Daily Market Re-Cap: October 30
- Storm Sandy restricts US markets to limited opening times, so a light volume US session is expected once again.
- Bank of Japan increase the size of their asset purchase target by JPY 11trl to a total of JPY 91trl. However, the policy action is
- outweighed by the board's downward revision to both growth and CPI estimates for the 2012-2015 period.
- The Italian Treasury sells 5- and 10-yr BTPs at the lowest yield since May 2011, and Spanish Q3 GDP beats expectations to ease sentiment towards the Eurozone periphery.
Due to Hurricane Sandy the following markets are closed and/or have adjusted opening and closing times:
- All US based equity markets will close at 1315GMT/0815CDT. NYSE and NYMEX floor trade remains closed.
- The CBOT pit will be closed but electronic trade open as normal, futures will trade until their normal close at 2100GMT/1600CDT.
- NYMEX Energy and COMEX Metal products will trade until their normal close at 2100GMT/1600CDT.
- All other CME Globex products will open and close per their normal schedule.
Equity markets in Europe traded higher today, supported by solid corporate earnings, further monetary policy easing from Japan, as well as what can only be described as “less bad” GDP report from Spain. Also, commodity complex benefited from upward revision to China’s GDP estimate by analysts at Bank of America (Q4 GDP estimate now stands at 7.8% vs. Prev. view of 7.5%). Decent demand for the latest debt issuance saw IT/GE 10s tighten by c.5bps, with SP/GE 10s also seen tighter by 3bps.
The Bank of Japan eased their monetary policy overnight via an increase in their asset purchase target of JPY 11trl to a sum total of JPY 91trl, and kept their overnight call rate target unchanged at a range of 0.0-0.1% unanimously. Despite the policy action, the move was received negatively by the Japanese asset classes, as the bank revised lower their GDP forecasts for the 2012-2015 period, and downgraded their core CPI estimates, indicating that the Japanese economy is not out of the woods yet. As such, the JPY saw strengthening across the board post-release, with the Nikkei 225 tumbling to close lower by 0.98% at 8,842. The Shanghai Composite however, closed higher by 0.17%, with basic materials sector leading the gains. Despite the modest strength in the Shanghai, the Hang Seng Index closed lower by 0.38%.
Bank of America have upgraded their growth forecast for China, now seeing 7.8% growth in Q4 this year, up from their previous forecast of 7.4%, also upgrading 2013 and 2014 annual estimates, due to greenshoots in the decline of raw materials inventories, alongside better quality data expected to be released from the country.
EU & UK Headlines
European assets have seen risk-on sentiment from the open, alongside the release of Q3 Spanish GDP numbers, beating expectations: -0.3% vs. Exp. -0.4% (Prev. -0.4%). Although the release did confirm recession in the country, the data was received positively across
Europe, with peripheral EU stock indices outperforming their core counterparts in early trade.
The Italian Treasury sold EUR 7bln 5- and 10-yr bonds at the lowest yield at auction since May 2011, to solid demand.
Italy sells EUR 3bln 5.50% Nov'22 BTPs, bid/cover 1.43, Prev. 1.33 (yield 4.920%, Prev. 5.240%)
Italy sells EUR 4bln 4.75% Jun'17 BTPs, bid/cover 1.49 (yield 3.800%)
In reaction to these auction results BTPs rallied to session highs and the Italian 10-yr yield spread against the benchmark German Bund
narrowed to the tightest level of the day.
European equities have seen upside from the open, and head into the midway point of the European session trading higher by around 1.0% across the core bourses. The oil & gas sector leads the way higher following firm earnings from FTSE-listed BP, with the health care the laggard of the day due to its defensive status, albeit in positive territory by around 0.3%. The moves higher have been supported by the stronger EUR in the FX markets, as well as the not-as-bad-as-expected growth data from Spain.
BP are one of the strongest performers in European trade, after reporting Q3 profits of USD 5.43bln, up from prev. USD 5.04bln, increasing their quarterly dividend by 12.5% to USD 0.09 per share. BP now see their Q4 production higher than in Q3, but expected refining margins to decline.
USD-weakness has been observed from the open, being led by mass JPY strength in post-BoJ trade, with extended moves to the downside in USD/JPY. As such, both EUR and GBP are higher against the USD for the entirety of the European morning. The steady decline in USD/JPY has brought touted stops below 79.20 into play and talk of good size bids heading into the 79.00 handle could prevent any further downside if the USD continues to weaken.
In GBP/USD, the pair has been largely USD-driven, however extended moves higher have been prevented by strong bids in the EUR/GBP cross. But, this could be short-lived with offers seen heading into 0.8070.
WTI and Brent crude futures trade with gains at the midway point of European trade, as the weaker USD-index lifts downward pressure on energy complex. Looking ahead in the session API figures are due at 2030GMT, the API Institute says it has not delayed the release of its report yet, but will continue to assess conditions. The USD weakness has also rubbed off on the precious metals, with gold and silver trading higher in spot markets.