DAILY US OPENING NEWS - 24/06/11
Macro
Contributor Since 2008
· Greece reached a deal on extra tax rises and spending cuts with the EU/IMF to plug a EUR 3.8bln funding gap
· Better than expected German IFO data promoted risk-appetite, which supported EUR
· Shares in Italian banks, including Unicredit and Intesa Sanpaolo, got suspended, partly due to market talk that some Italian banks had failed stress tests
· Moody’s changed its outlook on 13 mid-sized and smaller Italian banks to negative, and warned them of a potential downgrade. However, Italian PM said Italian banks are well capitalised, and is not worried about Moody’s warning
· ECB’s Gonzalez-Paramo said the Eurozone crisis is not over and will not end soon
· Greece's PASOK lawmaker, Robopoulos, said that he may vote against the mid-term fiscal plan
· RANsquawk EU Morning Briefing Video: http://www.youtube.com/watch?v=ijjIQnkbST8
Market Re-Cap
European equities traded in positive territory for a vast majority of the session after EU leaders promised more money to help Greece stave off a looming bankruptcy. However, financials came under significant pressure following share suspensions of some Italian banks, including Unicredit and Intensa Sanpaolo, after another Greece's PASOK lawmaker said that he may vote against the mid-term fiscal plan, allied with market talk of some Italian banks failing stress tests. This also weighed on EUR, which earlier received support after better than expected German IFO data.
Moving into the North American open, markets look ahead to key economic data from the US in the form of final reading of the first quarter GDP, and durable goods orders. In fixed income, there is another Fed's Outright Treasury Coupon Purchase operation in the maturity range of Dec'13-May'15, with a purchase target of USD 4-5bln.
Asia Headlines:
Chinese Premier Wen Jiabao said that China’s efforts to stem inflation have worked and that the pace of consumer-price increases will slow. (Sources)
In other news, China may continue to tighten its polices in H2 because consumer prices may surge if the policies were loosened too early, according to Chen Dongqi, a deputy head of the National Development and Reform Commission’s macroeconomic research institute. (Sources)
Also, China has reiterated orders to banks to curtail lending to property developers to guard against overheating in the sector, according to Liao Min, head of Shanghai branch of the China Banking Regulatory Commission. (RTRS)
US Headlines
US Republicans walked out of budget talks setting up a showdown between President Obama and House Speaker Boehner over how to extend US borrowing and avoid a looming debt default. In other news, White House's Carney said debt talks have made 'a lot of progress’; Obama will keep looking for debt compromise (RTRS/Sources)
In other news, the US economy is “sputtering, but not stalling” Goldman Sachs said. The “recent disappointment in H1 growth is not yet long enough or deep enough to tilt the balance of risks towards recession” Goldman Sachs added. (Sources)
Elsewhere, according to Fitch, US banks’ continue to face revenue pressures and risks remain in US residential and commercial real-estate, which may necessitate further loan impairments due to continued high defaults and weak real-estate values. (Sources)
Also, Fed’s balance sheet expanded to USD 2.841tln in the week ended June 22 from USD 2.811tln the prior week. Foreign central banks’ overall holding of US marketable securities at the Fed fell USD 484mln in the week ended June 22, to stand at USD 3.457tln. (RTRS)
BarCap month-end extensions: US Treasury +0.06 years
EU and UK Headlines:
EU leaders promised more money to help Greece stave off looming bankruptcy, provided its parliament enacts an austerity plan finalised in fraught last minute talks with international lenders. Greek PM promised to push through radical economic reforms after the new finance minister clinched agreement with EU and IMF inspectors on extra tax rises and spending cuts to plug a EUR 3.8bln funding gap. The EU leaders also exhorted conservative Greek opposition leader Samaras to rally behind the austerity programme, but he stuck his refusal to vote for the entire plan, saying he would support the spending cuts but not tax increases. The leaders also approved the creation of a permanent Eurozone bailout fund from June 2013 as well a strengthening of the existing temporary rescue fund. (RTRS)
· German IFO Business Climate (Jun) M/M 114.5 vs. Exp. 113.4 (Prev. 114.2)
· German IFO Current Assessment (Jun) M/M 123.3 vs. Exp. 120.8 (Prev. 121.4)
· German IFO Expectations (Jun) M/M 106.3 vs. Exp. 106.3 (Prev. 107.4) (RTRS)
BarCap month-end extensions: Euro Sovereign Index +0.06 years
BarCap month-end extensions: Sterling Index +0.22 years
EQUITIES
European equities traded in positive territory for a vast majority of the session after EU leaders promised more money to help Greece stave off a looming bankruptcy. However, financials came under significant pressure following share suspensions of some Italian banks, including Unicredit and Intensa Sanpaolo, after another Greece's PASOK lawmaker said that he may vote against the mid-term fiscal plan, allied with market talk of some Italian banks failing stress tests. News that Italy’s fourth largest bank, Unione di Banche Italiane, may struggle to get buyers for its EUR 1bln rights offering, together with Moody’s changing its outlook on 13 mid-sized and smaller Italian banks to negative, and warning them of a potential downgrade, further weighed on financials.
Moving into the North American open, core European indices are trading in positive territory, however weakness is observed in Italian FTSE MIB and Spanish IBEX 35 indices.
Index | DAX | CAC | FTSE | EUROSTOXX | SMI |
Level | 7198.97 | 3816.84 | 5712.03 | 2739.99 | 6005.31 |
Change (ticks) | 49.53 | 29.05 | 37.65 | 9.13 | 14.22 |
FX
EUR received support after EU leaders promised more money to help Greece stave off a looming bankruptcy, allied with better than expected German IFO data. However, the currency came under pressure following news that some Italian banks may be in trouble, despite assurances from the Italian PM that Italian banks are well capitalised.
Currency | EURUSD | GBPUSD | USDJPY |
Level | 1.4224 | 1.6023 | 80.19 |
Change (pips) | -0.0032 | 0.0017 | -0.3200 |
COMMODITIES
Moving into the North American open, WTI and Brent crude futures received support on the back of better than expected German IFO data, however prices traded in a tight range ahead of the final GDP reading from the US later in the session.
Oil & Gas News:
· JPMorgan and Goldman Sachs slashed their forecasts for crude prices in Q3 after IEA announced release of stockpiles yesterday. JPMorgan cut its average forecast for Brent crude to USD 100 per barrel in Q3, down from its previous projection of USD 130. Goldman Sachs expects Brent prices to fall to USD 105-107 a barrel by end of July.
· Bank of America lowered their 2011 Brent price forecast to USD 100 per barrel from USD 108 per barrel. Adding that under an upside risk scenario, 2011 Brent prices could average between USD 125-160 per barrel. Furthermore, Brent crude term structure could weaken further and maintain the average forecast of USD 102 per barrel in H2 2011
· OPEC will “start talking about cutting production” if Brent crude falls below USD 100 a barrel, ensuring prices will not go lower than USD 90, according to SocGen.
· The IEA said their stocks release will bring oil market stability and will support prices in the medium term.
· Venezuela said it expects Chinese and Italian banks to provide new loans totalling USD 5.5bln to develop joint venture projects with China’s CNPC and Italy’s ENI in the vast Orinoco extra heavy oil belt.
· Most production units at Iraq's Baiji oil refinery were shut down after an explosion resulting in a fire on the main gas pipeline. However a refinery official said the fire is under control but it will take 48 hours to restore full operations.
· China is to cut import duty for gasoline, jet kerosene, diesel and fuel oil from July 1st, according to Ministry of finance.
Geopolitical News:
· US Secretary of State Clinton has said that the US is concerned by reports that Syria is massing troops near the border with Turkey, which could escalate the crisis in the region, and is discussing the issue with Turkish officials.
Commodity | WTI Nymex | OTC Spot Gold |
Level | 90.94 | 1519.1 |
Change (USD) | -0.08 | -2.30 |
LOOKING AHEAD
Economic Releases
CDT | BST |
| DATA | EXP | PREV |
0730 | 1330 | US | GDP (Annualised) Q/Q (Q1 T) | 1.9% | 1.8% |
0730 | 1330 | US | GDP Price Index Q/Q (Q1 T) | 1.9% | 1.9% |
0730 | 1330 | US | Personal Consumption Q/Q (Q1 T) | 2.2% | 2.2% |
0730 | 1330 | US | PCE Core Q/Q (Q1 T) | 1.4% | 1.4% |
0730 | 1330 | US | Durable Goods Orders M/M (May) | 1.5% | -3.6% |
0730 | 1330 | US | Durables Ex Transportation M/M (May) | 0.9% | -1.5% |
0730 | 1330 | US | Capital Goods Orders Nondef Ex Air M/M (May) | 1.0% | -2.6% |
0930 | 1530 | US | ECRI Weekly Index W/W (Jun 24) |
| 127.8 |
0930 | 1530 | US | ECRI Weekly Annualised Y/Y (Jun 24) |
| 3.7% |
1200 | 1800 | US | Baker Hughes Rig Count W/W (Jun 24) |
| 1860 |
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Speakers | |||||
1130 | 1730 | US | FDIC’s Chairwoman Bair | ||
N/A | N/A | US | Fed’s Evans (Voting Member) | ||
N/A | N/A | WLD | IMF’s Assistant Director Schwartz | ||
N/A | N/A | WLD | EBRD’s President Mirow | ||
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Auctions | |||||
1000 | 1600 | US | Fed’s Outright Trea. Coup. Purch. Dec’13-May’15 (USD 4-5bln) | ||
**Notes:
UST July options expiry
Prices taken at 1252BST