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DAILY US OPENING NEWS - 18/02/11

 

 

·   The PBOC raised its reserve requirement ratio by 50 basis points effective as of February 24

 

·   Market talk that another BOE MPC member might have voted for a rate hike in the latest BOE's rate-settlement meeting

 

·   UK’s Retail sales data for January came out much better than expected

 

·   According to Eurozone sources, EU Finance Ministers have a rescue plan ready for Portugal with a bailout said to be needed by April. However, Portugal said it does not need any external aid.

 

·   RANsquawk European Morning Briefing Video: http://www.youtube.com/watch?v=CfQScuZ7Xw0

 

Market Re-Cap

 

One of the key highlights of this morning has been the PBOC raising its reserve requirement ratio by another 50 basis points, which was seen coming after property prices in China saw another jump in January despite previous tightening measures. The move instantly weighed upon WTI crude futures and other commodities, as well as declines in commodity based currencies (AUD/CAD). In other forex news, GBP gained strength following market talk that another BOE MPC member might have voted for a rate hike in the latest BOE's rate-settlement meeting, allied with a sharp jump in the January retail sales data from the UK. Elsewhere, markets provided a lukewarm response to persistently high ECB's overnight lending by European banks, with most market players having the view that it was a technical error, however potential for a bank in trouble is also doing the rounds. On the geopolitical front, Egypt has confirmed that it has received transit requests from two Iranian warships for the Suez Canal, whereas pro-democracy protests continue in the Middle-East.

 

Looking forward, markets look ahead to Canadian CPI data later in the session, allied with another Fed's Outright Treasury Coupon Purchase operation in the maturity range of Aug'13 - Feb'15, with a purchase target of USD 5-7bln.

 

Asian Headlines

 

Many BOJ board members said the chance of Japan’s economy resuming a moderate recovery has heightened, according to minutes of its Jan. 24th-25th meeting, with one member saying the recovery may come around spring, while other members anticipate recovery as early as the first quarter. However, some members said uncertainty remains for Japanese economy after resuming recovery. In other news, Japan will raise its assessment of the economy in a monthly report next week, based on improvements in exports and production, according to sources. (RTRS/Nikkei)

 

Elsewhere, property prices rose in most Chinese cities in January despite an intensified campaign by the government to tame housing inflation. New home prices climbed in January from a year earlier in 68 of the 70 major cities tracked by the National Bureau of Statistics, with 10 of them registering double-digit growth. (RTRS)

 

US Headlines

 

Fed’s balance sheet expanded to USD 2.492trl in the week ended February 16th from USD 2.483trl the prior week. Also, foreign central banks’ overall holdings of US securities rose USD 25.50bln in the week ended February 16th to stand at USD 3.393trl. (RTRS)

 

In other news, the Republican-controlled US House of Representatives on Thursday was poised to approve deep spending cuts this year, setting the stage for a battle with the Democratic-run Senate that could lead to a government shutdown. The House debated the spending measures, which cuts some USD 61.5bln from current levels, and was expected to vote on passage of the bill on Friday, sending it to the Senate. (RTRS)

 

EU and UK Headlines:

 

According to a monetary source, the increase of ECB’s overnight borrowing is a sign that money market is still not fully working in some of its parts, adding that the increase is not due a technical error. It further said that Italian banking system continues to have good access to the money market. However, the ECB declined to comment on this issue. (RTRS) Also, markets provided a lukewarm response to persistently high ECB's overnight lending by European banks, with most market players having the view that it was a technical error.

 

In other news, German Chancellor Merkel’s Christian Democrats face losing a state election in Hamburg on Sunday to the opposition Social Democrats which could make it harder for her coalition to pass legislation. (RTRS)

 

·   UK Retail Sales (Jan) M/M 1.9% vs. Exp. 0.5% (Prev. -0.8%, Rev. to -1.4%)

·   UK Retail Sales (Jan) Y/Y 5.3% vs. Exp. 4.0% (Prev. 0.0%, Rev. to -0.7%) (RTRS)

 

EQUITIES

 

European equities traded lower for most of the session, with particular underperformance seen in Italian FTSE MIB, and Spanish IBEX 35 indices, due to pressure seen in financials partly on the back of a lack of clarity over whether Portugal would opt for an EU/IMF rescue package. Elsewhere, basic materials demonstrated weakness after the PBOC hiked its reserve requirement ratio by 50 basis points, which weighed upon commodities. Moving into the North American open, equities continue to trade lower, with financials and basic materials as the worst performing sectors.

 

Index

DAX

CAC

FTSE

EUROSTOXX

SMI

Level

7403.01

4147.42

6057.5

3059.02

6701.61

Change (ticks)

-2.50

-4.89

-29.88

-5.52

-4.86

 

FX

 

GBP gained strength following market talk that another BOE MPC member might have voted for a rate hike in the latest BOE's rate-settlement meeting, allied with a sharp jump in the January retail sales data from the UK. In other news, commodity linked currencies, such as AUD and CAD, declined after the PBOC raised its reserve requirement ratio by another 50 basis points.

 

Currency

EURUSD

GBPUSD

USDJPY

Level

1.3557

1.6207

83.36

Change (pips)

-0.0052

0.0033

0.0500

 

COMMMODITIES

 

WTI crude futures lacked any real direction during the European session with tension in the Middle-East supporting prices, however strength in the USD-index capped gains, with prices coming under further pressure after the PBOC hiked the reserve requirement ratio by another 50 basis points.

 

Oil & Gas News:

 

·   According to JPMorgan analysts, increase in global crude prices is partly attributed to growing demand for middle distillates such as diesel.

 

Geopolitical News:

 

·   According to the Iranian ambassador to Syria, two warships that Iran plans to send through the Suez Canal will go to Syria, and anchor there for a few days, adding that Iran has applied to Egypt for the ships to use the waterway. In the latest news, Egyptian foreign ministry has confirmed Iranian request to use the Suez Canal.

·   According to a member of Saudi Arabia’s royal family, Saudi may see protests unless country’s King Abdullah introduces reforms. Also, there is a risk that protests in Bahrain may spill over to Saudi Arabia.

·   Parts of the Middle-East and Arab North Africa could see renewed displays of public anger towards their governments today as protesters in Bahrain bury four people killed when police broke up an activist camp. In related news, soldiers were deployed on the streets of Libya’s second city of Benghazi today after thousands of people took to the streets overnight to protest about security forces killing more than 20 protestors.

·   Libya said Arab League Summit has been delayed owing to circumstances in the Arab World, according to the Official News Agency.

 

Commodity

WTI Nymex

OTC Spot Gold

Level

86.09

1386.08

Change (NYSEARCA:USD)

-0.27

1.98

 

LOOKING AHEAD

 

Economic Releases

 

CST

GMT

 

DATA

EXP

PREV

0600

1200

CA

CPI M/M (Jan)

0.3%

0.0%

0600

1200

CA

CPI Y/Y (Jan)

2.4%

2.4%

0600

1200

CA

Consumer Price Index M/M (Jan)

 

117.5

0600

1200

CA

Bank of Canada CPI Core M/M (Jan)

0.1%

-0.3%

0600

1200

CA

Bank of Canada CPI Core Y/Y (Jan)

1.5%

1.5%

0930

1530

US

ECRI Weekly Index W/W (Feb 18)

 

130.2

0930

1530

US

 ECRI Weekly Annualised Y/Y (Feb 18)

 

4.5%

1200

1800

US

Baker Hughes Rig Count W/W (Feb 18)

 

1721

 

Speakers

0700

1300

US

Fed’s Bernanke on Global Imbalances

0700

1320

UK

BoE’s King

0845

1445

US

Treasury’s Geithner

1100

1700

UK

FSA Chairman Tuner and BoE’s Tucker

1230

1830

UK

BoE’s Tucker

N/A

N/A

WLD

G20 Finance Ministers and Central Bank Governors meeting

 

Auction

1000

1600

US

Fed’s Outright Treasury Coup. Purch. Aug 2013 – Feb 2015 (USD 5-7bln)

 

Prices taken at 1148GMT

 

**Notes:

US President’s Day:

·          Floor Trade: CME/CBOT (Regular Close), NYSE (Regular close), NYMEX (Regular close)

·          Electronic Trade:

Ø        CME Globex – Equity (Regular Close), Interest Rate (Early close: 1515CT/2115GMT), FX (Early close: 1515CT/2115GMT), NYMEX (Regular Close)

 

UST March options expiry

E-mini DOW/NASDAQ 100/S&P 500 February options expiry

NASDAQ 100/S&P 500/FTSE 100/DAX/EUROSTOXX February Options Expiry

CAC 40 February options & futures expiry