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DAILY US OPENING NEWS - 05/12/11

 

·      According to the Sunday Times, the ECB is preparing a EUR 1trl cash infusion scheme for the Eurozone ahead of a series of crisis summits this week

 

·      Die Welt writes, the Fed may help provide the IMF with funds that could be used to aid debt-ridden states

 

·      According to reports, Germany is prepared to soften language in the ESM compelling bondholders to accept losses in exchange for much stricter budget rules

 

·      The Italian/German 10-year government bond yield spreads tightened after the Italian government approved new austerity measures and economic reforms during the weekend

 

·      Commerzbank shares fell over 8.5% during the European session on the back of news that the German government is preparing plans to nationalise the co. through SOFFIN

 

·      Market talk that the Fed may lower its discount rate today, which remains unconfirmed

 

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

 

Market Re-Cap

 

News that the ECB is preparing a EUR 1trl cash infusion scheme for the Eurozone, together with an article in Die Welt that the Fed may help provide the IMF with funds to aid debt ridden states supported appetite for risk during the European session. Positive sentiment received a further boost after news emerged that Germany is prepared to soften language in the ESM compelling bondholders to accept losses in exchange for much stricter budget rules, which resulted in outperformance in the Italian FTSE MIB and Spanish IBEX 35 indices, with financials as one of the best performing sectors. However, Commerzbank shares fell over 8.5% during the European session on the back of news that the German government is preparing plans to nationalise the co. through SOFFIN.

 

Strength in equities weighed upon Bunds, whereas the Eurozone 10-year government bond yield spreads generally tightened, with particular narrowing observed in the Italian/German spread after the Italian government approved new austerity measures and economic reforms during the weekend. In the forex market, weakness in the USD-Index provided support to EUR/USD and GBP/USD, whereas GBP gained strength across the board leading into and following stronger than expected services PMI data from the UK, which was also rumoured to be higher than expected.

 

In US specific news, there was early market talk that the Fed may cut its discount window today, which remains unconfirmed. Also, the Fed watcher, Jon Hilsenrath, wrote in the WSJ that the Fed is close to completing an overhaul of how they signal their policy plans to the public.

 

Moving into the North American open, markets look ahead to economic data from the US in the form of ISM non-manufacturing composite, durable goods revision as well as factory orders reports. In fixed income, BoE's Gilt purchase operation in the maturity range of 2015-2020, together with Fed's Outright Treasury Coupon Purchase operations in the maturity ranges of Aug'22-Feb'31, and Dec'17-Nov'19, with respective purchase targets of USD 1.5-2bln, and USD 4.25-5bln are also scheduled for later in the session. Market participants will also keep a close eye on comments from the meeting between the German Chancellor Merkel and French President Sarkozy.

 

Asian Headlines:

 

·       China Non-Manufacturing PMI (Nov) M/M 49.7 vs. Prev. 57.7 (RTRS)

 

Global Headlines

 

The Fed, along with the 17 Eurozone national central banks, may help provide the IMF with funds that could be used to aid debt-ridden states, according to Die Welt. Die Welt cited sources close to the negotiations as saying the Eurozone central banks could pay at least EUR 100bln into a special fund that could be used for programs for nations struggling to control their debts. (Die Welt)

 

In other news, the G20 and the IMF are considering proposals to increase the IMF’s lending pool by as much as USD 300bln with most of the capital coming from the ECB and emerging market economies. (Mainichi Daily News)

 

Elsewhere, China commerce minister Chen said the country may invest some of its USD 1.15trl of US government debt back into the US, particularly with investments into US infrastructure. (Sources)

 

US Headlines

 

Fed watcher, Jon Hilsenrath, wrote the Fed officials are close to completing an overhaul of how they signal their policy plans to the public. They are likely to spend much of their December 13th meeting ironing out unresolved pieces of the new communications strategy and seem on pace to unveil it early next year. They have two major objectives: Be more explicit about the Fed's goals for inflation and employment, and articulate more clearly the interest-rate strategy to meet those goals. (WSJ - More)

 

EU and UK Headlines

 

The ECB is preparing a EUR 1trl cash infusion scheme for the Eurozone ahead of a series of crisis summits this week. The report said the plan would be executed if Europe’s leaders reach agreement on a broader political reform of the currency bloc-imposing strict budget controls on nations struggling to control their state finances. (Sunday Times)

 

In other news, Germany is prepared to soften language in the Eurozone’s permanent bailout mechanism compelling bondholders to accept losses in exchange for much stricter budget rules, according to sources. The shift would not completely remove the possibility of private bondholders having to accept losses in the future, but it would align the statuses of ESM more closely with IMF rules, creating a more level playing field for private buyers of Eurozone sovereign debt. (RTRS)

 

Elsewhere, Italy’s new technocratic government has approved tough new austerity measures and economic reforms on Sunday night, including new tax increases and spending cuts, reported to total EUR 20bln, designed to balance Italy’s books by 2013. (FT More)

 

·       Eurozone Services PMI (Nov F) M/M 47.5 vs. Exp. 47.8 (Prev. 46.4)

·       German Services PMI (Nov F) M/M 50.3 vs. Exp. 51.4 (Prev. 50.6)

·       French Services PMI (Nov F) M/M 49.6 vs. Exp. 49.3 (Prev. 44.6)

·       Italian Services PMI (Nov) M/M 45.8 vs. Exp. 44.0 (Prev. 43.9)

·       UK Services PMI (Nov) M/M 52.1 vs. Exp. 50.5 (Prev. 51.3) (RTRS)

 

·       German 6-month Bubill auction for EUR 2.675bln, bid/cover 3.80 vs. Prev. 2.20 (yield 0.001% vs. Prev. 0.080%) (RTRS)

 

EQUITIES

 

News that the ECB is preparing a EUR 1trl cash infusion scheme for the Eurozone, together with an article in Die Welt that the Fed may help provide the IMF with funds to aid debt ridden states supported appetite for risk during the European session. Positive sentiment received a further boost after news emerged that Germany is prepared to soften language in the ESM compelling bondholders to accept losses in exchange for much stricter budget rules, which resulted in outperformance in the Italian FTSE MIB and Spanish IBEX 35 indices, with financials as one of the best performing sectors. However, Commerzbank shares fell over 8.5% during the European session on the back of news that the German government is preparing plans to nationalise the co. through SOFFIN. Moving into the North American open, European equities continue to trade in positive territory, with financials and utilities as the best performing sectors.

 

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

 

Index

DAX

CAC

FTSE

EUROSTOXX

SMI

Level

6139.43

3212.89

5593.08

2380.05

5747.12

Change (ticks)

58.75

47.94

40.79

37.55

28.27

 

FX

 

EUR/USD and GBP/USD received support as the USD-Index weakened, whereas GBP gained strength across the board leading into and following stronger than expected services PMI data from the UK, which was also rumoured to be higher than expected. Elsewhere, weakness was observed in NZD partly after the New Zealand Treasury cut its growth forecast for the country.

 

Currency

EURUSD

GBPUSD

USDJPY

Level

1.3441

1.5649

78.03

Change (pips)

0.0050

0.0052

0.0400

 

COMMMODITIES

 

WTI crude futures rose during the European session with tensions in the Middle East threatening supply, and with weakness in the USD-Index.

 

Oil & Gas News:

·       Members of OPEC may not have to discuss adjusting their quota allocations until Libya reaches its pre-war production level according to Angolan oil minister Jose Bothelo de Vasconcelos. The Qatar energy minister said that global oil market supply is currently sufficient and the Kuwait oil minister said OPEC doesn’t need to cut back because of Libya.

·       An Iranian spokesman said that oil prices would go over USD 250 per barrel if Iranian exports are banned by the West. In other news the Iranian oil minister said he was not worried about a potential embargo on Iranian oil by the EU. The Indian oil minister said he sees no problem in oil supplies from Iran.

·       Kuwait sees no need to change current production quotas according to the Gulf Arab state’s oil minister.

·       The UAE oil minister said there is enough oil in the market and no shortage. He also said that Fujairah pipeline is almost complete, with capacity at 1.4 MBPD.

 

Geopolitical News:

·       After shooting down an unmanned US drone, Iran said the response to the violation of its airspace will not be limited by the country’s borders, although the US officials said there is no sign Iran shot down a US drone.

 

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

 

Commodity

WTI Nymex

OTC Spot Gold

Level

101.71

1740.19

Change (NYSEARCA:USD)

0.75

-6.57

 

LOOKING AHEAD

 

Economic Releases

 

CST

GMT

 

DATA

EXP

PREV

0900

1500

US

ISM Non-Manufacturing Composite M/M (Nov)

53.5

52.9

0900

1500

US

Durable Goods Revision M/M (Oct)

 

-0.7%

0900

1500

US

Durables ex-Transportation Revision M/M (Oct)

 

0.7%

0900

1500

US

Nondef cap ex-Air Revision M/M (Oct)

 

-1.8%

0900

1500

US

Employment Trends M/M (Nov)

 

101.9

0900

1500

US

Factory Orders M/M (Oct)

-0.3%

0.3%

 

Speakers

0700

1300

EU

European Commission’s President Barroso

1110

1710

US

Fed’s Evans (Voting Member)

1300

1900

POR

Finance Minister Gaspar

1700

2300

SW

Riksbank’s deputy-governor Wickman-Parak

 

Auctions

0745

1345

FR

EUR 7.5bln combined 12-, 27- & 49-week T-Bill Auctions

0830

1430

EU

ECB Announces Bond Purchases

0845

1445

UK

BoE Asset Purchase Facility GBP 1.7bln 2015-2020 Gilt Purchases

1000

1600

US

Fed’s Outright Trea. Coup.  Purch. Aug’22-Feb’31 (USD 1.5-2bln)

1030

1630

US

USD 56bln combined 3-, and 6-month T-Bill Auctions

1300

1900

US

Fed’s Outright Trea. Coup.  Purch. Dec’17-Nov’19 (USD 4.25-5bln)

 

Prices taken at 1220GMT

 

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‘Market talk’ – Signifies information that has not been formally tested through traditional journalistic channels and therefore is to be treated as unsubstantiated. Any interpretation of the talk is taken at the readers own risk and is a representation of the rumours within the market place and never generated by ourselves.

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