Daily US Opening News And Market Re-Cap: July 5

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From RanSquawk:

  • Moody's said that China's local government debt may be USD 540bln larger than auditors estimated, which could endanger Chinese banks' credit ratings
  • Worse than expected services PMI data from China and core Eurozone countries dented risk-appetite
  • GBP received support after higher than expected services PMI data from the UK

Market Re-Cap
 
Markets witnessed risk-averse sentiment in early European trade partly on the back of comments from Moody's that China's local government debt may be USD 540bln larger than auditors estimated, which could endanger Chinese banks' credit ratings. Lower than expected services PMI data from China, and core Eurozone countries dented risk-appetite further, which in turn resulted in weakness in EUR and equities. However, as the session progressed equities gradually came off their earlier lows, and the oil & gas sector received some support after the UK Treasury announced tax support for North Sea oil companies. Elsewhere, GBP/USD gained strength following better than expected services PMI data from the UK.
 
Moving forward, the economic calendar remains thin, however markets look ahead to economic data from the US in the form of durable goods revision and factory orders figures.
 
Asia Headlines:
 
Japan’s government approved a USD 25bln extra budget for disaster relief after the March 11th earthquake that will not require new bond issuance, but bigger spending later this year is likely to strain stretched public finances. Meanwhile, Japan’s Economy Minister, Yosano, said the economy is unlikely to shrink this fiscal year and that pessimistic views on the country’s economic outlook in the aftermath of a massive quake in March may have been overblown. He also said that BoJ’s view on economic recovery is in line with the government’s view. (RTRS)
 
In other news, Moody’s said China’s local government debt may be USD 540bln larger than auditors estimated, potentially putting banks on the hook for deeper losses that could threaten their credit ratings. It further said that the outlook for Chinese banking system may turn negative in the absence of a clear plan to deal with local government debt. (RTRS)
 
Elsewhere, according to Economic Information Daily, China is likely to raise interest rates this weekend after the PBOC said yesterday that inflationary pressure remains high. The report also said that the CPI increases may hit 6.2% in June. Meanwhile, according to a researcher at the State Council’s Development Research Centre, Ba Shusong, China should raise interest rates to curb inflation and cut the reserve requirement ratio to improve the lending environment for small and medium sized companies. (Economic Information Daily)
 
•    China HSBC Services PMI (Jun) M/M 54.1 vs. Prev. 54.3 (RTRS)
 
EU and UK Headlines:

 
The ECB will continue to accept Greek debt as collateral for loans unless all three big credit rating agencies declare it to be in default, said a senior finance official. The ECB would rely on the principle of using the best rating available from the agencies the official said. (FT)
 
•    EU Services PMI (Jun F) M/M 53.7 vs. Exp. 54.2 (Prev. 56.0); 8 month low
•    German Services PMI (Jun F) M/M 56.7 vs. Exp 58.3 (Prev. 56.1)
•    French Services PMI (Jun F) M/M 56.1 vs. Exp. 56.7 (Prev. 62.5); fall in French final June services PMI biggest on record
•    Italian Services PMI (Jun) M/M 47.4 vs. Exp. 49.6 (Prev. 50.1); lowest since August 2009
•    UK Services PMI (Jun) M/M 53.9 vs. Exp. 53.5 (Prev. 53.8) (RTRS)
•    Austrian bond auction for EUR 0.8bln, 3.80% 20-Oct-13, bid/cover 2.28 vs. Prev. 2.43 (yield 1.792% vs. Prev. 4.047%)
•    Austrian bond auction for EUR 0.7bln, 3.65% 20-Apr-22, bid/cover 2.20 vs. Prev. 1.99 (yield 3.528% vs. Prev. 3.477%)
•    Belgian 3-month T-Bill auction for EUR 1.206bln, bid/cover 2.97 vs. Prev. 4.63 (yield 1.313% vs. Prev. 1.254%)
•    Belgian 6-month T-Bill auction for EUR 1.608bln, bid/cover 2.59 vs. Prev. 2.55 (yield 1.403% vs. Prev. 1.340%)

Full report:

DAILY US OPENING NEWS