- German IFO headline business climate shows the fifth consecutive monthly fall in the data.
- German finance ministry says leveraging the ESM to EUR 2trl is not realistic, countering weekend reports from German press Der Spiegel that stated it would be possible.
- Focus for Europe remains on Spain and the prospect that the Spanish PM could formally request aid as soon as this week.
Risk-averse sentiment dominated the first half of the session today, as market participants digested yet another disappointing macro economic data release from Europe (German IFO), which fell for a fifth consecutive month. In addition to that, EU’s Van Rompuy said that he sees tendency of losing the sense of urgency, likely pointing the finger at Spain which is yet to request monetary assistance to prevent another speculative attack. It remains unclear when the official request will be made, but there is a risk that the application will only take place after regional elections in late October or even after the Eurogroup meeting in November.
Finally, German finance ministry spokesman said that leveraging the ESM to EUR 2trl, as reported by Der Spiegel over the weekend, is not realistic and called the report completely illusionary. As a result, peripheral bond yield spreads are wider, with Italian bonds underperforming as markets prepare for this week’s supply from the Treasury. Heading towards the North American cross over, EUR/USD is seen lower by around 75pips and is trading in close proximity to the 1.2900 level, with bids said to be placed below. Talk of dividend related buying in GBP/USD, as well as EU budget related selling in EUR/GBP by two different UK clearers helped support GBP/USD. Going forward, there are no major economic releases set for the second half of the session, but the BoE will conduct its latest APF and the Fed will buy between USD 1.5-2bln in its latest POMO.
The slowdown in China's economic growth will be curbed in the fourth quarter of the year following government measures but uncertainties will remain for future development, a Chinese think tank said in a report Sunday. (Xinhua) In other reports, China's economy hasn't shown any signs of rebounding in the third quarter, and domestic investment is unlikely to expand dramatically in the short term, according to an adviser to the PBOC. (WSJ) Also, China plans to stick to its tight property sector policies and a nationwide rebound in home prices remains unlikely, a senior official at the housing ministry said. (CNBC) All three of these reports were attributed to the weakness seen in early trade in the Chinese and Asian equity session.
BarCap US Treasury month-end extension seen at +0.02yrs.
EU & UK Headlines
German IFO Business Climate (Sep) M/M 101.4 vs. Exp. 102.5 (Prev. 102.3), falling for the 5th consecutive month.
- German IFO Current Assessment (Sep) M/M 110.3 vs. Exp. 111.0 (Prev. 111.2, Rev. to 111.1)
- German IFO Expectations (Sep) M/M 93.2 vs. Exp. 95.0 (Prev. 94.2)
The IFO have said that 50% of the responses came before the constitutional court ruling on the ESM, and so may not paint too accurate a picture of the current business conditions in Germany.
Weekend reports in German press Der Spiegel said that the ESM could be leveraged, boosting the total quantity of funds to EUR 2trl. However, contrary to this, a German finance ministry spokesman has said leveraging the ESM to EUR 2trl is not realistic, adding that the reports of EUR 2trl for the ESM are "completely illusory". (Newswires/RANsquawk)
BarCap Pan Euro agg month-end extension seen at +0.07yrs.
European equities started off on the back foot and have not regained their composure heading into the North American crossover. The losses are being led by basic materials as they bear the brunt of the speculation regarding a Chinese slowdown, with the healthcare sector being spared much of the losses due to their defensive status. German IFO data disappointed, weighing on European stock futures in the immediate release. US stock futures are moving in line with their European counterparts, indicating a lower open on Wall Street today.
In individual equities news, Total have been holding their investor day conference, with the CEO commenting that the company is to continue to sell assets as part of their strategy, additionally commenting that the company has the margins and the room to increase their dividends. Total's share price has been weighed upon by the broader oil & gas sector but are seen somewhat shielded by the CEO comments, trading lower by 0.75% ahead of the Wall Street open.
EUR/USD is seen lower by around 75pips, driven lower by weak macro data and is trading in close proximity to the 1.2900 level, with bids said to be placed below. Talk of dividend related buying in GBP/USD, as well as EU budget related selling in EUR/GBP by two different UK clearers helped support GBP/USD. Intraday option expiries for today are noted at 1.6250 and 1.6300 levels. USD/JPY erased 78.00 DNT option earlier in the session, however bids from Japanese corporate accounts saw the spot edge back above 78.00 mark. (RANsquawk)
Heading towards the NYMEX pit open, WTI crude futures are seen sharply lower weighed upon by a stronger USD. Elsewhere, markets observed negative commentary from a PBOC adviser who stated that, China's economy hasn't shown any signs of rebounding in the third quarter, and domestic investment is unlikely to expand dramatically in the short term. Spot gold and silver prices are trading lower, moving in line with the broader commodities markets, despite Citigroup raising their 2013 spot gold forecast to USD 1,749/oz and Goldman Sachs commenting that they are overweight on commodities over the next 3 months. (Newswires/RANsquawk)