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DAILY US OPENING NEWS - 10/12/10

  • China hike Reserve Requirement Ratio by 50bps however reaction muted as was largely exp.

  • Focus turns back to European sovereign woes ahead of key summit next week

 



Market Re-Cap

 

Overnight the Shanghai composite finished up 1.07% after stronger than exp. trade balance data and with import and exports far exceeding analysts’ expectations which prompted European stock futures to open in positive territory. However, overall market sentiment remains heavily dominated by the on-going indecision from the Euro-Zone on how they intend to address the current sovereign situation and as such the peripheral European bond yield spreads have re-widened, IBEX and FTSE MIB have underperformed (led by financials) and the EUR has traded on the back foot.

 

Other highlights from the morning include a hike in the reserve requirement ratio (NYSE:RRR) by the Chinese Central Bank by a further 50bps, effective Monday the 20th of December. This is the sixth hike in the RRR in 2010 and was greeted with a muted reaction across the asset classes as recent press allied with China’s recent reductions in short term operations indicated a tightening of policy was imminent.

 

Looking ahead we shall see the release of the October US trade balance followed by the preliminary December Michigan report. Meanwhile in fixed income traders will look ahead to 1900GMT when the NY Fed will release its next tentative outright treasury coupon purchase schedule.

 

US Headlines:

 

The Fed’s balance sheet expanded for a sixth straight week to a record USD 2.364trl in the week of Dec 8th from USD 2.329trl in the prior week. (RTRS)

 

Pimco's El Erian said that the US needs to take action to enhance its long-term competitive and reduce its medium-term budget deficit after using a ‘massive amount’ of stimulus to boost economic growth next year. He also added that he sees US Y/Y growth of 3-3.5% in Q4 2011. (Sources)

 

EU Headlines:

Irish banks borrowings from the ECB rose to EUR 136.4bln at end Nov from EUR 130bln at the end of Oct. (RTRS) In terms of ECB officials Austria’s Nowotny said this morning that the Eurozone isn't in danger while adding that the E-bond idea can be discussed but it’s not on the agenda now. Separately ECB's Mersch said that there is scope for the Eurozone financial stability fund to be broadened however when it comes to Euro bonds its better to take reforms one step at a time.

 

EQUITIES

 

European bourses have seen a reversal of recent day’s trend with the core European countries outperforming their peripheral partners. In particular financials are the largest declining stocks on a sector break down as other asset classes reflect renewed scepticism on how the Euro-zone officials will temper the on-going sovereign woes given the clear discrepancies between the likes of Germany and France against the smaller European nations. Heading into the US open direction will likely stem from the US economic data and may remain volatile given the declining volumes that have been apparent as the weeks progressed.

 

Index

DAX

CAC

FTSE

EUROSTOXX

SMI

Level

7000.16

3858.13

5800.13

2837.87

6531.67

Change (ticks)

36.00

0.08

-7.83

-2.84

-5.96

 

 

 

 

FX

 

The EUR has traded with a weaker tone given some of the renewed concerns surrounding the health of individual European countries and also with indecision on how best to address the problem. Elsewhere, while the EUR sits at a key juncture the GBP continues to be the currency of favour which has been emphasised by Barclays who have said that the GBP will be the strongest of major currencies into 2011 as the UK gets its house in order. GBP/USD is currently trading in close proximity to an option expiry seen at the NY cut (15000GMT) at 1.5850.

 

Currency

EURUSD

GBPUSD

USDJPY

Level

1.3239

1.5837

83.47

Change (pips)

0.0000

0.0066

-0.2900

 

 

COMMMODITIES

 

Despite an initial sell of after a hike in the Reserve Requirement Ratio in China, the PBOC did not increase their benchmark interest rate, and thus WTI Crude futures moved higher, in tandem with a generally weaker USD Index (-0.20%).

 

Oil & Gas News:

  • According to IEA, world oil demand will be higher than expected next year and until 2015, increasing the need for crude from the OPEC producer group. In a monthly report, the IEA lifted its 2011 oil demand growth forecast by 130,000bpd to 1.32mln bpd from its previous report. The IEA also forecast the development of new oil fields in the Gulf of Mexico will be delayed by 12 to 18 months, more than previously estimated following restrictions after the BP oil spill.

  • OPEC has raised its 2011 global oil demand growth forecast by only 10,000 BPD to 1.18mln BPD. The cartel also increased its estimate of 2011 global oil demand by 160,000 BPD to 87.11 MBPD, up from 85.93 MBPD in 2010 and met 53% of pledged supply curbs in Nov (52% in Oct).

 

Commodity

WTI Nymex

OTC Spot Gold

Level

88.74

1390.15

Change (NYSEARCA:USD)

0.37

3.05

 

 

LOOKING AHEAD

 

Economic Releases

 

CST

GMT

 

DATA

EXP

PREV

0730

1330

US

Trade Balance M/M (Oct)

-$43.9B

-$44.0B

0730

1330

US

Import Price Index M/M (Nov)

0.8%

0.9%

0730

1330

US

Import Price Index Y/Y (Nov)

2.8%

3.6%

0730

1330

CA

International Merchandise Trade M/M (Oct)

-2.1B

-2.5B

0855

1455

US

University of Michigan Confidence M/M (Dec P)

72.5

71.6

0930

1530

US

ECRI Weekly W/W (Dec 10)

 

125.40

0930

1530

US

ECRI Weekly Annualised Y/Y (Dec 10)

 

-2.40%

1200

1800

US

Baker Hughes Rig Count W/W (Dec 10)

 

1713

1300

1900

US

Tentative Outright Treasury Operation Schedule

 

 

1300

1900

US

Monthly Budget Statement M/M (Nov)

-$137.5B

-$120.3B

N/A

N/A

CN

Trade Balance (USD) Y/Y (Nov)

21.20B

27.15B

N/A

N/A

CN

Exports Y/Y (Nov)

23.6%

22.9%

N/A

N/A

CN

Imports Y/Y (Nov)

24.5%

25.3%

 

 

 

 

Speakers

0620

JN

BOJ’s Deputy Governor Yamaguchi

0830

EU

ECB’s Nowotny

0900

EU

ECB’s Mersch

1400

US

Former Fed’s Volcker

1615

EU

ECB’s Trichet

1615

EU

ECB’s Ordonez

1800

EU

EU’s Van Rompuy

N/A

EU

German Chancellor Merkel and French President Sarkozy

 

Prices taken at 1151 GMT

 

 

 



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