DAILY US OPENING NEWS - 25/05/11

 

·   Finnish lawmakers voted 137 to 49 in favour of the Portugal bailout

 

·   According to Die Zeit, German banks have performed well in the second round of European stress tests

 

·   Early market talk of a snap election in Greece was swiftly denied by Greek government officials

 

·   Slovak finance minister said that he expects debate on some kind of soft restructuring of Greek debt

 

·   RANsquawk EU Morning Briefing Video: http://www.youtube.com/watch?v=hiCK5eWe7fw

 

Market Re-Cap

 

In early European trade, risk-aversion gripped the market, with the ongoing Eurozone debt concerns, allied with market talk of a snap election in Greece, which saw strength in the USD-Index and Bunds, whereas European equities, WTI and Brent crude futures, as well as EUR and commodity-linked currencies remained under pressure. However, the market talk was soon denied by Greek government officials, and allied with a report in Die Zeit of all 13 German banks passing the second round of stress tests, together with news of Finland voting in favour of the Portugal bailout, re-ignited risk-appetite. In other news, GBP came under pressure in early trade despite an in-line preliminary GDP data from the UK, due to a decline in BBA loans for house purchases, sharp fall in total business investment, allied with the OECD cutting its UK growth forecast. However, with renewed risk-appetite later in the session the currency pared back earlier losses.

 

Moving forward, markets look ahead to key economic data from the US in the form of durable goods figures, and house price index. In fixed income, USD 35bln 5-year Note auction, allied with another Fed's Outright Treasury Coupon Purchase operation in the maturity range of Nov'12-Nov'13, with a purchase target of USD 4-6bln are scheduled for later in the session.

 

Global Headlines

 

Comments from OECD’s bi-annual economic forecast: (RTRS)

-    OECD sees strong case for US Fed to hike rates this year, and forecasts Fed funds rate to reach 2.2% by end of 2012.

-    OECD said the ECB should pause on interest rates, then increase to 2.25% by the end of 2012.

-    OECD sees the BoE hiking to 1% by the end of this year, and to 2.25% by the end of 2012.

-    OECD said there is no need for Japan to hike interest rates in the absence of inflation.

-    OECD said China should raise rates by another 50 BPS.

 

Asian Headlines

 

BoJ Governor Shirakawa said that the country’s economy was already showing signs of recovering from the slump that immediately followed the devastating March 11 earthquake. He added “it might not be a V-shaped recovery but there is a good chance we will feel a stronger sense of a recovery in the latter half of the current business year”. However Shirakawa repeated that the central bank would focus on downside risks to the economy for the time being. (RTRS)

 

US Headlines:

 

Goldman Sachs cut US Q2 GDP forecast to 3%, after JP Morgan cut US Q2 GDP forecast to 2.5% from 3.0% yesterday. (Sources/ZeroHedge)

 

In other news, US lawmakers are weighing USD 1tln in deficit-cutting measures as part of a possible deal that would allow an increase in the country’s borrowing authority, Vice President Joe Biden said. (RTRS)

 

·   MBA Mortgage Applications (May 20) W/W 1.1% vs. Prev. 7.8% (RTRS)

 

EU and UK Headlines:

 

ECB's Stark said the ECB is ready to raise rates again if needed, adding that there is less need for fiscal and monetary policy accommodation.

 

·   UK GDP (Q1 P) Q/Q 0.5% vs. Exp. 0.5% (Prev. 0.5%)

·   UK GDP (Q1 P) Y/Y 1.8% vs. Exp. 1.8% (Prev. 1.8%)

·   UK Total Business Investment (Q1 P) Q/Q -7.1% vs. Prev 0.0%

·   UK Total Business Investment (Q1 P) Y/Y -3.2% vs. Prev. 12.2%

·   UK BBA Loans for House Purchase (Apr) M/M 32250 vs. Exp 32250 (Prev. 31660 Rev. to 31205) (RTRS)

 

·   German Bund auction for EUR 4.16625bln, 3.25% 04-Jul-21, bid/cover 1.7 vs. Prev. 1.4 (yield 3.04% vs. Prev. 3.280%, retention 16.7% vs. Prev. 18.7%) (RTRS)

 

EQUITIES

 

After trading lower in early European trade, amid risk-aversion on the back of the ongoing Eurozone debt concerns, European equities regained strength as the session progressed helped by a report in Die Zeit of all 13 German banks passing the second round of stress tests, together with news of Finland voting in favour of the Portugal bailout. This also saw financials becoming one of the best performing sectors in Europe, whereas utilities remained strong due to strength in shares of E.ON and RWE on the back of reports that Germany may scrap nuclear reactor tax. Moving into the North American open, peripheral indices, like the Italian FTSE MIB and Spanish IBEX 35, are outperforming their European peers, with financials and utilities being the best performing sectors.

 

In other news, state attorneys general told five of the nation's largest banks they face a potential liability of at least USD 17bln in civil lawsuits if a settlement isn't reached to address improper foreclosure practices, according to people familiar with the matter. (WSJ)

 

Index	DAX	CAC	FTSE	EUROSTOXX	SMI
Level	7143.77	3910.93	5855.29	2800.56	6458.54
Change (ticks)	-6.89	-5.95	-3.12	-0.71	4.25

 

FX

 

EUR remained under pressure during the European session weighed upon by the ongoing Eurozone debt concerns, however did come off their worst levels as risk-appetite gathered pace later in the session. In other news, GBP came under pressure in early trade despite an in-line preliminary GDP data from the UK, due to a decline in BBA loans for house purchases, sharp fall in total business investment, allied with the OECD cutting its UK growth forecast. However, with renewed risk-appetite later in the session the currency pared back earlier losses.

 

Elsewhere, NZD received a boost following hawkish comments from New Zealand’s finance minister.

 

Currency	EURUSD	GBPUSD	USDJPY
Level	1.4075	1.6231	82.10
Change (pips)	-0.0025	0.0050	0.1500

 

COMMODITIES

 

WTI and Brent crude futures came off their overnight lows as the USD Index weakened and risk appetite picked up as the session progressed.

 

Oil & Gas News:

·   Iraq deputy PM says he expects oil prices this year to average more than USD 100 per barrel with no need for OPEC to raise production at the next meeting on June 8^th because markets are oversupplied.

·   China’s foreign ministry said that there was no dispute with Russia over the East Siberia-Pacific Ocean pipeline, after Russia’s Transneft had claimed they had been underpaid for crude supplies.

·   Japanese crude oil imports fell 14% compared to April last year due to the earthquake disrupting refinery output.  However LNG imports rose 9% for the same period to plug the gap created by nuclear power shutdowns.

 

Geopolitical News:

·   US President Obama and British PM Cameron will stress a united effort to pressure Libyan Leader Gaddafi to step down, while glossing over differences between their two governments.

·   Yemeni President Saleh said he is ready to sign transition of power deal within the framework of dialogue. He added he will not be dragged into a civil war by recent provocations as tribesmen battled Yemeni security forces in the capital Sana’a.

·   The US has passed sanctions against Venezuela in a more aggressive move to starve Iran of fuel, however Venezuelan Oil Minster Ramirez responded by saying relations with Iran will continue.

 

Commodity	WTI Nymex	OTC Spot Gold
Level	99.5	1527.68
Change (USD)	-0.09	1.05

 

LOOKING AHEAD

 

Economic Releases

 

CDT	BST		DATA	EXP	PREV
0730	1330	US	Durable Goods Orders M/M (Apr)	-2.5%	2.5%
0730	1330	US	Durables Ex Transportation M/M (Apr)	0.5%	1.3%
0730	1330	US	Nondef Ex Air M/M (Apr)	0.2%	4.3%
0900	1500	US	House Price Index M/M (Mar)	-0.5%	-1.6%
0900	1500	US	House Price Purchase Index Q/Q (Q1)	-1.2%	-0.8%
0930	1530	US	DOE Crude Oil Inventories W/W (May 20)	-1700K	-15K
0930	1530	US	DOE Gasoline Inventories W/W (May 20)	500K	119K
0930	1530	US	DOE Distillate Inventory W/W (May 20)	50K	-1157K
0930	1530	US	DOE Cushing Crude Inventory W/W (May 20)		-1591K
0930	1530	US	DOE Refinery Utilisation W/W (May 20)	0.50%	1.50%
1100	1700	FR	Jobseekers - Net Change M/M (Apr)	-20.0	-21.1
1100	1700	FR	Total Jobseekers M/M (Apr)		2680.0
Speakers
0720	1320	US	Treasury’s Secretary Geithner
0740	1340	UK	BoE’s Sentance
0800	1400	GE	Chancellor Merkel
0800	1400	EU	ECB’s Draghi
0800	1400	EU	ECB’s Liikanen
0925	1525	US	Fed’s Pianalto
0930	1530	EU	ECB’s Stark
1230	1830	US	Fed’s Kocherlakota
Auctions
1000	1600	US	Fed’s Outright Trea. Coup.  Purch. Nov’12-Nov’13 (USD 4-6bln)
1200	1800	US	USD 35bln 5y Note Auction

 

**Notes:

Natural Gas/Heating Oil/RBOB June options expiry

 

Prices taken at 1250BST