DAILY US OPENING NEWS - 23/05/11

 

·   S&P cut its outlook for Italy to "negative" from "stable" late Friday, citing a weak outlook for growth and reduced prospects for slashing its debt mountain. Italy's sovereign credit rating was affirmed at 'A+' long-term and 'A-1' short term

 

·   However, Fitch said there is no change seen at the moment for outlook or rating on Italy. Also, Moody's said its rating outlook on Italy is stable

 

·   EU's Rehn said Greek voluntary re-profiling is one option considered

 

·   EUR remained under pressure, whereas the USD-Index printed a 7-week high

 

·   RANsquawk EU Morning Briefing Video: http://www.youtube.com/watch?v=6ioEJH4QEGc

 

Market Re-Cap

 

Risk-aversion remained the main theme in the market today, and debt concerns surrounding Eurozone countries continued to weigh on the market sentiment. Markets reacted to news of S&P cutting Italy's sovereign outlook to negative, allied with political uncertainty emerging from Spanish local and regional elections where the ruling party showed a dismal performance. Worse than expected manufacturing PMI data from core Eurozone countries, such as Germany and France, further dented risk-appetite. As a consequence, EUR remained under pressure during the session, while the USD-Index printed a 7-week high, and the yield on German 10-year government bond tested the key 3% level. European equities traded in negative territory, weighed upon by oil & gas and basic materials sectors, with particular underperformance seen in the Italian FTSE MIB index following S&P action. Elsewhere, WTI and Brent crude futures traded lower on the back of strong USD-Index and general risk-aversion.

 

Moving forward, the economic calendar remains thin, however markets look forward to Chicago Fed National Activity Index data from the US, allied with another Fed's Outright Treasury Coupon Purchase operation in the maturity range of Aug'18-May'21, with a purchase target of USD 6-8bln.

 

Asian Headlines

 

The BOJ stuck to its downbeat economic assessment in May as production declined sharply and domestic private demand remained weak on the back of a deterioration in household and business sentiment following the March 11 disaster. However, the BOJ said the economy is expected to return to a moderate recovery track after a period of downward pressure on the economy continues “for the time being”. The central bank said it remained on alert over downside risks to the economy. (Sources)

 

·   China HSBC Manufacturing PMI (May) M/M 51.1 vs. Prev. 51.8 (RTRS)

 

US Headlines:

 

Top congressional Republicans said on Sunday they would be open to compromise on healthcare costs, one of the biggest stumbling blocks in a deal to get the US debt under control. (RTRS)

 

EU and UK Headlines:

 

ECB's Nowotny said the ECB will accept Greek debt as long as the programme on track. He further said that one cannot exclude possibility of a slowdown in the economy, however risks of an L-shaped or W-shaped recovery have decreased. (RTRS)

 

In other news, Spain’s ruling Socialists reeled from stinging loses in local elections and now face a balancing act between voter anger over sky-high unemployment and investor demands for strict austerity measures. Sunday’s elections left the Socialists out of power in most of the country’s cities and almost all the 17 autonomous regions. Pressure could now grow from inside and outside the Socialist party for PM Zapatero to call early elections, though he vowed on Sunday night to hang on to the end of his term in March next year. (RTRS)

 

Elsewhere, BoE’s Dale said the BoE must start to raise interest rates from record lows to tackle inflation or risk damaging the economy. Also, BoE’s Sentence said inflation in the UK could stay high for a "prolonged period". (FT - More/Sunday Times)

 

 

 

·   Eurozone Manufacturing PMI (May A) M/M 54.8 vs. Exp. 57.4 (Prev. 58.0), lowest since Oct

·   Eurozone Services PMI (May A) M/M 55.4 vs. Exp. 56.5 (Prev. 56.7), lowest since Dec

·   Eurozone Composite PMI (May A) M/M 55.4 vs. Exp. 57.4 (Prev. 57.8), lowest since Oct

·   German Manufacturing PMI (May A) M/M 58.2 vs. Exp. 61.0 (Prev. 62.0), lowest since Nov'10

·   German Services PMI (May A) M/M 54.9 vs. Exp. 57.0 (Prev. 56.8), lowest since Sep

·   French Manufacturing PMI (May P) M/M 55.0 vs. Exp. 57.0 (Prev. 57.5)

·   French Services PMI (May P) M/M 62.8 vs. Exp. 62.0 (Prev. 62.9) (RTRS)

 

·   Belgian OLO auction for EUR 0.681bln, 4.25% 28-Sep-13, bid/cover 2.84 vs. Prev. 2.33 (yield 2.447% vs. Prev. 2.637%)

·   Belgian OLO auction for EUR 0.650bln, 3.50% 28-Jun-17, bid/cover 1.72 (yield 3.753%)

·   Belgian OLO auction for EUR 1.2bln, 4.25% 28-Sep-21, bid/cover 1.67 vs. Prev. 1.54 (yield 4.202% vs. Prev. 4.357%)

·   Belgian OLO auction for EUR 0.855 bln, 4.00% 28-Mar-22, bid/cover 1.53 vs. Prev. 1.84 (yield 4.198% vs. Prev. 3.046%) (RTRS)

 

EQUITIES

 

European equities trade in negative territory during the session as Eurozone debt and political concerns together with weaker than expected manufacturing PMI data from core Eurozone countries, like Germany and France, sagged risk-appetite. Strength in the USD-Index weighed upon commodities, which in turn led basic materials and oil & gas sectors to underperform. Particular underperformance was observed in the Italian FTSE MIB index primarily on the back of S&P lowering Italian sovereign outlook to negative late Friday. In equity specific news, Commerzbank shares came under pressure after co. said it will issue 2.44bln new shares at EUR 2.18 each, and the issue price came at a 45% discount to Friday’s closing price of EUR 3.95. Moving into the North American open, equities continue to trade lower, with oil & gas and technology as worst performing sectors.

 

Index	DAX	CAC	FTSE	EUROSTOXX	SMI
Level	7144.99	3923.14	5859.66	2805.69	6457.21
Change (ticks)	-121.83	-67.71	-88.83	-48.29	-73.4

 

FX

 

Ongoing debt and political concerns in Eurozone states, allied with weaker than expected manufacturing PMI data from core Eurozone countries, like Germany and France, weighed upon EUR across the board, resulting in EUR/CHF to print fresh record low, whereas EUR/GBP fell to a two-month low. The USD-Index, on the other hand, rose to a 7-week high as risk-aversion gripped market sentiment, which exerted downward pressure on EUR/USD and GBP/USD.

 

Currency	EURUSD	GBPUSD	USDJPY
Level	1.4030	1.6129	81.88
Change (pips)	-0.0131	-0.0100	0.1800

 

COMMODITIES

 

WTI and Brent crude futures traded in negative territory during the European session on the back of strength in the USD-Index, allied with debt concerns surrounding Eurozone states.

 

Oil & Gas News:

·   Iran has discovered a deposit of light oil offshore of an estimated in-place reserve of 756mln barrels valued at USD 13.6bln, according to reports on state TV website quoting a senior oil official.

·   Iran's constitutional watchdog deemed President Ahmadinejad's decision to take over the role of oil minister as illegal however Shargh newspaper reported Ahmadinejad will remain caretaker of the oil ministry, citing vice-president Bodaghi.

·   China reduced exports of diesel and gasoline last month to ensure domestic demand before the peak summer season, government data showed.

·   Iraq expects output from its southern oilfields to hit up to 2.5 MBPD at the end of this year despite crumbling infrastructure, according to head of South Oil Co.

·   Big hedge funds and speculators cut their bets on higher oil prices by 13% in the week through Tuesday, the CFTC said on Friday.

·   UK natural gas prices will rise from Q4 amid tightening of the global market for LNG, according to BarCap.

 

Geopolitical News:

·   According to EU diplomats, EU governments tightened sanctions against Syria, including President Assad on the sanctions list. EU diplomats added that EU agreed to significantly expand sanctions against Iran, adding companies to banned list.

·   Yemeni President Saleh on Sunday refused to sign a power-transition deal brokered by Gulf Co-operation Council (GCC) leaders, according to a Saleh aide. 

·   The six member GCC has decided to suspend its initiative to broker peace between political parties in Yemen, according to Bahrain’s foreign minister.

·   According to a security official, Afghanistan ‘cannot confirm’ the killing of Mullah Omar.

 

Commodity	WTI Nymex	OTC Spot Gold
Level	97.67	1509.35
Change (USD)	-2.43	-2.95

 

LOOKING AHEAD

 

Economic Releases

 

CDT	BST		DATA	EXP	PREV
0730	1330	US	Chicago Fed National Activity Index M/M (Apr)		0.26
0930	1530	UK	DMO Quarterly Consultation meeting with End Investors
1100	1700	UK	DMO Quarterly Consultation meeting with GEMM’s
Speakers
0730	1330	UK	BoE’s Tucker
0800	1400	EU	ECB’s Bini-Smaghi
Auctions
0745	1345	FR	EUR 8bln combined 12-, 21-, 27- and 49 week T-Bill Auction
1000	1600	US	Fed’s Outright Trea. Coup.  Purch. Aug’18-May’21 (USD 6-8bln)

 

**Notes:

Long Gilt June options expiry

Canadian Market Holiday

 

 

Prices taken at 1244BST