DAILY US OPENING NEWS - 16/05/11

 

·   Financials remained the worst performing sector in Europe weighed upon by ongoing debt concerns surrounding peripheral Eurozone states

 

·   IMF’s chief Strauss-Kahn was arrested and charged on Sunday with sexually assaulting a NY hotel maid

 

·   NASDAQ and ICE withdrew their proposal to acquire NYSE Euronext

 

·   Uncertainty regarding debt ceiling hike in the US dented market sentiment and weighed on the USD-Index

 

·   Weakness in commodities exerted downward pressure on commodity-linked currencies

 

·   RANsquawk EU Morning Briefing Video: http://www.youtube.com/watch?v=eaFF5Ega2jw

 

Market Re-Cap

 

European equities have been trading consistently in negative territory, weighed primarily by the financial sector, as uncertainty surrounding the European debt situation has been exacerbated by the news of IMF's Strauss-Kahn's arrest.  Equity weakness has supported fixed income markets as investors follow the risk averse sentiment while awaiting comments from the EuroGroup finance ministers meeting which continue to gradually seep out.  Additionally, commodities have continued to come under pressure with spot Silver falling more than 3% and commodity linked currencies weaker across the board.

 

Looking forward, focus will remain on Eurozone peripheral concerns, with Portugal expected to receive a finalised package some time today. However, France will conclude the supply of core European debt today with its EUR 7.5bln combined T-Bill auction and from the US there will be economic data in the form of Empire Manufacturing, TIC flows and NAHB Housing Market Index along with the latest Fed's Outright TIPS purchase for maturities in the range of Apr'13-Feb'41, with a purchase target of USD 1-2bln.

 

Asian Headlines

 

According to the PBOC’s advisor, Li Daokui, China needs to raise interest rates further to rein in inflation, which is likely to stay high in coming years due to rising global commodity prices. However Daokui cautioned against raising interest rates too quickly as that could lure more hot money into the country. (RTRS)

 

·   Japan Consumer Confidence (Apr) 33.1 vs. Exp. 36.7 (Prev. 38.6) (RTRS)

 

US Headlines:

 

The US is widely expected to hit its USD 14.3trl borrowing limit on Monday, making it unable to access bond markets again, although the Treasury department says it can draw on other sources of finance until August 2^nd to prevent US default. US Treasury Secretary Geithner said failing to raise the country’s debt limit may lead to ‘irrevocable damage’ to the economy and risk a ‘double dip’ recession with a similar tone from Obama in an interview at the weekend. Elsewhere, US House speaker John Boehner said he is ready to make a deal of raising the debt ceiling, although remains concerned about the ‘lack of action’ from President Obama regarding reduction of the deficit. (RTRS/CNS News)

 

In other news, high commodity prices will slow US economic growth and raise inflation this year, but the Fed is not expected to start increasing interest rates before Q1 of 2012: according to a survey by The National Association for Business Economics. The survey showed economists trimmed their 2011 annual average growth estimate to 2.8% from 3.3% in February. (RTRS)

 

Elsewhere, Fed’s Lockhart said the US economy remains on a solid footing but it is still too early for the Fed to offer a detailed view of its exit strategy. Lockhart said CPI numbers are elevated. (RTRS)

 

EU and UK Headlines:

 

ECB’s Nowotny said it would be economic nonsense for Greece to leave Eurozone, adding that Greece faces long term tasks and problems cannot be solved in short term. He added that Greece may receive further loans but conditions must be very strict. Nowotny also said that if economy normalises further, the ECB will act accordingly, adding that it would be problematic to wait too long for policy normalisation. He further said that interest rate rise is being debated but the size is unclear. (RTRS)

 

In other news, Greece is expected to receive a second bailout package of up to EUR 60bln, though no final decision will be made for a number of weeks. Also, Brussels is expected this week to unveil the details of its EUR 78bln rescue for Portugal as it attempts to hammer out a second emergency package for Greece. (Sunday Telegraph)

 

·   Eurozone CPI (Apr) Y/Y 2.8% vs. Exp. 2.8% (Prev. 2.8%)

·   Eurozone Trade Balance (Mar) M/M 2.8bln vs. Exp. 2.0bln (Prev. -1.5bln, Rev. to -3.0bln)

·   Rightmove Houses Prices (Mar) M/M 1.3% vs. Prev. 1.7%

·   Rightmove Houses Prices (May) Y/Y 0.7% vs. Prev. 0.1% (RTRS)

 

·   German 9-month Bubill auction for EUR 1.97bln, bid/cover 2.30 vs. Prev. 2.20 (yield 1.3272% vs. Prev. 1.178%) (RTRS)

 

EQUITIES

 

European equities traded in negative territory during the session weighed upon by peripheral Eurozone debt situation, allied with concerns of potential delays in ongoing negotiations with the arrest of the IMF chief Strauss-Kahn on charges related to sex offence. Financials remained the worst performing sector, with particular weakness observed in the Italian FTSE MIB and Spanish IBEX 35 indices. In equity specific news, Deutsche Boerse and LSE shares received a boost following news that NASDAQ and ICE withdrew their proposal to acquire NYSE Euronext, whereas Tognum shares rose after the co. said that it will back EUR 26 per share offer from Daimler and Rolls Royce. On the flip side, weakness was observed in RWE and E.ON shares on the back of a report in Handelsblatt that Germany’s opposition Social Democrats are calling for the country to ditch nuclear power by 2020. Moving into the North American open, equities continue to trade lower with financials and health care being the worst performing sectors.

 

Index	DAX	CAC	FTSE	EUROSTOXX	SMI
Level	7309.5	3964.3	5872.74	2860.49	6522.07
Change (ticks)	-93.81	-54.55	-53.13	-34.11	-41.19

 

FX

 

EUR/USD traded under pressure overnight as ongoing peripheral Eurozone concerns dented investors’ sentiment, however as the European session progressed and the USD-Index lost strength, prices came off their earlier lows. Market talk of a reserve manger buying in EUR/USD also supported the pair. In other news, with the progress of the European session, the USD-Index gradually moved in negative territory partly due to uncertainty surrounding debt ceiling hike in the US and consequences of failure to do so on the US economy. Elsewhere, weakness in commodities weighed upon commodity-linked currencies such as CAD, AUD and NZD.

 

Currency	EURUSD	GBPUSD	USDJPY
Level	1.4107	1.6176	80.80
Change (pips)	-0.0012	-0.0021	0.0000

 

COMMODITIES

 

WTI and Brent crude futures traded lower during the European session on the back of debt concerns surrounding peripheral Eurozone states, in particular Greece, and the move was further exacerbated by implications of the arrest of IMF’s chief Strauss-Kahn on the pace of negotiations. Uncertainty regarding the debt ceiling hike in the US brought further negative sentiment in the market.

 

Oil & Gas News:

·   According to the Schork Report, oil is in for another week of volatile trading, as flooding along the Mississippi River and protests on Israel’s border offer the potential for a risk premium to return to the price.

·   US Army engineers opened a key spillway which threatens thousands of homes but spares New Orleans and Baton Rouge, in a move that should save eight refineries and a nuclear PowerStation in what would have seen flooding in New Orleans that would have eclipsed the levels experienced post Hurricane Katrina.

·   According to Bank of America, oil will fall in the second half as high prices erode demand.

·   Iraq will boost oil production from the current 2.7MBPD to 6.5MBPD by 2014, according to Deputy Prime Minister al-Shahristani. However, senior industry executives and western officials have said that Iraq will miss its targets because of mounting constraints in pipelines and export terminals, forcing Iraq to scale down its targets.

·   Iran’s president Ahmadinejad, said he is the “head of the oil ministry” after he dismissed the incumbent position ahead of a merger with the energy ministry. Meanwhile Iran’s exploration director Mohaddes said Iran discovered five oil and gas fields in West and Central areas.

·   China have suspended exports of diesel fuel indefinitely to help meet domestic energy demand ahead of the peak summer season, prompting concerns about knock-on effects across Asia.

 

Geopolitical News:

·   UK’s Leading Military General said NATO must broaden the range of targets it is bombing in Libya or risk failing to remove Gaddafi from power.

·   A senior leader of the Libyan opposition council has met French President Sarkozy for talks in a bid to gain further international support for the fight against Gaddafi. Meanwhile, Gaddafi released a statement on Libyan state television denying reports that he had been wounded.

 

Commodity	WTI Nymex	OTC Spot Gold
Level	98.17	1493.3
Change (USD)	-1.48	-1.73

 

LOOKING AHEAD

 

Economic Releases

 

CDT	BST		DATA	EXP	PREV
0730	1330	US	Empire Manufacturing M/M (May)	20.00	21.70
0730	1330	CA	Manufacturing Sales M/M (Mar)	1.5%	-1.5%
0800	1400	US	Total Net TIC Flows (USD) M/M (Mar)		97.7B
0800	1400	US	Net Long-term TIC Flows (USD) M/M (Mar)		26.9B
0900	1500	US	NAHB Housing Market Index M/M (May)	17	16
N/A	N/A	US	Mortgage Delinquencies Q/Q (Q1)		8.22%
N/A	N/A	US	MBA Mortgage Foreclosures Q/Q (Q1)		4.63%
Speakers
0800	1400	US	Fed’s Bernanke speaks on Innovation and Research in Washington
0900	1500	EU	EuroGroup Meeting
1700	2300	SZ	SNB’s Jordan
Auctions
0745	1345	FR	EUR 7.5bln combined 13-, 18-, 24- and 50 week T-Bill Auction
1000	1600	US	Fed’s Outright TIPS Purch. Apr’13-Feb’41 (USD 1-2bln)
Earnings
US		JC Penney

 

Prices taken at 1236BST

 

**Notes:

Euribor May options & futures expiry

CME Eurodollar May futures expiry