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DAILY US OPENING NEWS - 10/08/11

 

 

·       In its latest quarterly inflation report, the BoE cut its UK growth forecast for 2011. Meanwhile, BoE's King said the central bank can raise interest rate or increase asset purchases depending on economy's needs, adding that there is no reason for the MPC to commit to low rates

 

·       A well received T-Bill auction from Italy helped the Italian/German 10-year government yield spread to narrow. The French/German spread also narrowed after comments from the French finance minister on potential measures to curb government spending further

 

·       S&P's Kraemer said France's stable outlook is warranted, and France has a track record of meaningful reforms

 

·       Weakness was observed in CHF across the board after the SNB said that it has expanded measures against a strong CHF

 

·       RANsquawk EU Morning Briefing Video: http://www.youtube.com/watch?v=MSB1Onpq4mE

 

Market Re-Cap

 

The Fed pledged yesterday to extend its near-zero interest rate by another two years, which together with weakness in the USD-Index provided support to WTI and Brent crude futures. Meanwhile, as the European session progressed, equities gathered strength partly on the back of a well-received T-Bill auction from Italy, which also witnessed tightening of the Italian/German 10-year government bond yield spread. The French/German spread also narrowed after comments from the French finance minister on potential measures to curb government spending further. Elsewhere, weakness was observed in CHF across the board after the SNB said that it has expanded measures against a strong CHF, which saw around 150 pips rise in EUR/CHF following the comments. In other forex news, GBP/USD traded under pressure leading up to the release of the BoE's inflation report, and declined further following the release of a downbeat report on UK's economy. However, some of the earlier losses were pared after BoE's King said that there is no reason for the MPC to commit to low rates. Also, USD/JPY traded below the latest BoJ's intervention level of 76.96, and made an approach towards its all time low of 76.24.

 

Moving into the North American open, markets look ahead to economic data from the US in the form of wholesale inventories/sales, DOE inventories figures as well as the monthly budget statement. In fixed income USD 24bln 10-year Note auction is also scheduled for later in the session.

 

Asia Headlines:

 

Japan’s ruling Democratic Party aims to hold a leadership contest to replace unpopular PM Kan as early as August 28th. Finance minister Noda is mooted as a leading contender. PM Kan said he would resign once parliament approves alternative-energy legislation and a bill allowing the sale of bonds to help finance this year’s budget. (RTRS/Sources)

 

China will not raise interest rates soon amid global market turbulence but the PBOC could still take tightening steps later. The paper added that Beijing may ask commercial banks to place more deposits with the central bank as reserves if capital inflows are large. (China Securities Journal)

 

·       Chinese Trade Balance (NYSEARCA:USD) (Jul) Y/Y 31.48bln vs. Exp. 27.40bln (Prev. 22.27bln)

·       Chinese Exports (Jul) Y/Y 20.4% vs. Exp. 17.0% (Prev. 17.9%)

·       Chinese Imports (Jul) Y/Y 22.9% vs. Exp. 22.0% (Prev. 19.3%) (RTRS)

 

US Headlines

 

Three democratic US Senators, Max Baucus, John Kerry and Patty Murray will be tapped to serve on a deficit reduction super committee, a Senate aide said. The three will be picked by Senate Democratic leader Harry Reid, according to an aide. (RTRS)

 

·       US MBA Mortgage Applications (Aug 5) W/W 21.7% vs. Prev. 7.1% (RTRS)

 

 

 

 

 

 

EU and UK Headlines:

 

In its latest quarterly inflation report, the BoE cut its UK growth forecast for 2011 and now sees an annual rate of growth of 2.0%, down from 2.5% in its May forecast. The BoE forecast that inflation would peak around 5% later this year – the same as it predicted in May – before falling steadily to 1.8% in two years time. Short-term market interest rates are only predicted to rise to 0.8% by the end of 2012. BoE's King said the central bank can raise interest rate or increase asset purchases depending on economy's needs, adding that there is no reason for the MPC to commit to low rates.

 

·       Italian 12-Month BOT auction for EUR 6.5bln, bid/cover 1.94 vs. Prev. 1.55 (yield 2.959% vs. Prev. 3.670%) (RTRS)

 

EQUITIES

 

European equities lacked any real direction during the session, however did get some support following a well received T-Bill auction from Italy. DAX outperformed its European peers partly on the back of strong corporate earnings result from Commerzbank, and moving into the North American open equities are trading mixed with technology and basic materials as the best performing sectors.

 

Index

DAX

CAC

FTSE

EUROSTOXX

SMI

Level

6019.16

3182.75

5208.97

2298.16

5034.8

Change (ticks)

102.08

6.56

44.05

3.92

36.88

 

FX

 

Weakness was observed in CHF across the board after the SNB said that it has expanded measures against a strong CHF, which saw around 150 pips rise in EUR/CHF following the comments. In other forex news, GBP/USD traded under pressure leading up to the release of the BoE's inflation report, and declined further following the release of a downbeat report on UK's economy. However, some of the earlier losses were pared after BoE's King said that there is no reason for the MPC to commit to low rates. Also, USD/JPY traded below the latest BoJ's intervention level of 76.96, and made an approach towards its all time low of 76.24.

 

Currency

EURUSD

GBPUSD

USDJPY

Level

1.4355

1.6243

76.55

Change (pips)

-0.0021

-0.0073

-0.4100

 

COMMODITIES

 

WTI and Brent crude futures traded higher in early European trade as risk returned to markets after the Fed promised to extend near-zero interest rates for two more years allied with weakness in the USD-Index.

 

IEA Monthly Oil Report:

·       IEA trimmed their global 2011 oil demand forecasts by 0.1 MBPD on weaker baseline and Q1 2011 data, high prices and slowing down of economic growth.

·       IEA said if global GDP growth slowed to around 3% in 2012, oil demand growth would drop to more than half.

·       IEA raised 2012 global oil demand growth forecast by 70,000 BPD to 1.61 MBPD partly due to Japan's power needs.

 

Oil & Gas News:

·       Iran's OPEC governor said he sees a fall in oil prices due to 'irrational' link to stock market trends, not oil market fundamentals.

·       Bank of America said they forecasted Brent to reach an average USD 102 a barrel in Q4.

 

Geopolitical News:

·       According to reports, North Korea test fired artillery shells into waters near a disputed border today, provoking a South Korean volley of warning shots, raising tensions between the rivals as they inch toward disarmament talks.

 

 

 

 

 

Commodity

WTI Nymex

OTC Spot Gold

Level

82.81

1762.8

Change (USD)

3.51

22.40

 

LOOKING AHEAD

 

Economic Releases

 

CDT

BST

 

DATA

EXP

PREV

0700

1300

NO

Norwegian Deposit Rates M/M (Aug)

2.50%

2.25%

0900

1500

US

JOLTs Job Openings M/M (Jun)

 

2974

0900

1500

US

Wholesale Inventories M/M (Jun)

1.0%

1.8%

0900

1500

US

Wholesale Sales M/M (Jun)

0.3%

-0.2%

0930

1530

US

DOE Crude Oil Inventories W/W (Aug 5)

1500K

950K

0930

1530

US

DOE Gasoline Inventories W/W (Aug 5)

900K

1701K

0930

1530

US

DOE Distillate Inventory W/W (Aug 5)

1000K

409K

0930

1530

US

DOE Cushing Crude Inventory W/W (Aug 5)

 

-1149K

0930

1530

US

DOE Refinery Utilisation W/W (Aug 5)

-0.25%

1.00%

1300

1900

US

Month Budget Statement (USD) M/M (Jul)

-135.0B

-43.1B

1300

1900

US

Tentative Outright Treasury Operation Schedule

 

 

1730

2330

NZ

Business PMI M/M (Jul)

 

54.3

 

Auction

1200

1800

US

USD 24bln 10y Note Auction

 

Earnings

US

Cisco Systems, Macy’s, News Corp

 

Prices taken at 1248BST