- After the closing bell yesterday - Google and IBM reported consensus beating earnings metrics, in pre-market trade Google
- shares seen up 5% and IBM up 4%. Apple is due to report after the bell today.
- Orders top EUR 10bln on Portugal 5yr bond tap, spread set at mid-swaps +395bps according to leads (initial guidance was at
- Goldman Sachs has raised its EUR/USD forecast to 1.4000 from 1.3300
- BoE MPC voted 8-1 to keep QE unchanged and 9-0 to keep interest rates unchanged at 0.50%
Heading into the North American open, equities are trading in minor negative territory, led lower by banks as markets look forward to the first LTRO repayment, as well as lingering concerns that losses from derivatives contracts by Monte Paschi (entered with Nomura) may undermine the lender’s earnings. Monte Paschi shares opened 8% lower and were halted by the exchange to prevent a further slide in share price. As a result, even though EUR/USD is trading higher and peripheral bond yield spread are tighter, Bunds are trading in minor positive territory. Of note, Spain’s Iberian neighbour Portugal opened books for its 2017 bond and books are said to be around EUR 10bln, with guidance at MS+395bps (down from original MS+410bps). EUR/USD has also benefited from the decision by the Portuguese Treasury to tap capital markets only a day after a successful placement by Spain yesterday. Looking elsewhere, even though USD/JPY has bounced off earlier lows, implied vols continue to trade heavy as option decay and re-positioning post the BoJ decision weighs on prices. So much so that R/R has slipped to Sep levels, but still favours bets on further JPY depreciation.
Going forward, market participants will get to digest interest rate decision by the Bank of Canada, as well as the latest economic outlook update by the IMF. Also, McDonalds, United Tech and Apple are set to report today.
Japanese Government upgraded its monthly economic assessment for the first time in 8 months. Policy makers noted that some parts of economy showing signs of bottoming out and expect the Bank of Japan to take bold steps to achieve 2% inflation.
EU & UK Headlines
The BoE Minutes from the most recent MPC meeting revealed that the Committee voted unanimously in favour of keeping the interest rate at 0.5%. However David Miles argued that an easing of monetary policy, in part by discouraging any further appreciation of sterling, could help the rebalancing process and avoid potentially lasting destruction of productive capacity. In other UK related commentary, the number of Britons claiming unemployment benefit posted a surprise fall in December to the lowest since mid-2011.
Orders top EUR 10bln on Portugal 5yr bond tap, spread set at mid-swaps +395bps according to leads (initial guidance was at 410bps) - PO/GE 5s spread tighter by 10bps
Of note, this week marks the beginning on the period when banks in Europe are given an opportunity to repay 3y LTRO funds. Banks have until today (January 23rd) to inform their national central banks of their intention to repay funds and these repayments will be settled the following Wednesday. This Friday, the ECB will announce the size of the first 3y LTRO repayment and around 10-20% of funds borrowed or EUR 100-120bln will be repaid. The EONIA curve is marginally flatter this morning and aggressive steepening is unlikely to materialise unless banks decide to repay significantly higher amount.
House speaker Boehner says it is time to come up with a plan to balance the budget over the next 10 years and that the important issue that must be addressed is spending. He added, Republicans wont raise taxes on Americans. Of note, debt ceiling extension vote set to take place today.
US MBA Mortgage Applications (Jan 18) W/W 7.0% vs. Prev. 15.2%
Equities are trading in minor negative territory, led lower by banks as markets look forward to the first LTRO repayment, as well as lingering concerns that losses from derivatives contracts by Monte Paschi (entered with Nomura) may undermine the lender’s earnings. Monte Paschi shares opened 8% lower and were halted by the exchange to prevent a further slide in share price. Of note, Google and IBM reported consensus beating earnings metrics and in pre-market trade Google shares are seen up 5%, IBM up 4%.
Major EU earnings:
Siemens reported Q1 net income from continuing operations of EUR 1.30bln vs. Exp. EUR 1.18bln, Q1 sales EUR 18.1bln vs. Exp. EUR 18.8bln. Co. also confirmed 2013 outlook.
SAP said it sees non-IFRS operating profit in range of EUR 5.85-5.95bln, sees 2013 non-IFRS software related services revenue to increase 11%-13% Y/Y vs. Exp 14% and sees 2013 IFRS effective tax rate of 25.5%-26.5%, non-IFRS tax rate 27%-28%.
Novartis reported Q4 core net income USD 3.1bln vs. Exp USD 3.03bln, Q4 core EPS USD 1.27 vs. Exp. USD 1.25 and Q4 sales USD 14.8bln vs. Exp. USD 14.5bln. In addition to that, it was reported that Daniel Vasella is to step down next month as chairman of Novartis and to be replaced by Jörg Reinhardt, the head of Bayer Healthcare.
For a full rundown of US earnings, please refer to US Equity Opening News report which will be available at 1400GMT.
Goldman Sachs has raised its USD/JPY forecast to 87.00 over next 3, 6 and 12 months from 80.00 and also raised its EUR/USD forecast to 1.4000 from 1.3300 over next 3 and 6 months.
Even though USD/JPY has bounced off earlier lows, implied vols continue to trade heavy as option decay and re-positioning post the BoJ decision weighs on prices. So much so that R/R has slipped to Sep levels, but still favours bets on further JPY depreciation. However another attempt to consolidate above the 90.00 level is unlikely in the coming days unless the BoJ and the government steps up verbal intervention rhetoric. Separately, EUR/USD edged higher for much of the session, supported by further PO/GE bond yield spread tightening, especially in the short-end, after it was reported that books on 5y syndication rose to EUR 10bln and spread was reduced to MS+395bps (originally set at 410bps)
WTI futures are currently trading flat amid some mild profit taking after trading near their four month highs yesterday. Looking ahead market participants will focus on API inventories data set for release at 2130GMT/1530CST.
The US state department has delayed a decision on TransCanada's rerouted Keystone XL oil pipeline until after March.
Israeli PM Netanyahu has claimed victory in Israel's parliamentary election, shrugging off surprise losses to centre-left challengers and vowing to stop Iran from acquiring nuclear weapons.
Deutsche Bank raises China oil growth forecast for 2013 and raises China oil demand growth outlook to 5%.