- ECB’s Ordonez says strong recovery of the Spanish economy is unlikely in the short term.
- Spanish 10-yr bond yield spread continues to widen, edging closer to 6%.
- Eurozone Sentix Investor Confidence (Apr) M/M -14.7 vs. Exp. -9.1 (Prev. -8.2).
UK and EU markets played catch up at the open this morning following Friday’s miss in the US non-farm payroll report. This coupled with on-going concerns over Spain has resulted in further aggressive widening in the 10yr government bond yield spreads in Europe with the Spanish 10yr yield edging ever closer to the 6% level. As a result the USD has strengthened in the FX market in a moderate flight to quality with EUR/USD trading back firmly below the 1.3100 and cable falling toward the 1.5800 mark. There was some unconfirmed market talk this morning about an imminent press conference from the SNB which raised a few eyebrows given the recent move in EUR/CHF below the well publicised floor at 1.2000, however, further colour suggested an announcement would be linked to the naming of Jordan as the full-time head of the central bank when they hold their regular weekly meeting this Wednesday.
Elsewhere it’s worth noting that the BoJ refrained from any additional monetary easing overnight voting unanimously to keep rates on hold as widely expected. Meanwhile, over in China the latest trade balance data recorded a USD 5.35bln surplus in March as import growth eased back from a 13-month peak.
Looking ahead the main data out of the US will be the release of IBD/TIPP economic optimism for February alongside US wholesale inventories. In terms of speakers voting member Lockhart is due at 1745BST with non-voters Fisher and Kocherlakota also on the docket for today. Finally in fixed income, the NY Fed will be targeting the long-end of the curve for USD 1.5-2bln with the US Treasury holding its USD 32bln 3-yr note auction at the regular time of 1800BST.
The BoJ have unanimously kept their policy rate unchanged at 0-0.1%, as expected, holding off on any new monetary steps. The BoJ maintained their assessment that the Japanese economy is showing some signs of picking up but offered a cautious view on business sentiment, saying it was more or less flat. The BoJ has said that no member proposed expansion of stimulus at the meeting, and the bank has kept their monthly JGB purchases at JPY 1.8trl. (RTRS)
Chinese Trade Balance (USD) (Mar) M/M 5.35bln vs. Exp. -3.15bln (Prev. -31.48bln)
Chinese Exports (Mar) Y/Y 8.9% vs. Exp. 7.0% (Prev. 18.4%)
Chinese Imports (Mar) Y/Y 5.3% vs. Exp. 9.0% (Prev. 39.6%) (Sources)
The Chinese Customs Bureau has said the EU debt crisis has dampened country’s exports. A Chinese official has said the trade data shows a severe global economic situation, as such, China is likely to post a smaller trade surplus in 2012. (Sources)
Fed Chairman Bernanke has said that banks need to have more capital at hand in order to ensure the financial system is stable. (RTRS) Bernanke added that the US economy is yet to recover from the financial crisis, and regulators must continue to find new ways to strengthen the banking system.
Most major Wall St. firms expect anaemic growth in the US jobs market and a struggling economic recovery to force the Fed to undertake another massive round of monetary stimulus, according to a RTRS poll. (RTRS) 11 of 16 primary dealers said that the Fed will eventually ramp up a third round of stimulus, or QE3.
EU and UK Headlines
Italian and Spanish borrowing costs remain elevated above the German Bund, as Bank of Spain governor says a strong recovery of the Spanish economy is unlikely in the short term, and Spanish banks may need more capital if the economic situation worsens. (RTRS)
The European Commission has commented on its analysis of the Spanish budget, commenting that it welcomes ‘favourably’ the new measures announced by Spain and has a positive view of the draft budget. (Sources)
Eurozone Sentix Investor Confidence (Apr) M/M -14.7 vs. Exp. -9.1 (Prev. -8.2) (Sources)
German Trade Balance (Feb) M/M 14.7bln vs. Exp. 12.0bln (Prev. 13.1bln Rev. 13.2bln) (Sources)
- Exports SA (Feb) M/M 1.6% vs. Exp. -1.2% (Prev. 2.3%, Rev. to 3.4%)
- Imports SA (Feb) M/M 3.9% vs. Exp. 1.3% (Prev. 2.4%)
The Ernst & Young ITEM Club said that should heightened political tensions in the Middle East push the price of oil to USD 150/BBL, the Government would also be forced to borrow more and there would be a greater risk of an early interest rate hike. (Telegraph) The risk of a further spike is being taken very seriously by the Bank of England, whose governor Sir Mervyn King has already warned publicly that disruptions to the supply of oil from Iran or Nigeria would likely push inflation up.
Recent decisive monetary policy action by the ECB will not prevent unemployment in the Eurozone from remaining high over the next two years, with Germany being the exception, according to the BoE’s Adam Posen. (RTRS)
Portuguese banks’ borrowing from the ECB jumped by 18% in March from February, and at the end of last month stood at EUR 56.3bln, exceeding the previous record of EUR 49.1bln set in August 2010. (RTRS)
European cash equity markets are all in the red as the US comes to market, with particular underperformance noted in the Italian FTSE MIB and the Spanish IBEX as market sentiment continues to move away from the periphery. Markets are also noting a delayed reaction to the poor US non-farm payrolls data released on Friday as Europe returns to market following the Easter break.
Mediterranean banks are suffering the heaviest losses at the midpoint of the European session, with Intesa SanPaolo and Banca Monte dei Paschi featuring in the top losers of the day. This follows comments from the Bank of Spain governor Ordonez warning of the continued fragility of the South-European banking sector.
Although all sectors are trading lower, there are a few shares making gains including AstraZeneca, following reports from over the weekend that the major shareholders are pressing the company for a radical shake-up of the board and executive team (FT-More). As such, AstraZeneca shares currently share higher by 0.74%.
European companies are swarming to the corporate bond market for financing and vastly reducing their reliance on banks, a shift that could mark a significant change in the region’s financial landscape. (WSJ) During Q1, European companies borrowed more from the bond market than they did from banks, according to Dealogic. European companies borrowed USD 179.5bln across the quarter, a 38% increase year-on-year as the amount borrowed from banks fell by 45% across the same period.
Top performing sectors in the BE500: Health Care (-0.14%), Utilities (-0.75%), Telecommunications (-0.84%)
Worst performing sectors in the BE500: Financials (-2.24%), Basic Materials (-1.81%), Oil & Gas (-1.71%)
GBP/USD is observed on a downward trend as North America comes to market with analysts noting buying in EUR/GBP as one of the main catalysts for the losses ahead of the US open, however the pair may see some support at the lows amid market talk of Asian sovereign names bidding at the lows, however this remains unconfirmed.
EUR/USD continues to show weakness carried across from last week amid renewed worries over Spain, with ECB’s Ordonez commenting that a strong Spanish recovery is unlikely in the short term.
The SNB have commented on last week’s sub-1.2000 trade in EUR/CHF, with acting-Chair Jordan saying the transactions were isolated and the SNB’s policy towards the cross remains unchanged, again reiterating the stance to buy forex in unlimited quantities to keep the floor. EUR/CHF trades in minor positive territory following the comments.
WTI and Brent crude futures are making losses ahead of the NYMEX pit open, with overnight Chinese commentary stating that Chinese exports are being dampened by the EU debt crisis. As North America comes to market, traders will be keeping a keen eye on the situation in North Korea.
Oil & Gas News:
• China’s March imports of crude oil rose 8.7% on the year to 5.55MBPD, off the previous month’s record, but still at their third highest ever, as refiner build stocks while scaling back operations, according to data.
• Iraq’s Oil Minister has said OPEC is seeking a balance in world oil prices, but political instability rather than production issues are affecting the market price. The Minister added that he expects Iraq’s oil exports to be at 2.3MBPD, or slightly more, in April.
North Korea Update:
• North Korean officials have said they have completed preparations for the launch of a long-range rocket carrying an earth-observation satellite and have reiterated it is for peaceful purposes.
• South Korea have commented on the prospective launch saying that it will deepen North Korea’s international isolation.
• The US State Department's spokesperson Nuland said the US is not in the position to confirm any potential North Korea nuclear test, and commented that a North Korea missile launch would be highly provocative, also stating that the belief is that China would also prefer a “denuclearised” Korean peninsula.
• China, North Korea’s main ally, has reiterated its pleas for calm, according to Foreign Ministry spokesman Weimin.
• South Korean and US Officials vowed to take co-ordinated action in the face of North Korea’s planned launch, according to the South Korean defence ministry.
• The Russian foreign ministry have said North Korea's planned rocket launch shows disregard for UN resolutions.
• Iran has no interest in reviving a failed nuclear fuel swap deal with Western powers, but might scale back production of higher-grade enriched uranium once it has the material it needs, according to the head of the country’s atomic energy organisation.
• Iran has taken measures to counter a proposed US missile-defence shield in the Persian Gulf, according to the Commander of the Iranian Revolutionary Guard Air Force.