DAILY US OPENING NEWS - 05/05/11

 

·   Market focus remains on the ECB’s press conference at 1330 BST, where the expectation remains for a hawkish tone after interest rates were kept on hold at 1.25% earlier today

 

·   Worse than expected services PMI data from UK weighed upon GBP, whereas AUD came under pressure on the back of weak retail sales figures from Australia overnight and a sharp fall in commodity prices across the board

 

·   Worse than expected German factory orders saw EUR/USD fall from its 17-month high

 

·   The Bank of England kept its benchmark interest rate and asset purchase facility unchanged at 0.50% and GBP 200bln respectively

 

·   RANsquawk EU Morning Briefing Video: http://www.youtube.com/watch?v=MVbb7iiQdiE

 

Market Re-Cap

 

European equities traded lower during the morning session on the back of weak European corporate earnings from the likes of Lloyds Banking Group, Societe Generale, and Lufthansa, allied with weaker than expected German factory orders, which led to particular underperformance in financials and industrials. In the forex market, GBP came under substantial pressure following the release of worse than expected services PMI data from the UK, whereas AUD weakness was observed after weaker than expected retail sales data from Australia. However, EUR traded higher in early trade as markets focused on ECB’s press conference following the rate-decision, where the anticipation is for further hawkish tone from ECB’s Trichet, however did come under pressure following weak German factory orders. Elsewhere, a combination of concerns surrounding US economic growth, allied with news of China introducing new resource tax on the sale of crude and natural gas weighed upon WTI crude futures during the European session.

 

Moving forward, markets look ahead to ECB’s press conference allied with jobless data from the US later in the session. In fixed income, another Fed’s Outright Treasury Coupon Purchase operation in the maturity range of Aug’28-Feb’41, with a purchase target of USD 1.5-2.5bln is also scheduled for later.

 

Asian Headlines

 

Japanese Market Holiday

 

China may ease its tight monetary polices from June as inflation growth slows, according to chief economist at the State Information Centre. (21^st Century Business Herald)

 

·   China HSBC Services PMI (Apr) M/M 51.6 vs. Prev. 51.7 (RTRS)

 

US Headlines:

 

Fed's Williams said Fed has been preparing a plan to start removing stimulus when conditions warrant, adding that timing of exit steps depends on unemployment, inflation and will be signalled in regular policy statements. He further said that Fed’s exit strategy includes draining bank reserves, reducing long-term securities holdings, and raising target.

He also said Treasury yields won’t jump suddenly after quantitative easing ends. (RTRS)
 

Also, Fed’s Lockhart said conditions needed to spur third round of QE are “a very high bar”, but does not rule out 100%, adding that the removal of monetary support is flexible and “not a fixed plan”. Lockhart prefers removal of passive support first, including elimination of purchases of treasuries and mortgage-backed securities, however he doesn’t expect the Fed to start tightening monetary policy imminently. (RTRS)

 

Elsewhere, Fed’s Rosengren said the economy isn’t growing fast enough to achieve the central bank’s goals of full employment and stable prices, and that “nothing’s off the table” if outlook deteriorates. Also, Fed’s Fisher said The Fed must make sure a recent spike in energy prices does not translate into higher inflation expectations by US consumers. He also says “we have to carefully monitor” how inflation expectations evolve. (Sources/RTRS)

 

In other news, US Treasury’s Geithner says minimum test for US credibility is to get deficits down to a point where they are shrinking as a percentage of GDP. (RTRS)

 

 

 

 

EU and UK Headlines:

 

Portugal finance minister said government has approved the bailout agreement in cabinet meeting, adding that the economy is expected to contract by 2% both in 2011 and 2012. He further said that financing needs were assessed in detail, and EUR 78bln is enough, however it is too soon to speak about interest rate on loans. (RTRS)

 

In other news, divisions in the Eurozone are deepening over how to handle Greece's suffocating debt burden, with German officials open to a voluntary restructuring of Greek bonds but a majority of Eurozone policy makers fearful of the consequences. (WSJ)

 

Elsewhere, UK’s National Institute of Economic and Social Research (NIESR) downgraded its forecast for UK’s growth in 2011 to 1.4% from 1.5% and predicted that real disposable income will fall by GBP 301 per person. (Independent)

 

·   UK Services PMI (Apr) M/M 54.3 vs. Exp. 55.7 (Prev. 57.1)

·   German Factory Orders SA (Mar) M/M -4.0% vs. Exp. 0.4% (Prev. 2.4%)

·   German Factor Orders NSA (Mar) Y/Y 9.7% vs. Exp. 15.4% (Prev. 20.1%) (RTRS)

 

·   Spanish bond auction for EUR 3.354bln, 3.25% 30-Apr-16, bid/cover 1.9 vs. Prev. 2.17 (yield 4.549% vs. Prev. 4.389%)

·   French OAT auction for EUR 2.810bln, 3.75% 25-Oct-19, bid/cover 2.085 vs. Prev. 1.71 (yield 3.51% vs. Prev. 3.600%)

·   French OAT auction for EUR 2.999bln, 2.50% 25-Oct-20, bid/cover 3.336 vs. Prev. 2.53 (yield 3.64% vs. Prev. 3.770%)

·   French OAT auction for EUR 1.749bln, 3.50% 25-Apr-26, bid/cover 2.667 vs. Prev. 2.60 (yield 4.03% vs. Prev. 4.130%)

·   French OAT auction for EUR 1.930bln, 5.75% 25-Oct-32, bid/cover 2.088 vs. Prev. 1.47 (yield 4.15% vs. Prev. 4.050%) (RTRS)

 

EQUITIES

 

European equities traded lower during the morning session on the back of weak European corporate earnings from the likes of Lloyds Banking Group, Societe Generale, and Lufthansa, allied with weaker than expected German factory orders, which led to particular underperformance in financials and industrials. Moving into the North American, equities continue to trade in negative territory, with financials and oil & gas as worst performing sectors.

 

Index	DAX	CAC	FTSE	EUROSTOXX	SMI
Level	7325.3	3995.15	5941.78	2917.22	6409.68
Change (ticks)	-48.63	-47.98	-42.29	-34.80	-60.67

 

FX

 

GBP came under substantial pressure following the release of worse than expected services PMI data from the UK, whereas AUD weakness was observed after weaker than expected retail sales data from Australia. However, EUR traded higher in early trade as markets focused on ECB’s press conference following the rate-decision, where the anticipation is for further hawkish tone from ECB’s Trichet, however did come under pressure following weak German factory orders.

 

·   Australian Retail Sales SA (mar) M/M -0.5% vs. Exp. 0.5% (Prev. 0.5%, Prev. 0.8%)

·   Australian Retail Sales Ex-Inflation (Q1) Q/Q 0.0% vs. Exp. 0.6% (Prev. -0.3%, Rev. to -0.4%) (RTRS)

 

Currency	EURUSD	GBPUSD	USDJPY
Level	1.4831	1.6491	79.79
Change (pips)	0.0004	0.0003	-0.8200

 

 

 

 

 

COMMODITIES

 

A combination of concerns surrounding US economic growth, allied with news of China introducing new resource tax on the sale of crude and natural gas weighed upon WTI crude futures during the European session.

 

Oil & Gas News:

·   According to an article in Shanghai Securities News, China may introduce a resource tax of between 5%-10% on the domestic sales of crude oil and natural gas as part of the country’s overall tax reforms.

·   According to analysts at BarCap, OPEC is unlikely to take significant action to deal with high oil prices at its June meeting. They also said that the oil price deemed acceptable by the OPEC may have risen by USD 20 a barrel since December.

·   According to industry sources, Iraq is preparing to halve its official crude production targets to between 6.5-7 MBPD by 2017.

·   According to trade sources, Iran imported approximately 50,000 BPD of gasoline in March, and almost the same amount in April.

·   According to the UN, the G-20 nations should negotiate a benchmark fair cost of oil with the OPEC and limit price movements within a band. It further said that the G-20 needs to act decisively to moderate the volatility of oil.

 

Geopolitical News:

·   Syrian army units backed by tanks have tightened the siege of two defiant urban centres, Rastan and Banias, in a sign that President Assad is widening the use of the military to crush demonstrations against his autocratic rule.

·   Meanwhile, Italian foreign minister said he has discussed sanctions against Syria with US at the Libya meeting, adding that sanctions would include suspension of cooperation talks with EU, and travel restrictions on officials. He also said that special temporary financial fund to help Libyan rebels will be announced on Thursday.

·   According to US Secretary of State Clinton, ministers from the NATO-backed coalition against Gaddafi will discuss ways of increasing diplomatic, economic and political pressure on the Libyan leader at today’s meeting.

·   According to the Yemeni defence ministry, two mid-level al-Qaeda leaders were killed in Yemen on Thursday in a remote province where al Qaeda is active.

 

Other News:

 

·   CME on Wednesday raised margins for Comex 5000 Silver futures for the second time this week amid volatility in Silver prices. The exchange operator raised maintenance margins for speculators by 16.7% to USD 14,000 per contract from USD 12,000 effective Thursday, May 5^th. CME further raised the maintenance margins for speculators by 14.3% to USD 16,000 per contract from USD 14,000 per contact effective Monday, May 9^th.

 

Commodity	WTI Nymex	OTC Spot Gold
Level	106.55	1502.38
Change (USD)	-2.69	-13.95

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

LOOKING AHEAD

 

Economic Releases

 

CDT	BST		DATA	EXP	PREV
0645	1245	EU	ECB’s Rate Decision M/M (May)	1.25%	1.25%
0730	1330	US	Initial Jobless Claims W/W (Apr 30)	410K	429K
0730	1330	US	Continuing Claims W/W (Apr 23)	3650K	3641K
0730	1330	US	Nonfarm Productivity Q/Q (Q1 P)	1.1%	2.6%
0730	1330	US	Unit Labour Costs Q/Q (Q1 P)	0.8%	-0.6%
0730	1330	CA	Building Permits M/M (Mar)	-2.5%	9.9%
0900	1500	CA	Ivey PMI M/M (Apr)	65.2	73.2
0900	1500	CA	Ivey PMI SA M/M (Apr)	65.5	73.2
0930	1530	US	EIA Natural Gas Storage Change W/W (Apr 29)	67	31
N/A	N/A	US	ICSC Chain Store Sales Y/Y (Apr)		2.0%
Speakers
0730	1330	EU	ECB’s Trichet Press Conference following Rate Decision
0730	1330	UK	BoE’s Bailey
0815	1415	US	Fed’s Evans
0830	1430	US	Fed’s Bernanke at Chicago Fed Banking Conference
1000	1600	SW	Riksbank’s Deputy Governor Wickman Parak
1030	1630	EU	EU’s President Van Rompuy
1145	1745	EU	ECB’s Trichet at the Bank of Finland
1215	1815	US	Fed’s Kocherlakota
1230	1830	EU	ECB’s Stark
Auction
1000	1600	US	Fed’s Outright Trea. Coup. Purch. Aug’28-Feb’41 (USD 1.5-2.5bln)
Earnings
US		AIG, EOG Resources, Kraft Foods, Visa

 

**Notes:

Japanese Market Holiday

 

Prices taken at 1247BST