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DAILY US OPENING NEWS - 13/08/10

 

·   A record rise in German GDP figure paved way for risk-appetite in early European trade

 

·   Profit taking in equities and anticipation of key economic data from US are bolstering risk-aversion

 

·   Japan’s PM Kan and BOJ’s Shirakawa may meet as early as next week to discuss the JPY’s strength

 

·   RANsquawk daily market video: http://www.youtube.com/watch?v=HYFxw-Zzklk

 

Overnight News

 

ASIA

 

The JGB yield curve steepened overnight as midterm debt gained on prospects of further easing by the BOJ, while superlongs sagged on profit taking amid caution that authorities could finally act to prevent a further rise in the JPY. Nikkei rose 0.4%, drawing support from an apparent halt in the JPY’s advance against the USD after Japanese officials stepped up their campaign against the JPY’s rise with a series of comments. But the benchmark lacked clear direction, moving in and out of negative territory, as investors remained doubtful that USD/JPY moves will stabilise anytime soon. They also grew cautious after weak jobs data underscores persistent worries about the sluggish pace of the US economic recovery. (RTRS)

 

Some BOJ board members believe there is a need to watch the impact of the JPY’s rise and stock market decline on the economy, according to the minutes of the BOJ’s July 14th-15th meeting. Some members also said that the JPY had appreciated in part because investors had no better alternative than to buy JPY as safe assets. (RTRS)

 

China should target a rise in banks’ deposit interest rate ceiling, rather than hiking the benchmark interest rates, to pull real deposit rates out of negative territory, according to a senior government economist, Xia Bin. He added that China should continue to carry out its pledge on currency reform and increase in the CNY’s flexibility in order to accelerate economic restructuring. Also, China doesn’t need to be on alert when CPI growth exceeds 3% as the current situation is different from 2008 when the target was set, according to an unidentified official from the NDRC. (People’s Daily/Caijing)

 

US

 

Economists are getting more pessimistic about the strength of the U.S. recovery, but they don't think policy makers should do anything more to support it, according to the latest Wall Street Journal forecasting survey. The 53 surveyed economists, not all of whom answered every question, offered a bleak picture of tepid growth and high unemployment. On average, they still don't see the unemployment rate dropping below 9% through at least June 2011. They expect the economy to add just 136,000 jobs a month over the next 12 months, down from a forecast of 157,000 in the July survey. At that rate, job creation will barely keep up with new entrants to the labour force. (WSJ)

 

In other news, Fed’s balance sheet assets rose by USD 1.05bln to USD 2.33trl in the latest week. (Sources)

 

Bonds

 

EUROPEAN GOVERNMENT BONDS

 

Bund futures traded lower for most of the European session on renewed risk-appetite, strength in equities and a record jump in German Q/Q GDP figures. It is worth noting that Austrian/German 10-year government bond yield spread tightened on the back of a jump in Austrian GDP, waning economic concerns surrounding the country. Moving into the North American open prices have come off their worst levels and ventured into minor positive territory as equities lost strength, with general widening observed in European peripheral 10-year bond yield spreads.

 

·   German GDP SA (Q2 P) Q/Q 2.2% vs. Exp. 1.3% (Prev. 0.2%, Rev. to 0.5%), highest in 23-years

·   German GDP WDA (Q2 P) Y/Y 3.7% vs. Exp. 2.4% (Prev. 1.6%, Rev. to 2.0%)

·   German GDP NSA (Q2 P) Y/Y 4.1% vs. Exp. 2.6% (Prev. 1.7%, Rev. to 2.1%)

·   Eurozone GDP SA (Jun) Q/Q 1.0% vs. Exp. 0.7% (Prev. 0.2%), strongest growth rate for four years

·   Eurozone GDP SA (Jun) Y/Y 1.7% vs. Exp. 1.2% (Prev. 0.6%)

·   French GDP (Q2 P) Q/Q 0.6% vs. Exp. 0.5% (Prev. 0.1%, Rev. to 0.2%)

·   French GDP (Q2 P) Y/Y 1.7% vs. Exp. 1.5% (Prev. 1.2%)

·   French CPI (Jul) Y/Y 1.7% vs. Exp. 1.6% (Prev. 1.5%) (RTRS)

Maturity

2

5

10

30

Bund (Sep 10)

Level

0.645

1.362

2.405

3.143

131.31

Change (bps)

-1.522

-1.054

-1.490

-1.778

0.09

 

GILTS

 

NYSE LIFFE Gilt futures traded in tandem with Bunds in negative territory during the European session as risk-appetite gathered pace. However, moving into the North American open prices have come off their worst levels, trading near unchanged, as equities pared back earlier gains.

Maturity

2.000

5.000

10.000

30.000

Gilt (Sep10)

Level

0.721

1.824

3.116

4.133

123.67

Change (bps)

1.699

1.630

0.398

-1.514

-0.06

 

EQUITIES

 

European bourses opened higher on the back of strength in Asian equities, jump in German GDP figure, as well as general risk-appetite. However, as session progressed equities pared back earlier gains and moved into negative territory on the back of profit-taking as well as the market looking ahead to key economic releases from the US later in the session. Moving into the North American open, equities continue to trade in negative territory with financials and utilities as the worst performing sectors. Weakness in financials is partly attributed to news that Spanish banks increased their borrowing dependence on ECB in July. Strength in the USD index has weighed upon commodities that in turn is pressuring basic materials sector to the downside.

 

Index

DAX

CAC

FTSE

EUROSTOXX

SMI

Level

6091.09

3592.81

5243.33

2697.94

6254.63

Change (ticks)

-44.08

-28.26

-22.73

-22.91

-24.72

 

FX

 

EUR gained across the board on the back of a record jump in German GDP, better than expected French GDP, as well as an increase in French CPI. Following German GDP release, the EUR/USD spiked around 25 pips. Renewed risk-appetite weighed upon the USD index in early European trade, which in turn provided support to EUR/USD and GBP/USD. Allied to this, market talk of model names buying in GBP/USD further strengthened the pair. However, moving into the North American open, the USD index regained strength as risk-appetite faded, with the EUR/USD trading in negative territory whereas the GBP/USD trading near unchanged,

 

In other news, Japanese PM Kan and BOJ governor Shirakawa may meet as early as next week to discuss the JPY’s strength and possible responses, although likely options are seen as limited. (RTRS) Elsewhere, the Swiss National Bank reported a loss of CHF 2.8bln for the first half of 2010. (RTRS)

 

Currency

EURUSD

GBPUSD

USDJPY

Level

1.2810

1.5586

85.74

Change (pips)

-0.0019

0.0007

-0.1600

 

COMMMODITIES

 

WTI crude futures traded higher throughout the European session supported by renewed risk-appetite emerging from Europe on the back of a record 23-year jump in German GDP figures as well as weakness in the USD index. Moving into the North American open prices have maintained strength with the market looking ahead to a string of key economic data from the US in the form of CPI, retail sales and preliminary University of Michigan Confidence for August later in the session.

 

Commodity

WTI Nymex

OTC Spot Gold

Level

75.84

1214.7

Change (NYSEARCA:USD)

0.10

0.85

 

LOOKING AHEAD

 

Economic Releases

  CDT    BST                                                                   EXP.      PREV.

0730

1330

US    CPI M/M (Jul)

0.2%

-0.1%

0730

1330

US    CPI Y/Y (Jul)

1.2%

1.1%

0730

1330

US    CPI ex Food & Energy M/M (Jul)

0.1%

0.2%

0730

1330

US    CPI ex Food & Energy Y/Y (Jul)

0.9%

0.9%

0730

1330

US    CPI Core Index SA M/M (Jul)

 

221.388

0730

1330

US    CPI NSA Y/Y (Jul)

218.100

217.965

0730

1330

US    Advanced Retail Sales M/M (Jul)

0.5%

-0.5%

0730

1330

US    Retail Sales Less Autos M/M (Jul)

0.3%

-0.1%

0730

1330

US    Retail Sales ex Auto & Gas M/M (Jul)

0.2%

0.1%

0730

1330

CA    New Motor Vehicle Sales M/M (Jun)

2.0%

0.2%

0855

1455

US    Uni. of Michigan Confid. M/M (Aug P)

69.0

67.8

0900

1500

US    Business Inventories M/M (Jun)

0.2%

0.1%

0930

1530

US    ECRI Weekly W/W (Aug 13)

 

121.8

0930

1530

US    ECRI Weekly Annualised Y/Y (Aug 13)

 

-10.3%

1030

1630

US    Cleveland Fed Median CPI M/M (Jul)

 

0.1%

1200

1800

US    Baker Hughes Rig Count W/W (Aug 13)

 

1605

 

Speakers

  CDT       BST

1030

1630

US    Fed's Hoenig

N/A

N/A

EU    ECB's Honohan

 

US Earnings: JC Penney

 

Prices taken at 1149BST



Disclosure: No Position