Daily US Opening News And Market Re-Cap: July 20
- Markets look ahead to a key Eurozone leaders' summit tomorrow in anticipation of clarity over the implementation of Greece's second bailout package
- Meanwhile, German government spokesman said he is very confident that there will be a good solution found at the Eurozone summit, adding that solving Eurozone debt problems is a long term process
- According to sources, the EU is expected to weigh enabling the EFSF to recapitalise banks, and to buy bonds in the secondary market
- BoE's MPC voted 7-2 and 8-1 to hold benchmark interest rate at 0.5%, and to hold asset purchase facility at GBP 200bln, respectively, in July. BoE’s Dale and Weale voted for a rate hike by 25 basis points, whereas Posen voted for an additional “QE” of GBP 50bln
European equities traded higher during the session, led by financials, as markets look ahead to a key Eurozone leaders' summit tomorrow in anticipation of clarity over the implementation of Greece's second bailout package. Equities received further support following comments from sources that the EU is expected to weigh enabling the EFSF to recapitalise banks, and to buy bonds in secondary market. Strength in equities weighed on Bunds, whereas the Eurozone peripheral 10-year government bond yield spreads narrowed across the board. The USD-Index remained in negative territory, amid risk-appetite, which in turn supported EUR/USD and GBP/USD, whereas the latter received further strength following the release of the BoE's July minutes, which showed that the MPC members didn't change their stance on further monetary easing from last month. Also, strength was observed in the CHF, in early European session, partly on the back of news that China's CNOOC has agreed to buy OPTI Canada for approximately USD 2.1bln.
Moving forward, markets look ahead to economic data from the US in the form of existing home sales, and DOE oil inventories figures. Markets will also keep a close eye on quarterly corporate earnings results from the likes of Intel, and Qualcomm among many others.
BoJ’s deputy governor, Yamaguchi, said Japan’s economy will resume moderate recovery in latter half of fiscal 2011/12, however Europe’s debt woes could affect Japan via a fall in stocks, and a rise in JPY. He also said that Japanese output will return to pre-quake levels soon, and base-year revision seen pushing down CPI growth to near zero. (RTRS/Sources)
In other news, according to the IMF, Japan’s large public debt makes it increasingly vulnerable to a rise in bond yields, and the “spill over” impact on yields in other countries could be greater than economic models suggest. IMF also said that the BoJ could buy more assets to ward off deflation risks. (RTRS)
Fed’s Hoenig said the US economy should grow at a modest pace for the next several years, however he said that Fed’s quantitative easing was a monetisation of USD 600bln of US debt. (RTRS)
In other news, President Obama and lawmakers in both parties latched on to a new strategy for reducing the federal debt Tuesday, saying an emerging plan to save USD 3.7trl over the next decade could help break a political impasse over the debt limit and avert a U.S. default. The proposal, crafted by a bipartisan group of senators known as the “Gang of Six,” calls for USD 500bln in immediate savings and requires lawmakers in the coming months to cut agency spending, overhaul Social Security and Medicare, and rewrite the tax code to generate more than USD 1trl in fresh revenue. (Washington Post)
Also, a spokesman for House Speaker John Boehner treated the new proposal gingerly: "This plan shares many similarities with the framework the speaker discussed with the president, but also appears to fall short in some important areas.'' But senior Democrats including Sen. Dick Durbin, a member of the Gang of Six cautioned that it would be hard for Congress to process such complex legislation before Aug. 2. Still, Senate Majority Leader Harry Reid said he invited the bill's supporters to suggest elements that might be included in the Plan B framework being crafted by him and Senate Minority Leader Mitch McConnell. (WSJ)
• US MBA Mortgage Applications (Jul 15) W/W 15.5% vs. Prev. -5.1% (RTRS)
EU and UK Headlines:
The most likely scenario, sources say, is for the EU summit tomorrow to reach a mix of solutions combining the banks’ contribution with the swapping of bonds and new funding for Greece from the European Financial Stability Facility (EFSF). Such a solution, however, would signify a pattern for Ireland and Portugal, too, so the eurozone would have to strengthen the EFSF and its financial governance. (Kathimerini)
In other news, a proposal to tax Eurozone banks to help pay for a Greek rescue has emerged as the possible central pillar of a new bail-out programme, according to officials involved in negotiations ahead of an emergency European summit on Thursday. The plan, which advocates believe could raise EUR 30bln over three years, could help satisfy German and Dutch demands that private holders of Greek bonds contribute to a new EUR 115bln bail-out. It would also likely avoid a default on Greek debt, which is being fiercely resisted by the European Central Bank. Both Berlin and The Hague are still insisting that other options for private bondholder participation be included, however, and one senior European official said a “sensible” version of other recent proposals is likely to be adopted. (FT-More)
Elsewhere, according to YouGov/Citi survey, UK’s inflation expectations are seen 3.5% in July vs. 3.9% in June, and UK’s long term CPI expectations are seen 3.7% in July vs. 4.1% in June. (Sources)
• German Buxl auction for EUR 1.642bln, 3.25% Jul'42, bid/cover 1.3 vs. Prev. 1.5 (yield 3.43% vs. Prev. 3.93%, retention 17.9% vs. Prev. 16.3%)
• Portuguese 3-month T-Bill for EUR 0.450bln, bid/cover 2.4 vs. Prev. 2.0 (yield 4.982% vs. Prev. 4.926%)
• Portuguese 6-month T-Bill for EUR 0.300bln, bid/cover 3.7 vs. Prev. 3.8 (yield 4.960% vs. Prev. 4.954%) (RTRS)
European equities traded higher during the session, led by financials, as markets look ahead to a key Eurozone leaders' summit tomorrow in anticipation of clarity over the implementation of Greece's second bailout package. Equities received further support following comments from sources that the EU is expected to weigh enabling the EFSF to recapitalise banks, and to buy bonds in secondary market. Moving into the North American open, equities continue to trade in positive territory, with financials and utilities being the best performing sectors.
The USD-Index remained in negative territory, amid risk-appetite, which in turn supported EUR/USD and GBP/USD, whereas the latter received further strength following the release of the BoE's July minutes, which showed that the MPC members didn't change their stance on further monetary easing from last month. Also, strength was observed in the CHF, in early European session, partly on the back of news that China's CNOOC has agreed to buy OPTI Canada for approximately USD 2.1bln.
Elsewhere, BoJ’s deputy governor, Yamaguchi, said the BoJ is closely watching the impact of forex moves on Japan’s economy, adding that the BoJ will take flexible and decisive action as needed. (RTRS)
WTI and Brent crude futures have been supported by a weakening of the USD-Index throughout the European session as risk appetite has again been the dominant theme.
Oil & Gas News:
- Merrill Lynch say they maintain their Q3 Brent forecast at USD 110 per barrel, but increase their Q4 Brent forecast to USD 102 per barrel from previously USD 94 per barrel. However, they leave their WTI Q3 and Q4 forecasts unchanged at USD 92 and 88 per barrel respectively.
- According to insider sources Indian refiners are seeking extra crude supply from Saudi Arabia in August due to the ongoing payment disputes between India and Iran.
- According to a rebel spokesman, Libyan rebels have encircled the eastern oil hub of Brega and control parts of the town. However this was later denied by Gaddafi’s government which said their forces had repelled the rebel attack.
- Iran reportedly shot down an unmanned US spy plane over its Fordu nuclear site according to Iranian sources.
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