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DAILY US OPENING NEWS - 26/10/10

 

  • Double consensus print on the UK’s advanced Q/Q Q3 GDP strengthened GBP, and weighed heavily on Gilts
  • S&P revised UK’s sovereign outlook to stable from negative, and affirmed UK’s AAA rating
  • Pimco’s El-Erian said that Greece will default in three years, and will be forced to restructure its debt

 

Overnight News

 

ASIA

 

JGBs edged lower overnight, weighed down by profit taking and resilience shown by Tokyo stocks in the face of JPY’s rise to a 15-year high against the USD. Nikkei ended slightly lower (-0.25%) as the JPY hovered near a record high against the USD, adding to investor caution before the peak of the corporate earnings season. (RTRS)

 

In other news, according to sources, the BOJ may forecast consumer price to rise about 0.5% and economic growth of about 2% in fiscal 2012, in its economic forecast due to be released on October 28. Also, according to a report in Nikkei, the BOJ is likely to keep its policy rate to zero for at least 2 years. (Nikkei)

 

Elsewhere, the Japanese Cabinet approved a JPY 5.1trl stimulus package to fight deflation and combat the stronger JPY. (Sources)

 

US

 

Fed’s Dudley said the risk of a US double-dip recession is quite low, adding that Fed purchases is not monetising the debt, and the balance sheet expansion is temporary. He also said that if inflation expectations fall too low, a deflation expectation environment can take root. (RTRS) Also, Fed’s Hoenig said that the Fed should move interest rates off zero, and called more QE a dangerous gamble. He also said that the Fed should raise interest rates gradually, first to 1%, then to 2%. (RTRS)

 

Elsewhere, according to former Fed chairman Volcker, the US does not face a problem of rising inflation for several years and also does not risk a damaging spell of falling prices. (RTRS)

 

In other news, Pimco’s El-Erian said that Fed’s Treasury purchases will spur global inflation while failing to bring down US unemployment. (Sources)

 

Bar Cap US Treasury month-end extension: +0.06 years

 

Bonds

 

EUROPEAN GOVERNMENT BONDS

 

Bunds traded lower in early European trade, following the downward momentum in Gilts on the back of market talk of a stronger than expected GDP from the UK, and further lost strength after the UK GDP confirmed a double consensus reading in line with the rumour. European peripheral 10-year bond yield spreads with respect to bunds generally tightened, exerting further pressure on bunds, with particular narrowing observed in the Spanish/German spread leading up to and post Spanish T-Bill auctions. However, the Greek/German spread widened on the back of comments from Pimco’s El-Erian that Greece will default in three years, and will be forced to restructure its debt, allied with comments from the Bank of Greece that the Greek GDP will shrink to about 4% in 2010 and unemployment will exceed 12%. The central bank also said that Greece has no room for further tax increases, with a long and hard road ahead. Moving into the North American open, bunds are trading sideways in negative territory, with the European peripheral spreads generally tightened.

 

·   Spanish 3-month T-Bill auction for EUR 1.695bln, bid/cover 2.76 vs. Prev. 2.99 (yield 0.951% vs. Prev. 0.685%)

·   Spanish 6-month T-Bill auction for EUR 1.488bln, bid/cover 2.08 vs. Prev. 2.01 (yield 1.285% vs. Prev. 1.180%) (RTRS)

 

Bar Cap Euro Sovereign month-end extension: +0.08 years

 

Maturity

2

5

10

30

Bund (Dec 10)

Level

1.028

1.723

2.511

2.998

129.28

Change (bps)

6.751

7.379

6.231

4.161

-0.56

 

GILTS

 

NYSE LIFFE Gilt futures traded lower in early European trade on the back of market talk of a weaker than expected GDP figures from the UK, and touched fresh session lows after the GDP data came out much stronger than expected. The statistics office said that the third quarter GDP was the first this year not to have been distorted by weather related effects which depressed output in the first quarter and boosted it in the second. Further negative sentiment came in the Gilt market following comments from NIESR that the Q3 GDP weakened the case for further BOE stimulus, JP Morgan pushing back their call for further QE until February 2011 from November 2010 as well as the S&P revising United Kingdom’s sovereign outlook to stable from negative, and affirming its AAA ratings. Moving into the North American open, Gilt futures have maintained weakness and are trading in negative territory.

 

·   GDP (Q3 A) Q/Q 0.8% vs. Exp. 0.4% (Prev. 1.2%)

·   GDP (Q3 A) Y/Y 2.8% vs. Exp. 2.4% (Prev. 1.7%), highest since Q3 2007 (RTRS)

 

Bar Cap Sterling Index month-end extension: +0.04 years

 

Maturity

2.000

5.000

10.000

30.000

Gilt (Dec 10)

Level

0.702

1.592

3.044

4.100

123.7

Change (bps)

6.996

12.000

12.391

5.939

-1.11

 

EQUITIES

 

European bourses traded in negative territory during the European session weighed upon by financials and basic materials stocks. Basic materials underperformed following comments from ArcelorMittal on a cautious Q4 outlook, whereas financials remained under pressure partly after traders said that UBS Q3 underlying performance was disappointing, as the result was driven by a tax credit of CHF 825mln. Bank of Spain’s call for Spanish banks and savings banks to accelerate the divestment of the non-strategic assets in order to generate capital gains to rebuild their reserve cushions, allied with BOE’s King comments on breaking up the banks as part of wider reforms to protect the taxpayer from another financial industry meltdown also weighed upon financials. Moving into the North American open, equities have come off their worst levels but are still trading in minor negative territory.

 

Kindly note that details regarding the US corporate earnings can be found at ransquawk.com website, or alternatively in the Ransquawk’s US Equity Opening News sheet, which will be sent out shortly.

 

Index

DAX

CAC

FTSE

EUROSTOXX

SMI

Level

6622.76

3844.01

5707.97

2855.25

6463.81

Change (ticks)

-16.45

-25.99

-44.01

-16.23

-49.82

 

FX

 

GBP gained strength in early European trade on the back of speculation over better than expected UK GDP figures, and took a further lift following a sharp jump in GDP data. Further strength came into the currency after the S&P revised United Kingdom’s sovereign outlook to stable from negative, affirming its AAA rating. Comments from NIESR that the Q3 GDP weakened the case for further BOE stimulus, and JP Morgan pushing back their call for further QE until February 2011 from November 2010 also helped GBP.

 

In other news, EUR/SEK spiked higher by 1.00% following Riksbank comments that they won’t need to raise rates as much in coming years, in spite of raising the key repo rate today by 25 BPS to 1.00%.

 

Currency

EURUSD

GBPUSD

USDJPY

Level

1.3927

1.5875

81.26

Change (pips)

-0.0038

0.0152

0.4500

 

COMMMODITIES

 

WTI Crude futures have traded lower during the European session, to settle around the USD 82 level, following the downward trend in Equity markets.

 

Oil & Gas News:

  • The strike at the Fos-Lavera oil terminals in France continue, with 60 vessels now blocked including 40 crude oil tankers and 20 oil product tankers. Workers at 3 refineries in France have now voted to return to work, however fuel deliveries remain blocked at 7 of France’s 12 refineries.

 

Geopolitical News:

  • Iran has begun the loading of fuel into the core of its first nuclear power plant, in one of the last steps to becoming a nuclear power.

 

Commodity

WTI Nymex

OTC Spot Gold

Level

82.38

1332.7

Change (NYSEARCA:USD)

-0.14

-7.15


LOOKING AHEAD

 

Economic Releases

CDT  BST                                                         EXP.   PREV.

0755

1355

US    Redbook M/M (Oct 26)

 

0.2%

0755

1355

US    Redbook Y/Y (Oct 26)

 

2.7%

0800

1400

US    S&P/CS Home Price Index Y/Y (Aug)

 

148.91

0800

1400

US    S&P/CS Composite-20 Y/Y (Aug)

2.10%

3.18%

0900

1500

US    Cons. Confid. M/M (Oct)

49.9

48.5

0900

1500

US    House Price Index M/M (Aug)

-0.2%

-0.5%

0900

1500

US    Richmond Fed Manuf. Index M/M (Oct)

0

-2

0930

1530

UK    DMO Gilt Size Announcement

 

 

1100

1700

FR    Jobseekers - Net Change M/M (Sep)

 

15.9

1100

1700

FR    Total Jobseekers M/M (Sep)

 

2692.5

1530

2130

US    API Crude Oil Invent. W/W (Oct 22)

 

2315K

1530

2130

US    API Gasoline Invent. W/W (Oct 22)

 

-83K

1530

2130

US    API Distillate Invent. W/W (Oct 22)

 

-854K

1530

2130

US    API Cushing Crude Invent. W/W (Oct 22)

 

-757K

1600

2200

US    ABC Cons. Confid. W/W (Oct 24)

 

-46

 

Speakers

 CDT   BST

1000

1600

EU    ECB's Mersch

1100

1700

UK    BOE's Posen

1130

1730

EU    EU's De Gucht

1200

1800

EU    ECB's Weber

1530

2130

US    Fed's Dudley

 

Auctions

 CDT    BST

1000

1600

US    Fed's Outright Treasury Coupon Purchase Feb 2021 - Aug 2040

1200

1800

   US    USD 35bln (Act) 2y Note Auction

 

US Earnings: AFLAC, Broadcom, CH Robinson, National Oilwell Varco, PACCAR

 

**Notes:

Heating Oil RBOB/ Natgas Nov. options expiry

 

 

 Prices taken at  1241BST

 



Disclosure: No Position