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  1. UK Inflation slows to 2.4%, the lowest rate since November 2009.


  1. Goldman Sachs report Q2 EPS USD 1.78 vs. Exp. USD 1.18, Q2 revenue USD 6.63bln vs. Exp. USD 6.26bln.


  1. Another quiet morning in Europe keeps price action muted across the asset classes, with participants eyeing Fed Chairman Bernanke's semi-annual testimony at 1500BST/0900CDT.


  1. RANsquawk European Morning Briefing Video:

Market Re-Cap

Today's European morning session has once again been a quiet one, with focus leaning to Fed's chairman Bernanke as he testifies before the Senate this afternoon. European cash markets opened slightly higher, shrugging off Moody's Italian banking downgrade as this is not out of the norm following the Italian sovereign downgrade announced by Moody's last week. One of the main under-performers in equities markets has been Alcatel-Lucent after a profit warning, this weighed on their telecommunication peers, notably Nokia who traded down by 4.5% in response.

The UK surprised markets somewhat by registering inflation readings at lower rates than expected. CPI came in at 2.4%, the lowest level seen since November 2009 and is now seen edging towards the BoE 2% mandated target. Despite an initial knee-jerk reaction in UK fixed income and GBP, these were quickly pared as the ONS noted the reading was driven by early summer discounting as some has expected. Germany also provided data with the release of their ZEW survey for July which showed the second consecutive negative reading month-on-month, although in response one of the ZEW economists said he would not be surprised if expectations have bottomed out.

Spain came back to the market this morning with 12-, and 18-month bills, which came in with lower yields in these maturities and raising at the top end of the indicative range. Yields have fallen since the last auction conducted in this maturity range, and therefore this was largely anticipated by markets. The US session looks to be a busier one, as US corporate earning season gets well underway with Goldman Sachs, Coca Cola, Mosaic and Johnson & Johnson reporting pre-market. The US also follows the UK with their CPI reading for June due at 1330BST (0730CDT), Fed's Bernanke at 1500BST and then the Fed discount rate minutes at 1900BST which follow the release of the FOMC minutes last week.

Asian Headlines

Fitch have said China are likely to achieve a soft landing as its growth slows, but efforts to achieve fundamental rebalancing of the economy will be delayed. (Newswires)

China is seeking interest for reverse repurchase and repurchase agreements, which may indicate that the PBOC could be adjusting liquidity, according to unidentified sources. The sources said the results of the adjustments may decide whether the PBOC cuts their RRR. (Newswires)

US Headlines

Fed's George has said the US economy is growing, but will not grow above 2% this year, with the labour market weighing on household consumption. George added that it is unclear if monetary policy can address joblessness. (Newswires)

EU & UK Headlines

Moody's have downgraded 10 Italian banks' long-term debt and deposit ratings by 1-2 notches. (Newswires) This is in line with the Moody's downgrade of the sovereign rating last week to two notches above junk status, with the ratings agency citing weak growth and elevated unemployment.

According to reports in Italian press, Italian banks bought around half of the Italian government bonds that were auctioned on Friday after a treasury official told them to do so. The head of the treasury's debt management agency Maria Cannata asked Italian banks to support Friday's sale of 3-year bonds for fear that Moody's downgrade of the country's sovereign rating would have negatively affected the auction. (Milano Finanza)

UK CPI (Jun) Y/Y 2.4% vs. Exp. 2.8% (Prev. 2.8%); lowest since November 2009
- UK CPI (Jun) M/M -0.4% vs. Exp. -0.1% (Prev. -0.1%)
- UK Core CPI (Jun) Y/Y 2.1% vs. Exp. 2.5% (Prev. 2.2%)
- fall in inflation was driven by early summer discounting according to the ONS
The continued decline in the inflation rate towards the BoE's 2.0% mandate may provide the MPC's arch-doves with extra ammunition to argue for further easing support for the UK economy. As such, the next signal for future BoE policy will arise from the release of tomorrow's minutes from their last meeting wherein they chose to expand their APF by GBP 50bln.

Spanish T-Bill Auction Results (Newswires)
-Spain sells EUR 2.60bln 12-month T-Bill, bid/cover 2.23 , Prev. 2.16 (yield 3.918%, Prev. 5.074%)
-Spain sells EUR 0.96bln 18-month T-Bill, bid/cover 3.66 , Prev. 4.42 (yield 4.242%, Prev. 5.107%)
Despite lower yields and Spain raising at the top end of the indicative range today, yields on Spanish paper have fallen since the last auction conducted in this maturity range, and therefore this was largely expected. Added to this Spain have also already completed well over 50% of issuance for this year, and following strong demand for Italian shorter dated paper last week this was also expected from Spain in today's offering.

German ZEW Survey (Economic Sentiment) (Jul) M/M -19.6 vs. Exp. -20.0 (Prev. -16.9)
German ZEW Survey (Current Situation) (Jul) M/M 21.1 vs. Exp. 30.0 (Prev. 33.2) (Newswires)
- decline in indicator is flattening out gently, could be an early sign of encouraging development in 2013
- ZEW indicator backs up view of 1.5.% GDP growth next year


European equities are largely seen sitting on the fence alongside the other asset classes ahead of Fed Chairman Bernanke presenting in front of the Senate on monetary policy in the US. As such, the key cash bourses are in modest positive territory, with the FTSE-100 the only index slipping into the red. Cautious progress is observed with Oil & Gas seen outperforming and financials trading roughly flat on the day, despite Moody's downgrades on Italian banks late last night. US stock futures reflect the modest gains in European futures, indicating a higher open on Wall Street ahead of Bernanke today.

In individual equities news, Alcatel-Lucent are a notable underperformer today after issuing a profit warning pre-market. The company warned shareholders that despite seeing Q2 revenues above EUR 3.5bln, the company will not reach its adjusted operating margin guidance for 2012. The company now trades lower by over 15%. In a sector-related move, Nokia shares are seen taking heavy losses alongside Alcatel-Lucent ahead of the release of their respective corporate earnings on Thursday.

Goldman Sachs Q2 EPS USD 1.78 vs. Exp. USD 1.18 (Newswires)
- Q2 revenue USD 6.63bln vs. Exp. USD 6.26bln
- Q2 operating expenses USD 5.21bln, 23% lower vs. Q1
- Q2 AUM USD 836bln
- Q2 investment banking revenue USD 1.20bln, down 17%

- FICC USD 2.2bln

- Declares USD 0.46 quarterly dividend

Following their earnings, Goldman Sachs shares are indicated up 2% in pre-market trade.


EUR/USD is seen trading within a tight range throughout the European morning, and was observed grinding upwards and through the overnight high to 1.2317. The gains have been capped since then with market talk of Asian and US names selling at these levels, but still in positive territory on the day. The pair now trades between two touted option expiries at the 1.2250 and 1.2300 handle for the 10am (1500BST) NY cut. Alongside the other asset classes, participants continue to eye Fed Chairman Bernanke's testimony as the next flashpoint.

GBP/USD is seen mirroring the thin trade today, but did see volatility following the UK inflation data, coming in far below forecast, prompting session lows at 1.5612, but the fast-money move was rapidly pared. Following the data, the pair has been grinding higher, back to unchanged. Should the pair see any downside over the next few hours, a touted option expiry at 1.5600 may prove magnetic heading into the 10am (1500BST) NY cut.


Brent crude futures trade higher into the North American session, buoyed by speculation of hints towards easing measures by Fed chairman Bernanke this afternoon and with renewed tensions around Iran. WTI are seen under-performing their European peer, trading flat at the mid-point of the European session.

Oil & Gas News


  1. OPEC's petroleum exports jumped in value by 40% in 2011 year-on-year and the producers' GDP climbed 18% according to reports.
  2. Angola is to export 1.57 MBPD of oil in September, down from 1.81 MBPD originally scheduled to load in August according to trade sources.
  3. China's crude oil output fell 0.1% to 16.5mln metric tons last month compared with a year ago according to the China Federation of Logistics and Purchasing. Chinese natural gas production rose 2.6% to 8.15bln cubic meters in June.
  4. A treaty that could unlock massive Arctic oil and natural gas resources lacks the votes to pass the US Senate, after two key Republicans announced yesterday that they will oppose the treaty.
  5. Helix Energy announced it discovered oil at a well offshore the Gulf of Mexico and it expects output from the well in Q4.

Geopolitical News


  1. US Secretary of State Clinton has said the US is to use all elements of power to halt nuclear Iran, in an attempt to assuage Israeli fears over the country's nuclear program.
  2. China's government can follow Japan's example and provide insurance guarantees for Chinese tankers carrying Iranian oil amid Western sanctions on Iran according to shipping conglomerate COSCO.

Last price taken at: 1240BST

WTI Crude August options expiry (1930BST/1330CDT)

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