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DAILY US OPENING NEWS - 11/05/11

 

·   Hawkish tone in BoE’s quarterly inflation report, allied with comment from BoE’s King that interest rates cannot stay low indefinitely boosted GBP across the board and weighed on UK fixed income

 

·   EUR/USD received support following hawkish comments from ECB’s Stark, Bini-Smaghi and Coene however the pair’s gains have failed to continue the momentum as concerns over Greece still remain

 

·   Markets await further details on measures to tackle Eurozone debt problems

 

·   RANsquawk EU Morning Briefing Video: http://www.youtube.com/watch?v=f3mBY19USlg

 

Market Re-Cap

 

Equity markets have been trading positively through the session, with increased risk appetite, after the Asian markets largely shrugged off mixed Chinese inflation data. The main focus this morning fell upon the BoE’s Quarterly Inflation Report which was more hawkish than many expected.  Comments of note stating that CPI may hit 5% in 2011 and rates cannot stay this low indefinitely underpinned the strength seen in GBP. This report allied with hawkish comments from ECB’s Coene and Bini Smaghi who see inflationary risks to the upside have seen the Bund under selling pressure this morning.  Eurozone peripheral concerns are still to have any concrete resolutions; however the Portuguese/Bund 10yr bond spread has seen tightening of over 4.0% after the German deputy finance minister said he foresees the Eurogroup adopting the Portugal package next week.

 

Looking forward we await news of any further developments regarding the Greek bailout, the US Trade Balance, Fed speakers and results of the US 10 year note auction.  Furthermore there is DOE Crude Oil Inventories data which is expected to show a large build today. 

 

Asian Headlines

 

The BoJ plans to bolster its reserves to provide a stronger buffer against potential losses from its recently expanded asset-purchase programme. The Bank asked the ministry for permission to keep 15% of its profits for the year ended March. (FT - More)

 

In other news, PBOC advisor Li Daokui said there’s still room for interest rate increases. Also, according to Ba Shusong, an economist at State Council Development Research Centre, China still has room to raise interest rates and reserve requirement ratio in the second quarter, adding that Chinese CPI may peak in June. However, according to a researcher at the NDRC, China may cut interest rates over the rest of this year as it seeks to stave off a sharp economic slowdown. (Shandong Business Daily/Sources/RTRS)

 

·   China CPI (Apr) Y/Y 5.3% vs. Exp. 5.2% (Prev. 5.4%)

·   China PPI (Apr) Y/Y 6.8% vs. Exp. 7.0% (Prev. 7.3%)

·   China Industrial Production (Apr) Y/Y 13.4% vs. Exp. 14.6% (Prev. 14.8%)

·   China Retail Sales (Apr) Y/Y 17.1% vs. Exp. 17.6% (Prev. 17.4%) (RTRS)

 

US Headlines:

 

Influential investment veteran Jim Rogers said he plans to short US Treasuries as he expects the end of quantitative easing to pressure government bonds. Rogers said he expects the USD to rally when the Fed’s unconventional monetary measure ends in June. (RTRS)

 

In other news, top US lawmakers made progress on Tuesday during a second meeting aimed at finding a way to raise the country’s soon-to-be-reached debt limit, participants said. Democratic Senator Max Baucus said the meeting was “better than the last one” while Vice president Joe Biden, also a Democrat, said the group made progress. The group will next meet on Thursday, Baucus said. (RTRS)

 

Elsewhere, a majority of top Wall Street bond dealers and money managers say spending cuts alone cannot solve the US budget problems and tax increases must be part of the mix. In a Reuters survey conducted on Tuesday, 17 out of 19 fund managers and economists representing major Wall Street bond dealing firms said the Republicans favoured option of spending cuts alone would not work. (RTRS)

 

US MBA Mortgage Applications (May 6) W/W 8.2% vs. Prev. 4.0% (RTRS)

 

 

 

 

EU and UK Headlines:

 

In its quarterly inflation report, the BoE sees good chance that CPI will reach 5% later in 2011, and it is more likely than not to exceed 2% throughout 2012. BoE said chances of CPI being above or below 2% in medium term are roughly equal. Also, BoE's King said interest rates can’t stay at this level indefinitely. (RTRS)

 

ECB's Coene said inflation risks have shifted to the upside, adding that the ECB will rise rates if price risks threaten to materialise. Also, ECB's Stark said we have to withdraw monetary accommodation to ensure well anchoring of expectations, adding that maybe markets have not fully understood what we communicated last Thursday. (RTRS)

 

·   UK Visible Trade Balance (GBP/mln) (Mar) M/M -7660 vs. Exp. -7500 (Prev. -6776 Rev. to -6988)

·   UK Trade Balance Non EU (GBP/mln) (Mar) M/M -4479 vs. Exp. -3500 (Prev. -2849 Rev. to -2766)

·   UK Total Trade Balance (GBP/mln) (Mar) M/M -3005  vs. Exp. -3250 (Prev. -2443 Rev. to -2655) (RTRS)

 

·   German Schatz auction for EUR 5.858bln, 14-Jun-13, bid/cover 1.9 (yield 1.79%, retention 16.3%)

·   Italian 12-month T-Bill auction for EUR 6bln, bid/cover 1.697 vs. Prev. 1.73 (yield 2.106% vs. Prev. 1.980%) (RTRS)

 

EQUITIES

 

Risk-appetite prevailed during the European session, which in turn supported equities, as markets largely shrugged off mixed Chinese economic data overnight. Financials performed well throughout the session, which also led to the outperformance in the Italian FTSE MIB, and Spanish IBEX 35 indices. Moving into the North American open, equities continue to trade higher with consumer services and financials as best performing sectors.

 

Index

DAX

CAC

FTSE

EUROSTOXX

SMI

Level

7547.87

4071.34

6023.71

2957.83

6567.32

Change (ticks)

46.35

18.83

4.82

18.81

41.16

 

FX

 

GBP received a boost on the back of hawkish tone from BoE’s quarterly inflation report, allied with comment from BoE’s King that interest rate can’t stay low indefinitely. In other news, EUR/USD received support following hawkish comments from various ECB policymakers including ECB’s Stark, Bini-Smaghi and Coene.

 

Currency

EURUSD

GBPUSD

USDJPY

Level

1.4375

1.6499

81.15

Change (pips)

-0.0034

0.0133

0.2700

 

COMMODITIES

 

WTI crude futures are trading down ahead of the Weekly DOE report which is expected to show a large build in crude oil inventories.

 

Oil & Gas News:

·   OPEC keeps global oil demand growth forecast for 2011 steady at 1.4mln bpd and adds that higher OPEC, non-OPEC oil output this year shows the global supply picture remains healthy.

·   EIA raises forecast for 2012 world oil demand growth by 20,000 BPD, now sees 1.58 MBPD Y/Y increase. Also, EIA lowers forecast for average US WTI oil price by USD 4.00 to USD 103 per barrel in 2011; and by USD 6.00 to USD 107 per barrel in 2012.

·   China’s implied oil demand in April increased 8.8% from a year earlier to the third highest on record on a daily basis, Reuters calculation based on preliminary government data showed.

·   Iran Oil Minister said the drop in oil prices will stop soon. The Increase of oil stocks by consuming countries and value of USD will have an impact on the oil price.

·   According to Trade, Saudi, Kuwait May-Loading fuel oil exports at 750,500-80000 tones so far, up more than 50% from April.

 

 

 

Geopolitical Section:

·   Libyan rebels said they had made gains by driving back Gaddafi’s troops on the eastern and western edges of the port city of Misrata and encircling them at the airport.

·   Syrian security forces have released 300 people detained in the coastal city of Banias and restored basic services, according to a rights group. Shelling and automatic gunfire rocked the city of Homes according to a human rights activist.

·   UN’s Secretary General Ban Ki-Moon says he has spoken with Libyan PM and called for immediate verifiable ceasefire. Calls on Syrian president Assad to heed call for reform and halt mass arrests.

 

Commodity

WTI Nymex

OTC Spot Gold

Level

102.96

1517.2

Change (NYSEARCA:USD)

-0.92

0.92

 

LOOKING AHEAD

 

Economic Releases

 

CDT

BST

 

DATA

EXP

PREV

0730

1330

US

Trade Balance (USD) M/M (Mar)

-47.0B

-45.8B

0730

1330

CA

International Merchandise Trade M/M (Mar)

0.4B

0.0B

0900

1500

US

JOLTs Job Openings M/M (Mar)

 

3093

0930

1530

US

DOE Crude Oil Inventories W/W (May 6)

1500K

3421K

0930

1530

US

DOE Gasoline Inventories W/W (May 6)

-500K

-1046K

0930

1530

US

DOE Distillate Inventory W/W (May 6)

0K

-1398K

0930

1530

US

DOE Cushing Crude Inventory W/W (May 6)

 

102K

0930

1530

US

DOE Refinery Utilisation W/W (May 6)

0.35%

0.10%

1300

1900

US

Fed’s Tentative Outright Treasury Operation Schedule

 

 

1300

1900

US

Monthly Budget Statement (USD) M/M (Apr)

-43.5B

-188.2B

1600

2200

NZ

RBNZ Bi-Annual Financial Stability Report

 

 

1750

2330

NZ

Business PMI M/M (Apr)

 

50.1

N/A

N/A

GR

Greek Unions’ Day-long Austerity Strike

 

 

 

Speakers

1115

1715

US

Fed’s Lockhart

1200

1800

US

Fed’s Kocherlakota

1200

1800

US

Fed’s Pianalto

N/A

N/A

EU

Conference on “New Paradigms in Money and Finance” with governors and directors from EU Central Banks

 

Auctions

1000

1600

US

Fed’s Outright Trea. Coup.  Purch. Nov’16-May’18 (USD 6-8bln)

1200

1800

US

USD 24bln 10y Note Auction

 

Earnings

US

Cisco Systems

 

Prices taken at 1251BST