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DAILY US OPENING NEWS - 09/11/11

 

·      LCH Clearnet SA said it will raise margin requirements on the Italian bonds, and will raise initial margin call on 7-10 year Italian debt to 11.65% from 6.65%, effective from today’s close

 

·      Yield on the 10-year Italian government bond breached the key 7% level, while the Italian/German spread moved above the 500BPS level. Also, the Spanish/German spread widened above 400BPS

 

·      Markets keep a close eye on the political uncertainty in Italy and Greece

 

·      German economic council said it sees the ECB rate cut to 1% by the end of 2011, and it will remain at that level through 2012. It further said that Germany may face mild recession if the debt crisis isn't solved, and it can't rule out a Eurozone break up if states don't repair budget

 

·      Strength in the USD-Index weighed upon EUR/USD, GBP/USD and commodity-linked currencies

 

·      RANsquawk European Morning Briefing Video: http://youtu.be/Nm1wPARx3ow

 

Market Re-Cap

 

In equity space, market participants reversed their positions taken yesterday, amid thin volume, which resulted in sharp sell-off in stocks, with weakness in financials and sharp underperformance seen in the Italian FTSE MIB and Spanish IBEX 35 indices. Political uncertainty surrounding Italy and Greece dented appetite for risk, whereas downbeat comments by HSBC in its trading update further weighed on sentiment. Weakness in equities together with news that LCH Clearnet SA is to raise margin requirements on the Italian bonds rendered strength to Bunds, whereas the Eurozone 10-year government bond yield spreads widened across the board. Meanwhile, yield on the 10-year Italian government bond breached the key 7% level, while the Italian/German spread moved above the 500BPS level, which coincided with triggering of stops in Bund futures above the 138.00 level. Traders noted volume of around 20K going through within 2 minutes while stops were triggered above the 1.3850 level, which exaggerated the move higher in Bunds. There was market talk of the ECB buying 10-year Italian BTPs, however the effect was short lived. Also, the Spanish/German spread breached the 400BPS level to the upside. In the forex market, EUR/USD, GBP/USD and commodity-linked currencies remained under pressure as the USD-Index continued its trend higher, whereas a higher trade deficit reading from the UK further weighed on GBP/USD.

 

Moving into the North American open, markets look ahead to economic data from the US in the form of wholesale inventories/sales, and the DOE oil inventories report. In fixed income, USD 24bln 10-year Note auction, Fed's Outright TIPS sales operation in the maturity range of Apr'12-Apr'14, with a sales target of USD 1-1.5bln, as well as another BoE's Gilt purchase operation in the maturity range of 2022-2036 are all scheduled for later in the session. Market participants will also watch closely any developments pertaining to the ongoing political situation in Italy and Greece.

 

Asian Headlines:

 

Chinese premier Wen Jiabao said prices had fallen further since October, adding to the view that policymakers will edge towards more pro-growth policies, although inflation is still too high to expect a cut in interest rates. In other news, China’s monetary policy is delivering its intended economic effects and its overall direction should not be changed, Li Daokui, an adviser to the PBOC said. (RTRS)

 

·       Chinese CPI (Oct) Y/Y 5.5% vs. Exp. 5.5% (Prev. 6.1%)

·       Chinese PPI (Oct) Y/Y 5.0% vs. Exp. 5.8% (Prev. 6.5%)

·       Chinese Retail Sales (Oct) Y/Y 17.2% vs. Exp. 17.6% (Prev. 17.7%)

·       Chinese Industrial Production (Oct) Y/Y 13.2% vs. Exp. 13.4% (Prev. 13.8%) (RTRS)

 

US, EU and UK Headlines

 

Britain can still avoid a renewed recession despite the deepening turmoil in the Eurozone, according to the CBI, though the weak recovery will drive up unemployment over the coming year. In its latest economic forecast, the CBI cut its forecasts for British growth to 0.9% this year and 1.2% the next, from the 1.3% and 2.2% respectively it predicted in August. The group predicted that unemployment would continue rising in 2012, peaking that year at 8.5%. The CBI's forecast for inflation was more upbeat. It is expected to decline from its current rate of 5.2%, starting from the first quarter of next year, and reach the BoE's target rate of 2% in the first three months of 2013. (RTRS)

 

·       US MBA Mortgage Applications (Nov 4) 10.3% vs. Prev. 0.2%

·       UK Visible Trade Balance (GBP/mln) (Sep) M/M -9814 vs. -8000 (Prev. -7768, Rev. to -8617)

·       UK Trade Balance Non EU (GBP/mln) (Sep) M/M -5715 vs. Exp. -4950 (Prev. -4867, Rev. to -5142)

·       UK Total Trade Balance (GBP/mln) (Sep) M/M -3940 vs. Exp. -2150 (Prev. -1877, Rev. to -2726) (RTRS)

 

EQUITIES

 

In equity space, market participants reversed their positions taken yesterday, amid thin volume, which resulted in sharp sell-off in stocks, with weakness in financials and sharp underperformance seen in the Italian FTSE MIB and Spanish IBEX 35 indices. Political uncertainty surrounding Italy and Greece dented appetite for risk, whereas downbeat comments by HSBC in its trading update further weighed on sentiment. Elsewhere, strength in the USD-Index weighed upon basic materials and oil & gas sectors. Moving into the North American open, equities continue to trade lower, with financials and basic materials as the worst performing sectors.

 

**Note: For US equities news in detail, kindly refer to the RANsquawk Daily US Equity Opening News report.

 

Index

DAX

CAC

FTSE

EUROSTOXX

SMI

Level

5817.08

3073.69

5474.73

2244.41

5609.71

Change (ticks)

-144.36

-69.61

-92.61

-58.79

-72.94

 

FX

 

EUR/USD, GBP/USD and commodity-linked currencies remained under pressure as the USD-Index continued its trend higher, whereas a higher trade deficit reading from the UK further weighed on GBP/USD.

 

Currency

EURUSD

GBPUSD

USDJPY

Level

1.3639

1.5964

77.63

Change (pips)

-0.0195

-0.0125

-0.1000

 

COMMMODITIES

 

WTI and Brent crude futures came under pressure in early European trade as political uncertainty surrounding Greece and Italy weighed on risk appetite allied with sharp gains in the USD-Index.

 

Oil & Gas News:

·       IEA said in its world energy outlook report that there is risk in the near term oil prices may rise to USD 150 per barrel. IEA added that the US will be less vulnerable to oil price shocks and noted that OPEC members will provide 48.7 MBPD by 2035.

 

Geopolitical News:

·       Israel will learn the true meaning of "hell" if it decides a military strike against Iran is worth the risk, an Iranian national security official said. Israeli Prime Minister Binyamin Netanyahu is said to have been reviewing strike plans against Iran's nuclear infrastructure as the IAEA expressed concerns about Tehran's nuclear ambitions.

·       The US is likely to increase sanctions on Iran after IAEA report said they have information of activities in Iran specific to nuclear weapons, according to a US official. On a similar note, French foreign minister said if Iran refuses to co-operate we are ready to impose sanctions on a unprecedented scale. Iranian president Ahmadinejad noted that Iran will not pull back even a ‘needle's width’ from its nuclear path after the UN agency report. The Chinese foreign minister on this matter has urged Iran to show flexibility, sincerity over nuclear issue.

 

**Note: For commodities news in detail, kindly refer to the RANsquawk Daily Energy Commentary report.

 

Commodity

WTI Nymex

OTC Spot Gold

Level

95.62

1788.99

Change (NYSEARCA:USD)

-1.18

2.68

 

LOOKING AHEAD

 

Economic Releases

 

CST

GMT

 

DATA

EXP

PREV

0730

1330

CA

New Hosing Price Index M/M (Sep)

0.1%

0.1%

0730

1330

CA

New Housing Price Index Y/Y (Sep)

2.2%

2.3%

0900

1500

US

Wholesale Inventories M/M (Sep)

0.5%

0.4%

0900

1500

US

Wholesale Sales M/M (Sep)

0.8%

1.0%

0930

1530

US

DOE Crude Oil Inventories W/W (Nov 4)

500K

1826K

0930

1530

US

DOE Gasoline Inventories W/W (Nov 4)

500K

1356K

0930

1530

US

DOE Distillate Inventory W/W (Nov 4)

-2000K

-3575K

0930

1530

US

DOE Cushing Crude Inventory W/W (Nov 4)

 

560K

0930

1530

US

DOE Refinery Utilisation W/W (Nov 4)

0.10%

0.50%

1400

2000

NZ

RBNZ Publishes Financial Stability Report

 

 

1530

2130

NZ

Business PMI M/M (Oct)

 

50.8

1750

2350

JN

Machine Orders M/M (Sep)

-7.1%

11.0%

1750

2350

JN

Machine Orders Y/Y (Sep)

10.6%

2.1%

 

Speakers

0830

1430

US

Fed’s Bernanke (Voting member) on Small Business

0935

1535

EU

EU’s Van Rompuy

1030

1630

EU

EFSF’s Regling

1115

1715

US

Fed’s Tarullo (Voting member)

1115

1715

EU

EU’s Van Rompuy

1130

1730

GE

Chancellor Merkel

1200

1800

EU

EU’s Barroso

1200

1800

EU

EU’s Juncker

1300

1900

EU

ECB’s Stark

1630

2230

AU

RBA’s Assistant Governor Lowe

N/A

N/A

FR

President Sarkozy

N/A

N/A

EU

EU’s Barnier

N/A

N/A

WLD

OPEC Monthly Oil Market Report Published

 

Auctions

0845

1445

UK

BoE Asset Purchase Facility GBP 1.7bln 2022-2036 Gilt Purchases

1000

1600

US

Fed’s Outright TIPS Sales Apr’12-Apr’14 (USD 1-1.5bln)

1200

1800

US

USD 24bln 10y Note Auction

 

Earnings

US

Cisco Systems, Macy’s, Polo Ralph Lauren, Walt Disney

             

Prices taken at 1209GMT