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DAILY US OPENING NEWS - 15/07/11

 

·   Markets look ahead to results of the EBA’s stress tests expected to be released around 1700 BST

 

·   S&P has warned there is a one-in-two chance it could cut the US AAA credit rating if a deal on raising the government’s debt ceiling is not agreed soon

·   According to the chairman of S&P’s sovereign ratings committee, John Chambers, the risk that the US will lose its AAA credit rating in the next three months has risen considerably, even if lawmakers reach an agreement to raise the country’s debt ceiling later this month

 

·   RANsquawk EU Morning Briefing Video: http://youtu.be/EcLfnx3ikVY

 

Market Re-Cap

 

Risk-aversion prevailed during the early European trade ahead of results from the EBA's stress tests later, where 10-15 banks are expected to fail the test, together with S&P's warning related to a potential US sovereign downgrade. This resulted in weakness in European equities, led by financials, with particular underperformance seen in the Italian FTSE MIB index, whereas the Italian/German and Spanish/German 10-year government bond yield spreads widened to intraday highs. However, as the session progressed, equities came off their earlier lows, with some volatility observed due to option expiries in key European indices. Elsewhere, EUR/USD received support on the back of market talk of US corporate and Asian names buying in the pair.

 

Moving into the North American open, markets look ahead to key economic data from the US in the form of CPI, Empire manufacturing, and industrial production figures. In fixed income, another Fed's outright Treasury Coupon Purchase operation in the maturity range of Jul'15-Dec'16, with a purchase target of USD 2.5-3bln.

 

Asia Headlines:

 

Many BoJ policy board members recognised that overseas economies pose a growing risk to Japan’s recovery and a few expressed concern about the adverse effects of a strong JPY, according to the June minutes, suggesting the board was becoming more cautious even though it had recently upgraded its view on the Japanese economy. (RTRS) The minutes also showed that 2 of the 9 board members said that there was a need to ease policy further to sustain economic recovery. 

 

In other news, according to a report in Kyodo, citing Japan’s government, Japan’s second extra budget will raise GDP by 0.3%. (Kyodo)

 

US Headlines

 

S&P has warned there is a one-in-two chance it could cut the US prized AAA credit rating if a deal on raising the government’s debt ceiling is not agreed soon. Putting the US on negative watch, S&P warned that it would soon cut rating as soon as this month if talks between the White House and Republicans remain stalemated. Any cut would be by one or more notches it added. S&P’s decision to move the US top-tier credit rating closer to a downgrade underscores the need for Congress to raise the debt limit to reach a deal to cut deficits, Jeffrey Goldstein, the US Treasury’s under secretary for domestic finance said. According to the chairman of S&P’s sovereign ratings committee, John Chambers, the risk that the US will lose its AAA credit rating in the next three months has risen considerably, even if lawmakers reach an agreement to raise the country’s debt ceiling later this month. Meanwhile, Moody's notes that if US missed debt payments, their rating could be cut the next day. (RTRS/Sources)

 

Meanwhile, President Obama gave congressional leaders a weekend deadline to find a way to raise the debt ceiling, but a divide over spending and taxes remained a huge hurdle to a deficit-cutting deal. White House says both sides agree on USD 1.5trl in cuts to spending and that additional USD 200bln can be agreed upon soon.  Meanwhile, Republicans rejected a tax deal at the latest White House talks according to Democrat officials. (RTRS/Sources)

 

Also, Mary Miller, assistant secretary for financial markets has been privately fielding questions for foreign investors about the debt limit fight in Washington and has been reassuring them that the US will not default. Miller has been explaining to foreign investors the political dynamics in Washington and had been insisting that Congress will raise the debt ceiling in time. It is unknown what the investors’ reaction has been to her reassurances. (RTRS)

 

Elsewhere, the Fed’s balance sheet rose USD 2.862tln in the week ended July 13th from USD 2.853tln in the week ended July 6th. Foreign central banks’ overall holdings of US marketable securities at the Fed fell USD 8.02bln in the week ended July 13th to stand at USD 3.445tln. (RTRS)

 

EU and UK Headlines:

 

Prime Minister George Papandreou told his ministers that they have to be properly briefed on the meaning and implications of a selective default, which is likely to come about as a result of the involvement of the private sector in the country’s second bailout. (Kathimerini)

 

·   Eurozone Trade Balance SA (EUR) (May) M/M -0.6bln vs. Exp. -3.2bln (Prev. -2.9bln, Rev. to -2.5bln) (RTRS)

 

EQUITIES

 

Risk-aversion prevailed during the early European trade ahead of results from the EBA's stress tests later, where 10-15 banks are expected to fail the test, together with S&P's warning related to a potential US sovereign downgrade. This resulted in weakness in European equities, led by financials, with particular underperformance seen in the Italian FTSE MIB index. However, as the session progressed, equities came off their earlier lows, and moving into the North American open, equities continue to trade in minor negative territory, with industrials and technology as worst performing sectors.

 

Index

DAX

CAC

FTSE

EUROSTOXX

SMI

Level

7194.53

3733.18

5839.87

2681.58

5943.35

Change (ticks)

-20.21

-18.05

-7.08

-13.71

-37.62

 

FX

 

EUR/USD came under some pressure, in early European trade, ahead of results from the EBA's stress tests later, together with S&P's warning related to a potential US sovereign downgrade. However, as the session progressed, the pair received support on the back of market talk of US corporate and Asian names buying in the pair. Elsewhere, AUD traded lower after Australia's Westpac said they expect the RBA to cut rates by 25 basis points in December, and expects the central bank to cut rates 100 basis points through 2012.

 

In other news, Japanese finance minister Noda kept up his warning against persistent JPY strength saying that currency moves have been one-sided recently, but declined to comment regarding currency intervention. (RTRS)

 

Currency

EURUSD

GBPUSD

USDJPY

Level

1.4155

1.6118

79.06

Change (pips)

0.0012

-0.0022

-0.0800

 

COMMODITIES

 

WTI and Brent crude futures came under pressure during early European trade weighed upon by the anticipation of Eurozone EBA stress test results due to be released later today. However, as the session progressed prices came off their lowest levels moving into the NYMEX Pit open.

 

Oil & Gas News:

·   According to a French government source, Germany and Italy are likely to oppose a second IEA oil stock release next week.

·   President Obama’s administration is considering a second sale of oil from its strategic petroleum reserve. A decision for a second release of crude will depend on the success of the first sale, market fundamentals and the reaction from OPEC and the overall economy, a newsletter said.

·   Drilling for oil and gas in the North Sea tumbled in the second quarter to a nine-year low following UK Chancellor George Osborne’s tax raid on companies operating there. Activity fell by 52% year-on year for the three months to June, even though strong oil prices meant there was more drilling in the Norwegian North Sea and it was steady off the Dutch coast.

 

Geopolitical News:

·   Nato’s chief Rasmussen called for more planes to bomb Libyan targets, as Gaddafi forces show resilience. He said “We can’t protect civilians in Libya effectively if we are not prepared to take out critical military units on the ground that can be used to attack civilians”. Meanwhile, the western-led coalition confronting Gaddafi is beginning to examine the possibility of offering him a face-saving deal that removes him from power in Tripoli but allows him to stay inside Libya.

 

Commodity

WTI Nymex

OTC Spot Gold

Level

95.8

1582.25

Change (NYSEARCA:USD)

0.11

-5.05

 

LOOKING AHEAD

 

Economic Releases

 

CDT

BST

 

DATA

EXP

PREV

0730

1330

US

CPI M/M (Jun)

-0.1%

0.2%

0730

1330

US

CPI Y/Y (Jun)

3.6%

3.6%

0730

1330

US

CPI ex-Food & Energy M/M (Jun)

0.2%

0.3%

0730

1330

US

CPI ex-Food & Energy Y/Y (Jun)

1.6%

1.5%

0730

1330

US

CPI Core Index SA M/M (Jun)

 

224.387

0730

1330

US

CPI NSA  Y/Y (Jun)

225.587

225.964

0730

1330

US

Empire Manufacturing M/M (Jul)

5.00

-7.79

0730

1330

CA

Manufacturing Sales M/M (May)

-0.2%

-1.3%

0800

1400

IT

Bank of Italy Releases Quarterly Economic Bulletin

 

 

0815

1415

US

Industrial Production M/M (Jun)

0.3%

0.1%

0815

1415

US

Capacity Utilisation M/M (Jun)

76.9%

76.7%

0855

1455

US

University of Michigan Confidence M/M (Jul P)

72.0

71.5

0930

1530

US

ECRI Weekly Index W/W (Jul 15)

 

127.6

0930

1530

US

ECRI Weekly Annualised Y/Y (Jul 15)

 

1.8%

1100

1700

EU

EBA Stress Test Results

 

 

1100

1700

US

Treasury releases quarterly data

 

 

1200

1800

US

Baker Hughes Rig Count W/W (Jul 15)

 

1887

N/A

N/A

IT

Chamber of deputies to vote on austerity package

 

 

Speakers

1100

1700

EU

ECB’s Ordonez

1100

1700

GE

Bundesbank Vice President Lautenschlaeger

1210

1810

UK

BoE’s Tucker

Auction

1000

1600

US

Fed’s Outright Treasury Coup. Purch. Jul’15 – Dec’16 (USD 2.5-3.0bln)

Earnings

US

Citigroup

 

Prices taken at 1213BST

 

**Notes:

WTI Crude August options expiry

E-mini DOW/NASDAQ 100/S&P 500 July options expiry

NASDAQ 100/S&P 500 July Options Expiry

CAC 40 July options & futures expiry

CME Eurodollar July options expiry

 

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