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DAILY US OPENING NEWS - 27/10/10

 

  • ECB allotted EUR 42.475bln in its 91-day operation, which was much higher than the previous allocation of EUR 19.1bln
  • According to an article in the WSJ, the Fed is likely to unveil a program of U.S. Treasury bond purchases worth a few hundred billion dollars over several months
  • Portugal opposition PSD party said that talks on the 2011 budget with the government ended without agreement

 

Overnight News

 

ASIA

 

JGBs fell overnight with the benchmark 10-year yield rising to a three week high, after a continued retreat in the US Treasuries and a bounce in Tokyo stocks dampened sentiments. Nikkei ended slightly higher (+0.1%) but off from its morning highs as falls in Hong Kong and Shanghai shares and weakness in Japanese banking stocks prompted profit taking. Still, the Nikkei managed to find support as investors refrained from selling actively as the JPY drifted down against the USD from a 15-year high marked this week, according to traders. (RTRS)

 

In other news, PBOC said there is a small possibility of a global double dip, adding that normalisation of monetary policy will stabilise inflationary expectations. It also said that quantitative easing in major economies will push the global commodity prices. (RTRS)

 

US

 

Fed’s Dudley repeated his thoughts that further QE is required, as inflation is too low and unemployment too high.

He added that the momentum of the recovery has slowed in recent months but the US economy is recovering gradually and the economy will be fine in the medium to long term. He also added that there are different views amongst the FOMC on how their actions will affect asset prices. (RTRS/Sources)

 

According to an article by Jon Hilsenrath in the WSJ, the Fed is likely to unveil a program of U.S. Treasury bond purchases worth “a few hundred billion dollars” over several months, a measured approach in contrast to purchases of nearly USD 2trl it unveiled during the financial crisis. The announcement is expected to be made at the conclusion of a two-day meeting of its policy-making committee next Wednesday. Officials want to avoid the "shock and awe" style used during the crisis in favour of an approach that allows them to adjust their policy, and possibly add to their purchases, over time as the recovery unfolds. The Fed could leave open the possibility of more purchases in the future, particularly if inflation is projected to remain below 2% and the unemployment outlook remains high, which is currently the expectation of many officials. Or it could halt the program if the economy or inflation surprisingly take off, officials have said. Fed officials will update their forecasts for growth, unemployment and inflation through 2013 at the upcoming meeting. (WSJ)

 

·   MBA Mortgage Applications (Oct 22) W/W +3.2% vs. Prev. -10.5%

·   ABC Consumer Confidence (Oct 24) W/W -47 vs. Prev. -46 (RTRS)

 

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

 

Bonds

 

EUROPEAN GOVERNMENT BONDS

 

Bunds opened lower and continued to move sharply lower after sell stops were triggered upon the break of the key 129.09 level. European peripheral 10-year bond yield spreads with respect to bunds generally narrowed in early European trade ahead of bond auctions from Portugal, with the exception of Greek/German spread which widened on the back of negative economic comments from the Greek finance minister, who said that Greek economy will contract between 2.5% and 3% in 2011, and country has serious tax compliance issues. However, as the session progressed, European peripheral spreads widened on the back of breakdown of 2011 budget talk between Portuguese government and the opposition, allied with comments from the Irish PM that cuts to public spending could temporarily dampen economic growth and could end up in a position of not being able to borrow. Moving into the North American open, bunds have continued weakness and are trading sideways in negative territory.

 

It is also worth noting that a sharp rise was observed in Euribor futures after the ECB allotted EUR 42.475bln in its 91-day operation, which was much higher than the previous allocation of EUR 19.1bln, re-igniting concerns surrounding European banks.

 

In other news, ECB's Stark said keeping rates too low for too long carries risks, adding that remaining ECB support measures will not be kept in place longer than necessary. He also said that current ECB policy remains accommodative and are still appropriate. (RTRS)

 

·   Portuguese bond auction for EUR 0.611bln, 3.60% Oct'14, bid/cover 2.8 vs. Prev. 3.5 (yield 4.014% vs. Prev. 4.695%)

·   Portuguese bond auction for EUR 0.614bln, 4.45% Jun'18, bid/cover 1.7 vs. Prev. 2.1 (yield 5.137% vs. Prev. 4.674%) (RTRS)

 

·   German CPI - Saxony (Oct) Y/Y 1.4% vs. Prev. 1.5%

·   German CPI - Hesse (Oct) Y/Y 1.0% vs. Prev. 1.1%

·   German CPI - Brandenburg (Oct) Y/Y 1.0% vs. Prev. 1.0%

·   German CPI - Baden Wuerttemberg (Oct) Y/Y 1.1% vs. Prev. 1.3%

·   German CPI - Bavaria (Oct) Y/Y 1.4% vs. Prev. 1.4% (RTRS)

 

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

 

Maturity

2

5

10

30

Bund (Dec 10)

Level

1.024

1.761

2.571

3.025

128.7

Change (bps)

1.518

4.853

6.583

4.401

-0.66

 

GILTS

 

NYSE LIFFE Gilt futures traded in tandem with bunds and moving into the North American open are trading sideways in negative territory.

 

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

 

Maturity

2.000

5.000

10.000

30.000

Gilt (Dec 10)

Level

0.715

1.680

3.120

4.178

122.87

Change (bps)

1.153

5.939

6.334

6.291

-0.63

 

EQUITIES

 

European indices have retraced their lower opening to trade in minor positive territory, following a morning of mixed earnings. A smaller than expected loss from Deutsche Bank (+1%) following a write down in the value of their Deutsche PostBank stake has boosted the Financial sector despite BBVA (-1%) missing analysts estimates. Other stocks that stand out are SAP (-3%) following earnings results which missed estimates and the Airline sector which is trading higher following Air France-KLM (+4%) revising their outlook higher. Moving into the North American open, basic materials remains one of the worst performing sector due to strength in the USD index, however financials remains the best performing sector mainly receiving support from the strength in Deutsche Bank’s shares.

 

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

6618.12

3855.3

5681.82

2855.53

6508.52

Change (ticks)

4.32

2.64

-25.48

-0.78

31.91

 

FX

 

Overnight in the WSJ, their resident Fed watcher Jon Hilsenrath wrote an article suggesting that the Fed will unveil 'several hundred billion dollars' of QE over several months, this being much less than the USD 2-4trl which institutions such as Goldman Sachs have mentioned in previous days has given a boost to the USD Index, which was up over 0.50% at one point during the European session. The USD index also received support on the back of market talk that China will revalue its currency this weekend, however as the session progressed the USD index came off its earlier best levels.

 

In other news, EUR/USD fell more than 30 pips after the ECB allotted EUR 42.475bln in its 91-day operation, which was much higher than the previous allocation of EUR 19.1bln, re-igniting concerns surrounding European banks.

 

Elsewhere weakness has been seen through the session in AUD, after lower than expected Australia inflation data which sent AUD/USD down over 100 pips and has prompted some analysts to move back their forecasts for further rate hikes from the RBA.

·   Australian Consumer Prices (Q3) Q/Q 0.7% vs. Exp. 0.8% (Prev. 0.6%)

·   Australian Consumer Prices (Q3) Y/Y 2.8% vs. Exp. 2.9% (Prev. 3.1%) (RTRS)

 

Currency

EURUSD

GBPUSD

USDJPY

Level

1.3805

1.5831

81.67

Change (pips)

-0.0054

-0.0014

0.2400

 

COMMMODITIES

 

WTI Crude futures have traded lower during the European session, crossing back below the USD82 level, weighed upon by a stronger USD Index.

 

Oil & Gas News:

  • The IEA has warned that the global economic recovery would be derailed if commodity prices rise further, if further QE from the Fed occurs.
  • China will hold its first auction for six shale gas exploration blocks that will involve four local energy companies, a government official said today.
  • Iran has resumed gas exports to Turkey today after a 10-day halt due to repairs being carried out on export infrastructure.
  • China will hold its first auction for six shale gas exploration blocks that will involve four Chinese energy companies, a government official said today. The auction will take place within a month.
  • Strikes at the French Fos-Lavera oil port continue, with 37 crude oil tankers and 20 oil product tankers now blocked. The CGT union has said that the strikes will continue for as long as needed to find a deal with the management on port reform.

 

In other news, China should significantly boost the amount of gold held in state reserves, according to Meng Qingfa, a researcher with China Chamber of International Commerce. US reserves of gold stood at 8,133 tonnes as of the end of June, significantly high than China’s current level of 1,054 tonnes. (RTRS)

 

Commodity

WTI Nymex

OTC Spot Gold

Level

81.82

1331.45

Change (NYSEARCA:USD)

-0.73

-9.00


LOOKING AHEAD

 

Economic Releases

CDT BST                                                         EXP.     PREV.

0700

1300

NO    Norwegian Deposit Rates M/M (Oct)

2.00%

2.00%

0730

1330

US    Durable Goods Orders M/M (Sep)

2.0%

-1.3%

0730

1330

US    Durables ex. Transportation M/M (Sep)

0.5%

2.0%

0730

1330

US    Non-def cap ex. Aircraft M/M (Sep)

 

5.1%

0900

1500

US    New Home Sales M/M (Sep)

300K

288K

0900

1500

US    New Home Sales M/M (Sep)

4.2%

0.0%

0930

1530

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

1250K

667K

0930

1530

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

250K

1155K

0930

1530

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

-1500K

-2155K

0930

1530

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

 

-1051K

0930

1530

US    DOE Refinery Utilisation W/W (Oct 22)

0.30%

0.60%

1100

1700

US    Midwest Manufacturing M/M (Sep)

 

79.9

1500

2100

NZ    RBNZ Official Cash Rate M/M (Oct)

3.00%

3.00%

N/A

N/A

GE    CPI M/M (Oct P)

0.1%

-1.0%

N/A

N/A

GE    CPI Y/Y (Oct P)

1.3%

1.3%

 

Speaker

 CDT    BST

1500

2100

US    Fed's Dudley

 

Auction

 CDT   BST

1200

1600

US   USD 35bln (Act) 5y Note Auction

 

US Earnings: ConocoPhillips, Express Scripts, Norfolk Southern, Northrop Grumman, Symantec, Visa

 

**Notes:

Natgas Nov. futures expiry

 

 Prices taken at 1248BST

 



Disclosure: No Position