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DAILY US OPENING NEWS - 02/02/11

 

 

  • Hawkish comments from BOE’s Sentance and Bean, allied with a record jump in the construction PMI data from the UK helped GBP, and weighed upon Gilt futures

 

  • S&P cut Ireland's sovereign rating to A- from A, and kept them on watch negative. S&P said it expects to review Ireland’s rating again by April

 

  • According to a German Government sources, the EFSF bond buybacks are unlikely to be agreed upon, adding that it is 'not in our interest for EFSF to buy bonds'. However, a French Government spokesman said decision will be taken on the EFSF in March

 

  • Spanish PM Zapatero, and finance minister Salgado said that Spain can finance itself, and will not have to tap any EU fund

 

 

Market Re-Cap

 

Hawkish comments from BOE's Bean and Sentance provided an early boost to GBP across the board, with additional support observed in the currency with a record jump in construction PMI data from the UK, which saw GBP/USD rise more than 40 pips, and Gilt futures remained under pressure. However, EUR/USD came under pressure to test 1.3800 option expiry level after S&P cut Ireland's sovereign rating to A- from A, and kept them on watch negative, allied with comments from a German government source that EFSF bond buybacks are unlikely to be agreed upon. In other news, markets paid attention to comments from Fed's Hoenig, which were hawkish, however he did say that a faltering economy may prompt Fed members to opt for another round of QE, which supported bund futures. European peripheral 10-year government bond yield spreads tightened across the board, with particular narrowing observed in the Spanish/German spread following comments from Spanish PM Zapatero, and finance minister Salgado that Spain can finance itself, and will not have to tap any EU fund.

 

Moving forward, markets look ahead to US corporate earnings from the likes of Visa and News Corp, as well as key jobs and employment data from the US. In fixed income, quarterly refunding announcement related to 3-,10-, and 30-years Notes, as well as another Fed's Outright Treasury Coupon purchase in the maturity range Feb'21 - Nov'27, with a purchase target of USD 1.5-2.5bln, are scheduled for later in the session.

 

US Headlines

 

Fed’s Hoenig said if it was up to him, the Fed would begin soon to exit from what he considers an excessively easy monetary policy, but if the economic recovery shows signs of faltering, he foresees the possibility that his colleagues might consider another round of quantitative easing. (Sources)

 

In other news, the Fed has surpassed China as the leading holder of US Treasury securities even though it has yet to reach the halfway mark in its latest round of quantitative easing, according to official figures. (FT - More)

 

·   Challenger Job Cuts (Dec) Y/Y 38.5K vs. Prev. 32.0K

·   MBA Mortgage Application (Jan 28) W/W 11.3% vs. Prev. -12.9%

·   ABC Consumer Confidence (Jan 30) W/W -41 vs. Exp. -43 (Prev. -44)

 

EU and UK Headlines:

 

BOE’s Sentance said interest rates must be increased now and at a steady pace to avoid a sudden and large jump later. (City A.M.) Also, BOE's Bean said interest rates could rise to combat rising commodity prices. (WalesOnline.co.uk)

 

·   UK Construction PMI (Jan) M/M 53.7 vs. Exp. 49.5 (Prev 49.1)

·   Eurozone PPI (Dec) M/M 0.8% vs. Exp. 0.7% (Prev. 0.3%)

·   Eurozone PPI (Dec) Y/Y 5.3% vs. Exp. 5.2% (Prev. 4.5%) (RTRS)

 

·   Portuguese 6-month T-Bill auction for EUR 0.455bln, bid/cover 4.8 vs. Prev. 2.6 (yield 2.984% vs. Prev. 3.686%)

·   Portuguese 12-month T-Bill auction for EUR 0.8bln, bid/cover 2.6 vs. Prev. 3.1 (yield 3.710% vs. Prev. 4.029%) (RTRS)

 

 

EQUITIES

 

After trading in minor positive territory in early trade, European equities came off their best levels following S&P downgrading the Irish sovereign rating, as well as comments from a German government source that EFSF bond buybacks are unlikely to be agreed upon. In equity specific news, AstraZeneca shares, in FTSE 100 index, demonstrated underperformance as the co. went ex-dividend today, and moving into the North American open, equities are trading mixed with Health Care and Industrials as the worst performing sectors.

 

Index

DAX

CAC

FTSE

EUROSTOXX

SMI

Level

7183.1

4063.58

5994.82

3009.35

6536.32

Change (ticks)

-1.17

-9.04

37.00

2.54

-18.94

 

FX

 

Hawkish comments from BOE's Bean and Sentance provided an early boost to GBP across the board, with additional support observed in the currency with a record jump in construction PMI data from the UK, which saw GBP/USD rise more than 40 pips. In other news, EUR/USD came under pressure to test 1.3800 option expiry level after S&P cut Ireland's sovereign rating to A- from A, and kept them on watch negative, allied with comments from a German government source that EFSF bond buybacks are unlikely to be agreed upon.

 

Currency

EURUSD

GBPUSD

USDJPY

Level

1.3810

1.6200

81.49

Change (pips)

-0.0019

0.0058

0.1400

 

COMMMODITIES

 

WTI crude futures are trading at the USD 91.00 handle heading into the US session, with the USD-Index trading broadly flat during the European morning session.

 

Oil & Gas News:

  • According to Iraq’s Deputy Prime Minister Jussain Al-Shahristani, the country will increase its oil-production capacity to 11mln BPD within ‘6-7 years’, this would make Iraq the world’s largest crude oil exporter.
  • The chief economist of the IEA, Fatih Birol said that Oil prices at more than USD 100 a barrel may put the economic recovery in Europe and the US at risk. Birol also added that Oil transit through the Suez Canal isn’t currently at risk from anti-government protests in Egypt.
  • IEA Chief Economist says there has been little destruction to the World Economy from current USD 100 oil prices.

 

Geopolitical News:

  • Egypt’s Hosni Mubarak said last night that he had no intention of running in the September presidential election. (FT More ) Speaking on state television, Egypt’s ruler of the past 30 years insisted he would serve out his term and oversee orderly transition, which would include a review of the controversial constitutional clauses.   
  • Al-Qaida is on the verge of producing radioactive weapons after sourcing nuclear material and recruiting rogue scientists, according to leaked diplomatic documents.

 

Commodity

WTI Nymex

OTC Spot Gold

Level

90.68

1334.18

Change (NYSEARCA:USD)

-0.09

-3.92

 

 

 

 

 

 

 

 

LOOKING AHEAD

 

Economic Releases

 

CST

GMT

 

DATA

EXP

PREV

0715

1315

US

ADP Employment Change M/M (Jan)

140K

297K

0930

1530

US

DOE Crude Oil Inventories W/W (Jan 28)

2500K

4836K

0930

1530

US

DOE Gasoline Inventories W/W (Jan 28)

2000K

2404K

0930

1530

US

DOE Distillate Inventory W/W (Jan 28)

-1000K

-140K

0930

1530

US

DOE Cushing Crude Inventories W/W (Jan 28)

 

862K

0930

1530

US

DOE Refinery Utilisation W/W (Jan 28)

-0.18%

-1.20%

1545

2145

NZ

Unemployment Rate Q/Q (Q4)

6.5%

6.4%

1545

2145

NZ

Employment Change Q/Q (Q4)

0.2%

1.0%

1545

2145

NZ

Employment Change Y/Y (Q4)

2.0%

1.8%

 

Speaker

1630

2230

US

Fed’s Duke

 

Auctions

0800

1400

US

USD 3y– 10y– 30y Note quarterly refunding Announcement

1000

1600

US

Fed’s Outright Treasury Coupon Purchase Feb 2021 – Nov 2027 (USD 1.5-2.5bln)

 

Earnings

US

Hartford Financial Services, Marathon Oil Corp, News Corp, Visa Inc, Yum! Brands Inc

 

 

** Notes: Chinese Market Holiday

 

Prices taken at 1244GMT