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DAILY US OPENING NEWS - 09/11/10

 

  • Hawkish comments from a PBOC advisor, and an auction of one-year bills at a higher yield than last week led to market speculation of the PBOC hiking rates
  • Well received Austrian and Greek auctions switches focus ahead to the Portuguese bond auction due tomorrow
  • ECB allotted EUR 63.681bln in its 28-day operation vs. Prev. allotment of EUR 52.236bln
  • Strength in commodities is supporting commodity linked currencies and the basic materials sector

 

Overnight News

 

ASIA

 

JGBs inched down on Tuesday as the Nikkei trimmed earlier losses to stay within sight of a three month closing high, with selling ahead of upcoming supply as weighting on the debt market. Nikkei edged down 0.39% as investors pocketed profits following a more than 6% jump over the previous four sessions, with eyes shifting to US economic data to gauge the strength of the recovery. (RTRS)

 

In other news, Yi Xianrong, a researcher with the Chinese Academy of Social Sciences, said that China should return to a normal monetary policy regardless of the quantitative easing by the US. Meanwhile, the PBOC surprised the market by auctioning its one-year bills at a higher yield than last week, suggesting to traders that Beijing could take more monetary tightening steps sooner than expected. (RTRS)

 

Bonds

 

EUROPEAN GOVERNMENT BONDS

 

Bund futures traded higher in early European trade amid risk-aversion and weakness in European equities, however came off their best levels later in the session as equities gained strength as well as well received auctions from Austria and Greece. European peripheral 10-year bond yield spreads with respect to bunds generally widened, with the Irish/German spread printing a record high due to ongoing fiscal concern surrounding Ireland, allied with an article in the WSJ saying that problems in the Irish residential mortgage arena are starting to crop up, fuelling fears that a second wave of losses could hit even Ireland’s healthiest banks. The Portuguese/German spread widened to record high ahead of the Portuguese bond auctions due tomorrow, whereas the Greek/German spread also widened partly due to comments from the Greek finance minister that EU wide austerity may lead to a double dip recession. However, moving into the North American open, some weakness has been observed in bunds partly due to market talk of the ECB buying in Portuguese government bonds, which has also led to minor tightening of Portuguese/German spread.

 

It is also worth noting that the Euribor Dec. future moved higher after the ECB allotted EUR 63.681bln in its 28-day operation vs. Prev. allotment of EUR 52.236bln, re-igniting concerns surrounding financial health of European banks, and paring back the expectation of a hawkish ECB going into year end.

 

Maturity

2

5

10

30

Bund (Dec 10)

Level

0.912

1.527

2.380

2.902

130.58

Change (bps)

-0.715

-1.440

-0.740

-0.600

0.07

 

GILTS

 

NYSE LIFFE Gilt futures traded in tandem with bunds, with minor underperformance, as the market look ahead to the BOE’s quarterly inflation report due tomorrow, where most analysts predict that the BOE will provide a higher CPI projection, and moving into the North American open, Gilts are trading in minor negative territory.

 

·   Visible Trade Balance (GBP/mln) (Sep) M/M -8228 vs. Exp. -8000 (Prev. -8227, Rev. to -8473)

·   Industrial Production (Sep) M/M 0.4% vs. Exp. 0.4% (Prev. 0.3%, Rev. to 0.4%)

·   Industrial Production (Sep) Y/Y 3.8% vs. Exp. 3.6% (Prev. 4.2%, Rev. to 4.3%)

·   Manufacturing Production (Sep) M/M 0.1% vs. Exp. 0.2% (Prev. 0.3%, Rev. to 0.4%)

·   Manufacturing Production (Sep) Y/Y 4.8% vs. Exp. 4.9% (Prev. 6.0%, Rev. to 6.1%)

·   BRC Retail Sales Monitor (Oct) Y/Y 0.8% vs. Prev. 0.5% (RTRS)

·   RICS House Price Balance (Oct) M/M -49% vs. Exp. -39% (Prev. -36%) (RTRS)

 

Maturity

2.000

5.000

10.000

30.000

Gilt (Dec 10)

Level

0.691

1.599

3.021

4.145

123.89

Change (bps)

1.587

2.037

1.870

1.194

-0.26

 

EQUITIES

 

Following a weaker start, European bourses gradually gained strength, led by the basic materials sector, which outperformed on the back of weakness in the USD index and strength in commodities. Better than expected earnings reports from the likes of Barclays and Vodafone also supported strength in equities, allied with successful auctions from Austria and Greece. Moving into the North American open, equities are trading in positive territory, with basic materials and oil & gas as the best performing sectors.

 

Index

DAX

CAC

FTSE

EUROSTOXX

SMI

Level

6798.51

3943.76

5896.18

2890.27

6612.87

Change (ticks)

48.01

30.06

46.22

22.31

12.51

 

FX

 

The USD index gradually lost strength, gained in early European trade, as commodities strengthened, which in turn helped EUR/USD and GBP/USD. EUR/USD gained further strength on the back of market talk of middle-eastern names buying in the pair. In other news, the strength in commodities is supporting commodity-linked currencies such as CAD and AUD.

 

Overnight in Asia we did see hawkish comments from a PBOC advisor, and an auction of one-year bills at a higher yield than last week which led to market speculation of the PBOC possibly hiking rates. The CNY also had its largest daily gain against the USD and largest intraday price movement since the July 2005 revaluation.

 

Elsewhere, Australia lifted its growth forecast as Asia’s insatiable appetite for its natural resources continues to drive the economy, but cut spending to keep the budget on course for a small surplus by 2012/13. Australian Treasurer Wayne Swan said that GDP growth is seen at 3.25% in the year ending June 30, 2011, up from a previous 3.0% projection but spending would be cut by AUD 3.5bln over four years to ensure a surplus of AUD 3.1bln or 0.2% of GDP in 2012/13. (RTRS)

 

Currency

EURUSD

GBPUSD

USDJPY

Level

1.3957

1.6168

80.61

Change (pips)

0.0037

0.0029

-0.5700

 

COMMMODITIES

 

Heading into the North American open, WTI crude futures are near unchanged, retracing the earlier losses seen in the Asian session following renewed weakness in the USD Index (-0.40%).

 

Oil & Gas News:

  • The IEA have said they see oil prices exceeding USD 100 in 2015 and USD 200 in 2035. The IEA also cut the 2035 oil demand outlook by 6mln BPD to 99mln BPD, saying that all net growth in oil demand to 2035 will come from non-OECD countries, with half coming from China. The IEA also said that the gas glut will last another 10 years which will limit investment in renewable energies.
  • Norway’s oil production rose to a preliminary 1.87mln BPD on average in October from actual production of about 1.83mln BPD in September, and Natural gas production rose to 9.3bln cubic meters from 5.7bln cubic meters.
  • The Baku-Tbilisi-Ceyhan (BTC) pipeline is expected to pump 25.3mln barrels of crude oil in December, which is a 2.05mln more than in November.

 

Geopolitical News:

  • The Movement for the Emancipation of the Niger Delta has confirmed it was holding several hostages following an attack in the Okoro oilfield off the Niger Delta.
  • Iran has sharply criticized the head of the UN nuclear watchdog on Monday and rejected accusations Tehran is not cooperating enough with inspectors trying to verify whether it is seeking atomic weapons.
  • Turkey expects to host talks between Iran and six major powers on Tehran’s nuclear programme ‘some time soon’, Turkey’s President Abdullah Gul said yesterday.

 

Commodity

WTI Nymex

OTC Spot Gold

Level

87.41

1420.13

Change (NYSEARCA:USD)

0.35

10.58


 

LOOKING AHEAD

 

Economic Releases

 

CST

GMT

 

DATA

EXP

PREV

0645

1245

US

ICSC Chain Stores W/W (Nov 9)

 

0.1%

0645

1245

US

ICSC Chain Stores Y/Y (Nov 9)

 

2.0%

0730

1330

CA

New Housing Price Index M/M (Sep)

0.1%

0.1%

0755

1355

US

Redbook M/M (Nov 9)

 

0.2%

0755

1355

US

Redbook Y/Y (Nov 9)

 

2.5%

0900

1500

US

IBD/TIPP Economic Optimism M/M (Nov)

46.5

46.4

0900

1500

US

Wholesale Inventories M/M (Sep)

0.7%

0.8%

0930

1530

UK

DMO Gilt Size Announcement

 

 

1400

2000

NZ

Reserves Bank Financial Stability Report

 

 

1530

2130

US

API Crude Oil Inventories W/W (Nov 5)

 

-4137K

1530

2130

US

API Gasoline Inventories W/W (Nov 5)

 

-3202K

1530

2130

US

API Distillate Inventory W/W (Nov 5)

 

-4727K

1530

2130

US

API Cushing Crude Inventory W/W (Nov 5)

 

-908K

1600

2200

US

ABC Consumer Confid. W/W (Nov 7)

 

-46

1730

2330

AU

Westpac Consumer Confid. SA M/M (Nov)

 

3.3%

1730

2330

AU

Westpac Consumer Confid. Index M/M (Nov)

 

117.0

N/A

N/A

UK

NIESR GDP Estimate M/M (Oct)

 

0.5%

 

Speakers

 

CST

GMT

 

 

0730

1330

EU

EU’s Rehn

0830

1430

EU

ECB’s Honohan

 

Auction

 

CST

GMT

 

 

1200

1800

US

USD 24bln 10y Note Auction

 

 

 

 Prices taken at  1216 GMT

 

 

 



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