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DAILY US OPENING NEWS - 24/11/10

 

 

  • S&P lowered its long term sovereign credit rating on the Republic of Ireland to A from AA-, and placed both the short and long term ratings on CreditWatch with negative implications

 

  • Eurozone contagion fears dominated the market sentiment in early European trade, with the Spanish bond yield crossing the key 5% level, and the 5-year CDS touching a record high

 

  • A lacklustre new Bund auction from Germany, allied with better than expected German IFO figures saw bunds reverse off earlier highs

 

 

Overnight News

 

ASIA

 

JGB futures spiked higher early on the back of concerns about tensions on the Korean peninsula and concerns about the state of peripheral European sovereign debt, but the rally quickly ran out of steam. Nikkei lost 0.8% as North Korea’s shelling of a South Korean island the previous day rattled investors and increasing Eurozone debt worries spurred profit-taking. (RTRS)

 

Also, Shanghai Stock Index closed up 1.1% with large cap financials and commodity stocks offsetting a plunge in Industrial and Commercial Bank of China’s shares as it resumed trading after being suspended for over a week. ICBC, the second biggest weight in the Shanghai Index, has suspended its shares since November 16th as it completed its nearly USD 7bln rights issue. (RTRS)

 

In other news, China is considering raising its inflation target for 2011 to 4%, up from a goal of 3% for this year, even as it is campaigning to reassure people that price pressure will remain in check. (China Business News) Elsewhere, China’s banking industry is days away from bursting through its CNY 7.5trl annual loan ceiling after three weeks of frenetic lending and surging house prices, banking insiders have told The Times. (Times)

 

US

 

According to comScore, US online spending this holiday is now expected to rise by 11% over last year, up from an earlier projection of 9%, marking the second time the analytics firm has raised its closely watched view. (RTRS)

 

·   MBA Mortgage Applications (Nov 19) W/W 2.1% vs. Prev. -14.4%

·   ABC Consumer Confidence W/W (Nov 21) -47 vs. Prev. -47 (RTRS)

 

Bar Cap US Treasury month-end extension: +0.11 years

 

Bonds

 

EUROPEAN GOVERNMENT BONDS

 

Bund futures traded higher in early European trade amid-risk aversion, ongoing contagion fears to Eurozone peripheral states, allied with S&P downgrading the sovereign rating of Ireland. European peripheral 10-year government bond yield spreads generally widened, in early trade, with Spanish and Portuguese 5-year CDS touching all time highs as the 10-year Spanish bond yield crossed the key 5% level. However, as the session progressed, bunds gradually pared earlier gains and ventured in negative territory on the back of a lacklustre new bund auction from Germany, much better than expected German IFO figures, strength in equities, allied with market talk of European central banks buying in Spanish and Portuguese bonds, with European peripheral spreads tightening across the board. Moving into the North American open, bunds continue to trade in negative territory as the market looks ahead to a slew of key economic figures from the US later in the session.

 

S&P lowered its long term sovereign credit rating on the Republic of Ireland to A from AA- and its short term rating to ‘A-1’ from ‘A-1+’. At the same time, the S&P placed both the short and long term ratings on CreditWatch with negative implications. S&P said that the lower ratings reflect its view that the Irish government will have to shoulder additional costs associated with further capital injections into Irish troubled banking system. It also said that further Irish downgrade is possible if IMF/EU deal terms or the 2011 budget fail to stop funding outflows. (RTRS)

 

 

In other news, Irish PM Cowen said the size of the bailout is not yet finalised, however an amount of EUR 85bln has been discussed. Also, a French government source said the EU aid for Ireland will be around EUR 85bln. (RTRS/Sources)

 

·   German IFO - Business Climate (Nov) 109.3 vs. Exp. 107.5 (Prev 107.6)

·   German IFO - Current Assessment (Nov) 112.3 vs. Exp. 110.4 (Prev 110.2)

·   German IFO - Expectations (Nov) 106.3 vs. Exp. 104.7 (Prev 105.1) (RTRS)

 

·   German Bund auction for EUR 4.764bln, 04-Jan-21, bid/cover 1.2 (yield 2.59%), retention 20.6% (RTRS)

 

Bar Cap Euro Sovereign month-end extension: +0.02 years

 

Maturity

2

5

10

30

Bund (Dec 10)

Level

0.918

1.684

2.644

3.107

128.35

Change (bps)

-0.962

2.595

4.432

4.611

-0.53

 

GILTS

 

NYSE LIFFE Gilt futures tracked the moves in bunds and gained strength in early European trade also helped by month-end flows, however as the session progressed Gilts came off their best levels, and moving into the North-American open, prices are trading in negative territory, as equity markets moved back positive on the day.

 

·   UK GDP (Q3 P) Q/Q 0.8% vs. Exp. 0.8% (Prev. 0.8%)

·   UK GDP (Q3 P) Y/Y 2.8% vs. Exp. 2.8% (Prev. 2.8%)

·   UK Exports (Q3 P) Q/Q 2.2% vs. Exp. 1.5% (Prev. 2.3%)

·   UK Imports (Q3 P) Q/Q 0.7% vs. Exp. 1.2% (Prev. 2.4%)

·   UK Total Business Investment (Q3 P) Q/Q -0.2% vs. Exp. 0.8% (Prev. 0.7%)

·   UK Total Business Investment (Q3 P) Y/Y 4.6% vs. Exp. 5.6% (Prev. 1.9%) (RTRS)

 

Bar Cap Sterling Index month-end extension: +0.06 years

 

Maturity

2.000

5.000

10.000

30.000

Gilt (Dec 10)

Level

0.979

1.976

3.275

4.254

121.52

Change (bps)

2.060

1.388

1.630

2.465

-0.31

 

EQUITIES

 

European bourses traded in negative territory in early European trade as Eurozone contagion fears dominated the market sentiment, with particular weakness observed in the financial sector. However, as the session progressed, equities came off their worst levels and moved into positive territory, partly buoyed by much better than expected German IFO data, allied with SocGen Equity Research upgrading a number of sectors including basic industries, consumer discretionary, and financials. Moving into the North American open, European equities are trading in positive territory, with the exception of the FTSE MIB Index, with consumer goods and basic materials leading the rally, and financials also off their initial lows.

 

Index

DAX

CAC

FTSE

EUROSTOXX

SMI

Level

6788.31

3736.43

5616.32

2751

6433.54

Change (ticks)

83.31

12.01

35.04

11.63

39.75

 

FX

 

The USD-index gained strength in early European trade on the back of risk-aversion emerging from contagion fears in the Eurozone member states, allied with sovereign downgrade of Ireland by S&P, which in turn weighed upon EUR/USD and GBP/USD. However, as the session progressed and some of the Eurozone concerns waned, the USD-index came off its best levels, helping EUR/USD and GBP/USD to retrace part of the earlier losses.

 

 

In other news, according to a report in China Daily, China and Russia are expected to quit the USD to use own currencies in bilateral trade. (China Daily)

 

Currency

EURUSD

GBPUSD

USDJPY

Level

1.3352

1.5797

83.35

Change (pips)

-0.0015

0.0022

0.1900

 

COMMMODITIES

 

WTI Crude futures have pivoted around the USD 81.50 level today, ahead of this afternoons DoE Inventories.

 

Oil & Gas News:

  • Enbridge said today the restart of its 290,000 barrel per day Line 6B oil pipeline has been pushed back another day, with the company now expecting it to be back in service on Thursday.
  • China’s crude oil imports from Saudi Arabia will likely rise 11% next year to hit 1mln BPD, a pace slightly faster than in 2010 but off the heady increases in previous years.
  • OPEC’s El Badri has warned that the oil market risks chaos and there could be disruption to global supplies, unless there is adequate regulation on the OTC energy derivative market.
  • Bank of America has warned it sees a downside risk to its 2011 Natural Gas price forecast of USD 5, as the current rally could soon run out of steam.

 

Geopolitical News:

  • China and the US have pledged to maintain peace and stability and to seek denuclearisation on the Korean peninsula, as well as an early resumption of six-party talks, according to the Chinese Foreign Ministry. Also, Japanese PM Kan called on China to help restrain North Korea. Elsewhere, President Obama has refused to speculate on possible military action in response to the North Korean artillery attack; however he reaffirmed the US’s commitment to defend South Korea and will hold joint military drills with South Korea in the days ahead.

 

Commodity

WTI Nymex

OTC Spot Gold

Level

81.62

1376.85

Change (NYSEARCA:USD)

0.37

0.45


 

LOOKING AHEAD

 

Economic Releases

 

CST

GMT

 

DATA

EXP

PREV

0730

1330

US

Initial Jobless Claims W/W (Nov 20)

435K

439K

0730

1330

US

Continuing Claims W/W (Nov 13)

4275K

4295K

0730

1330

US

Durable Goods Orders M/M (Oct)

0.1%

3.3%

0730

1330

US

Durables Ex. Transportation M/M (Oct)

0.6%

-0.8%

0730

1330

US

Non-Def Cap Ex-Air M/M (Oct)

1.0%

1.0%

0730

1330

US

Personal Income M/M (Oct)

0.4%

-0.1%

0730

1330

US

Personal Spending M/M (Oct)

0.5%

0.2%

0730

1330

US

PCE Deflator Y/Y (Oct)

1.3%

1.4%

0730

1330

US

PCE Core M/M (Oct)

0.0%

0.0%

0730

1330

US

PCE Core Y/Y (Oct)

1.0%

1.2%

0800

1400

IR

Irish Four Year Budget Plan

 

 

0855

1455

US

University of Michigan Confidence M/M (Nov F)

69.5

69.3

0900

1500

US

House Price Index M/M (Sep)

0.0%

0.4%

0900

1500

US

House Price Purchase Index Q/Q (Q3)

-1.1%

0.9%

0900

1500

US

New Home Sales M/M (Oct)

312K

307K

0900

1500

US

New Home Sales M/M (Oct)

1.6%

6.6%

0930

1530

US

DOE Crude Oil Inventories W/W (Nov 19)

-2000K

-7286K

0930

1530

US

DOE Gasoline Inventories W/W (Nov 19)

-1250K

-2657K

0930

1530

US

DOE Distillate Inventory W/W (Nov 19)

-1000K

-1110K

0930

1530

US

DOE Cushing Crude Inventory W/W (Nov 19)

 

1266K

0930

1530

US

DOE Refinery Utilisation W/W (Nov 19)

0.40%

1.60%

0930

1530

US

ECRI Weekly W/W (Nov 24)

 

124.30

0930

1530

US

ECRI Weekly Annualised Y/Y (Nov 24)

 

-4.5%

1000

1600

US

Kansas City Fed Manufacturing M/M (Nov)

 

10

1100

1700

US

EIA Natural Gas Storage Change W/W (Nov 19)

-4

3

 

Speaker

 

CST

GMT

 

 

1200

1800

EU

ECB’s Weber

 

Auction

 

CST

GMT

 

 

1200

1800

US

USD 29bln (Act) 7y Note Auction

 

US Earnings: Deere & Co., Tiffany & Co.

 

**Notes:

Natgas December futures expiry

Heating Oil/ RBOB December options expiry

 

 

 Prices taken at 1237 GMT

 

 

 



Disclosure: No Position