Daily US Opening News And Market Re-Cap: July 6

From Run Squawk

• Moody's downgraded Portugal's sovereign rating to "junk" status yesterday (Ba2 from Baa1; outlook negative), adding that there is also a growing risk that the country will need a second round of financing and that a private sector participation will be required as a pre-condition
• However, the German deputy finance minister said it is premature to talk about a second rescue for Portugal
• German deputy finance minister said that Germany will put the idea of a bond swap in Greek debt deal back on the table, adding that all options should be considered as rating agencies have signalled that the French model will lead to a selective default
• The PBOC raised its one-year benchmark lending and deposit rates by 25 basis points each, effective from July 7th

Market Re-Cap
 
Moody's downgraded Portugal's sovereign rating to "junk" status yesterday (Ba2 from Baa1; outlook negative), which promoted risk-aversion during the European session, and weighed on EUR and equities. Bunds traded higher and record widening was observed in the Portuguese/German 10-year government bond yield spread. Meanwhile, the German deputy finance minister said that Germany will put the idea of a bond swap in Greek debt deal back on the table, adding that all options should be considered as rating agencies have signalled that the French model will lead to a selective default. Risk-appetite was further dented after the PBOC raised its one-year benchmark lending and deposit rates by 25 basis points each, effective from July 7th.
 
Moving into the North American open, markets look ahead to Challenger job cuts data from the US, and building permits figures from Canada. In fixed income, Fed's Outright Treasury Coupon Purchase operation in the maturity range of Jan'14-Jun'15, with a purchase target of USD 2.5-3.5bln, is scheduled for later in the session. Markets will keep a close eye on any development with respect to Greek or Portuguese economies.
 
Asia Headlines:
 
Chinese banks are seen issuing CNY 6.7trl worth of new loans against last year’s CNY 7.95trl, suggesting lending could slow markedly in 2011 as Beijing’s drive to tame inflation. (China Securities Journal)
 
US Headlines
 
Democrats have floated ideas that could raise tax revenues by some USD 400bln over the next decade as they negotiate deficit reductions with Republicans, according to people familiar with the plan. Republican leaders say they want no tax increases in the deal, though some say they can accept ideas for generating additional revenue along with broader tax changes. (WSJ)

President Obama rejected proposals for a short-term deal to raise the US debt limit and pressured Congressional leaders to reach a broad agreement within two weeks to avoid a government default by August 2nd. Obama invited Democratic and Republican leaders of the US Congress to the White House on Thursday to discuss the situation. Meanwhile, House Speaker Boehner said budget talks with Obama will be “fruitless” until he recognises that legislation he wants can’t pass the House. (RTRS)
 
•    US Challenger Job Cuts (Jun) Y/Y 41.4K vs. Prev. 37.1K
•    US MBA Mortgage Applications (Jul 1) W/W -5.2% vs. Prev. -2.7% (RTRS)
 
EU and UK Headlines:
 
German deputy finance minister said it is premature to talk about a second rescue for Portugal, adding that Portugal should be given more time to implement the reform package. He further said that Germany will put the idea of a bond swap in Greek debt deal back on the table, adding that all options should be considered as rating agencies have signalled that the French model will lead to a selective default. He also said that the French model is still a good basis for discussion, however it needs to be modified, especially on interest rate that Greece pays. He said if a rating event is not avoidable, it should be limited to a short period of time. (RTRS)
 
In other news, Fitch Ratings aims to conclude its review on Portugal's creditworthiness around the end of July, after putting the European nation on negative ratings watch in April, David Riley, head of the ratings agency's sovereign group, said.  Fitch first placed Portugal on negative watch on April 1, and at the same time, slashed its sovereign rating from A- to BBB-, the lowest rung of investment grade. Riley said Tuesday that this review is targeted to conclude later this month, soon after which they will announce any associated ratings action. (WSJ)
 
German Factory Orders SA (May) M/M 1.8% vs. Exp. -0.5% (Prev. 2.8%, Rev. to 2.9%)
German Factory Orders NSA (May) Y/Y 12.2% vs. Exp. 9.5% (Prev. 10.5%, Rev. to 10.6%)
UK Halifax House Prices SA (Jun) M/M 1.2% vs. Exp. 0.0% (Prev. 0.1%)
UK Halifax House Prices (Jun) 3M/Y -3.5% vs. Exp. -4.2% (Prev. -4.2%) (RTRS)
 
German Schatz auction for EUR 3.38bln, 1.75% Jun'13, bid/cover 2.3 vs. Prev. 1.40 (yield 1.55% vs. Prev. 1.570%, retention 15.5% vs. Prev. 17.58%)
Portuguese 3-month T-Bill auction for EUR 0.848bln, bid/cover 2.0 vs. Prev. 2.40 (yield 4.926% vs. Prev. 4.863%)
UK Index-Linked Gilt auction for GBP 1.1bln, 1.25% Nov'27, bid/cover 1.64 vs. Prev. 1.94 (RTRS)

Full report:

Daily Us Opening News

Comments

[mayhem_korner]

If not for PIIGS, methinks the USD would be somewhere around "smolder."

BTW, can we gin up a confidence index for Fitch et al?  They are so late to the party it's laughable...