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DAILY US OPENING NEWS - 21/01/11

 

 

  • Spanish government is expected to inject EUR 5bln to EUR 7.5bln into the savings banks and in exchange the government may take seats on the lenders’ boards; Spain’s IBEX 35 index has outperformed led by Santander (+5.3%), and BBVA (+4.1%)

 

  • General Electric reported strong quarterly corporate earnings, however Bank of America disappointed

 

  • Worse than expected Retail Sales data led GBP/USD to fall more than 30 pips

 

 

Market Re-Cap

 

Speculation surrounding potential monetary tightening by the PBOC persisted overnight with an article in the Shanghai Securities Journal saying that any potential hike by the PBOC could come around the lunar New Year holiday, which is in early February. However, the Shanghai Composite closed up 1.41%, primarily supported by banking stocks partly on the back of strong corporate earnings from Morgan Stanley yesterday, and in retracement of the heavy losses seen in the previous session. European equities traded higher, with particular strength seen in the Spanish IBEX 35 and Italian FTSE MIB indices, buoyed by an article in Cinco Dias saying that the Spanish government is expected to inject EUR 5-7.5bln into its savings banks, which also saw banks like Santander and BBVA to outperform its European peers.

 

It is also worth noting that General Electric reported better than expected quarterly earnings in pre-market, however those for Bank of America were disappointing, and moving forward markets await Fed’s Outright Treasury Coupon Purchase operation in the maturity range of Feb’18 – Nov’20, and purchase target of USD 7-9bln, later in the session.

 

Asia Headlines:

 

Japan's government today raised its assessment of the economy for the first time in seven months, saying growth is showing signs of picking up with factory output bottoming out and exports supported by firm demand in Asia. (RTRS)

 

US Headlines:

 

Policy makers are working behind the scenes to come up with a way to let states declare bankruptcy and get out from under crushing debts, including the pensions they have promised to retired public workers. Unlike cities, the states are barred from seeking protection in federal bankruptcy court. Any effort to change that status would have to clear high constitutional hurdles because the states are considered sovereign. But proponents say some states are so burdened that the only feasible way out may be bankruptcy, giving Illinois, for example, the opportunity to do what General Motors did with the federal government’s aid. (New York Times)

 

In other news, the US economic recovery is at risk of being derailed this year by a “homegrown fiscal crisis”, Peter Orszag, former budget director in the Obama administration, has warned. (FT - More)

 

Elsewhere, President Obama announced that former Federal Reserve Chairman Paul Volcker was stepping down from his role as head of an outside panel advising the White House on economic policy. White House said Obama will name General Electric Chief Jeffrey Immelt Chair of New Council on Jobs and Competitiveness. (RTRS)

 

Also, Fed’s balance sheet fell to USD 2.407trl in the week ended Jan. 19 from USD 2.451trl the previous week. Also, foreign central banks’ overall holdings of US marketable securities at the Fed rose USD 1.7bln in the week ended Jan. 19, to stand at USD 3.348trl. (RTRS)

 

EU and UK Headlines:

 

The six main contributors to the EFSF want those Euro zone countries without triple A ratings to contribute cash to the EFSF to raise its capacity. The newspaper said the idea behind a larger cash reserve would be that it could increase the effective lending capacity of the EFSF. (Financial Times Deutschland)

 

In other news, European governments are considering ways to reduce the debt burdens of struggling Eurozone countries such as Greece through bond buybacks, as part of broader measures aimed at ending the crisis of confidence in Europe's common currency. (WSJ)

 

 

 

Elsewhere, Fitch said Euro break-up risk remains small, adding that larger than expected Spanish bank recapitalisation costs or slippage on Spanish fiscal targets are seen as ratings triggers for Spain. It also said that loss of market access is seen as ratings trigger for Portugal, and if Greece doesn't regain access to the market towards the end of 2011, its rating will come down. (RTRS)

 

·   German IFO - Business Climate (Jan) M/M 110.3 vs. Exp. 109.0 (Prev. 109.9, Rev. to 109.8)

·   German IFO - Current Assessment (Jan) M/M 112.8 vs. Exp. 113.2 (Prev. 112.9)

·   German IFO - Expectations (Jan) M/M 107.8 vs. Exp. 106.5 (Prev. 106.9, Rev. to 106.8)

 

EQUITIES

 

European equities traded higher during the session, , with particular strength seen in the Spanish IBEX 35 and Italian FTSE MIB indices, buoyed by an article in Cinco Dias saying that the Spanish government is expected to inject EUR 5-7.5bln into its savings banks, which also saw banks like Santander and BBVA to outperform its European peers. RBS shares rose more than 7% on news that the co. is in talks with the UK Treasury about ways in which the partly nationalised bank could leave the government’s asset protection scheme early. Also, Siemens shares moved up on the back of strong quarterly earnings from General Electric, allied with a substantial price target hike at Citigroup. Moving into the North American open, European bourses continue to trade higher with financials and telecommunications as best performing sectors.

 

Bank of America – Co.’s Q4 adjusted EPS USD 0.04 vs. Exp. USD 0.21, and Q4 total revenue net of interest expense USD 22.1bln. Co. said Tier 1 capital ratio was 11.24% at the quarter end, and Q4 net charge-offs were USD 6.78bln, adding that Q4 provision for credit losses were USD 5.13bln. Co.’s CEO said he sees dividend increase in the second half of the year. He also said that full economic recovery depends on housing market stability, adding that he sees solid but not robust growth in 2011. (RTRS/CNBC/Sources)

 

General Electric – Co.’s Q4 cont. ops. EPS USD 0.36 vs. Exp. USD 0.32, and Q4 revenue USD 41.38bln vs. Exp. USD 39.71bln. Co.'s CEO said strong performance at GE capital was also encouraging. (RTRS/Sources)

 

If you require further information regarding US corporate news please refer to the RANsquawk ‘US equity opening news’ sheet or visit RANsquawk.com.

 

Index

DAX

CAC

FTSE

EUROSTOXX

SMI

Level

7094.45

4032.78

5914.36

2986.09

6582.27

Change (ticks)

70.18

67.94

46.45

58.67

68.77

 

FX

 

Weakness in the USD-index supported EUR/USD, and GBP/USD, however GBP/USD dropped over 30 pips after worse than expected Retail Sales data from the UK for the month of December impacted by severe weather conditions.

 

·   UK Retail Sales (Dec) M/M -0.8% vs. Exp. -0.2% (Prev. 0.3%)

·   UK Retail Sales (Dec) Y/Y -0.0% vs. Exp. 1.1% (Prev. 1.1%, Rev. 1.0%) (RTRS)

 

Currency

EURUSD

GBPUSD

USDJPY

Level

1.3545

1.5952

82.72

Change (pips)

0.0072

0.0055

-0.2900

 

COMMMODITIES

 

WTI crude futures trended higher and managed to regain the USD 90 handle on the back of a weaker USD.

 

Geopolitical News:

  • The US warned China that it would redeploy forces in Asia if it failed to rein in its ally North Korea, as Pyongyang bowed to pressure and agreed to crisis talks in days.
  • Iran says nuclear talks with six powers in Istanbul started in a ‘positive atmosphere’, however an official said Iran would refuse to discuss any suspension of its uranium enrichment activities during the talks.

 

  • Elsewhere, US officials have said they think Iran has the ‘technical ability’ to produce highly enriched uranium, according to leaked US diplomatic cables, published by WikiLeaks.
  • Russia’s Transneft has redirected oil flows from Belarus refineries to the ports of Primorsk, Novorossisk and Gdansk in Poland as the country’s spat with Belarus continues, a co. spokesman said.

 

Commodity

WTI Nymex

OTC Spot Gold

Level

89.96

1346.28

Change (NYSEARCA:USD)

0.37

0.00

 

LOOKING AHEAD

 

Economic Releases

 

CST

GMT

 

DATA

EXP

PREV

0730

1330

CA

Retail Sales M/M (Nov)

0.5%

0.8%

0730

1330

CA

Retail Sales Less Autos M/M (Nov)

0.5%

0.9%

0930

1530

US

ECRI Weekly W/W (Jan 21)

 

128.1

0930

1530

US

ECRI Weekly Annualised Y/Y (Jan 21)

 

3.7%

1200

1800

US

Baker Hughes US Rig Count W/W (Jan 21)

 

1700

1750

2350

JN

BoJ release minutes of previous Monetary Policy meeting

 

 

 

Speakers

1700

2300

EU

EU’s Barnier

N/A

N/A

SZ

SNB’s Deputy Governor Jordan

 

Auction

1000

1600

US

Fed’s Outright Treasury Coup. Purch. Feb 2018 – Nov 2020 (USD 7-9bln)

 

**Notes:

UST February options expiry,

S&P 500/NASDAQ 100/DOW January options expiry,

E-Mini S&P 500/NASDAQ 100 January options expiry.

CAC 40 January options & futures expiry.

 

Prices taken at 1248GMT