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DAILY US OPENING NEWS - 19/12/11

 

·      North Korea’s leader Kim Jong Il died, the country and the military pledged support for his son Kim Jong-Un

 

·      Fitch affirmed France at AAA and revised its outlook to negative, while it placed Belgium, Spain, Slovenia, Italy, Ireland and Cyprus on rating watch negative on Friday

 

·      Moody’s downgraded Belgium’s sovereign rating by two notches to Aa3 from Aa1 (negative outlook)

 

·      Markets look ahead to European finance ministers' teleconference on bilateral loans to the IMF, expected at 1430GMT today

 

·      ECB’s Draghi said that the ECB cannot break treaties and start quantitative easing, adding that any country leaving the Euro would be worse off and would still have to go through the same reforms

 

·      RANsquawk European Morning Briefing Video: http://www.youtube.com/watch?feature=player_embedded&v=1Uhpk73025o

 

Market Re-Cap

 

Overnight news emerged that the North Korean leader Kim Jong Il has died, which promoted concerns surrounding geopolitical uncertainty and regional market volatility. This together with Moody's downgrade of Belgium's sovereign rating, late last Friday, and lingering anxiety over potential rating actions on other Eurozone members dented appetite for risk and weighed on equities in early European trade. However, as the session progressed equities pared earlier losses and moved into positive territory as market participants focused on European finance ministers' teleconference on bilateral loans to the IMF, expected at 1430GMT today. In fixed income, Bund futures came under pressure as equities regained strength, whereas the Eurozone 10-year government bond yield spreads traded mixed. However, widening was observed in the French, Italian and Belgian spreads with respect to Bunds on sovereign concerns.

 

In the forex market, EUR/USD, GBP/USD and commodity-linked currencies came off their overnight lows as the USD-Index weakened, however GBP/USD came under some pressure on the back of market talk of a Swiss name selling in the pair. Elsewhere, weakness was observed in JPY partly after reports suggested that the Japanese government is likely to downgrade country's growth forecast.

 

Moving into the North American open, the economic calendar remains thin, however NAHB housing data from the US is scheduled for later. In fixed income, USD 35bln 2-year Note auction, together with Fed's Outright Treasury Coupon Purchase operation in the maturity range of Dec'17-Nov'19, with a purchase target of USD 4.25-5bln are also due later.

 

Asian Headlines:

 

The Japanese government said they cancelled today’s release of the monthly economic report. In other news, according to the Asahi Shimbun newspaper, Japanese government is expected to lower its GDP growth forecast for 2012 to around 2% from a range of 2.7%-2.9% forecast in August. Also, according to Kyodo news, the Japanese government plans to trim spending under the general account for fiscal 2012 to slightly more than JPY 90trl. (Sources/Asahi Shimbun/Kyodo News)

 

US Headlines

 

The Federal Reserve is expected to embrace a new global framework that requires giant financial institutions to hold extra capital according to people familiar with the matter. The central bank’s decision to accept the rules laid out by regulators in Basel as part of a draft proposal that could come before Christmas is a defeat for giant US banks that argued the guidelines needn’t be so strict. (WSJ)

 

In other news, Fed’s Fisher said more monetary stimulus from the Fed would be the wrong path despite the threat the simmering European debt crisis is posing for the US economy. (RTRS)

 

Elsewhere, the US Senate passed a USD 915bln bill to fund most federal agency activities through next September and avert a government shutdown, by a vote of 67-32. Also, President Obama has signed into law a short term spending bill until a full agreement is finalised. Meanwhile, US House speaker Boehner said he and fellow House Republicans oppose Senate two month payroll tax cut extension bill, adding that the Senate and House should work out longer-term extension to payroll tax cuts that is paid for. (RTRS)

 

EU and UK Headlines

 

Fitch affirmed France at AAA and revised its outlook to negative, while it placed Belgium, Spain, Slovenia, Italy, Ireland and Cyprus on rating watch negative on Friday. Meanwhile, Moody’s downgraded Belgium’s sovereign rating by two notches to Aa3 from Aa1 (negative outlook), citing deteriorating financing conditions in the Eurozone, risks to economic growth and the costs of bailouts of banks such as Dexia. (RTRS)

 

In other news, European finance ministers will hold a teleconference on bilateral loans to the IMF and on the new fiscal compact for the Eurozone today at 1430GMT, according to EU officials. The EU officials also said that there would be a discussion about a new, qualified-majority voting mechanism that is to replace unanimity for the ESM under a decision of Eurozone leaders on December 9th. (RTRS)

 

Also, according to an EU official, European Union ministers would ask the UK to contribute EUR 30.9bln towards an IMF package aimed at rescuing the single currency in their teleconference today. However, UK PM Cameron, who blocked plans for EU treaty changes aimed at saving the currency, has repeatedly promised not to directly fund a bailout kitty. (Telegraph)

 

EQUITIES

 

Overnight news emerged that the North Korean leader Kim Jong Il has died, which promoted concerns surrounding geopolitical uncertainty and regional market volatility. This together with Moody's downgrade of Belgium's sovereign rating, late last Friday, and lingering anxiety over potential rating actions on other Eurozone members dented appetite for risk and weighed on equities in early European trade. However, as the session progressed equities pared earlier losses and moved into positive territory as market participants focused on European finance ministers' teleconference on bilateral loans to the IMF, expected at 1430GMT today. Moving into the North American open, European equities are trading in positive territory, with consumer goods and financials 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

5770.96

3004.62

5405.21

2232.15

5787.97

Change (ticks)

69.18

32.32

17.87

29.43

54.47

 

FX

 

EUR/USD, GBP/USD and commodity-linked currencies came off their overnight lows as the USD-Index weakened, however GBP/USD came under some pressure on the back of market talk of a Swiss name selling in the pair. Elsewhere, weakness was observed in JPY partly after reports suggested that the Japanese government is likely to downgrade country's growth forecast.

 

Currency

EURUSD

GBPUSD

USDJPY

Level

1.3021

1.5497

77.90

Change (pips)

-0.0025

-0.0048

0.1400

 

COMMMODITIES

 

WTI & Brent crude futures pared back early losses overnight to trade in positive territory during the European session, as the USD-Index came off its overnight highs which were seen after the death of North Korea’s Kim Jong-Il.

 

Oil & Gas News:

·  Saudi Arabia won over fellow OPEC members to forge agreement on a new oil production ceiling for the first time in three years, to accommodate increasing output from Libya and Iraq. Saudi Arabia’s crude oil consumption jumped 13.7% in October from the previous month, reaching the highest level since at least 2002 according to government data.

·  Bank of America said WTI to drop to average USD 91 per barrel in Q1 2012, and Brent crude will drop to average USD 100 per barrel in Q1 2012. They also said oil will increase by USD 40 if Iranian output is halted.

 

Geopolitical News:

·  North Korea’s Kim Jong Il died, the country and the military pledged support for his son Kim Jong-Un. South Korea’s President Lee called for a National Security meeting after the news.

·  Qatar has information that Syrian President Assad will sign an Arab peace plan aimed at ending his crackdown on anti-government protests, according to al-Arabia. Syria is to agree observer deal later today according to an Arab diplomat.

·  According to an Iranian lawmaker, Isa Ja’fari, Iran would block the Strait of Hormuz if it came under an oil embargo. Meanwhile, Iran has plans to make up for any ban on its oil exports, including processing more of its crude into products, according to Iranian oil officials.

 

Corporate News:

·  Exxon is considering making an estimated GBP 8.00 per share bid for Gulf Keystone Petroleum which has made huge oil finds in the semi-autonomous Kurdistan region of Iraq.

 

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

 

Commodity

WTI Nymex

OTC Spot Gold

Level

93.97

1592.98

Change (NYSEARCA:USD)

0.44

-5.98

 

LOOKING AHEAD

 

Economic Releases

 

CST

GMT

 

DATA

EXP

PREV

0730

1330

CA

Wholesale Sales M/M (Oct)

0.1%

0.3%

0900

1500

US

NHAB Housing Market Index M/M (Dec)

20

20

1100

1700

EU

ECB Releases Financial Stability Review

 

 

1700

2300

AU

Conference Board Leading Index M/M (Oct)

 

0.1%

 

Speakers

0805

1405

FR

Prime Minister Fillon

0930

1530

EU

ECB’s Draghi Speaks in European Parliament Committee

1130

1730

US

Fed’s Lacker (Non-Voting Member)

N/A

N/A

UK

Chancellor Osborne Announces Implementation Plans for Vickers Report

N/A

N/A

CA

Finance Minister Flaherty

N/A

N/A

GE

Chancellor Merkel

 

Auctions

0745

1345

FR

EUR 7bln combined 8-, 12-, 25- & 47-week T-Bill Auctions

0830

1430

EU

ECB Announces Bond Purchases

1000

1600

US

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

1030

1630

US

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

1200

1800

US

USD 35bln 2y Note Auction

 

Prices taken at 1219GMT

 

 

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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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