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DAILY US OPENING NEWS - 21/07/11

 

·   Markets look forward to the outcome of the ongoing Eurozone leaders’ summit. Meanwhile, according to an EU official, Greek options include debt exchange with enhancements, rollover and debt buybacks, adding that the solution is intended to ring fence Greece and to prevent contagion

 

·   EU's Juncker said that selective default for Greece is a possibility

 

·   Core Eurozone countries, including Germany and France, reported weaker manufacturing and services PMI

·   GBP received support following higher than expected retail sales data from the UK

 

·   Morgan Stanley reported stronger than expected corporate earnings, with beats on both the EPS and revenue

 

·   RANsquawk EU Morning Briefing Video:

 

Market Re-Cap

 

Strength was observed in European equities, led by financials, in early trade on the back of news that France and Germany had agreed on an accord ahead of the Eurozone leaders' summit on Greece and PSI. However, later in the session it became increasing apparent that EU leaders may opt for a selective default on the Greek debt, which resulted in equities moving back in negative territory, and weighed on the EUR. Weakness in equities supported Bunds and also observed some widening in the Italian/German and Spanish/German 10-year government bond yield spreads, after EU's Juncker said that selective default for Greece is a possibility. Elsewhere, EUR/USD came under further pressure on the back of weaker than expected manufacturing and services PMI figures from core Eurozone countries such as Germany and France, and as the USD-Index gained strength as the session progressed. Also, GBP/USD moved up around 30 pips following higher than expected retail sales data from the UK.

 

Moving forward, markets look ahead to key economic data from the US in the form of jobless claims figures, house price index, leading indicators, and Philadelphia Fed. In fixed income, 2-, 5-, and 7-year Note refunding announcements, together with USD 13bln 10-year TIPS auction are scheduled for later in the session. US corporate earnings from the likes of Microsoft, and AT&T will also be keenly watched, whereas markets will keep a close eye on the outcome of the Eurozone leaders' summit.

 

Asia Headlines:

 

Japan’s PM Kan said he has no plans to dissolve the lower house of Parliament and call a snap election. (Sources)

 

According to the IMF, China’s big trading partners worry that its rapid economic growth cannot be sustained and it could suffer a hard landing that spreads damage around the world, adding that allowing the CNY to rise more rapidly is important for global stability. It also said that a rise in CNY must be accompanied by policy shifts to promote domestic demand, especially steps to reduce household and corporate savings. (RTRS)

 

·   China HSBC Manufacturing PMI (Jul) M/M 48.9 vs. Prev. 50.1 (RTRS)

 

US Headlines

 

The White House signalled it could support a short term increase in the US borrowing limit for a few days if lawmakers agree to a broad deficit reduction deal but needed more time to pass it. (RTRS)

 

In other news, Fed’s Sack said the Fed may have to buy more Treasuries after it eventually shrinks its USD 2.6trl balance sheet, in what would be a technical move to reduce interest rate risk. (RTRS)

 

EU and UK Headlines:

 

According to a Eurozone source, debt buyback is the only option of private sector involvement in Greek bailout that offers chance to avoid rating downgrade, adding that Greek bond buyback could offer a small premium to market value of paper. The source further said that French banks’ idea of debt rollover has lost some appeal as that would trigger a downgrade, however it should be possible to find agreement on precautionary credit lines from the EFSF. It also said that interest on EFSF loans could be lowered to funding cost plus a small spread. (RTRS)

 

In other news, new EU rules designed to make the financial system safer would require banks operating in Europe to raise an estimated EUR 460bln in capital by 2019 or substantially reduce their risk and balance sheets. The draft proposals, which still need approval from the 27 member states and the European parliament, make the EU the first jurisdiction to start implementing the global Basel III capital and liquidity guidelines. Industry groups in the UK and Germany warned that if the EU moves too far ahead of the rest of the world, its banks could lose out to international competitors and cut lending to the real economy. (FT-More)

 

·   Eurozone Manufacturing PMI (Jul A) M/M 50.4 vs. Exp. 51.5 (Prev. 52.0), lowest since Sep'09

·   Eurozone Services PMI (Jul A) M/M 51.4 vs. Exp. 53.0 (Prev. 53.7), lowest since Sep'09

·   German Manufacturing PMI (Jul A) M/M 52.1 vs. Exp. 54.0 (Prev. 54.6); lowest since Oct'09

·   German Services PMI (Jul A) M/M 52.9 vs. Exp. 56.0 (Prev. 56.7)

·   French Manufacturing PMI (Jul P) M/M 50.1 vs. Exp. 52.0 (Prev. 52.5) lowest in two years

·   French Services PMI (Jun) M/M 54.2 vs. Exp. 55.5 (Prev. 56.1)

·   UK Retail Sales (Jun) M/M 0.7% vs. Exp. 0.6% (Prev. -1.4%)

·   UK Retail Sales (Jun) Y/Y 0.4% vs. Exp. 0.4% (Prev. 0.2%) (RTRS)

 

·   Spanish bond auction for EUR 1.807bln, 5.50% Apr'21, bid/cover 1.9 vs. Prev. 1.83 (yield 5.896% vs. Prev. 5.395%)

·   Spanish bond auction for EUR 0.814bln, 5.90% Jul'26, bid/cover 2.1 vs. Prev. 2.57 (yield 6.191% vs. Prev. 6.027%) (RTRS)

 

EQUITIES

 

Strength was observed in European equities, led by financials, in early trade on the back of news that France and Germany had agreed on an accord ahead of the Eurozone leaders' summit on Greece and PSI. However, later in the session it became increasing apparent that EU leaders may opt for a selective default on the Greek debt, which resulted in equities moving back in negative territory. Moving into the North American open, equities are trading mixed, with financials and healthcare as best performing sectors, partly supported by strong corporate earnings from the likes of Morgan Stanley and Nokia.

 

For full details of US corporate earnings, kindly refer to RANsquawk’s US Equity Opening News, or visit, www.ransquawk.com

 

Index

DAX

CAC

FTSE

EUROSTOXX

SMI

Level

7206.05

3747.05

5834.51

2706.63

5969.6

Change (ticks)

-15.31

-7.55

-19.31

0.88

3.06

 

FX

 

EUR/USD came under pressure on the back of uncertainty surrounding the outcome of Eurozone leaders’ summit, weaker than expected manufacturing and services PMI figures from core Eurozone countries such as Germany and France, and as the USD-Index gained strength as the session progressed. Elsewhere, GBP/USD moved up around 30 pips following higher than expected retail sales data from the UK.

 

Currency

EURUSD

GBPUSD

USDJPY

Level

1.4186

1.6173

78.85

Change (pips)

-0.0029

0.0019

0.0700

 

COMMODITIES

 

WTI and Brent crude futures came under pressure after uncertainty mounting ahead of today’s Eurozone summit talks allied with weaker than expected Chinese PMI data overnight weighed on sentiment. With risk-off trade, the USD-Index has been strengthening heading into the North American open.

 

Oil & Gas News:

·   IEA’s Tanaka said the IEA will issue a statement on whether or not to release more oil from stockpile in matter of hours, however additional oil stockpile release by IEA was unlikely. He said no IEA members proposed additional releases from oil stockpiles, and that Saudi Arabia is expected to raise output to up to 10MBPD in July. Tanaka did say that IEA will be flexible and ready to release oil from stockpiles if needed.

·   China’s commercial crude oil stocks at the end of June increased 3.2% from a month earlier, Inventories of refined oil products at the end of last month fell 3% from a month ago, according to newsletter run by Xinhua.

·   Two Indian refiners will not get crude from Iran in August, as Tehran carried out a threat to stop supplies after debts in a long-running payments dispute reached more than USD 5bln, according to two company sources.

·   Standard Chartered raised its price forecast for Brent Crude as economic growth boosted demand for OPEC’s shipments amid prolonged supply disruptions in Libya. Standard Chartered said Brent crude will average USD 120 a barrel in 2012, up 1.8% from its previous forecast and USD 132 a barrel in 2016.

 

Geopolitical News:

·   According to Kyodo News, a senior US official is seeking talks with North Korean officials in Bali.

·   The US Navy is looking at plans to move its Fifth Fleet away from Bahrain as politicians are concerned that the Navy’s continued presence just a few miles from the centre of Manama, lends tacit support to Bahrain’s suppression of the opposition, amid mounting allegations of systematic human rights abuses.

 

Commodity

WTI Nymex

OTC Spot Gold

Level

98.14

1598.6

Change (NYSEARCA:USD)

0.64

-1.90

 

LOOKING AHEAD

 

Economic Releases

 

CDT

BST

 

DATA

EXP

PREV

0730

1330

US

Initial Jobless Claims W/W (Jul 16)

410K

405K

0730

1330

US

Continuing Claims W/W (Jul 9)

3708K

3727K

0900

1500

US

House Price Index M/M (May)

0.1%

0.8%

0900

1500

US

Leading Indicators M/M (Jun)

0.2%

0.8%

0900

1500

US

Philadelphia Fed M/M (Jul)

2.0

-7.7

0930

1530

US

EIA Natural Gas Storage Change W/W (Jul 15)

66

84

 

Speakers

0730

1330

US

Fed’s Evans (Voting Member)

0900

1500

US

Fed’s Bernanke Testimony on Dodd-Frank Anniversary (Voting Member)

1715

2315

US

Fed’s Evans (Voting Member)

 

Auctions

1000

1600

US

2y-, 5y- and 7y Note Refunding Announcement

1200

1800

US

USD 13bln 10y TIPS Auction

 

Earnings

US

Advanced Micro Devices, Chubb, Freeport McMoRan, Microsoft, SanDisk, Union Pacific Corp

 

Prices taken at 1254BST