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DAILY US OPENING NEWS - 07/12/10

 

 

  • President Obama reached agreement on Monday with Republican leaders in Congress on a broad tax package that would extend the Bush-era income tax cuts for two years

 

  • European equities traded higher today assisted by broad based gains in the commodity markets

 

  • According to an article in the Shanghai Securities News, the PBOC may raise interest rates this weekend

 

  • There is growing expectation that the Irish Parliament will approve the 2011 budget later today

 

 

Overnight News

 

ASIA

 

JGBs dipped overnight as investors took light profits after the previous day’s rally, allied with a lacklustre 30-year auction. Nikkei dropped 0.26% after renewed strength in the JPY encouraged profit taking and as a report, in China Securities Journal, that the PBOC may raise interest rates this weekend hurt sentiment. (RTRS)

 

Also, Shanghai Stock Index closed up 0.7% at a more than one-week high, rebounding from earlier losses as major banks started to lend again, easing conditions in the money and stock markets. It is worth noting that, according to an article in the Shanghai Securities News, China’s banks lent CNY 600bln in November, taking total loans for the first eleven months of 2010 to exceed the government’s annual loan target CNY 7.5trl. (RTRS)

 

US

 

President Obama reached agreement Monday with Republican leaders in Congress on a broad tax package that would extend the Bush-era income tax cuts for two years, reduce worker payroll taxes for one year and give more favourable treatment to business investments. Other elements of the deal include a temporary reinstatement of the estate tax at 35%—the level favoured by most Republican lawmakers—as well as an extension of jobless benefits for the long-term unemployed. (WSJ)

 

In other news, outgoing California Governor Arnold Schwarzenegger declared a fiscal emergency on Monday and proposed USD 9.9bln in mainly spending cuts to close the state’s current-year budget shortfall. The Republican governor also called lawmakers into a special session on the budget. But Democrats who control the Legislature have signalled they are likely to ignore his plan, as Democrat Governor-elect Jerry Brown will assume office next month and present his own budget. (RTRS)

 

Bonds

 

EUROPEAN GOVERNMENT BONDS

 

Bund futures traded lower during the European session on the back of weakness in US Treasuries, and JGBs, allied with strength in equities amid renewed risk-appetite. It is also worth noting that volumes have switched into the March bund contract ahead of the Dec future expiry tomorrow. European peripheral 10-year government bond yield spreads with respect to bunds narrowed during the early European trade, however as the session progressed, peripheral spreads demonstrated a mixed picture. Portuguese/German spread saw widening on the back of comments from Portuguese Treasury secretary that Portugal should not consider asking for foreign aid, however did come off its widest level following market talk of the ECB buying into Portuguese government bonds. Moving into the North American open, bunds are trading in negative territory, with market talk that the ECB is buying in Portuguese and Irish bonds doing the rounds.

 

Another story noted which has alleviated some near term concerns surrounding Ireland has been growing expectation that today's Irish budget vote will pass successfully with various press articles citing comments yesterday that the two remaining independent MP's would vote in favour of the proposals. Irish finance minister Lenihan will outline the budget proposal at 1545GMT with the vote expected between 1900-2200GMT after the European close. It is also worth noting that the EU approved the final EUR 22.5bln part of Irish aid package.

 

 

 

·   German Factory Orders SA (Oct) M/M 1.6% vs. Exp. 1.9% (Prev. -4.0%)

·   German Factory Orders NSA (Oct) Y/Y 17.9% vs. Exp. 18.6% (Prev. 14.0%, Rev. to 14.1%) (RTRS)

 

Maturity

2

5

10

30

Bund (Dec 10)

Level

0.836

1.785

2.889

3.387

126.17

Change (bps)

2.913

3.506

3.951

5.636

-0.4

 

GILTS

 

NYSE LIFFE Gilt futures trade in tandem with bunds amid renewed risk-appetite, and moving into the North American open, prices have come off their worst levels but are still trading in negative territory.

 

In other news, OBR's Chote said UK’s economy faces sustained but weaker recovery. Also, OBR’s Nickell said that house prices are unlikely to fall by a large amount, due to rising population and a shortage of supply. (Sources)

 

·   Industrial Production (Oct) M/M -0.2% vs. Exp. 0.3% (Prev. 0.1%)

·   Industrial Production (Oct) Y/Y 3.3% vs. Exp. 3.9% (Prev. 3.8%)

·   Manufacturing Production (Oct) M/M 0.6% vs. Exp. 0.3% (Prev. 0.1%, Rev. to 0.2%)

·   Manufacturing Production (Oct) Y/Y 5.8% vs. Exp. 5.4% (Prev. 4.8%, Rev. to 4.9%)

·   BRC Retail Sales Monitor (Nov) Y/Y 0.7% vs. Prev. 0.8% (RTRS)

 

·   Conventional Tap auction for GBP 2bln, 4.25% Dec'49, bid/cover 1.82 vs. Prev. 1.81 (RTRS)

 

Maturity

2.000

5.000

10.000

30.000

Gilt (Dec 10)

Level

0.995

2.065

3.418

4.373

120.49

Change (bps)

0.214

0.908

2.392

2.573

-0.21

 

EQUITIES

 

European equities traded higher today assisted by broad based gains in the commodity markets (record high in gold and copper, Jan WTI crude future back above USD 90) as the USD has come under pressure and investors look to hedge inflation fears if the US were to embark on further purchases of US securities above the existing USD 600bln program an idea which was highlighted by Fed chief Bernanke yesterday. Moving into the North American open, equities continue to trade in positive territory with oil & gas and basic materials as the best performing sectors.

 

If you require information regarding today’s European corporate news please refer to the RANsquawk ‘EU equity opening news’ sheet or visit www.RANsquawk.com.

 

Index

DAX

CAC

FTSE

EUROSTOXX

SMI

Level

7029.77

3824.82

5842.15

2811.85

6503.73

Change (ticks)

75.39

75.59

71.87

41.89

91.51

 

FX

 

The USD-index traded lower during the European session amid-growing risk-appetite, allied with strength in commodities, which in turn buoyed EUR/USD and GBP/USD. However, GBP/USD briefly fell 15 pips following the releases of a weaker than expected Industrial Production data from the UK. In other news, EUR gained strength over increasing possibility that the Irish Parliament will pass the 2011 budget later today.

 

·   Australia’s RBA Cash Target (Dec) M/M 4.75% vs. Exp. 4.75% (Prev. 4.75%) (RTRS)

 

Currency

EURUSD

GBPUSD

USDJPY

Level

1.3370

1.5774

82.59

Change (pips)

0.0062

0.0059

-0.0700

 

 

COMMMODITIES

 

WTI Crude futures moved above the USD 90 level during European morning trade, in line with other Commodities which were buoyed by a weaker USD (-0.50%) following Fed Chairman’s Bernanke’s comments that further QE may occur if needed. Front month WTI Crude on NYMEX has not traded at these levels since October 2008.

 

Oil & Gas News:

  • Iran’s OPEC governor believes the world faces great uncertainties in security of energy supply and that the price of crude is still undervalued and set to hit USD 100 in the short term.
  • CIBC World Markets believe Crude oil will rise to average USD 86 in 2011 and USD 100 in 2012.

 

Geopolitical News:

  • The EU’s Foreign policy chief Lady Ashton has confirmed that Iran and the six major powers will meet again in Istanbul by the end of January, and reiterated that the six powers are united in seeking a resolution to international concerns over Iran nuclear programme after the end of two days of talks on the subject.
  • Henry Okah, a Nigerian militant leader who is current on trial in South Africa on terrorism charges have said that there is no military solution to the rebellion in Nigeria’s oil rich Niger delta.
  • China’s Foreign ministry have said that dialogue and cooperation are the only correct ways forward to address the current tension on the Korean peninsula.

 

Commodity

WTI Nymex

OTC Spot Gold

Level

90.27

1426.7

Change (NYSEARCA:USD)

0.89

2.95

 


 

LOOKING AHEAD

 

Economic Releases

 

CST

GMT

 

DATA

EXP

PREV

0755

1355

US

Redbook W/W (Dec 7)

 

0.6%

0755

1355

US

Redbook Y/Y (Dec 7)

 

4.9%

0800

1400

CA

Bank of Canada Rate M/M (Dec)

1.00%

1.00%

0900

1500

US

IBD/TIPP Economic Optimism M/M (Dec)

47.2

46.7

0900

1500

UK

NIESR GDP Estimate M/M (Nov)

 

0.5%

0930

1530

UK

DMO Gilt Size Announcement

 

 

1400

2000

US

Consumer Credit M/M (Oct)

-$1.0B

$2.1B

1530

2130

US

API Crude Oil Inventories W/W (Dec 3)

 

-1141K

1530

2130

US

API Gasoline Inventories W/W (Dec 3)

 

1069K

1530

2130

US

API Distillate Inventory W/W (Dec 3)

 

224K

1530

2130

US

API Cushing Crude Inventory W/W (Dec 3)

 

610K

1600

2200

US

ABC Consumer Confidence W/W (Dec 5)

 

-45

1750

2350

JN

Machine Order M/M (Oct)

-0.1%

-10.3%

1750

2350

JN

Machine Orders Y/Y (Oct)

8.3%

4.2%

 

Speakers

 

CST

GMT

 

 

0945

1545

EU

Irish Finance Minister to deliver budget, vote to follow

1215

1815

EU

ECB’s Constancio

 

Auctions

 

CST

GMT

 

 

1000

1600

US

Fed’s Outright Treasury Coupon Purchase Dec 2014 - May 2016

(USD 6-8bln)

1200

1800

US

USD 32bln (Act) 3y Note Auction

 

 

Prices taken at 1233 GMT

 

 

 



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