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DAILY US OPENING NEWS - 12/10/10

 

  • BOE’s Miles said that quantitative easing remains a potentially powerful tool, and the BOE may yet come to use it
  • Fixed income futures traded higher on the anticipation of further QE from global central banks
  • Widening of the trade balance, allied with weak retail sales data from the UK promoted risk-aversion

 

Overnight News

 

ASIA

 

JGBs edged up overnight, drawing momentum from easing by the Bank of Japan last week and the prospect of the Federal Reserve doing the same next month. Nikkei fell 2.1%, dragged lower by a climb in the JPY to fresh 15-year highs against the USD, with investors nervous to see whether authorities will intervene in the currency markets. (RTRS)

 

In other news, excessive lending by China’s leading banks in September prompted the central bank to increase their required reserve ratio, an official newspaper said. (Shanghai Securities News)

 

·   Japanese Consumer Confidence M/M (Sep) 41.4 vs. Prev. 42.5 (RTRS)

 

US

 

Fed’s Yellen said low interest rates can contribute to financial bubbles even if they are not a primary culprit. She also added that it is conceivable that accommodative monetary policy could provide tinder for a build-up of leverage and excessive risk-taking in the financial system. (RTRS)

 

Bonds

 

EUROPEAN GOVERNMENT BONDS

 

Bunds traded higher throughout the European session on the back of general risk-aversion, weakness in equities as well as anticipation that further monetary easing may come from the likes of the US Federal Reserve and the Bank of England. European peripheral 10-year bond yield spreads with respect to bunds generally remained wider across the board, and moving into the North American open, bunds are trading sideways in positive territory. It is worth noting that well received auctions from Netherlands, Greece, Italy and Belgium had muted reaction on the market.

 

Maturity

2

5

10

30

Bund (Dec 10)

Level

0.752

1.368

2.219

2.826

132.2

Change (bps)

-3.781

-5.971

-5.046

-5.008

0.57

 

GILTS

 

NYSE LIFFE Gilt futures traded in tandem with bunds gaining strength from the weakness in equities, a sharp fall in BRC retail sales monitor, widening of the trade balance from the UK, as well as comments from BOE’s Miles

saying that quantitative easing remains a potentially powerful tool, and the BOE may yet come to use it. Miles added that risks are both from tightening policy too soon and leaving it loose for too long. Moving into the North American open, Gilts have maintained strength and are trading sideways in positive territory.

 

British economic activity slowed sharply in the third quarter, according to the British Chambers of Commerce (NYSE:BCC), reiterating its call for the Bank of England to inject more stimulus to protect the recovery from budget spending cuts. The BCC’s quarterly economic survey showed a sharp deterioration in domestic demand for both services and manufacturing firms, and export demand also softened, indicating growth weakened from a robust 1.2% expansion in Q2. However, the BCC said that despite slowing growth, a double dip recession is avoidable.

 (RTRS/Telegraph)

 

·   Visible Trade Balance (GBP/mln) (Aug) M/M -8227 vs. Exp. -8050 (Prev. -8667, Rev. to -8675)

·   Trade Balance Non EU (GBP/mln) (Aug) M/M -4694 vs. Exp. -4400 (Prev. -4800, Rev. to -4706)

·   Total Trade Balance (GBP/mln) (Aug) M/M -4643 vs. Exp. -4388 (Prev. -4916, Rev. to -4991)

·   CPI (Sep) M/M 0.0% vs. Exp. 0.0% (Prev. 0.5%)

·   CPI (Sep) Y/Y 3.1% vs. Exp. 3.1% (Prev. 3.1%)

·   RPI (Sep) M/M 0.4% vs. Exp. 0.1% (Prev. 0.4%)

·   RPI (Sep) Y/Y 4.6% vs. Exp. 4.4% (Prev. 4.7%)

·   BRC Retail Sales Monitor (Sep) Y/Y 0.5% vs. Prev. 1.0%

·   RICS House Price Balance (Sep) M/M -36% vs. Exp. -36% (Prev. -32%) (RTRS)

 

Maturity

2.000

5.000

10.000

30.000

Gilt (Dec 10)

Level

0.594

1.502

2.823

3.937

125.73

Change (bps)

-1.935

-5.074

-5.224

-1.771

0.54

 

EQUITIES

 

European bourses traded lower during the European session on the back of general risk-aversion, and weakness in the Nikkei. The strength in the USD index weighed upon commodities, which in turn prompted basic materials and oil & gas sectors to underperform. In equity specific news, Standard Chartered shares gained following market talk that JPMorgan is interested in the company, whereas Actelion shares, in SMI, rose following speculation of interest from Roche. Moving into the North American open, equities have maintained weakness and are trading in negative territory.

 

Index

DAX

CAC

FTSE

EUROSTOXX

SMI

Level

6276.8

3720.95

5630.58

2760.1

6357.51

Change (ticks)

-32.71

-47.54

-41.82

-29.62

-28.67

 

FX

 

GBP lost strength across the board following widening of the trade balance from the UK, allied with comments from BOE’s Miles saying that quantitative easing remains a potentially powerful tool, and the BOE may yet come to use it, which saw GBP/USD dipping briefly below the 1.5800 handle. In other news, the USD index traded higher throughout the European session on the back of risk-aversion, which in turn weighed upon EUR/USD and GBP/USD. Also, EUR/CHF gained strength on market talk of US and Swiss names selling in the pair, which led it to break the 1.3300 level, touching fresh session low at 1.3290.

 

In other news, Japanese Finance Minister Noda said that Japan will continue to take decisive steps against excessive currency moves, including intervention. (RTRS)

 

Elsewhere, the pace and extend of New Zealand’s interest rate increases are likely to be more moderate that in the past as the recovery at home is slow and fragile, according to Reserve Bank of New Zealand Governor Bollard. (RTRS)

 

·   Australian NAB Business Confidence (Sep) M/M 10 vs. Prev. 11

·   Australian NAB Business Conditions (Sep) M/M 7 vs. Prev. 5 (RTRS)

 

Currency

EURUSD

GBPUSD

USDJPY

Level

1.3810

1.5847

81.99

Change (pips)

-0.0066

-0.0035

-0.0800

 

COMMMODITIES

 

WTI Crude futures have moved lower during European trade, crossing the USD 81 level before recovering, weighed upon by a strengthening USD Index. (+0.40%)

 

Oil & Gas News:

  • Saudi Arabian Oil Minister Ali Naimi said he was happy with today's oil market, comfortable with economic growth and he stood by earlier comment the ideal price was between USD70 and USD80 per barrel.
  • Libya’s National Oil Corp chairman, Shokri Ghanem has said that OPEC is unlikely to change its agreed output ceiling at its meeting this week, and said that he does not think oil output from Iraq will grow in a way that affects prices.
  • IEA Executive Director Tanaka spoke about a range of topics at a conference in London. He said that demand for OPEC oil will increase by 12mln BPD in 2030, Iraq will raise its oil production by 1mln BPD in 2015, and that sanctions against Iran are affecting investment in oil production. He also added that the oil market may face a significant impact from the delay in new offshore deep water drilling projects.

Commodity

WTI Nymex

OTC Spot Gold

Level

81.36

1344.53

Change (NYSEARCA:USD)

-0.85

-9.52

 

LOOKING AHEAD

Economic Releases

CDT  BST                                                        EXP.  PREV.

0630

1230

US    NFIB Small Bus. Optimism M/M (Sep)

89.6

88.8

0645

1245

US    ICSC Chain Stores W/W (Oct 12)

 

-0.8%

0645

1245

US    ICSC Chain Stores Y/Y (Oct 12)

 

2.4%

0755

1355

US    Redbook M/M (Oct 12)

 

-0.4%

0755

1355

US    Redbook Y/Y (Oct 12)    

 

2.7%

0900

1500

US    IBD/TIPP Eco. Optimism M/M (Oct)

44.5

45.3

0930

1530

UK    DMO Gilt Announcement

 

 

1300

1900

US    Minutes of FOMC Meeting

 

 

1600

2200

US    ABC Consumer Confidence W/W (Oct 10)

 

-47

 

Speakers

 CDT      BST

1045

1645

US    Fed's Hoenig

1100

1700

EU    ECB's Trichet at Economic Club of New York

1100

1700

EU    ECB's Weber

1500

2100

EU    ECB's Weber

 

Auction

  CDT      BST

1200

1800

US  USD 32bln (Act) 3y Note Auction

 Prices taken at  1215BST

 



Disclosure: No Position