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DAILY US OPENING NEWS - 08/11/10

 

  • The Irish/German 10-year bond yield spread trades near record high due to renewed Irish fiscal concerns
  • A sharp fall in German industrial production, Irish sovereign concerns, allied with USD strength weighed upon EUR/USD
  • Markets look ahead to BOE’s quarterly inflation report to gaze into inflation projections ahead

 

Overnight News

 

ASIA

 

JGBs traded steadily lower throughout the session, weighed upon by stronger stock prices in Tokyo. Nikkei rose 1.1% to a three month closing high, adding to gains made last week as risk money shifts towards global equities on improving prospects for the US economy. (RANsquawk/RTRS)

 

In other news, BOJ’s deputy governor Yamaguchi warned of looming risks to Japan’s economy, stressing that the central bank was ready to boost its asset buying scheme if it sees clear signs of a downturn. (RTRS)

 

GLOBAL

 

The IMF has agreed to make China the third leading voice at the fund, over taking Germany, France and the UK, and boost the voting power of the emerging countries, who European countries will give up 2 of their voting seats to over the next 2 years. IMF Director Strauss-Kahn has said that China having a bigger say at the IMF came with greater responsibility in the global economy and China recognised that. (RTRS)

 

US

 

Fed’s Warsh said that continued USD weakness and the run up in commodities prices could give the Fed reason to review its policy path if they prove inflationary. He added that last week’s decision by the Fed to buy an additional USD 75bln of long term Treasury securities per month through the second quarter of 2011 was not made unconditional or open ended. (WSJ)

 

In other news, Goldman Sachs defended Fed’s Bernanke decision to pump money into the US economy after officials in Germany, China and Brazil criticised the plan. It said that the move will encourage GDP growth and reduce the risk of deflation. (Sources)

 

Bonds

 

EUROPEAN GOVERNMENT BONDS

 

Bund futures traded higher during the European session amid risk-aversion and weakness in European equities, with European peripheral 10-year bond yield spreads with respect to bunds generally wider. Particular widening was observed in the Irish/German spread after the Irish main opposition party said it will not back the 2011 budget, allied with comments from Morgan Kelly in the Irish Times that Irish economy will need to be bailed out, whereas the Portuguese/German spread marginally widened ahead of the Portuguese bond auction later in the week. However, the Greek/German spread narrowed following victory of the ruling Socialist party in Greek regional elections, waning concerns of any mid-term elections in Greece. A surprise drop in the German industrial production helped bunds further and moving into the North American open, prices are trading in positive territory.

 

·   German Industrial Production SA (Sep) M/M -0.8% vs. Exp. 0.4% (Prev. 1.7%, Rev. to 1.5%)

·   German Industrial Production NSA WDA (Sep) M/M 7.9% vs. Exp. 9.5% (Prev. 10.7%) (RTRS)

Maturity

2

5

10

30

Bund (Dec 10)

Level

0.928

1.546

2.400

2.917

130.42

Change (bps)

1.627

-1.003

-1.540

0.526

0.17

 

 

GILTS

 

NYSE LIFFE Gilt futures underperformed bunds ahead of the BOE’s quarterly inflation report due later in the week, where most analysts expect that the BOE will provide a higher inflation forecast than previously anticipated, and moving into the North American open, Gilts are trading in negative territory.

Maturity

2.000

5.000

10.000

30.000

Gilt (Dec 10)

Level

0.656

1.568

2.995

4.128

124.08

Change (bps)

1.403

2.043

2.059

1.559

-0.3

 

EQUITIES

 

European bourses traded in negative territory for most of the session, with underperformance in telecommunications and basic materials sectors. Strength in the USD index weighed upon basic materials, whereas weakness in Telefonica shares, after co. went ex-dividend, was partly responsible for the underperformance in the telecommunications sector. A sharp drop in the German industrial production figures also brought negative sentiment to the market, however Hochtief shares jumped more than 3.5% following market talk of bid from Spain’s ACS at EUR 72/share, which was later denied. Moving into the North American open, equities have come off their worst level and are demonstrating a mixed picture ahead of the US open.

Index

DAX

CAC

FTSE

EUROSTOXX

SMI

Level

6744.68

3912.59

5856.45

2866.29

6600.27

Change (ticks)

-9.52

-4.14

-18.90

-9.65

12.55

 

FX

 

The USD index traded higher throughout the European session amid risk-averse trade allied with the release of major economic data from the US out of the way last week, which in turn weighed upon EUR/USD and GBP/USD. Renewed fears over a successful passage of Irish 2011 budget in the Irish parliament, and a sharp decline in German industrial production further pressured EUR/USD, resulting in EUR/USD trading down more than 100 pips on the session.

 

In other news, according to Japanese ministry of finance data, Japan intervened in the currency market on only one day in September, when it resumed JPY-selling intervention for the first time in six years, and on that day it sold a record JPY 2.1249trl worth. (RTRS)

Currency

EURUSD

GBPUSD

USDJPY

Level

1.3905

1.6126

81.07

Change (pips)

-0.0127

-0.0056

-0.1900

 

COMMMODITIES

 

WTI Crude futures have traded lower during the European session, weighed upon by a stronger USD Index (+0.80%)

 

Geopolitical News:

  • The movement for the Emancipation of the Niger Delta has taken 4 foreigners hostage and are threatening to launch a series of attacks on oil infrastructure over the next few days.
  • The US has rejected Israeli concerns that it had become necessary to pursue a credible military threat against Iran, saying that sanctions could deter Tehran from, building a nuclear weapon.

 

In other news, World Bank’s president Zoellick said leading economies should consider readopting a modified global Gold standard to guide currency movements. He said that a Bretton Woods II system of floating currencies is needed to replace the Bretton Woods fixed exchange rate regime that broke down in the early 1970s. (NYSE:FT)

Commodity

WTI Nymex

OTC Spot Gold

Level

86.5

1392.05

Change (NYSEARCA:USD)

-0.35

-1.60


 

LOOKING AHEAD

 

Economic Releases

 

CST

GMT

 

DATA

 

 

EXP

PREV

0715

1315

CA

Housing Starts

M/M

Oct

180.0K

186.4K

 

Speakers

 

CST

GMT

 

 

1130

1730

US

Fed’s Bullard

1200

1800

US

Fed’s Fisher

1430

2030

US

Fed’s Warsh

 

Auctions

 

CST

GMT

 

 

0600

1400

FR

EUR 7.5bln 12-, 27-, and 49-week T-Bills

1000

1600

US

Fed’s Outright Treasury Coup. Purch. Oct 2016 – Aug 2020

1200

1800

US

USD 32bln 3y Note Auction

 

US Earnings: Sysco

 

 

 Prices taken at  1207 GMT

 

 

 



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