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DAILY US OPENING NEWS - 24/05/11

 

·   Goldman Sachs and Morgan Stanley raised their Brent crude forecasts, while Goldman also gave a near-to-medium-term overweight recommendation on commodities

 

·   Strong German IFO data, allied with well-received T-Bill auctions from Spain supported EUR/USD

 

·   The opposition leader in Greece rejected new austerity plans

 

·   Moody’s said a Greek default would be highly destabilising and would have implications for the creditworthiness of issuers across Europe

 

·   RANsquawk EU Morning Briefing Video: http://www.youtube.com/watch?v=sws0U37AmYk

 

Market Re-Cap

 

Goldman Sachs and Morgan Stanley raised their Brent crude forecasts, while Goldman also gave a near-to-medium-term overweight recommendation on commodities, which allied with weakness in the USD-Index resulted in WTI and Brent crude futures' strength during the European session. Strength in commodities helped basic materials and oil & gas sectors, which led the gain in European equities, while further positive sentiment came following higher than expected German IFO figures, allied with well-received T-Bill auctions from Spain. However, equities came under pressure after the opposition leader in Greece rejected new austerity plans, which also led EUR/USD to fall around 30 pips. In other forex news, GBP/USD came under pressure following worse than expected public sector net borrowing data from the UK.

 

Moving forward, markets look ahead to key economic data from the US in the form of new home sales, and Richmond Fed manufacturing index, as well as a number of Fed speakers. In fixed income, USD 35bln 2y Note auction, allied with another Fed's Outright Treasury coupon purchase operation in the maturity range of Nov'13-May'15, with a purchase target of USD 5-7bln, are scheduled later in the session.

 

Asian Headlines

 

Japanese government maintained downbeat economic assessment in May, and said the economy has shown weakness recently. It downgraded assessment of capital spending, corporate earnings, and housing starts. Also, Japan’s Economy Minister Yosano said he expects the country’s economic growth to slow to about 0.6% to 0.7% in the fiscal year that started April 1. Yosano last week said the economy should grow nearly 1% in 2011/12.  (Sources/RTRS)

 

In other news, Goldman Sachs said China’s GDP will gain 9.4% in 2011, lowering its forecast from 10% previously.  Meanwhile, Ba Shusong a researcher at the State Council’s Development Research Centre said China’s economy faces a risk of sharp downturn if central bank tightening measures last too long. (Sources/Economic Information Daily)

 

Elsewhere, the PBOC may suspend a sale of three-year notes this week and increase banks’ reserve requirement rations. (Securities Times)

 

US Headlines:

 

Fed’s Bullard said to expect no action for a while after the Fed ends its USD 600bln bond buying programme in June. While waiting to see how the economy evolves, the Fed would hold interest rates near Zero, said Bullard. He added being on hold also signals no change to the Fed’s pledge to hold rates extremely low for an extended period. It also means reinvesting securities to keep the Fed’s much-expanded balance sheet at whatever level it reaches after the bond-buying initiative to a close, likely above USD 2.7tln. Bullard goes on to say too much attention to core inflation can mislead monetary policy, Fed should adopt explicit numerical inflation target. Fed’s Bullard said the US economy has been weaker in the first half of the year than expected, turmoil over sovereign debt problems in Europe could weigh on the US economic recovery. (RTRS)

 

In other news, the New York Fed will slow the sales of mortgage-backed securities from its Maiden Lane II portfolio, in part because some transactions in recent weeks have pushed prices lower, said a dealer. (RTRS)

 

Elsewhere, vital bipartisan negotiations led by Vice President Joe Biden to raise the US debt ceiling are progressing but a deal is still “quite a few weeks” away, the White House budget chief, Jacob Lew, said. (RTRS)

 

 

 

 

EU and UK Headlines:

 

Moody’s said Portugal and Ireland would be at risk of multi-notch credit downgrades, pushing their ratings into junk territory in the event of a default by Greece. It further said that a Greek default would be highly destabilising and would have implications for the creditworthiness of issuers across Europe. (RTRS)

 

Greece will not be able to honour its obligations if it does not get the next tranche of a bailout loan and the IMF has made it clear it cannot disburse the money if Greece’s 2012 EU funding is not assured, said the Greek finance minister. (RTRS)

 

·   German IFO Business Climate (May) M/M 114.2 vs. Exp. 113.7 (Prev. 114.2)

·   German IFO Current Assessment (May) M/M 121.4 vs. Exp. 120.7 (Prev. 121.0)

·   German IFO Expectations (May) M/M 107.4 vs. Exp. 107.0 (Prev. 107.7)

·   UK Public Finances (PSNCR) (Apr) M/M 3.3bln vs. Exp. 2.5bln (Prev. 24.8bln, Rev. to 25.3bln)

·   UK Public Sector Net Borrowing (Apr) M/M 7.7bln vs. Exp. 4.4bln (Prev. 16.4bln, Rev. to 15.6bln), worst April reading on record

·   UK CBI Reported Sales (May) M/M 18 vs. Exp. 10 (Prev. 21) (RTRS)

 

·   Spanish 3-month T-Bill auction for EUR 1bln, bid/cover 6.6 vs. Prev. 4.43 (yield 1.38% vs. Prev. 1.371%)

·   Spanish 6-month T-Bill auction for EUR 1.3bln, bid/cover 5.5 vs. Prev. 7.11 (yield 1.766% vs. Prev. 1.867%) (RTRS)

EQUITIES

 

European equities traded in positive territory during the session, led by strength in basic materials and oil & gas sectors after Goldman Sachs and Morgan Stanley raised their Brent crude forecasts, while Goldman also gave a near-to-medium-term overweight recommendation on commodities. Further positive sentiment came in the market following stronger than expected German IFO data, allied with well-received T-Bill auctions from Spain. However, equities came under pressure after the opposition leader in Greece rejected new austerity plans. Moving into the North American open, equities continue to trade higher, with basic materials and oil & gas as best performing sectors.

 

In other news, Moody’s said it may cut its rating on 14 British financial groups, including Lloyds and RBS, following a reassessment of the level of systemic support they need. Moody's further said that it is keeping a negative outlook on the UK banking system. (RTRS)

 

Index

DAX

CAC

FTSE

EUROSTOXX

SMI

Level

7169.92

3914.96

5858.41

2804.53

6443.87

Change (ticks)

48.40

7.98

22.52

10.27

6.05

 

 

FX

 

EUR/USD traded higher for most of the European session, helped by strong German IFO data allied with well-received T-Bill auctions from Spain, however the pair did come under some pressure after the opposition leader in Greece rejected new austerity plans. In other news, GBP/USD lost around 20 pips following the release of worse than expected public sector net borrowing data from the UK, however did recover later in the session due to USD weakness.

 

Elsewhere, strength in commodities helped commodity-linked currencies, whereas NZD received further boost on the back of high inflation data from New Zealand overnight.

 

Currency

EURUSD

GBPUSD

USDJPY

Level

1.4083

1.6141

81.89

Change (pips)

0.0035

0.0018

-0.1200

 

 

 

 

 

 

COMMODITIES

 

WTI and Brent crude futures traded higher during the European session on the back of weakness in the USD-Index, allied with Goldman Sachs and Morgan Stanley raising their Brent crude forecasts, while Eurozone debt concerns failed to have a significant impact on prices today.

 

Oil & Gas News:

·   Goldman Sachs raised its three-month outlook for Brent crude to USD 115 a barrel, six-month view to USD 120 and its 12-month price estimate to USD 130. Goldman Sachs said, near-term downside risk remains as the oil market negotiates the slow down in the pace of world economic growth, adding that the market will continue to tighten to critical levels by 2012, pushing oil prices substantially higher to restrain demand.

·   On commodities, Goldman Sachs gave a near-to-medium overweight recommendation, reiterating long-term overweight and recommending fresh longs in oil, copper and zinc

·   Morgan Stanley increased its forecast for Brent crude by 20% to USD 120 a barrel this year.

·   The US Congress should take steps to limit speculation in oil markets, which has boosted prices as mush as 30%, a new report from the Democratic staff of a House of Representatives oversight committee said.

 

Geopolitical News:

·   NATO warplanes hammered Tripoli on Tuesday with some of their heaviest air strikes yet after the US said Libyan leader Gaddafi would “inevitably” be forced from power.

·   Explosion blamed on a technical problem caused a fire at Iran refinery during President Ahmadinejad’s visit; six people were injured in the incident however Ahmadinejad was unhurt.

 

Commodity

WTI Nymex

OTC Spot Gold

Level

99.49

1520.6

Change (NYSEARCA:USD)

1.05

3.57

 

LOOKING AHEAD

 

Economic Releases

 

CDT

BST

 

DATA

EXP

PREV

0755

1355

US

Redbook M/M (May 24)

 

-2.3%

0755

1355

US

Redbook Y/Y (May 24)

 

4.0%

0900

1500

US

New Home Sales M/M (Apr)

300K

300K

0900

1500

US

New Home Sales M/M (Apr)

0.0%

11.1%

0900

1500

US

Richmond Fed Manufacturing Index M/M (May)

10

10

0930

1530

UK

DMO Gilt Size Announcement

 

 

1530

2130

US

API Crude Oil Inventories W/W (May 20)

 

2669K

1530

2130

US

API Gasoline Inventories W/W (May 20)

 

-676K

1530

2130

US

API Distillate Inventory W/W (May 20)

 

-2884K

1530

2130

US

API Cushing Crude Inventory W/W (May 20)

 

-1479K

 

Speakers

0725

1325

US

Fed’s Duke

0850

1450

US

Fed’s Hoenig

0850

1450

US

Fed’s Plosser

1220

1820

US

Fed’s Bullard

N/A

N/A

US

President Obama’s State Visit to UK

N/A

N/A

WLD

OECD Annual Forum

 

Auctions

1000

1600

US

Fed’s Outright Trea. Coup.  Purch. Nov’13-May’15 (USD 5-7bln)

1200

1800

US

USD 35bln 2y Note Auction

 

Earnings

US

Applied Materials

 

Prices taken at 1252BST