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DAILY US OPENING NEWS - 15/11/10

 

 

  • The Irish government, EU officials and ECB officials continued to deny Ireland resorting to the EU/IMF bailout fund, leading to Irish/German 10-year bond yield spread tightening 15 BPS this morning
  • ECB's Constancio said that there is on going dialogue between Ireland and several countries but there has been no formal request for aid yet
  • Eurostat revised Greek 2009 budget deficit to 15.4% of the GDP from 13.6% (Exp. 15.3%)
  • The USD index traded higher during the European session due to a number of articles questioning viability of the Fed’s recent quantitative easing

 

Overnight News

 

ASIA

 

JGBs fell overnight, dragged lower by a slide in US Treasuries and a bounce in Tokyo stocks, with yields climbing to two month highs. Nikkei rose 1.1%, back towards a four and a half month high hit last week as a softer JPY and stronger-than-expected Japanese growth data for July-September encouraged investors to buy on dips. (RTRS)

 

·   Japanese GDP (Q3 P) Q/Q 0.9% vs. Exp. 0.6% (Prev. 0.4%)

·   Japanese Industrial Production (Sep F) M/M 1.6% vs. Prev. -1.9%

·   Japanese Industrial Production (Sep F) Y/Y 11.5% vs. 11.1%

·   Japanese Capacity Utilization (Sep F) M/M -1.1% vs. Prev. -0.9% (RTRS)

 

US

 

Fed’s Lacker indicated he opposed the central bank’s new round of monetary easing, saying he believed the policy was potentially dangerous and likely ineffective. Further he added that the Fed may need to tighten monetary policy even with the US unemployment rate elevated to avoid a surge in inflation similar to the 1970s. Also, according to former Fed chairman Greenspan, the US must move to rein in its massive budget deficits or it faces the risk of a bond market crisis. (RTRS/Sources)

 

In other news, according to an article in the WSJ, the Fed's latest attempt to boost the U.S. economy is coming under fire from Republican economists and politicians, threatening to yank the central bank deeper into partisan politics. A group of prominent Republican-leaning economists, coordinating with Republican lawmakers and political strategists, is launching a campaign this week calling on Fed Chairman Ben Bernanke to drop his plan to buy USD 600bln in additional U.S. Treasury bonds. (WSJ)

 

Elsewhere, economists surveyed by the Wall Street Journal don’t expect the Fed to expand its purchases of US Treasury bonds beyond its current plans-even though the forecasters see sluggish growth for the next couple of quarters with unemployment remaining near 9% through the end of 2011. (WSJ)

 

Bonds

 

EUROPEAN GOVERNMENT BONDS

 

Bund futures traded lower during the European session due to weakness in T-Notes and JGBs, allied with no further deterioration in fiscal and sovereign situation surrounding Ireland. European peripheral 10-year bond yield spreads generally tightened across the board, with particular tightening seen in Irish/German spread as the Irish government, EU officials and ECB officials continued to deny Ireland resorting to the EU/IMF bailout fund. Bucking the trend was the Greek/German spread that initially widened, influenced by comments from German IFO’s head that Greece should restructure its debt, however did tighten later in the session following the release of Greek 2009 deficit revision from Eurostat, which came in only marginally higher, 15.4% of the GDP, from the market expectation at 15.3% of GDP. Heading into the North American open, bunds are trading sideways in negative territory, with comments from ECB's Constancio saying there is on going dialogue between Ireland and several countries but there has been no formal request for aid yet, exerting further pressure on prices. Constancio also said that the he does not pre-commit on policy of ECB bond buying programme.

 

It is also worth noting that focus on the woes of the peripheral states continued in Portugal with a WSJ article quoting an interview with the Portuguese Foreign minister who has warned that Portugal may be forced out of the Eurozone if it fails to tackle its economic challenges, which prompted the Portuguese/German spread to widen.

 

·   Eurozone Trade Balance SA (Sep) M/M 2.4bln vs. Exp. 1.0bln (Prev. -1.4bln, Rev. to -1.7bln)

·   Eurozone Trade Balance SA (Sep) Y/Y 2.9bln vs. Exp. 0.1bln (Prev. -4.3bln, Rev. to -5.0bln) (RTRS)

 

Maturity

2

5

10

30

Bund (Dec 10)

Level

1.032

1.665

2.546

3.053

128.95

Change (bps)

0.979

3.736

3.594

4.395

-0.46

 

GILTS

 

NYSE LIFFE Gilt futures traded near unchanged for most of the European session, with weakness in bunds weighing upon prices, balanced by a sharp drop in the Rightmove house prices supporting the price, and moving into the North American open, Gilts are trading in minor negative territory.

 

In other news, BOE’s Fisher said that the slow UK interest-rate increases assumed by investors for the next few years seem plausible. However, BOE’s Weale said that he is worried that additional stimulus would push up inflation expectations. (Sources/RTRS)

 

Elsewhere, Britain's faltering economy could see a return to negative growth as early as the first quarter of 2011, a leading accountant warns as it reports that growth is continuing to ease back. BDO’s Stoy Hayward, in a report issued today, warns that economic growth, which slowed markedly during the third quarter of the year, is likely to fall back again in both the first and second quarters of next year. According to Peter Hemington, a partner at BDO, BDO seeks further quantitative easing to safeguard economic growth in the new year. (Independent/Guardian)

 

·   Rightmove House Prices (Nov) M/M -3.2% vs. Prev. 3.1%; Y/Y 1.3% vs. Prev. 2.9% (RTRS)

 

Maturity

2.000

5.000

10.000

30.000

Gilt (Dec 10)

Level

1.048

1.999

3.227

4.282

122.07

Change (bps)

0.343

2.581

2.630

2.636

-0.3

 

EQUITIES

 

European bourses opened lower, however as the session progressed regained strength and ventured into positive territory primarily on the back of no further deterioration with regards to fiscal and sovereign concerns surrounding European peripheral states, especially Ireland. Moving into the North American open, equities are trading in minor positive territory with oil & gas and basic materials as the best performing sectors, partly helped by last Friday’s market talk of a Chinese rate hike during the weekend failing to materialise.

 

Index

DAX

CAC

FTSE

EUROSTOXX

SMI

Level

6755.36

3841.16

5806.13

2830.35

6529.16

Change (ticks)

20.75

10.04

9.26

7.92

23.87

 

FX

 

The USD index traded in positive territory during the European session on the back of a number of articles questioning the viability of Fed’s recent QE move (refer to the US section), which in turn weighed upon EUR/USD and GBP/USD. In other news, GBP came under further pressure in early European trade due to a sharp drop in Rightmove house prices data in the UK, allied with comments from UK’s BDO advocating for further quantitative easing from the BOE.

 

Currency

EURUSD

GBPUSD

USDJPY

Level

1.3641

1.6076

82.94

Change (pips)

-0.0050

-0.0038

0.4100

 

COMMMODITIES

 

Heading into the North American opening WTI crude futures trade in positive territory, aided by stronger than expected Japanese GDP data overnight, however gains are capped by a stronger USD Index (+0.3%) and ongoing expectations of monetary tightening in China.

 

Oil & Gas News:

  • IEA director Tanaka has said that the oil market will have plenty of supply until at least the end of next year if Opec keeps producing at current levels.
  • Iran’s OPEC governor said oil prices of USD 70-90 per barrel would not hurt the global economy and that up to USD 100 might not create problems.
  • A deputy director at PetroChina has warned that China’s natural gas supply may not meet demand next year.

 

Geopolitical News:

  • Nigeria’s military has warned it will take action against armed gangs in the creeks of the oil producing Niger Delta after a spate of recent kidnappings and other criminal acts.

 

Commodity

WTI Nymex

OTC Spot Gold

Level

85.63

1367.05

Change (NYSEARCA:USD)

0.75

-1.70


 

 

LOOKING AHEAD

 

Economic Releases

 

CST

GMT

 

DATA

EXP

PREV

0730

1330

US

Advanced Retail Sales M/M (Oct)

0.7%

0.6%

0730

1330

US

Retail Sales Less Autos M/M (Oct)

0.4%

0.4%

0730

1330

US

Retail Sales ex. Auto & Gas M/M (Oct)

0.3%

0.4%

0730

1330

US

Empire Manufacturing M/M (Nov)

13.00

15.73

0900

1500

US

Business Inventories M/M (Sep)

0.6%

0.6%

 

Speaker

 

CST

GMT

 

 

N/A

N/A

UK

BOE’s Weale

 

Auction

 

CST

GMT

 

 

0800

1400

FR

EUR 7.5bln combined 13-, 26-, 52-week T-Bills

1000

1600

US

Fed’s Outright Treasury Coup. Purch. May 2016 – Nov 2017

 

 

 Prices taken at 1213 GMT

 

 

 



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