite has helped both the EUR and the GBP to trade higher throughout the European session. Whereas EUR/USD received positive sentiment from an increase in German consumer confidence, well received Irish and Italian auctions, as well as weakness in the USD index, GBP/USD gained strength on the back of a 3-year jump in UK’s CBI distributive trade and USD weakness.

Also, the USD Index was under pressure in early trade as the market digested an interview with S&P sovereign head overnight which stressed that the US must address its ballooning budget deficit to protect its AAA credit rating. However, the rating agency did go on to say that a double-dip in the US economy was unlikely.

Elsewhere talk of intervention in the JPY continued, with the JPY initially weaker overnight in Asia, as finance minister Noda said that he 'will watch currency moves very carefully and with great interest' reiterating that when 'necessary we must respond appropriately'. The Asahi newspaper also reported that the Japanese government will urge the BoJ to ease monetary policy further as part of a package to stem the rise in JPY. However, as BoJ Governor Shirakawa is travelling to the Federal Reserve's annual symposium in Jackson Hole, Wyoming, any notions of an emergency meeting are seen as highly unlikely and as such the JPY has since recovered its earlier weakness.

COMMMODITIES

WTI Crude futures have traded higher throughout the European morning session, aided by a weaker USD Index (-0.40%)

Oil & Gas News:

• Following corporate earnings, the Premier Oil CEO said that oil at USD 80 per barrel is reasonable, but expects weakness in short term oil prices. And following their earnings, Petrochina said that they expect oil prices to fluctuate around USD 70 and USD 85 per barrel.
• China is planning three oil product pipelines in the south-western border province of Yunnan as it prepares to receive crude from its neighbour, Burma. Citing a local company official, the report said construction of the pipelines was likely to begin next year and be completed within three years.
• Kuwait and Iraq have reached an initial agreement on sharing border oilfields and to allow an international oil company to develop them, Kuwait's oil minister said yesterday.
• RWE has struck hydrocarbons at the Zidane-1 exploration well in licence PL435 in the North Sea.
• The prime minister of Greenland said today that positive exploration findings off the west coast of the island were far from proof of oil reserves and that Greenlanders needed to be patient.
• Iraqi Oil exports from the Kirkuk oil fields, via the 450,000 BPD pipeline through Turkey have resumed after a bombing halted the flow of oil.

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