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DAILY US OPENING NEWS - 09/12/11

 

·      Despite agreeing on a new "fiscal compact" to tackle the Eurozone's debt crisis, the EU leaders failed to win consensus for it to be backed by a new 27-state treaty after Britain held out for safeguards to its financial sector

 

·      According to a source, the PBOC is to create a FX investment vehicle, worth USD 300bln, comprising of two funds – one focused on Europe and the other on the US

 

·      The Bundesbank said that it is fundamentally open to bilateral loans to the IMF

 

·      The Italian/German 10-year government bond yield spread tightened helped by market talk of the ECB buying Italian government paper

 

·      ECB’s sources said that ECB sovereign bond buying remains capped at a maximum EUR 20bln per week

 

·      RANsquawk European Morning Briefing Video: http://www.youtube.com/watch?v=8xKh7xMEoC0

 

Market Re-Cap

 

Despite agreeing on a new "fiscal compact" to tackle the Eurozone's debt crisis, the EU leaders failed to win consensus for it to be backed by a new 27-state treaty after Britain held out for safeguards to its financial sector. The measures disappointed the market, which resulted in a lower close to the Nikkei (-1.5%) and weighed on European equities in early trade, with stark underperformance seen in financials. News of credit downgrades of major French banks, including Societe Generale, BNP Paribas and Credit Agricole, also weighed on sentiment.  However, as the session progressed, the appetite for risk gathered pace after news emerged that the PBOC will create a FX investment vehicle, worth USD 300bln, to help the US and Europe. Meanwhile, comments from Bundesbank that it is open to bilateral loans to the IMF further helped positive sentiment. Renewed risk-appetite weighed on Bund futures, and the Eurozone 10-year government bond yield spreads narrowed across the board, with particular narrowing observed in the Italian/German spread helped by market talk of the ECB buying Italian paper. Also, outperfomance was seen in OATs, which traders attributed to strong domestic real money demand. In the forex market, EUR/USD, GBP/USD and commodity-linked currencies came off their earlier lows as the USD-Index weakened amid risk-appetite. Meanwhile, EUR/USD received further support on the back of market talk of Middle-Eastern and Asian names buying in the pair.

 

Moving into the North American open, markets look ahead to economic data from the US in the form of trade balance, and University of Michigan confidence. In fixed income, another Fed's Outright Treasury Coupon Purchase operation in the maturity range of Feb'36-Nov'41, with a purchase target of USD 2.25-2.75bln is also scheduled for later. Market participants will also keep a close eye on comments from the ongoing EU Summit, which is due to conclude today.

 

Asian Headlines:

 

Japan’s revised Q3 GDP rose 1.4% from 1.3% Q/Q, and expands annual reading to 5.6% from 5.2%. (RTRS)

 

·       Chinese CPI (Nov) Y/Y 4.2% vs. Exp. 4.5% (Prev. 5.5%)

·       Chinese PPI (Nov) Y/Y 2.7% vs. Exp. 3.4% (Prev. 5.0%) (RTRS)

 

US Headlines

 

The US Senate blocked the democratic payroll tax cut bill by 50-48, concurrently the Senate blocked the Republican payroll tax cut bill 22-76, as the two US parties reached a political stalemate over the payroll tax cuts. (Sources)

 

In other news, Fed’s holdings of Treasuries totalled USD 1.675trl as of Dec 7 vs. USD 1,672trl Nov. 30, Fed’s balance sheet liabilities totalled USD 2.803trl as of Dec 7 vs. USD 2.797trl Nov. 30, Fed’s holdings of Agency debt and MBS unchanged at USD 105.9bln and USD 827.05bln respectively, Fed said foreign central bank US debt holdings fell to USD 13,76bln to USD 3.453trl as of Dec 7. (RTRS)

 

EU and UK Headlines

 

The EU summit draft summary: (RTRS)

·       EU leaders agreed stricter budget rules for the Eurozone today, but failed to secure changes to the EU treaty among all 27 member states, meaning a deal will instead have to involve just Eurozone states and any others that want to join.

·       UK’s Cameron said will not present new treaty to the UK parliament, will not take part. Cameron said what is on offer is not in Britain’s interest.

·       The ESM will be brought forward to July 2012 and will have a maximum capacity of EUR 500bln. It will not be given a banking license; the simultaneous running of the EFSF & ESM was also rejected.

·       The possibility of moving towards common Eurozone debt issuance in the longer term should be considered.

·       Euro-area countries are ready to provide EUR 200bln in bilateral loans to the IMF, with EUR 150bln coming from Eurozone countries.

·       EU leaders are determined to move towards a 'new fiscal compact' which will require a 'new deal' between member states enshrined in a new legal framework.

·       The Euro-zone aims for new rules to ensure budget deficits do not exceed 0.5% of GDP with sanctions to be imposed on rule breakers automatically unless opposed by qualified majority vote.

 

EQUITIES

 

Despite agreeing on a new "fiscal compact" to tackle the Eurozone's debt crisis, the EU leaders failed to win consensus for it to be backed by a new 27-state treaty after Britain held out for safeguards to its financial sector. The measures disappointed the market, which resulted in a lower close to the Nikkei (-1.5%) and weighed on European equities in early trade, with stark underperformance seen in financials. News of credit downgrades of major French banks, including Societe Generale, BNP Paribas and Credit Agricole, also weighed on sentiment.  However, as the session progressed, the appetite for risk gathered pace after news emerged that the PBOC will create a FX investment vehicle, worth USD 300bln, to help the US and Europe. Meanwhile, comments from Bundesbank that it is open to bilateral loans to the IMF further helped positive sentiment. Moving into the North American open, equities continue to trade higher, with financials and industrials 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

5980.42

3154.65

5527.54

2331.34

5788.67

Change (ticks)

105.98

59.16

43.77

43.29

50.85

 

FX

 

EUR/USD, GBP/USD and commodity-linked currencies came off their earlier lows as the USD-Index weakened amid risk-appetite. Meanwhile, EUR/USD received further support on the back of market talk of Middle-Eastern and Asian names buying in the pair.

 

Currency

EURUSD

GBPUSD

USDJPY

Level

1.3401

1.5700

77.66

Change (pips)

0.0060

0.0071

0.0200

 

COMMMODITIES

 

WTI and Brent crude futures lacked direction during the European session as market participants remained sceptical about the effectiveness of measures agreed by EU leaders to tackle the Eurozone debt crisis. However prices received support after the Chinese central bank said they are to create a USD 300bln FX investment vehicle.

 

Oil & Gas News:

·       Saudi Arabia will supply full contracted volumes of crude oil in January to at least three Asian term buyers, two European customers, and one global major unchanged from December according to industry sources familiar with the matter.

·       According to Iraq OPEC governor, current oil prices are acceptable, and OPEC is likely to maintain output at next meeting.

 

 

Geopolitical News:

·       EU is to consider additional sanctions on Iran according to a summit draft. The draft on Iran doesn’t mention a possible ban on oil purchases. Japan toughened sanctions on Iran today in response to mounting Western suspicions that Tehran plans to build nuclear weapons, following more severe steps by the US and the EU.

 

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

 

Commodity

WTI Nymex

OTC Spot Gold

Level

98.72

1720.29

Change (NYSEARCA:USD)

0.38

11.92

 

LOOKING AHEAD

 

Economic Releases

 

CST

GMT

 

DATA

EXP

PREV

0730

1330

US

Trade Balance (USD) M/M (Oct)

-44.0B

-43.1B

0730

1330

CA

Industrial Merchandise Trade (NYSEARCA:CAD) M/M (Oct)

0.70B

1.25B

0730

1330

CA

Labour Productivity Q/Q (Q3)

-0.3%

-0.9%

0855

1455

US

University of Michigan Confidence M/M (Dec P)

65.8

64.1

0930

1530

US

ECRI Weekly Index W/W (Dec 9)

 

120.9

0930

1530

US

ECRI Weekly Annualised Y/Y (Dec 9)

 

-7.8%

1200

1800

US

Baker Hughes Rig Count W/W (Dec 9)

 

1993

 

Speakers

0830

1430

GE

German Foreign Minister Westerwelle

0915

1515

EU

ECB’s Praet

0930

1530

EU

Press Conference following the EU Leaders’ Summit

N/A

N/A

GE

Chancellor Merkel Attends EU Summit

N/A

N/A

EU

EU’s Barnier

 

Auctions

0930

1530

UK

Announcement of the Choice of Gilt for Mini-Tender

0930

1530

UK

Announcement of Publication of the Gilt Operations Calendar for January-March 2012

1000

1600

US

Fed’s Outright Trea. Coup.  Purch. Feb’36-Nov’41 (USD 2.25-2.75bln)

 

Prices taken at 1236GMT

 

 

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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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