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DAILY US OPENING NEWS - 30/05/12

· The EU is willing to envisage direct ESM bank recapitalizations, and says the Eurozone should move towards a banking union.

· The EU also noted that France must take additional steps or risk missing 2013 deficit target of 3% of GDP.

· RANsquawk European Morning Briefing Video: http://youtu.be/LnB_SbL7sKE

Market Re-Cap

Risk-averse sentiment dominated the session yet again as market participants continued to focus on Spain and speculated whether the country will soon be forced to seek some sort of monetary assistance. As a result, credit markets continued to deteriorate, with the EURUSD cross-currency basis-swaps under pressure, while the spread between Spanish and German benchmark bonds widened to a fresh Euro-era wide level. Less than impressive demand for the latest Italian debt issuance where 2017 was underbid by EUR 0.20, while the 2022 issue was underbid by EUR 0.30 also resulted in aggressive bond yield spread widening.

However, as we head into the North American open, reports that the EU is willing to envisage direct ESM bank recapitalizations saw Bunds spike lower by around 33ticks and EUR/USD by 44pips to the upside. EU stocks made an impressive recovery, but remain in negative territory. Going forward, the second half of the session will see the release of latest housing data (pending home sales), as well as the weekly API report.

Asian Headlines

China has significantly accelerated approvals for new investment projects by companies and local governments, part of the campaign to support growth in the economy, according to WSJ analysis. (WSJ)

The analysis shows in the first four months of this year, the NDRC approved more than twice as many investment projects as it did in the same period a year earlier.

China needs an appropriate amount of investment to spur economic growth but Beijing should not launch a new round of aggressive fiscal stimulus, according to influential academics. (People's Daily)

An S&P executive has said China will opt for targeted stimulus, as opposed to major spending. (Newswires)

EU and UK Headlines

EU is willing to envisage direct ESM bank recapitalizations, Eurozone should move towards a banking union.

- France must take additional steps or risk missing 2013 deficit target of 3% of GDP

- Joint debt issuance would help Eurozone budget discipline, solidarity, once preconditions met

-Greece must better implement reforms to keep getting full bailout aid, risks remains very high (Newswires)

The EC will ask the EU finance ministers to grant an additional year to Spain to reach a deficit target of 3% of GDP, extending the deadline to 2014 from 2013, according to an EU draft document. (El Pais)

Spain said it will present its medium term plan to present central government spending with the next budget that is sent to parliament. (Newswires)

Curve continued to flatten, German 2/10s flatter 2.5bps, 2/30s by 4.5bps while the Irish bond yield curve inverted for the first time since January. On that note, Irish central banker said that Irish banks need further EUR 3-4bln over 5-6 years. Today's Italian government bond auction saw the 2017 paper underbid by EUR 0.20, while the 2022 issue was underbid by EUR 0.30. Peripheral bond yield spreads continued to widen, SP/GE 10-y wider by c.30bps and IT/GE 10-y wider by c.27bps.

Italian BTP Auction Results

-Italy sells EUR 3.391bln 4.75% Jun'17 BTPs, bid/cover 1.352 (yield 5.66%) - Highest yield since December

-Italy sells EUR 2.341bln 5.50% Sept'22 BTPs, bid/cover 1.395, Prev. 1.48 (yield 6.03%, Prev. 5.840%) - Highest yield since January

BarCap Pan Euro Agg month end extension seen at +0.04yrs

BarCap US Treasury month end extension seen at +0.06yrs

iBoxx UK Agg month end extension seen at +0.06yrs

EQUITIES

Despite the bounce following reports that the EU is willing to envisage direct ESM bank recapitalizations, stocks in Europe are still trading lower across the board. Basic materials, oil & gas sectors are seen as the worst performers, as concerns regarding economic growth across the world weigh on the commodity complex. Banks are also under pressure amid tighter credit market conditions. On that note, GS's chief economist warned that Greece exiting the Eurozone could lead to EU bank runs, reported by the German newspaper Die Welt. Separately, unconfirmed market-talk that the Spanish regulator will enact another short-selling ban failed to support domestic banks.

 

 

Index

DAX

CAC

FTSE

EUROSTOXX

SMI

Level

6361.3

3060.46

5333.11

2150.41

5929.94

Change (ticks)

-35.54

-24.24

-58.03

-9.90

15.21

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

FX

EUR/USD erased touted barriers at the 1.2450 level earlier in the session and printed session low at 1.2425, intraday option expiry is seen at 1.2450 and 1.2475. USD/JPY trended lower throughout the session and large bids are touted ahead of the key 79.00 level. Of note, FX Concept's Asia chief has said EUR/USD may fall to 1.1000 and EUR/JPY to 90.00 by the year-end. The chief also expects USD/JPY at 75.00 this summer, and 83.00 by the year end. (Nikkei/Newswires)

Currency

EURUSD

GBPUSD

USDJPY

Level

1.2457

1.5603

79.08

Change (pips)

-0.0046

-0.0038

-0.4100

COMMODITIES

WTI and Brent crude futures are seen trading lower by over USD 1.00 apiece, moving in line with European stock futures and further weighed upon by USD strength across the board. Macroeconomic European concerns continue to dominate ahead of the NYMEX pit open, but energy participants can look forward to the API inventory data released after-market today.

Oil & Gas News:

  • The State Oil Marketing Organisation for Iraq has said the country's exports for May so far average 2.4MBPD, with exports from Southern oilfields at 2.13MBPD.
  • Japan's crude imports from Iran slumped by 66% in April amid continued pressure from the West to reduce buying the country's exports.
  • Royal Dutch Shell's CEO said he expects natural gas prices in North America to recover slightly next year. The CEO added that his company can produce natural gas for less that USD 2.00 and is still lowering costs.
  • Following an explosion on a pipeline carrying Azeri natural gas from the Shah Deniz fields, Turkish energy officials have warned that flows may not resume for ten days.

Commodity

WTI Nymex

OTC Spot Gold

 

Level

89.56

1554.53

 

Change (NYSEARCA:USD)

-1.20

-0.62

 

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

LOOKING AHEAD

Economic Releases

CDT

BST

 

DATA

EXP

PREV

0730

1330

CA

Industrial Product Price M/M (Apr)

0.1%

0.2%

0730

1330

CA

Raw Materials Price Index M/M (Apr)

-2.0%

-1.6%

0755

1355

US

Redbook W/W (May 25)

 

-0.9%

0755

1355

US

Redbook Y/Y (May 25)

 

2.7%

0800

1400

CA

Teranet/National Bank HPI M/M (Mar)

-0.1%

-0.2%

0800

1400

CA

Teranet/National Bank HPI Y/Y (Mar)

 

6.1%

0900

1500

US

Pending Home Sales M/M (Apr)

0.0%

4.1%

0900

1500

US

Pending Home Sales Y/Y (Apr)

22.0%

10.8%

1100

1700

FR

Jobseekers - Net Change M/M (Apr)

20.0

16.6

1100

1700

FR

Total Jobseekers M/M (Apr)

2904.0K

2884.5K

1530

2130

US

API Crude Oil Invent. W/W (May 25)

 

1482K

1530

2130

US

API Gasoline Invent. W/W (May 25)

 

-4519K

1530

2130

US

API Distillate Inventory W/W (May 25)

 

-235K

1530

2130

US

API Cush. Crude Invent. W/W (May 25)

 

491K

 
     

Speakers

1030

1630

EU

ECB's Draghi speaks at Brussels Think Tank

1220

1820

US

Fed's Fisher speaks on economy in Texas

1230

1830

US

Fed's Dudley speaks on regional economy in New York

1530

2130

US

Fed's Rosengren speaks in Massachusetts

       
     

Auctions

1000

1600

US

Fed's Trea. Coup. Purch. Aug'20 - Feb'22 (USD 4.25-5.00bln)

1030

1630

US

USD 30bln 4-Week and USD 25bln 52-Week Bill Auctions

 

Earnings

UK

N/A

EU

N/A

SZ

N/A

US

N/A

Prices taken at 1244BST

**'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.