Daily US Opening News And Market Re-Cap: October 23
- European assets come under heavy selling pressure from the open as Moody's downgrades five Spanish regions, and El
- Confidencial writes that Spain will miss their 2012 deficit targets imposed by the EU.
- Spanish short-end particularly suffers, as the 2yr yield gains over 8bps in the European morning, and the SP/GE 10yr bond yield spread approaches 400bps.
- Focus for the US session on Bank of Canada rate decision, and Richmond Fed numbers
The Mañana approach endorsed by the Spanish government is finally beginning to have its toll on investor confidence and after being contained by the so-called Draghi put, 2y bond yields are up over 20bps for the second consecutive day. The decoupling that is being observed is being driven by yesterday’s downgrade of several Spanish regions by Moody’s, citing deterioration in their liquidity positions. As a result, Spain runs a risk of being forced to raise the size of its regional bailout fund which stands at EUR 18bln, with EUR 17.2bln already tapped, as the latest downgrade will likely put an upward pressure on borrowing costs. Major equity markets in Europe are down close to 1%, led by basic materials and oil & gas sectors, as WTI continues to consolidate below the key USD 90 level, while spot Gold continues to lose its shine and is looking to make a test USD 1700. The second half of the session sees the release of the latest Richmond Fed report, as well as the weekly API report.
The Nikkei 225 closed higher by 0.04%, at 9,014, as the JPY remained weaker against the USD for much of the overnight session, touching its weakest level since early July after briefly breaking 80.00 to the upside in USD/JPY. The Shanghai Composite closed lower by 0.86% after reports of a looming property tax weighed on appetite for Chinese stocks amid light volumes as Hong Kong traders were kept from their desks due to a market holiday. Additionally, Citigroup further cut their Chinese 2012 GDP forecast to 7.7% from 7.9%.
A CNN poll said 48% say Obama won the third presidential debate while 40% say Romney won. (CNN)
A CBS news instant poll said 53% say Obama won while 23% say Romney; 43% said it was a tie. (CBS)
EU & UK Headlines
Following the US close yesterday, Moody's downgraded five Spanish regions, citing deteriorating liquidity profiles. The reports have thrown into question the efficacy of the regional liquidity fund, which is close to its resource cap of EUR 18bln, after regions request EUR 17.18bln of the funds. Further to this, El Confidencial have written that Spain are to miss their EU-imposed 2012 deficit target of 6.3% by one percentage point, prompting participants to speculate that the worst is yet to come for Spain, despite the considerable easing in borrowing costs since last week.
The Bank of Spain have said Q3 GDP in Spain is to fall 0.4%, and Y/Y growth at -1.7%, as domestic demand continues to fall alongside higher unemployment. (Newswires)
European equities are heading south ahead of the Wall Street open, as sentiment towards the periphery sours, prompting risk-aversion across the asset classes. The risk-off theme is evident in the sector breakdown, as basic materials, oil & gas and financials suffer the heaviest losses. US stock futures are moving in line with their European counterparts, indicating a lower open on Wall Street today. In individual equities news, Nokia are trading heavy after news that they are looking to raise EUR 750mln in a bond offering, as the company seeks to take advantage of record low capital market rates and avoid the inherent riskiness of the stock markets. Nokia shares trade lower by over 6% at the midpoint of the European session as a result of the news.
Heavy selling in the riskier currencies has prompted a resurgence in USD-strength, pushing EUR/USD briefly below the 1.30 handle before running into stops below the level. The slide in the EUR follows Moody's decisions overnight on the regions, with the sentiment being compounded by El Confidencial's reports. USD/JPY remains a pair of focus, breaking through 80.00 to the upside overnight, but has come back below the mark as prolonged JPY weakness continues to be thwarted by it's safe haven status. The driver of FX markets for the US session will likely continue to be the USD, barring any surprises from the Eurozone, with Richmond Fed due following the Wall Street open, however the BoC rate decision could prompt CAD volatility.
WTI and Brent crude futures trade with losses ahead of the NYMEX pit open, as the WTI Crude falls below USD 88.00/bbl. The moves in the energy complex follow the slide in the broader stock market, and the resurgence of USD strength in the FX markets. Additionally, TransCanada have restarted their 590,000 BPD Keystone pipeline, albeit at lower volumes in order to conduct checks. Spot gold and silver prices are also trading at the lows halfway through the European session, in line with the wider commodities market.