DAILY US OPENING NEWS - 26/05/11

 

·   Financial Times reported that China and other Asian investors are expected to buy a "strong proportion" of Portuguese bailout bonds

 

·   Nouriel Roubini said Greek debt restructuring is necessary and unavoidable, however an orderly Greek debt restructuring is not default

 

·   Nobel Laureate Krugman said he sees 50% chance of Greece having to leave the EUR. He said it is extremely unlikely Greece will pay back its debts, and sees significant bondholder losses for Greece

 

·   RANsquawk EU Morning Briefing Video: http://youtu.be/Q8afGeMzzrM

 

Market Re-Cap

 

Risk-appetite dominated market sentiment in early European trade, supported by a report in the Financial Times saying that China and other Asian investors are expected to buy a "strong proportion" of Portuguese bailout bonds, which saw strength in equities, EUR, and commodities. However, as the session progressed, earlier risk-appetite was dented somewhat partly due to downbeat economic comments related to the Eurozone from Nouriel Roubini and Nobel laureate Krugman, which provided some support to Bunds. In fixed income, the Greek/German 10-year bond yield spread remained tighter during the session due to a lack of any substantial news related to the ongoing Greek debt situation. Also, some volatility was observed in the Gilt market, which analysts have attributed to a calendar roll and poor liquidity.

 

Moving forward, markets look ahead to key economic data from the US in the form of jobless figures, GDP, and core PCE. In fixed income, USD 29bln 7-year Note auction, allied with another Fed's Outright Treasury Coupon Purchase operation in the maturity range of May'15-Nov'16, with a purchase target of USD 5-7bln, are scheduled for later in the US session.

 

US Headlines:

 

Sales of distressed US homes fell in the first quarter as demand remained weak, but they still made up about 28% of total sales, the highest amount in a year, a RealtyTrac report said. Sales of homes owned by banks or in some stage of foreclosure totalled 158,434, down 16.5% from Q4 and 35.8% from Q1 of 2010. (RTRS)

 

In other news, US Senate Democrats defeated a Republican budget plan which would save trillions of USD in coming decades by privatising the Medicare health programme for the elderly. (RTRS)

 

EU and UK Headlines:

 

ECB's Trichet said the ECB is carefully monitoring inflation and is ready to do whatever is necessary to fulfill its mandate. He further said that non-standard measures do not impinge capacity to tighten monetary policy in response to inflation pressures. Meanwhile, ECB's Nowotny said he thinks further bond purchases on market is not needed, adding that the ECB will continue discussions on rate increases. (RTRS/Sources)

 

·   Italian 6-month BOT auction for EUR 8bln, bid/cover 1.698 vs. Prev. 1.43 (yield 1.657% vs. Prev. 1.659%) (RTRS)

 

EQUITIES

 

European equities traded higher in early European trade on the back of a report in the Financial Times saying that China and other Asian investors are expected to buy a "strong proportion" of Portuguese bailout bonds, which particularly helped financials. However, as the session progressed, equities came under pressure partly due to downbeat comments on the Eurozone from Nouriel Roubini and Nobel laureate Krugman. Weakness in the USD-Index helped basic materials and oil & gas sectors, and moving into the North American open, equities are trading mixed with oil & gas and financials as best performing sectors, however weakness observed in industrials.

 

Index	DAX	CAC	FTSE	EUROSTOXX	SMI
Level	7145.63	3932.67	5891.4	2813.59	6479.94
Change (ticks)	-25.31	3.68	21.26	-3.25	15.39

 

 

 

FX

 

EUR/USD received support from a report in the Financial Times saying that China and other Asian investors are expected to buy a "strong proportion" of Portuguese bailout bonds, weakness in the USD-Index, allied with hawkish comments from ECB speakers like Trichet and Nowotny. Meanwhile, weakness in USD-Index also helped GBP/USD, which received further support after a YouGov survey suggested higher inflation expectations for the UK. The YouGov said the average expectation for inflation in the year ahead was 3.4% in May, up from 2.9% in April.

 

In other news, NZD/USD received a boost after it was reported that a Chinese sovereign wealth fund was ready to spend USD 6bln in New Zealand, however CAD came under pressure as WTI crude futures gradually ventured in negative territory as the session progressed.

 

Currency	EURUSD	GBPUSD	USDJPY
Level	1.4178	1.6308	81.87
Change (pips)	0.0090	0.0034	-0.1000

 

COMMODITIES

 

WTI and Brent crude futures traded higher in the early European trade amid general risk-appetite, allied with weakness in the USD-Index, however as the session progressed and market participants became more cautious, prices came off their best levels to trade in negative territory.

 

Oil & Gas News:

·   The IEA will publish a report next month on the “bright” future for natural gas as production of the fuel from shale and other so called unconventional sources boosted supply.

·   Iraq's finance minister said current oil prices are "good", high oil prices will cover all budget deficit in 2011. Adding that Iraq’s 2012 budget will be based on oil price of USD 85 a barrel and is expected at 115tln dinrars.

·   The UK could lose out on the production of more than 1bn barrels of oil and gas, and capital investment worth GBP 12bn as a result of the recent tax increase on North Sea production, according to a survey of members by Oil & Gas UK, the industry trade association.

 

Geopolitical News:

·   Gaddafi might eventually step down as Libya's leader, a senior regime official said on Wednesday night as military and diplomatic pressure on Tripoli intensified. Meanwhile, Spain, said it had received a proposal from Libyan Prime Minister Al-Baghdadi al-Mahmoudi for an immediate ceasefire.

·  Heavy explosions rocked the Yemeni capital Sana’a in the early hours of Thursday as fighting to topple president Saleh, threatened to descend into civil war. Meanwhile, Yemeni defence ministry said at least 28 people were killed in blast at Arms storage area in the capital. In other news a Yemeni opposition TV Station headquarters was destroyed according to a government official. Yemen Tribal Leader Sadiq Al-Ahmar said there were clashes ongoing near Sana'a Airport, and that the Airport may be closed. Sadiq Al-Ahmar also urged Arab countries to pressure Saleh to Leave and said no chance for mediation with President Saleh

 

Commodity	WTI Nymex	OTC Spot Gold
Level	100.77	1518.63
Change (USD)	-0.55	-6.70

 

 

 

 

 

 

 

 

 

 

 

LOOKING AHEAD

 

Economic Releases

 

CDT	BST		DATA	EXP	PREV
0730	1330	US	Initial Jobless Claims W/W (May 21)	404K	409K
0730	1330	US	Continuing Claims W/W (May 14)	3700K	3711K
0730	1330	US	GDP (Annualised) Q/Q (Q1 S)	2.2%	1.8%
0730	1330	US	GDP Price Index Q/Q (Q1 S)	1.9%	1.9%
0730	1330	US	Personal Consumption Q/Q (Q1 S)	2.8%	2.7%
0730	1330	US	Core PCE Q/Q (Q1 S)	1.5%	1.5%
0930	1530	US	EIA Natural Gas Storage Change W/W (May 20)	91	92
1000	1600	US	Kansas Fed Manufacturing M/M (May)		17
1500	2100	US	RPX Composite 28-day Y/Y (Mar)		-4.27%
1500	2100	US	RPX Composite 28-day Index Y/Y (Mar)		178.63
Speakers
0700	1300	EU	ECB’s Bini-Smaghi
0800	1400	EU	ECB’s Gonzalez-Paramo
N/A	N/A	WLD	G8 Leaders’ Summit
Auctions
1000	1600	US	Fed’s Outright Trea. Coup.  Purch. May’15-Nov’16 (USD 5-7bln)
1200	1800	US	USD 29bln 7y Note Auction

 

**Notes:

Natural Gas June futures expiry

 

Prices taken at 1251BST