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DAILY US OPENING NEWS - 25/10/10

 

  • According to Goldman Sachs, the Fed may opt for USD 2trl of asset purchases, and start by announcing a fresh round of monetary easing on November 3, 2010
  • The broad USD weakness resulted in a fresh 15-year low in USD/JPY at 80.41
  • Belgian/German 10-year bond yield spread demonstrated significant tightening following a well received Belgian auction

 

Overnight News

 

ASIA

 

JGBs were little changed overnight, with yields of longer dated holding roughly steady with the curve expected to gradually flatten with the near-term horizon clear of superlong auctions. Nikkei closed down 0.27% as investors grew cautious ahead of the peak of Japan’s earnings season, with many focusing on the impact of a strong JPY on companies’ full-year earnings outlooks. (RTRS)

 

In other news, the BOJ is planning to buy corporate bonds rated ‘BBB’ as well as second-tier commercial paper in its bid to help companies procure funds. The central bank is expected to devote a total of JPY 1trln to both types of assets, and said asset purchases could start within the year at the earliest. (Nikkei) Also, according to Japanese economic minister Kaieda, the BOJ may want to consider buying foreign-currency assets to help ease the JPY’s appreciation. (Sources)

Elsewhere, China is facing pressure to raise interest rates further after the surprise increase of a quarter of a percentage point in benchmark rates last week, according to Xia Ben, an advisor to the PBOC. (RTRS)

 

US

 

According to Goldman Sachs, the Fed may opt for USD 2trl of asset purchases, and start by announcing a fresh round of monetary easing on November 3, 2010. Goldman expects an announcement of USD 500bln or perhaps slightly more over a period of about 6 months, adding that the Fed may also announce a monthly purchase rate of approximately USD 100bln. Goldman estimates that as much as USD 4trl of additional large-scale asset purchases might be needed to bring inflation and unemployment into line with Fed’s targets. (Sources)

 

·   NABE Industry Survey of Demand (Oct) Q/Q 46 vs. Prev. 42 (Sources)

 

Bonds

 

EUROPEAN GOVERNMENT BONDS

 

Bund futures traded higher in early European trade over prospects of further monetary easing by major central banks, however as the session progressed, prices came off their best levels as equities gained strength and on the back of a well received auction from Belgium. European peripheral 10-year bond yield spreads generally tightened, with particular narrowing observed in Belgian/German spread following Belgian auction results, and moving into the North American open, bunds are trading near unchanged.

 

In other news, ECB's Tumpel-Gugerell said the global recovery is expected to continue, adding that data is consistent with a picture of positive underlying momentum of Eurozone recovery. (RTRS)

 

·   Eurozone Industrial New Orders SA M/M 5.3% vs. Exp. 2.2% (Prev. -2.4%)

·   Eurozone Industrial New Orders SA Y/Y 24.4% vs. Exp. 19.3% (Prev. 11.2%) (RTRS)

 

 

Maturity

2

5

10

30

Bund (Dec 10)

Level

0.968

1.664

2.463

2.969

129.73

Change (bps)

-3.267

-1.228

-0.969

-0.853

0.08

 

GILTS

 

NYSE LIFFE Gilt futures opened sharply higher as it played catch up with the strength in T-Notes, however as the session progressed prices came off their best levels, and moving into the North American open, Gilts are trading in positive territory.

 

In other news, Chancellor Osborne said that any decision regarding further bond purchases is for the BOE to decide, and that he would not refuse any request by the BOE to buy more assets. (Sources)

 

·   BBA Loan for House Purchase (Sep) M/M 31104 vs. Exp. 31000 (Prev. 31767, Rev. to 31781) (RTRS)

 

Maturity

2.000

5.000

10.000

30.000

Gilt (Dec 10)

Level

0.625

1.476

2.933

4.057

124.69

Change (bps)

0.298

0.387

-1.537

-2.298

0.16

 

EQUITIES

 

European bourses traded in positive territory during most of the session led by the basic materials sector that outperformed on the back of a weak USD index. However, Spanish IBEX 35 index and Italian FTSE MIB indices underperformed on the back of weakness in financials, which remained the worst performing sector. Attention was drawn to comments from Fitch late Friday who said they may downgrade the corporate ratings of Citigroup and Bank of America, allied with weakness in BBVA shares following news that it may need to launch a capital increase to buy Turkiye Garanti stake.

 

Index

DAX

CAC

FTSE

EUROSTOXX

SMI

Level

6647.08

3886.16

5776.09

2880.92

6516.15

Change (ticks)

41.24

17.62

34.72

7.18

39.02

 

FX

 

The USD index traded in negative territory for the entire European session on the back of growing concerns over further monetary easing from the Fed, reaching a session low of -0.75% at one point, which in turn buoyed EUR/USD and GBP/USD. EUR/USD also gained strength following a sharp increase in Eurozone industry new orders, positive comments from ECB’s Tumpel-Gugerell as well as market talk of bids in the pair from a European name.

 

In other news, the broad USD weakness resulted in a fresh 15-year low in USD/JPY at 80.41 with analysts noting huge barriers seen at 80.00. Should we continue to move lower we will be eyeing a test of all time lows, seen at 79.75.

 

Elsewhere, US treasury secretary Geithner said he believes China is now "committed" to allowing its currency to rise in value, as he attended hastily arranged talks with officials in the port city of Qingdao on Sunday. The unscheduled meeting with Chinese vice-premier Wang Qishan to discuss the rising economic tensions between the two countries followed a G20 finance ministers' meeting in South Korea where officials pledged to avoid currency manipulation, although they stopped short of setting targets for trade imbalances. (Observer)

·   Australian Producer Price Index Q/Q (Q3) 1.3% vs. Exp. 0.5% (Prev. 0.3%) (RTRS)

·   Australian Producer Price Index Y/Y (Q3) 2.2% vs. Exp. 1.4% (Prev. 1.0%)

 

Currency

EURUSD

GBPUSD

USDJPY

Level

1.4038

1.5743

80.66

Change (pips)

0.0084

0.0061

-0.7200

 

COMMMODITIES

 

WTI crude futures have traded over USD1 higher this morning, supported by a weaker USD Index (-0.75%) as the market anticipates further QE from the Federal Reserve.

 

Oil & Gas News:

  • China's crude output will reach a record high of 4mln BPD, the National Energy Administration said today. Also in China, the National Development and Reform Commission have said they will raise gasoline and diesel prices by around 3%.
  • Strikers at 7 out of the 12 French refineries have voted to keep striking today, with the other 5 refineries voting later today. 80 vessels are now blocked at the Fos-Lavera oil terminal, including 38 crude oil tankers and 19 oil product tankers. A quarter of French petrol stations are facing supply disruptions however the IEA have said that France have not notified them of any reduction in oil stockpiles below the 90 day minimum requirement. French Finance minister Lagarde has said that the strikes are costing between EUR 200mln and EUR 400mln a year.

 

Commodity

WTI Nymex

OTC Spot Gold

Level

82.48

1343.4

Change (NYSEARCA:USD)

0.79

14.95


LOOKING AHEAD

 

Economic Releases

CDT  BST                                                         EXP.     PREV.

0730

1330

US    Chicago Fed Nat. Activity Index M/M (Sep)

 

-0.53

0900

1500

US    Existing Home Sales M/M (Sep)

4.28M

4.13M

0900

1500

US    Existing Home Sales M/M (Sep)

3.6%

7.6%

0930

1530

US    Dallas Fed Manuf. Activity M/M (Oct)

-8.0

-17.7

 

Speakers

 CDT   BST

0700

1300

US    Fed's Cumming

0730

1330

US    Fed's Bernanke at Housing Conference

0930

1530

US    Fed's Dudley

1230

1830

US    Fed's Bullard

1530

2130

US    Fed's Dudley

1615

2215

US    Former Fed Kohn

 

Auction

  CDT   BST

0800

1400

FR    EUR 8bln (Act) 12-, 25-, and 51-week T-Bills

1200

1800

US    USD 10bln (Act) 5y TIPS Auction

 

US Earnings: Amgen, Texas Instruments

 

 

 

 Prices taken at  1211BST

 



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