Please Note: Blog posts are not selected, edited or screened by Seeking Alpha editors.

DAILY US OPENING NEWS - 06/12/10

 

 

  • Fed’s Bernanke does not rule out further purchases of Treasury bonds beyond the USD 600bln program announced last month

 

  • The German government rejected the proposition of any further increases to the size of the EU rescue fund or issuance of Eurozone bonds

 

  • PIMCO's El-Erian in the Irish Times that the Eurozone's inability to fund future bailouts will probably force countries like Ireland, Spain and Portugal out of the Eurozone

 

 

Overnight News

 

ASIA

 

Ten year December JGB futures rose more than half a point on the day overnight, buoyed by short covering after a weaker-than-expected US employment data release. Short covering ahead of a contract rollover due to take place towards the week’s end also buoyed December futures. Japan's Nikkei slipped (-0.1%) on Monday after weak U.S. jobs data and a renewed focus on U.S. quantitative easing pushed the dollar down against the yen, spurring profit-taking in Tokyo stocks after they hit a six-month high last week. But overseas fund operators and Japanese retail investors were looking to buy on dips, limiting losses for the Nikkei, analysts said. (RTRS)

 

In other news, China is expected to let the CNY’s effective exchange rate rise in 2011 while also increasing interest rates under a new prudent monetary policy according to a prominent government researcher Ba Shusong who also went on to say that raising rates should be done with caution. (RTRS) Also, an ex-PBOC advisor has said China should not change its current 3% inflation target.

 

US

 

Fed’s Bernanke does not rule out further purchases of Treasury bonds beyond the USD 600bln program announced last month, CBS television reported Bernanke as saying in an interview on the show “60 minutes”. “We are not very far from the level where the economy is not self-sustaining”, Bernanke said. (RTRS)

 

In other news, top Senate lawmakers said on Sunday the believed they were moving closer to a deal that would keep the Bush-era tax cuts from expiring at the end of the month and extend unemployment insurance benefits. (WSJ)

 

Bonds

 

EUROPEAN GOVERNMENT BONDS

 

Overnight T-Notes gained strength following comments from Fed's Bernanke not ruling out the possibility of further QE, which during the European session lifted Bund futures. The general tone during the European session remained one of risk-aversion, which gathered pace following the German government rejecting the proposition of any further increases to the size of the EU rescue fund or issuance of Eurozone bonds, allied with comments from PIMCO's El-Erian in the Irish Times that the Eurozone's inability to fund future bailouts will probably force countries like Ireland, Spain and Portugal out of the Eurozone. Another article in the Irish Times dealing with a potential announcement of voting intentions today, on the Irish budget, by two independent TDs brought further uncertainty to the market. European peripheral 10-year government bond yield spreads demonstrated minor widening across the board, with particular widening seen in the Irish/German spread.

 

Also worth noting that European finance ministers meeting in Brussels today will discuss the outlook for Portugal, which is struggling to quash speculation it will need a bailout. (Sources)

 

In other news, Moody’s cut Hungary’s sovereign rating by two notches to 'Baa3' from 'Baa1' (just above “junk” grade), and said it may cut further if the government fails to put public finances on a sustainable footing. (RTRS)

 

·   Eurozoner Sentix Investor Confidence (Dec) M/M 9.7 vs. Exp. 11.0 (Prev. 14.0) (RTRS)

 

·   German 6-month T-Bill auction for EUR 4.285bln, bid/cover 2.1 vs. Prev. 1.1 (yield 0.5785% vs. Prev. 0.7849%) (RTRS)

 

 

Maturity

2

5

10

30

Bund (Dec 10)

Level

0.831

1.772

2.843

3.328

126.46

Change (bps)

-2.439

-5.039

-1.125

-1.484

0.27

 

GILTS

 

NYSE LIFFE Gilt futures traded higher on the back of risk-aversion, as well as the British Chambers of Commerce cutting its 2011 growth forecast for the UK. The British Chambers of Commerce will its short-term forecast for growth in Britain's faltering economy, warning of fragility in household finances and tepid consumer spending as the coalition's austerity measures begin to bite. The employers' organisation, which represents 100,000 businesses across Britain, is downgrading its expectation for growth in 2011 from 2.2% to 1.9%, although it remains bullish about prospects further ahead.

 

In other news, former BOE MPC member Blanchflower said he has no axe to grind but he believes the Governor of the Bank of England is no longer neutral and the rate setting body is broken and blinkered. (Telegraph)

 

Maturity

2.000

5.000

10.000

30.000

Gilt (Dec 10)

Level

0.994

2.054

3.391

4.343

120.7

Change (bps)

-1.571

-1.875

-1.876

-0.399

0.24

 

EQUITIES

 

European bourses traded in minor positive territory during most of the European session, with consistent underperformance seen in the financials on the back of lingering Eurozone sovereign and debt concerns, which prompted the Italian FTSE MIB and Spanish IBEX 35 indices to underperform their European peers. However, oil & gas and basic materials remained in positive territory during the European session due to relative strength in commodities, especially Gold, as well as news that Rio Tinto has made a USD 3.5bln bid approach for Africa-focus Riversdale Mining. Moving into the North American open, equities are demonstrating a mixed picture.

 

Index

DAX

CAC

FTSE

EUROSTOXX

SMI

Level

6947.29

3735.51

5764.64

2764.01

6417.12

Change (ticks)

-0.43

-15.04

19.32

-18.38

-23.78

 

FX

 

In the forex market, the EUR traded lower across the board following Germany's reluctance on the issues of the EU rescue fund and Eurozone bonds, allied with sovereign and debt fears surrounding Eurozone peripheral states. The USD-index has risen sharply today after Bernanke said a recession doesn't seem likely and also supported by prevailing risk-aversion in European markets, which in turn weighed upon EUR/USD and GBP/USD. EUR/USD came under further pressure following market talk of a UK Clearer selling in EUR/USD, whereas the British Chambers of Commerce cutting its 2011 GDP forecast for the UK, allied with market talk of Middle Eastern and Eastern European names selling in GBP/USD brought further weakness to the pair.

 

Currency

EURUSD

GBPUSD

USDJPY

Level

1.3288

1.5683

82.82

Change (pips)

-0.0126

-0.0095

0.2900

 

COMMMODITIES

 

WTI Crude futures have fallen back below the USD 89 level, weighed upon by a stronger USD Index (+0.90%).

 

Oil & Gas News:

  • ING and Deutsche Bank joined several peers in raising their crude price forecasts, with a growing number of major banks saying prices had room to rise as supplies tighten.

 

  • Bank of America Merrill Lynch has lowered their 2011 Natural Gas forecast from USD 5 to USD 4.60, due to a ‘well-saturated’ market and higher than expected drilling rates.
  • Algerian Energy minister Youcef Yousfi said today that world oil prices are at a good level, and will stay at their current level.
  • Russian Prime Minister Putin has said that Russia may more than quadruple Natural Gas production in the Far East region over the next 10 years to as much as 100 bln cubic meters a year.
  • Iraq's Zubair oilfield will reach its peak output target of 1.2 million barrels per day in six years and keep it for another seven years, according to ENI the project's lead contractor.

 

Geopolitical News:

  • A militant faction in Nigeria’s restive Niger Delta said on Monday it had ruptured an oil pipeline in Delta state, close to where the security forces launched a major offensive last week.
  • US President Obama has urged China to work with the US and others to send a clear message to North Korea that its provocations are unacceptable.

 

Commodity

WTI Nymex

OTC Spot Gold

Level

89.28

1415

Change (NYSEARCA:USD)

0.09

0.92

 

LOOKING AHEAD

 

Economic Releases

 

CST

GMT

 

DATA

EXP

PREV

0730

1330

CA

Building Permits M/M (Oct)

 

15.3%

0900

1500

US

Employment Trend M/M (Nov)

 

98.1

0900

1500

CA

Ivey PMI M/M (Nov)

 

56.7

 

Speakers

 

CST

GMT

 

 

1200

1800

US

Fed’s Lacker

1300

1900

EU

ECB’s Wellink

 

Auctions

 

CST

GMT

 

 

0800

1400

FR

EUR 7bln combined 12-, 27-, and 49-week T-Bills

1000

1600

US

Fed’s Outright Treasury Coupon Purchase Aug 2028 - Nov 2040

(USD 1.5-2.5bln)

 

 

Prices taken at 1300GMT

 

 

 



Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.