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DAILY US OPENING NEWS - 22/06/11

 

·   Overnight the Greek government passed through a crucial confidence vote, however risk-aversion remained the dominant theme today as markets look ahead to next week when Parliament discusses the country's medium-term fiscal plan

 

·   A German government source said that the finance ministry will hold talks today on working group level with banks and insurers over private creditor contributions for Greece

 

·   BoE’s June meeting minutes revealed that some members think it is possible that more QE might be warranted if downside risks materialise

 

·   RANsquawk EU Morning Briefing Video: http://youtu.be/MH2Nm5YPPr8

 

Market Re-Cap

 

Overnight the Greek government passed through successfully a confidence vote, however risk-aversion remained the dominant theme today as markets look ahead to next week when Parliament discusses the country's medium-term fiscal plan. This is a mandatory requirement for Greece to secure its next tranche of the EU/IMF loan. Comments from German chancellor Merkel regarding contagion from a potential Greek default brought further negative sentiment in the market. Elsewhere, GBP came under substantial pressure following the dovish tone of the BoE's June minutes, which also underpinned the rise in UK fixed income.

 

Moving forward, markets look ahead to the FOMC rate decision followed by Fed's Bernanke press-conference later in the session. House price index from the US, DOE inventories data, and Norwegian rate decision are also scheduled for later in the session.

 

Asia Headlines:

 

China’s annual inflation in June will be higher than May’s 34-month high of 5.5% before moderating in the second half, the National Development and Reform Commission said. The top economic planner said, government tightening measures to control inflation were gradually taking effect and consumer prices would remain under control this year. (RTRS)

 

Also, China should raise interest rates to reduce inflation expectations, according to Zhu Baoliang, a chief economist for the State Information Centre under the National Development and Reform Commission. He added that the banks’ reserve requirement ratio could be temporarily kept unchanged. (21st Century Business Herald)

 

Elsewhere, Fitch’s Chu said Chinese banks’ credit risks are underestimated and is distorted by off-balance sheet assets. He added that there is poor disclosure in Chinese banks’ off-balance sheet exposure. Chu said Chinese banks could face crisis despite government willingness to support the sector. (Sources)

 

US Headlines

 

The Fed should formally announce a “commitment to an explicit mandate-consistent rate of inflation that it uses as its long-run objective for its policy deliberation”, the Shadow Open Market Committee said. (Sources)

 

In other news, negotiators seeking a bipartisan plan to reduce federal deficit said they oppose pairing it with only a short term boost in the US debt limit. The group led by Vice President Jo Biden, also remain divided on including increased tax revenue as part of the plan, a position rejected by Republicans. (RTRS)

 

·   MBA Mortgage Applications (Jun 17) W/W -5.9% vs. Prev. 13.0% (RTRS)

 

EU and UK Headlines:

 

German Chancellor Merkel said the EU summit will not make final decisions on Greece, adding that she wants voluntary, substantial, and quantifiable contribution from private sector. Merkel added that it is not possible to demand private sector contribution if the ECB is not in agreement on the method. Merkel also said that she can only warn against a disorderly default, and a Greek haircut could force countries under the EFSF that currently have no problems. Merkel commented that the ECB decided on a voluntary basis to buy Eurozone periphery bonds, and the German government did not in any way forced the ECB to buy peripheral bonds. (RTRS)

 

Elsewhere, Pimco’s El Erian, predicted that Greece and other European economies would default on their debts. He added it was unlikely but not impossible that a Greek default would trigger another global financial crisis. Also the vote of confidence in Greek PM Papandreou is a “minor step” on the road to a likely default by the Mediterranean nation, said Larry Hatheway, the Chief economist at UBS. (RTRS/Sources)

 

In other news, Greek debt must be restructured as soon as possible and should include a reduction by about half, Lars Feld, a member of the German government’s council of economic advisors said. The EU must first stabilise the area’s banks to prepare them for a possible Greek default. The debt restructuring should take place in the first half of 2012 at the latest he said. (Rheinische)

 

Also, according to the BoE’s June minutes, BoE's MPC voted 7-2 to hold benchmark interest rate at 0.5% in June, with Dale and Weale voted for 25 basis points hike. BoE's MPC also voted 8-1 to keep the QE at GBP 200bln in June, with Posen voting for increase to GBP 250bln. (RTRS)

 

·   Eurozone Industrial New Orders SA (Apr) M/M 0.7% vs. Exp. 1.0% (Prev. -1.8%, Rev. to -1.5%)

·   Eurozone Industrial New Orders NSA (Apr) Y/Y 8.6% vs. Exp. 14.0% (Prev. 14.1%, Rev. to 14.3%) (RTRS)

 

·   German Bund auction for EUR 3.402bln, 3.25% 04-Jul-21, bid/cover 1.6 vs. Prev. 1.7 (yield 2.96% vs. Prev. 3.04%, retention 14.9% vs. Prev. 16.7%) (RTRS)

 

EQUITIES

 

Risk-averse trade weighed on European equities throughout the session, with underperformance seen in financials on the back of the ongoing Greek debt concerns. However, equities did receive some support following strong corporate earnings from Fedex, which particularly helped Deutsche Post shares. Moving into the North American open, most European indices are trading lower, with oil & gas and industrials as worst performing sectors.

 

Index

DAX

CAC

FTSE

EUROSTOXX

SMI

Level

7300.02

3873.03

5760.65

2798.49

6132.91

Change (ticks)

14.51

-4.04

-14.66

-3.50

-38.1

 

 

FX

 

EUR traded under pressure amid risk-averse trade as markets look ahead to next week when the Greek parliament discusses the country's medium-term fiscal plan. In other news, GBP came under substantial pressure following the dovish tone of the BoE's June minutes, which revealed that some members think it is possible that more QE might be warranted if downside risks materialise.

 

Currency

EURUSD

GBPUSD

USDJPY

Level

1.4398

1.6136

80.15

Change (pips)

-0.0014

-0.0109

-0.0600

 

 

COMMODITIES

 

WTI and Brent crude futures came under pressure following comments from Iran that it would intervene in the market to tackle high oil prices, and as the USD-Index gradually gained strength.

 

Oil & Gas News:

·   Iran said it will use “its tools” to stabilise oil prices and to control crude production. Iran added it will confront the oil price increase, according to state television.

·   Goldman Sachs said that Libyan rebel oil exports could rise by as much as 355,000BPD in the short-term after rebels agreed to resume shipments.    

·   The head of the Kuwaiti state oil company said that the country targets a 700,000BPD production increase up to 2020, pushing the total output to 4MBPD, with a slight output increase this summer.

·   It was reported that Saudi Arabia was to supply additional crude oil to one Asian buyer on top of agreed contractual volume in July.

·   Azerbaijan confirmed that gas output at that Shah Deniz Caspian field had been reduced since Monday due to power supply problems.

 

Geopolitical News:

·   EU states have extended sanctions against Syria to four military-linked firms and more people connected with the violent suppression of anti-government protests, an EU diplomat said.  However the Syrian foreign minister said that he was confident there would be no foreign military intervention in the country.

·   China has warned the US to leave the South China Sea dispute to the claimants involved and that any US intervention would just complicate matters.

·   The tribal archrival to Yemeni president Saleh has met the vice-president Hadi in a move which might signal a breakthrough for peace in the country.

 

Commodity

WTI Nymex

OTC Spot Gold

Level

93.4

1544.3

Change (NYSEARCA:USD)

0.14

-2.00

 

LOOKING AHEAD

 

Economic Releases

 

CDT

BST

 

DATA

EXP

PREV

0700

1300

NO

Norwegian Deposit Rate M/M (Jun)

2.25%

2.25%

0900

1500

US

Congressional Budget Office 2011 Long Term Budget Outlook

 

 

0900

1500

US

House Price Index M/M (Apr)

-0.3%

-0.3%

0900

1500

EU

Eurozone Consumer Confidence M/M (Jun A)

-10.4

-9.8

0930

1530

US

DOE Crude Oil Inventories W/W (Jun 17)

-1825K

-3406K

0930

1530

US

DOE Gasoline Inventories W/W (Jun 17)

1000K

573K

0930

1530

US

DOE Distillate Inventory W/W (Jun 17)

525K

-105K

0930

1530

US

DOE Cushing Crude Inventory W/W (Jun 17)

 

-1141K

0930

1530

US

DOE Refinery Utilisation W/W (Jun 17)

0.50%

-1.10%

0930

1530

CA

Bank of Canada Financial System Review

 

 

1130

1730

US

FOMC Rate Decision

0.25%

0.25%

 

Speakers

0900

1500

US

Treasury Secretary Geithner

1130

1730

UK

BoE’s King speaks at ESRB Press Conference

1130

1730

EU

ECB’s Trichet speaks at ESRB Press Conference

1315

1915

US

Fed’s Bernanke Holds Press Conference Following The FOMC Rate Decision (Voting Member)

N/A

N/A

WLD

OECD’s Secretary-General Gurria

N/A

N/A

EU

EU’s Economic & Monetary Commissioner Rehn

 

Earnings

US

Bed Bath & Beyond

 

Prices taken at 1256BST