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DAILY US OPENING NEWS - 16/08/10

 

  • Japanese growth in Q2 grinds to a near halt falling dramatically short of estimates

  • Nouriel Roubini said he sees a 30% chance that the US economy will contract by the end of 2010

 

  • ECB’s Honohan said the recovery will be ‘gradual’, but only a small risk of a double-dip

 

 

Overnight News

 

ASIA

 

JGB futures rose to their highest in more than seven years overnight as Japan’s economy grew much less than expected in the second quarter and after US Treasuries rallied on weak data. Nikkei fell 0.6% after data showed Japan’s economy slowed sharply in April-June from the previous two quarters as export growth moderated and a stimulus-driven recovery in consumption ran out of steam. But losses were limited after support for the benchmark held last week at just over 9,000 while charts showed it approaching oversold levels, suggesting it was perhaps due for a bit of a rebound. (RTRS)

 

In other news, China should not rush to exit stimulus policies in order to protect the bottom line of economic growth, according to the head of the economic forecast department at the State Information Centre. He said that China’s economic growth may be 8% to 8.5% in the fourth quarter of this year, adding that growth may slow next year and will be acceptable as long as it remains above 8%. (People’s Daily)

 

Also, China, whose USD 2.45trl in foreign exchange reserves are the world’s largest, is turning bullish on Europe and Japan at the expense of the US, according to a former adviser to the PBOC. (Sources)

 

·   Japan GDP (Q2 P) Q/Q 0.1% vs. Exp. 0.6% (Prev. 1.2%, Rev. to 1.1%)

·   Japan GDP Annualised (Q2 P) Y/Y 0.4% vs. Exp. 2.3% (Prev. 5.0%, Rev. to 4.4%) (RTRS)

 

 

US

 

Nouriel Roubini said he sees a 30% chance that the US economy will contract by the end of 2010. He added that the economy is struggling to recover because banks are holding back about USD 1trl in loans to companies. (La Repubblica)

 

 

Bonds

 

EUROPEAN GOVERNMENT BONDS

 

Bund futures opened lower however as the session progressed prices came off their worst levels as equities pared back earlier gains. Dovish comments from Nouriel Roubini and ECB’s Honohan on US and Eurozone economies respectively, together with a sharp fall in Japanese GDP figures helped risk-averse sentiment. European peripheral 10-year bond yield spread have generally widened and moving into the North American open, prices are trading sideways in positive territory.

 

ECB’s Honohan also said that gradual growth, still tame inflation as well as the lack of asset bubbles emerging means there is no need to rush for early exit strategies from market support measures by the ECB. He added that there is very little risk of a double-dip recession, and ECB holds similar view. (RTRS/Sources)

 

·   Eurozone CPI (Jul) M/M -0.3% vs. Exp. -0.4% (Prev. 0.0%)

·   Eurozone CPI (Jul) Y/Y 1.7% vs. Exp. 1.7% (Prev. 1.4%) (RTRS)

 

Maturity

2

5

10

30

Bund (Sep 10)

Level

0.635

1.340

2.358

3.082

131.79

Change (bps)

-1.758

-2.250

-3.320

-6.299

0.31

 

 

GILTS

 

NYSE LIFFE Gilt futures traded in tandem with Bunds, opening lower but gaining strength as equities came off their best levels. News regarding a growing split in the BOE’s MPC, as highlighted in Telegraph, allied with monthly decline in UK’s Rightmove house prices further helped risk-aversion. Moving into the North American open, prices have maintained strength and trading in positive territory.

 

An article in the Saturday UK Telegraph quotes the economist from Investec as saying the MPC Minutes to be released on Wednesday might reveal the first three way split in voting in two years. MPC member Sentance has voted for 25 basis points hike in June and July as is expected to have done so at their August meeting. Investec economist David Page is predicting that two members probably voted for increasing the quantitative easing target from the current ceiling of GBP 200bln. (Telegraph)

 

·   Rightmove House Prices (Aug) M/M -1.7% vs. Prev. -0.6%

·   Rightmove House Prices (Aug) Y/Y 4.3% vs. Prev. 3.7% (Sources)

 

Maturity

2.000

5.000

10.000

30.000

Gilt (Sep10)

Level

0.676

1.780

3.065

4.081

124.12

Change (bps)

-4.175

-5.023

-5.402

-6.849

0.45

 

 

EQUITIES

 

European bourses opened higher however pared earlier gains as session progress. A sharp decline in Japanese GDP, dovish comments from Nouriel Roubini and ECB’s Honohan on economy, as well as news of a potential rift in BOE’s MPC on future policy direction weighed upon equities. However, basic materials bucked the trend and performed well throughout the European session as weakness in the USD index provided strength to commodities. Moving into the North American open, equities are trading in negative territory with financials and oil & gas as the worst performing sectors.

 

Index

DAX

CAC

FTSE

EUROSTOXX

SMI

Level

6105.42

3586.42

5265.84

2690.28

6268.09

Change (ticks)

-4.99

-24.49

-9.60

-18.45

-26.25

 

 

FX

 

The USD index traded in negative territory for the entire European session, which in turn helped EUR/USD as well as GBP/USD. EUR also gained strength on the back of market talk Swiss names buying in the currency. However, GBP remained under pressure due to weaker monthly house price figures from the UK as well as news of growing split in BOE’s MPC on future direction. Also, CHF gained strength across the board following market talk of Russian names on the offer in USD/CHF and Eastern Europe buying linked to CHF denominated mortgages.

 

In other news, Japan’s PM Kan said that he will carefully monitor the strong JPY problem and will communicate with the BOJ governor Shirakawa in a “way that is necessary”. (RTRS)

 

Elsewhere, China must keep the CNY basically stable as part of a policy kit to support the country’s international trade, according to country’s Vice Commerce minister, Zhong Shan. He added that the CNY should also be used to settle more trade, with the government working to build up the currency’s international profile. (RTRS)

 

Currency

EURUSD

GBPUSD

USDJPY

Level

1.2815

1.5598

85.63

Change (pips)

0.0061

0.0006

-0.5700

 

 

COMMMODITIES

 

WTI crude futures lacked any clear direction and moving into the North American open are trading in positive territory on the back of weakness in the USD index. However, gains are capped on persistent global economic recovery concerns led by a sharp decline in Japanese GDP.

 

In other news, an increase in Iran’s stocks of crude oil is a result of maintenance work at refineries at home and abroad rather than of international sanctions, according to Iran’s OPEC governor, Khatibi. (RTRS)

 

Commodity

WTI Nymex

OTC Spot Gold

Level

75.66

1222.75

Change (NYSEARCA:USD)

0.27

7.25

 

 

LOOKING AHEAD

 

Economic Releases

   CDT            BST                                                               EXP.        PREV.

0730

1330

US    Empire Manufacturing M/M (Aug)

8.25

5.08

0800

1400

US    Net Long-Term TIC Flows M/M (Jun)

 

$35.4B

0800

1400

US    Total Net TIC Flows M/M (Jun)

 

$17.5B

0900

1500

US    NAHB Housing Mkt. Index M/M (Aug)

15

14

 

Prices taken at 1209BST



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