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DAILY US OPENIN NEWS - 06/10/10

 

  • Fed’s Evans called for further monetary easing by the Fed

 

  • Fitch downgraded Irish sovereign rating to A+ from AA-; outlook negative

 

  • EU Commission said that the Greek deficit and debt figures will be revised upwards by Eurostat

 

  • A well received T-Bill auction from Portugal saw Portugal/German yield spread narrow

 

 

Overnight News

 

ASIA

 

JGB yields slid to a seven-year low overnight a day after the BOJ eased monetary policy by cutting interest rates and launching an asset buying scheme. Nikkei rose 1.8% to close at its highest level in two months as investors continued to welcome the BOJ’s surprise interest rate cut the day before. (RTRS)

 

In other news, a Japanese ruling party lawmaker said that Japan is not considering selling US Treasuries in managing FX reserves. (Sources) Elsewhere, the improvement in Japan’s recovery is slowing as global growth is decelerating and exports and production are losing steam, the BOJ said in a monthly economic report today. (Sources)

 

Also in news, Japan is not considering imposing a capital surcharge on big banks on top of Basel III international standards, an official at Japan’s financial regulator said, denying a media report it was mulling such a move. (RTRS)

 

US

 

Fed's Evans called for ‘much more’ Fed easing and said he wants lower real rates to fight liquidity trap. Evans said he might support inflation above 2% for a time and sees core inflation at 1% in 2012 and below 1.5% in 2013. (WSJ) In other news, the Fed purchases of US Treasuries will not affect the Treasury Departments plans for debt issuance, Assistant Treasury Secretary Mary Millar said. (RTRS)

 

Also, Goldman Sachs said the US economy will be fairly bad at best over the coming six to nine months, with a 25 to 30% chance it will drop back into recession. A fairly bad outcome would involve the economy growing at a 1.5 to 2% pace through to the middle of 2011, with the unemployment rate rising to 10%, according to economist at Goldman Sachs. (Sources)

 

Elsewhere, US home prices may fall again unless the government provides new aid that would enable owners to refinance mortgages, Harvard University economic professor Martin Feldstein. The danger house prices are going to start falling again because of the end of the first-time homebuyer credit. He further added that fall in house prices, coupled with a lack of equity in homes, could lead to a big increase in defaults and foreclosures, putting more homes on the market driving prices down. (Sources)

 

·   MBA Mortgage Applications (Oct 1) W/W -0.2% Prev. -0.8%

·   Challenger Job Cuts (Sep) Y/Y 37.151K vs. Prev. 34.768K

·   ABC Consumer Confidence (Oct 3) W/W -47 vs. Prev. -45 (RTRS)

 

 

 

 

 

Bonds

 

EUROPEAN GOVERNMENT BONDS

 

Bund futures traded higher in early European trade on the back of strength in US Treasuries and JGBs, allied with comments from Feds’ Evans advocating the need for more Fed easing, with European peripheral 10-year bond yield spreads with respect to bunds generally wider across the board in early trade. Bunds lost some momentum following a well received T-Bill auction from Portugal, which also observed narrowing of the Portuguese/German spread, allied with a jump in German factory orders. However, moving into the North American open prices have resumed their upward trend, largely attributed to comments from the EU Commission saying that the Greek deficit and debt figures will be revised upwards by Eurostat (as expected), as well as the downgrade of Ireland by Fitch to A+ from AA-. Fitch said the outlook for Ireland is negative, and the rating could be downgraded further if the economy stagnates and broad-based political support for an implementation of budgetary consolidation weakens. It also said the Irish downgrade reflects exceptional and greater than expected fiscal cost of bank recapitalisation.

 

In other news, Moody’s has placed on review for possible downgrade the ratings of all government guaranteed long-term debt issued by Irish banks that are covered by the ELG scheme. This refers to the backed Aa2 rated senior debt of five institutions, namely, Allied Irish Banks, Anglo Irish Bank, Bank of Ireland, EBS Building Society and Irish Life & Permanent. (Sources)

 

·   German Factory Orders SA (Aug) M/M 3.4% vs. Exp. 0.9% (Prev. -2.2%, Rev. to -1.6%)

·   German Factory Orders NSA (Aug) Y/Y 20.3% vs. Exp. 17.2% (Prev. 17.7%, Rev. to 18.4%)

·   Eurozone GDP SA (Q2 F) Q/Q 1.0% vs. Exp. 1.0% (Prev. 1.0%)

·   Eurozone GDP SA (Q2 F) Y/Y 1.9% vs. Exp. 1.9% (Prev. 1.9%) (RTRS)

 

·   German Schatz Auction for EUR 4.1205bln, 0.75% 14-Sep-12, bid/cover 2.2 vs. Prev. 1.7 (yield 0.76% vs. Prev. 0.58%), retention 17.59% vs. Prev. 19.35%

·   Portuguese 3-month T-Bill auction for EUR 0.5bln, bid/cover 3.0 vs. Prev. 2.5 (yield 1.595% vs. Prev. 0.994%)

·   Portuguese 12-month T-Bill auction for EUR 0.5bln, bid/cover 2.8 vs. Prev. 1.6 (yield 3.333% vs. Prev. 3.369%) (RTRS)

 

Maturity

2

5

10

30

Bund (Dec 10)

Level

0.773

1.423

2.243

2.833

131.8

Change (bps)

-2.674

-4.284

-3.415

-2.574

0.35

 

GILTS

 

NYSE LIFFE Gilt futures traded in tandem with bunds and moving into the North American open prices have maintained strength and are trading in positive territory.

 

In other news, the ‘time has now come’ for the Bank of England to pump more money into the UK economy, according to the Institute of Directors. The organisation wants a further GBP 50bln in quantitative easing already injected into the economy to boost the money supply. (Telegraph)

 

Elsewhere, weaker-than-expected global economic growth could propel Britain’s debt as a proportion of national output to within a whisker of the dangerous 100% mark, according to the IMF. (Times)

 

·   BRC Shop Price Index (Sep) M/M 1.9% vs. Prev. 1.7% (RTRS)

 

Maturity

2.000

5.000

10.000

30.000

Gilt (Dec 10)

Level

0.616

1.573

2.914

3.944

124.78

Change (bps)

-2.831

-4.041

-4.872

-1.691

0.52

 

EQUITIES

 

European bourses traded higher during the European session on the back of strength in Asian equities, with basic materials outperforming other sectors due to weakness in the USD index as well as speculation that Anglo American is a takeover target for Chinalco. In other equity specific news, Autonomy shares climbed briefly after the company said that it expects to report Q3 2010 results around the top end of the model range, with profit before tax expected to be up 35%. However, shares soon dropped more than 12% following comments that the company expects to review its FY internal model with a revenue reduction of around 3% on the current consensus. Moving into the North American open, equities have maintained strength and are trading in positive territory, with basic materials and industrials being the top performing sectors.

 

Index

DAX

CAC

FTSE

EUROSTOXX

SMI

Level

6277.85

3775.33

5683.8

2787.96

6363.27

Change (ticks)

62.02

43.40

48.04

29.40

49.37

 

FX

 

The USD index traded lower for the entire European session on the back of comments from Fed’s Evans calling for more Fed easing, which helped EUR/USD and GBP/USD in early European trade. EUR received further support following a well received auction from Portugal, better than expected German factory orders and market talk of a Wall Street bank buying in EUR/GBP, however the currency came under pressure and ventured in negative territory after the EU Commission said that the Greek deficit and debt figures will be revised upwards by Eurostat, followed by the sovereign downgrade of Ireland by Fitch.

 

In other news, GBP received strength across the board in early European trade following a better than expected shop price index from the UK, allied with market talk that Chinalco may bid for Anglo American, and with touted middle-eastern buying. However, as the session progressed the currency pared earlier strength, partly attributed to an Asian central bank selling in GBP/USD.

 

Elsewhere, IMF’s Strauss-Kahn said that countries risk undermining the global economic recovery if they use their currencies to try to boost domestic growth. He further added that there is clearly the idea beginning to circulate that currencies can be used as a policy weapon. (RTRS)

 

Currency

EURUSD

GBPUSD

USDJPY

Level

1.3829

1.5885

83.05

Change (pips)

-0.0010

-0.0005

-0.1700

 

COMMMODITIES

 

WTI Crude futures have traded in minor positive territory for most of the European session, supported by a weakening USD Index (-0.1%) as the market continues to anticipate further easing measures from the Federal Reserve.

 

Oil & Gas News:

·         Bank of America Merrill Lynch have said that low interest rates from OECD countries will give oil prices strong support.

·         Goldman Sachs have advised that crude oil prices may increase to between USD 85-95 a barrel by the end of the year due to declining stockpiles in the US.

·         A French port strike at the Fos-Lavera oil hub is continuing for a 10th day today, with 17 crude oil tankers and 15 refined product vessels now being blocked. A CGT union official has said that no new talks are planned for now between the strikers and port management.

·         The Natural Gas Supply Association have released a report saying that natural gas demand from the US will increase by 2.4% this winter, however the rise will be offset by an expected increase in US natural gas production of 4.2%

·         The Houston Ship Channel will remain closed today as work continues on the damage tower which carries electrical cables over the channel.

 

Geopolitical:

·         South Korea has said that the threat from North Korean nuclear weapons has reached an alarming level, and North Korea is now trying to miniaturise weapons to improve their mobility.

 

In other news, according to Goldman Sachs, Gold would need a further US rate fall to push higher to USD 1500 per ounce.

 

Commodity

WTI Nymex

OTC Spot Gold

Level

82.53

1344.85

Change (NYSEARCA:USD)

-0.29

4.20

 

LOOKING AHEAD

 

Economic Releases

 CDT  BST                                                            EXP.       PREV.

0700

1300

WLD IMF World Economic Outlook

 

 

0715

1315

US    ADP Employment Change M/M (Sep)

20K

-10K

0900

1500

CA    Ivey PMI M/M (Sep)

62.0

65.9

0930

1530

US    DOE Crude Oil Invent. W/W (Oct 1)

1000K

-475K

0930

1530

US    DOE Gasoline Invent. W/W (Oct 1)

-250K

-3469K

0930

1530

US    DOE Distillate Invent. W/W (Oct 1)

-1000K

-1265K

0930

1530

US    DOE Cushing Crude Invent. W/W (Oct 1)

 

-399K

0930

1530

US    DOE Refinery Utilisation W/W (Oct 1)

-0.45%

-2.00%

 

Speakers

 CDT   BST

0800

1400

US    Treasury's Geithner

1030

1630

SW   Riksbank's Svensson

1500

2100

US    Former Fed Volcker

N/A

N/A

EU    EU's Van Rompuy

N/A

N/A

EU    EU's Barroso

N/A

N/A

EU    EU's Juncker

N/A

N/A

CN    Chinese Premier Wen Jiabao

 

 

Auction

 CDT    BST

1000

1600

US    Fed's Outright Treasury Coupon Purchase Mar 2013 - Aug 2014

 

US Earnings: Monsanto

 

**Notes:

Chinese Market Holiday

 

 

Prices taken at  1250BST



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