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DAILY US OPENING NEWS - 05/07/11

 

·   Moody's said that China's local government debt may be USD 540bln larger than auditors estimated, which could endanger Chinese banks' credit ratings

 

·   Worse than expected services PMI data from China and core Eurozone countries dented risk-appetite

·   GBP received support after higher than expected services PMI data from the UK

 

·   RANsquawk EU Morning Briefing Video: http://www.youtube.com/watch?v=jtxO-lT8KuI

 

Market Re-Cap

 

Markets witnessed risk-averse sentiment in early European trade partly on the back of comments from Moody's that China's local government debt may be USD 540bln larger than auditors estimated, which could endanger Chinese banks' credit ratings. Lower than expected services PMI data from China, and core Eurozone countries dented risk-appetite further, which in turn resulted in weakness in EUR and equities. However, as the session progressed equities gradually came off their earlier lows, and the oil & gas sector received some support after the UK Treasury announced tax support for North Sea oil companies. Elsewhere, GBP/USD gained strength following better than expected services PMI data from the UK.

 

Moving forward, the economic calendar remains thin, however markets look ahead to economic data from the US in the form of durable goods revision and factory orders figures.

 

Asia Headlines:

 

Japan’s government approved a USD 25bln extra budget for disaster relief after the March 11th earthquake that will not require new bond issuance, but bigger spending later this year is likely to strain stretched public finances. Meanwhile, Japan’s Economy Minister, Yosano, said the economy is unlikely to shrink this fiscal year and that pessimistic views on the country’s economic outlook in the aftermath of a massive quake in March may have been overblown. He also said that BoJ’s view on economic recovery is in line with the government’s view. (RTRS)

 

In other news, Moody’s said China’s local government debt may be USD 540bln larger than auditors estimated, potentially putting banks on the hook for deeper losses that could threaten their credit ratings. It further said that the outlook for Chinese banking system may turn negative in the absence of a clear plan to deal with local government debt. (RTRS)

 

Elsewhere, according to Economic Information Daily, China is likely to raise interest rates this weekend after the PBOC said yesterday that inflationary pressure remains high. The report also said that the CPI increases may hit 6.2% in June. Meanwhile, according to a researcher at the State Council’s Development Research Centre, Ba Shusong, China should raise interest rates to curb inflation and cut the reserve requirement ratio to improve the lending environment for small and medium sized companies. (Economic Information Daily)

 

·   China HSBC Services PMI (Jun) M/M 54.1 vs. Prev. 54.3 (RTRS)

 

EU and UK Headlines:

 

The ECB will continue to accept Greek debt as collateral for loans unless all three big credit rating agencies declare it to be in default, said a senior finance official. The ECB would rely on the principle of using the best rating available from the agencies the official said. (FT- More)

 

·   EU Services PMI (Jun F) M/M 53.7 vs. Exp. 54.2 (Prev. 56.0); 8 month low

·   German Services PMI (Jun F) M/M 56.7 vs. Exp 58.3 (Prev. 56.1)

·   French Services PMI (Jun F) M/M 56.1 vs. Exp. 56.7 (Prev. 62.5); fall in French final June services PMI biggest on record

·   Italian Services PMI (Jun) M/M 47.4 vs. Exp. 49.6 (Prev. 50.1); lowest since August 2009

·   UK Services PMI (Jun) M/M 53.9 vs. Exp. 53.5 (Prev. 53.8) (RTRS)

 

·   Austrian bond auction for EUR 0.8bln, 3.80% 20-Oct-13, bid/cover 2.28 vs. Prev. 2.43 (yield 1.792% vs. Prev. 4.047%)

·   Austrian bond auction for EUR 0.7bln, 3.65% 20-Apr-22, bid/cover 2.20 vs. Prev. 1.99 (yield 3.528% vs. Prev. 3.477%)

·   Belgian 3-month T-Bill auction for EUR 1.206bln, bid/cover 2.97 vs. Prev. 4.63 (yield 1.313% vs. Prev. 1.254%)

·   Belgian 6-month T-Bill auction for EUR 1.608bln, bid/cover 2.59 vs. Prev. 2.55 (yield 1.403% vs. Prev. 1.340%)

 

EQUITIES

 

European equity markets have been relatively mixed so far today after various European countries should weakness in the latest service PMI readings. In contrast UK listed companies have faired better after a surprise beat on expectations in the UK service PMI and after the UK Treasury announced tax support for North Sea oil firms. On an individual stock breakdown, Reckitt Benckiser in the FTSE has out performed after press speculation of being a takeover target. Separately an Italian regulator has also commented this morning that all domestic insurers have past recent stress tests.

 

Index

DAX

CAC

FTSE

EUROSTOXX

SMI

Level

7458.5

3988.77

6025.82

2862.66

6239.45

Change (ticks)

15.54

-14.34

8.28

-7.53

-6.33

 

FX

 

The EUR remained a little soft this morning as weak European service PMI’s in combination with an article in the WSJ citing the head of the Greek opposition party as opposing recent tax proposals received attention. The USD also remained in firm positive territory as analysts suggest that the greenback maybe benefiting from discussions in Washington regarding a proposed reduction of tax on repatriated earnings for US companies. Elsewhere, GBP/USD received a solid boost after the latest UK service PMI report came in higher than expected with a noted fall in the prices charges component, alongside a solid 10yr auction from the UK DMO today.

 

·   Australia RBA Cash Target (Jul) M/M 4.75% vs. Exp. 4.75% (Prev. 4.75%) (RTRS)

 

Currency

EURUSD

GBPUSD

USDJPY

Level

1.4484

1.6115

81.13

Change (pips)

-0.0069

0.0031

0.3300

 

COMMODITIES

 

WTI and Brent crude futures recovered from their earlier lows as risk-appetite gathered pace heading towards the NYMEX pit open, and as the USD-Index came off its earlier highs.

 

Oil & Gas News

·   Deutsche Bank expects crude oil prices to average around USD 100 per barrel in 2011, and expects Brent prices climbing to USD 125 per barrel in 2015. Deutsche Bank cut its Brent 2011 price forecast to USD 114 per barrel from USD 117.5 per barrel, and cut its Brent 2012 price forecast to USD 117 per barrel from USD 117.5 per barrel.

·   Barclays Capital kept its 2011 Brent price forecast at USD 112 a barrel, but raised its 2012 Brent price forecast to USD 115 a barrel from USD 105 a barrel. It cut its WTI price forecast for 2011 to USD 100 a barrel from USD 106 a barrel, however raised its WTI price forecast for 2012 to USD 110 a barrel from USD 106 a barrel.

·   According to the IEA, the sale of US emergency crude oil reserves as part of the IEA’s stockpile release programme has been very successful.

·   According to Venezuela’s oil minister, country’s energy policy is unaffected by health problems suffered by President Chavez.

·   According to Russia’s Deputy Economy Minister, Russia may increase gas tariffs for all consumers in two stages in 2012. The ministry is proposing to increase gas prices by 5% on January 1st and 9.5% on April 1st. Also, according to sources, Russia may abolish the duty-free status of Gazprom’s exports to Turkey through the Blue Stream Pipeline.

 

Geopolitical News:

·   According to an unnamed senior Russian official, Gaddafi is ready to cede power in exchange for security guarantees. However, according to a Libyan government spokesman, reports of talk on Gaddafi stepping down or seeking a safe haven are untrue.

·   Syrian tanks surrounded Hama on Tuesday, residents and activists said, threatening a large scale assault on the city after the biggest protests against President Assad’s rule.

 

 

 

Commodity

WTI Nymex

OTC Spot Gold

Level

95.58

1502.35

Change (NYSEARCA:USD)

0.64

5.27

 

LOOKING AHEAD

 

Economic Releases

 

CDT

BST

 

DATA

EXP

PREV

0900

1500

US

Durable Goods Revision M/M (May)

 

1.9%

0900

1500

US

Durables ex-Transportation Revision M/M (May)

 

0.6%

0900

1500

US

Nondef Cap ex-Air Revision M/M (May)

 

1.6%

0900

1500

US

Factory Orders M/M (May)

1.0%

-1.2%

 

Speakers

1030

1630

SW

Riksbank Deputy Governor Svensson

1200

1800

GE

Finance Minister Schaeuble

1400

2000

NZ

Prime Minister Key

N/A

N/A

FR

Finance Minister Baroin

 

 

Prices taken at 1257BST