Daily US Opening News And Market Re-Cap: November 8
- European sources say the chances of Spain applying for ESM aid by the end of 2012 are receding, and the ECB is not in a hurry to activate their OMT program.
- ECB, BoE keep their monetary policy unchanged - alongside expectations.
- Focus turns to ECB President Draghi's press conference due at 1330GMT/0730CST, alongside the weekly jobs data from the US.
European equities have made tentative progress this morning, led by the technology and basic materials sectors. The European morning was relatively peaceful until a flurry of activity on the back of European sources commenting that Spain are unlikely to seek ESM aid until the end of the year, and the ECB are not in a rush to commence bond-buying using their OMT facility. The delay of expectations of purchases has taken its toll on the Spanish debt markets which, despite completing their 2012 issuance smoothly today, show signs of strain as the 10yr yield breaches 5.81%, and the yield spread approaches 450bps against the German benchmark – the level at which LCH begin to review margin requirements. The pain in Spain has also impacted the EUR currency, with the major EUR/USD pair printing a two-month low of 1.2720 this morning.
Both the ECB and BoE selected to keep policy on hold at their respective meetings, alongside expectations, with focus now turning to Draghi's presser, where he is likely to face a grilling on the state of the OMT program.
Greek news late yesterday has failed to stir risk sentiment, with the parliament passing the austerity bill marginally, as the governing coalition still face their budget proposal this weekend, and European leaders have reiterated their belief that no resolution will be reached in the next few weeks.
Asian equities echoed the trend observed in yesterday’s US session, with focus remaining on the fiscal cliff hurdle that Obama now faces.
The Nikkei 225 and Shanghai Composite closed with losses of 1.5%, and the Hang Seng Index suffered from further selling pressure ahead of the Chinese leadership handover due in the next few days, closing down 2.4%.
EU & UK Headlines
Sources have commented that Spain is unlikely to seek ESM aid this year, and the ECB are not in a hurry to commence bond-purchases under their OMT program. The news translated into selling across the curve in Spanish debt markets, bringing the Spanish 10yr yield to multi-month highs of 5.8%, and widening the SP/GE 10yr yield spread towards 450bps, and bringing EUR/USD to two-month lows.
The ECB left its key benchmark interest rate unchanged at 0.75%, as expected, deposit rate unchanged at 0% and marginal rate unchanged at 1.50%. Dec Euribor saw volatility following the rate decision, with an immediate move to the downside as there was an outside chance of the ECB cutting the deposit rate, however this was quickly pared.
The Bank of England kept their benchmark borrowing rate and QE asset purchase target unchanged at 0.5% and GBP 375bln respectively - alongside expectations. As there were outside bets that the MPC could move to expand their asset purchases, Gilt futures saw immediate weakness, with the 30yr Gilt falling to fresh session lows, and the 10s/30s spread tightening.
The Spanish Treasury completed their 2012 issuance target this morning, selling EUR 4.8bln across three lines against the target of EUR 4.5bln. Spanish 10yr yields did not see any relief, as focus remained on the aforementioned source comments that Spain is less likely to request aid formally by the end of 2013.
European equities have made tentative progress ahead of the North American open, despite weakness in the EUR and the flagging Spanish bond market. The technology and basic materials sectors lead the gains, however the FTSE-MIB in Italy is suffering losses. The Spanish source comments did bring the IBEX-35 into the red briefly, but the index has recovered from the losses at the midpoint of the trading day, with all eyes looking toward Draghi at 1330GMT/0730CST.
After yesterday's steep sell-off post-elections, US stock futures are trading higher, in line with their European counterparts, indicating a higher open upon the Wall Street opening bell.
The EUR currency remains weak despite last night's news that the Greek parliament passed their austerity bill through parliament. The EUR/USD pair came under significant selling pressure following the Spanish source comments, bringing the pair to two-month lows of 1.2720 this morning, and failed to recoup the losses despite the Spanish treasury selling bonds smoothly.
With the Bank of England choosing to stand their ground at their rate announcement, GBP recovered the mornings losses to bring GBP/USD back into positive territory, and pressing EUR/GBP to session lows. Despite the gains in the GBP currency, the GBP/USD pair has been unable to reclaim the 1.60 handle, with attention now turning to next week’s Quarterly Inflation Report from the Bank.
WTI and Brent crude futures are higher ahead of the NYMEX pit open, paring back some of the steep losses seen in yesterday’s trade. The energy complex is moving alongside the core European stock futures. Market focus turns to the EIA Natural Gas Storage Change numbers due at 1530GMT/0930CST. Spot gold and silver trade little changed, with spot gold coming off yesterday’s lows. The GFMS have said they expect China to overtake India as number 1 gold consumer in 2012, with Chinese gold demand seen rising 1% in 2012.