- Markets in Asia and Europe supported by positive Chinese Manufacturing PMI which came in at the highest level in 14 months.
- Fitch affirmed France at AAA with outlook remaining negative.
- German flash PMIs for December paint a cloudy picture of the German economy, with services buoyant, but manufacturing still
- Focus turns to US CPI report and Industrial Production due later today, and further commentary regarding fiscal cliff talks.
Overnight the Shanghai Composite index rose 4.3%, marking its biggest advance since October 2009, supported by the latest HSBC flash manufacturing PMI which came in at 50.9 vs Exp. 50.8 (Prev. 50.5) – 14-month high, and with hopes for supportive policy direction to come out of this weekends central economic work conference where Chinese leaders will look to set next years GDP target and layout more information on policy for urbanisation. As such WTI crude has been trending higher since the Asia session testing around the USD 87.00 to the upside with close to a 1 USD gains ahead of the NYMEX pit open.
In terms of Europe, bund volumes have been light as markets head closer toward the Christmas break with European manufacturing and service PMI’s having little sustained impact with Italian and Spanish 10yr government bond yield spreads over German bunds seen 2.5bps and 3.5bps tighter respectively. Elsewhere, in the FX market there has been talk of US names selling 1 week 25 delta risk reversals in positioning ahead of this weekend’s Japanese elections. Given that USD/JPY has been trading up at around 9-month highs on the premise of the opposing LDP set to gain the majority control in the Diet it seems many maybe be setting up for a buy the rumour sell the fact scenario when the results are known in a few days time.
In other news, Fitch affirmed France’s AAA rating; outlook negative and expect to resolve the outlook in 2013. The news had no impact on the EUR currency and for the moment Fitch remains the sole agency out of the big three to have France rated at AAA.
The Shanghai Comp finished at a 4-month high in its steepest advance since October 2009 after the better than expected Chinese HSBC Flash Manufacturing PMI for December which came in at 50.9 vs. Exp. 50.8 (Prev. 50.5). Added to this sentiment are hopes for supportive policy from this weekends Central Economic Work Conference where Chinese leaders will set next years GDP target.
EU & UK Headlines
Fitch affirmed France at AAA; Outlook negative. (Newswires) Fitch said the affirmation of France's AAA status is underpinned by its wealthy and diversified economy, stable political, civil and social institutions and its exceptional financing flexibility reflecting its status as large benchmark Eurozone sovereign issuer. Worth of note that Fitch still has France rated at the highest of the three rating agencies, with S&P and Moody's one notch below at AA+ and Aa1 respectively. All three rating agencies have the sovereign on negative outlook.
President Obama and House speaker Boehner met at the White House yesterday for just under an hour in an attempt to get closer to a budget deal. (WSJ) Aides to both leaders issued nearly identical statements following the 50min meeting, calling the discussion 'frank' and that 'lines of communication remain open' despite another day of public criticism from both sides.
Fed begins stress tests on bank liquidity. (FT-More) The US Federal Reserve is carrying out its first ever system-wide stress test of bank liquidity in a move that could force banks to change their funding sources.
Equities opened with gains on the back of hopes that China's economy is resurging, with basic materials registering gains of 0.3% ahead of the Wall Street open. Italy's FTSE-MIB has shrugged off the political instability seen from the beginning of the week, becoming the outperformer today, up 0.25%, with the FTSE 100 and CAC 40 flagging. US stock futures trade mixed ahead of the opening bell, indicating a mixed open today.
In individual equities news, Fiat shares were halted limit-down after pre-market reports suggested the company could be undertaking a capital hike in order to buy out the remaining stake in Chrysler, bringing shares down as much as 5.1% in early trade. Having re-entered trade, a company spokesperson said the firm have no plans for a capital hike, allowing Fiat shares to pare 3% of the initial losses.
EUR/USD opened with a bid tone in today's European session, receiving a lift from the firm PMI out of China, and the risk-on rally in the local Shanghai Composite. Highs in the pair at 1.3120 were not sustained, with talk of heavy offers through 1.3100/30. Mixed PMI data from Germany has not helped the single currency, and the more restrained EUR/JPY cross has kept EUR/USD within range of intraday option expiries at 1.3100.
Both WTI and Brent crude futures head into the NYMEX pit open with modest gains, as the positive Chinese data supports the energy complex. A lower USD-index is also prompting moves higher in WTI and Brent, alongside a slight correction after selling pressure into yesterday's NYMEX close. Goldman Sachs have said that strength in Brent crude backwardation is warranted because excess global oil inventories are not crude or products, and oil market tightness to extend through 2013. As a reminder, Brent January Crude futures are due to expire alongside WTI January options at 1930GMT/1330CST. Spot gold and silver trade mixed ahead of the COMEX open, but close to their opening levels.