DAILY US OPENING NEWS - 12/05/11

 

·   The PBOC raised its reserve requirement ratio by 50 basis points; effective from May 18^th

 

·   CME raised its RBOB gasoline futures maintenance margins for speculators by 21.4%, effective after the close of business on May 12^th

 

·   Risk-averse sentiment prevailed during the European session, which weighed upon equities and supported European fixed-income

 

·   Strength in the USD-Index, allied with weaker than expected industrial production data from the UK weighed upon GBP/USD

 

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

 

Market Re-Cap

 

A continued sell-off in commodities, further exaggerated by a Chinese reserve rate hike, allied with weaker than expected UK and Eurozone Industrial Production data has seen European equities under perform throughout the session.  The IMF economic outlook report bolstered the risk averse sentiment by stating that the ECB may need to extend its policy of unlimited liquidity for refinancing operations and that it sees immediate risk from large debt roll-over needs in peripheral Eurozone countries. Fixed Income and the USD Index has been steadily climbing as investors look for safer-havens, with uncertainty also continuing in regard to a Greek debt resolution; EU's Juncker and ECB's Gonzalez-Paramo both ruling out a debt restructure but the markets not sharing their confidence in Greece's ability to reorganize its finances.

 

Looking forward focus will fall on US Initial Jobless Claims, PPI and the last of this weeks Treasury supply in the form of USD 16bln 30year note auction.  Fed's Bernanke is also due to testify with FDIC's Bair at a senate hearing.

 

Asian Headlines

 

PBOC sold CNY 40bln of three-year bills in regular open market operations on Thursday, signalling the central bank will use the long-term bill sales to reduce the frequency of bank’s reserve requirement ratio hikes, traders said. (RTRS) In other news, China’s room to further tighten monetary policy isn’t large if the inflation situation doesn’t change. (China Securities Journal)

 

Elsewhere, Goldman Sachs’ O’Neill said China inflation won’t be a problem in the second half of the year, adding that China will stop tightening as prices cool. (Sources)

 

US Headlines:

 

Japan’s deputy finance minister said Japan will closely watch US debt ceiling debate, adding that there is no change in reserve management plans. He further said that it makes sense for Japan to try to diversify reserves to reduce exposure to US debt. Meanwhile, according to an Indian central bank official, India has no choice but to keep investing in US Treasuries, adding that US debt is safe and liquid “as of now”, however that for Eurozone is uncertain. (RTRS)

 

In other news, US government debt remains a safe investment despite depreciation risks for the USD, and US rates may rise after QE2 ends, leading to small losses for the US debt holders, according to Laurence Lau, an official from China’s sovereign wealth fund. (RTRS)

 

EU and UK Headlines:

 

German finance minister Schaeuble said it is the right thing to do to grant Portugal EUR 78bln in aid, and Germany should agree to Portuguese aid once conditions are set. However, he did say that no aid can come without conditions attached. He also said that he will only make decisions on Greece after IMF, EU reports are completed. (RTRS/Sources)

 

Also, IMF's European director Borges said as long as the IMF debt reduction program is in place, it means that IMF believes Greek debt is sustainable. He added that we can always revise our programme depending on progress. (RTRS)

 

·   UK Industrial Production (Mar) M/M 0.3% vs. Exp. 0.8% (Prev. -1.2%)

·   UK Industrial Production (Mar) Y/Y 0.7% vs. Exp. 1.1% (Prev. 2.4%)

·   UK Manufacturing Production (Mar) M/M 0.2% vs. Exp. 0.3% (Prev. 0.0%)

·   UK Manufacturing Production (Mar) Y/Y 2.7% vs. Exp. 2.8% (Prev. 4.9%)

·   Eurozone Industrial Production SA (Mar) M/M -0.2% vs. 0.3% (Prev. 0.4% Rev. to 0.6%)

·   Eurozone Industrial Production WDA (Mar) Y/Y 5.3% vs. 6.3% (Prev. 7.3% Rev. to 7.7%) (RTRS)

 

·   UK Conventional Gilt auction for GBP 2bln, 4.25% 2040 Gilt, bid/cover 1.54 vs. Prev. 1.68 (RTRS)

 

EQUITIES

 

European equities traded lower during the session, with weakness in commodities particularly weighed upon basic materials and oil & gas sectors. Financials also traded in negative territory as uncertainty over Greek debt concerns persisted, which also resulted in the Italian FTSE MIB and Spanish IBEX 35 indices to underperform their European peers. Weaker than expected industrial production data from the UK and Eurozone, allied with another reserve requirement ratio hike by the PBOC exerted further downward pressure on European stocks. Moving into the North American open, equities continue to trade lower, with basic materials and oil & gas as worst performing sectors.

 

Index	DAX	CAC	FTSE	EUROSTOXX	SMI
Level	7386.96	4002.66	5907.05	2902.11	6524.63
Change (ticks)	-108.09	-55.42	-68.95	-40.32	-38.19

 

FX

 

Strength in the USD-index, allied with weakness in commodities weighed upon commodity-linked currencies, such as AUD and CAD, whereas AUD came under further pressure due to a sharp fall in employment change date from Australia overnight. In other news, GBP came under pressure across the board following the release of weaker than expected industrial and manufacturing data from the UK. Elsewhere, EUR/USD traded lower as uncertainty persisted over peripheral Eurozone debt situation, allied with a weak industrial production reading from the Eurozone.

 

·   Australia Employment Change (Apr) -22.1K vs. Exp. 17.0K (Prev. 37.8K, Rev. to 43.3K)

·   Australia Unemployment Rate (Apr) 4.9% vs. Exp. 4.9% (Prev. 4.9%) (RTRS)

 

Currency	EURUSD	GBPUSD	USDJPY
Level	1.4165	1.6262	80.90
Change (pips)	-0.0027	-0.0083	-0.1500

 

COMMODITIES

 

WTI and Brent crude futures traded in negative territory during the European session weighed upon by the CME raising its RBOB gasoline futures maintenance margins for speculators by 21.4%, and strength in the USD-Index. Another reserve requirement ratio hike from the PBOC by 50 basis points, allied with US Senators calling on the CFTC to implement position limits in crude oil futures market exerted further downward pressure on prices.

 

Oil & Gas News:

·   The PBOC raised its reserve requirement ratio by 50 basis points, effective from May 18^th.

·   CME raised its RBOB gasoline futures maintenance margins for speculators by 21.4% to USD 8,500 per contract from USD 7,000 effective after the close of business May 12.

·   US Senators want CFTC to show by May 23 for implementing position limits in crude oil futures market.

·   IEA cut 2011 global oil demand growth forecast to 1.29 MBPD from 1.43 MBPD as previously forecasted. According to IEA gasoline demand will decline by 1.5% from a year earlier to average 8.9 MBPD this year. The IEA reduced its estimate for worldwide fuel consumption by 190,000 BPD.

·   According to the IEA, China’s move to increase fuel prices is insufficient to help the countries refiners as international levels outpace what consumers are paying in China.

 

Geopolitical News:

·   Syrian tanks shelled residential areas in two towns and at least 19 people were killed across the country, according to rights campaigners.

·   According to UK’s military chief extending the Libya air way beyond 6 months would be a challenge for Britain’s armed forces.

 

Commodity	WTI Nymex	OTC Spot Gold
Level	95.78	1485.18
Change (USD)	-2.43	-16.03

 

LOOKING AHEAD

 

Economic Releases

 

CDT	BST		DATA	EXP	PREV
0700	1300	NO	Norwegian Deposit Rates M/M (May)	2.25%	2.00%
0730	1330	US	Initial Jobless Claims W/W (May 7)	430K	474K
0730	1330	US	Continuing Claims W/W (Apr 30)	3700K	3733K
0730	1330	US	PPI M/M (Apr)	0.6%	0.7%
0730	1330	US	PPI Y/Y (Apr)	6.5%	5.8%
0730	1330	US	PPI Ex. Food &Energy M/M (Apr)	0.2%	0.3%
0730	1330	US	PPI Ex. Food &Energy Y/Y (Apr)	2.1%	1.9%
0730	1330	US	Advance Retail Sales M/M (Apr)	0.6%	0.4%
0730	1330	US	Retail Sales Less Autos M/M (Apr)	0.6%	0.8%
0730	1330	US	Retail Sales Ex Autos & Gas M/M (Apr)	0.5%	0.6%
0730	1330	CA	New Housing Price Index M/M (Mar)	0.3%	0.4%
0730	1330	CA	New Housing Price Index Y/Y (Mar)	2.2%	2.1%
0900	1500	US	Business Inventories M/M (Mar)	0.9%	0.5%
0900	1500	US	Annual Revisions: Business Inventories (Retail Portion)
0900	1500	UK	NIESR GDP Estimate M/M (Apr)		0.7%
0930	1530	US	EIA Natural Gas Storage Change W/W (May 6)		31
Speakers
0700	1300	UK	BoE’s Haldane
0730	1330	US	Fed’s Plosser
0900	1500	US	Fed’s Bernanke & FDIC’s Bair testify at Senate Hearing
0900	1500	SW	Riksbank’s Deputy Governor Wickman-Parak
1200	1800	SW	Riksbank’s Governor Ingves
Auctions
1000	1600	US	Fed’s Outright Trea. Coup.  Purch. Nov’13-Apr’15 (USD 5-7bln)
1000	1600	US	10y TIPS Auction Announcement
1200	1800	US	USD 16bln 30y Note Auction
Earnings
US		NVIDIA

 

Prices taken at 1240BST