Daily US Opening News And Market Re-Cap: April 23
- Dutch governing coalition collapses as deficit target agreement fails to be reache
- French Socialist Candidate Hollande wins the first round of the French presidential elections.
- PMI data from Germany and France disappoints, weighing on risk sentiment.
European stocks are trading lower as North America enters the market with participants coming to terms with the political events of the weekend. The collapse of the Dutch government has clouded the future for fiscal harmonisation in the Eurozone and the outperformance of the far-right in the French Presidential elections has highlighted the discontent of the populous with mainstream politics. As such, all European bourses are trading significantly lower, with the Bund seen trading higher by around 70 ticks. European government bond yield spreads against the German 10-yr reflect the caution, with the Dutch/German spread widening by over 10BPS and the Spanish yield holding above 6% for most of the session.
Data from Europe has assisted the moves lower in equities with Manufacturing PMI from Germany coming in much lower than expectations and Services PMI from France telling the same story. The Bank of Spain has forecast a technical recession for the country, estimating a contraction of 0.4% in Q1, giving investors more reason for risk-aversion. Italy has also added to the negative outlook in Europe, with their consumer confidence falling to the lowest levels since the data series began in 1996.
As such, EUR weakness is observed across the board as the USD and JPY benefit from safe haven flows as assets move away from Europe.
With little in the way of data it is likely that markets will remain focused on the macroeconomic commentary, however equity participants can look out for Netflix’ Q1 earnings, due after the closing bell.
The G-20 announced a further USD 430bln in extra IMF funding, with the BRIC nations signing up to contribute a minimum of USD 72bln. (RTRS/Telegraph) IMF’s Lagarde said that the total IMF lending capacity is now more than USD 1trl, however it has also been reported that much of the new funds may not be available until next year.
The BoJ is likely to hold off on buying longer-maturity bonds at the April 27th meeting, according to sources, where the Bank is expected to increase the size of asset-purchase fund. (Sources)
Chinese HSBC Flash Manufacturing PMI (Apr) M/M 49.1 (Prev. 48.3) (Sources)
The Chinese Deputy Central Bank Governor said China is still pursuing prudent monetary policy and 8.1% Chinese growth in Q1 is just about right. (RTRS)
Capitol Hill politicians are assessing tax changes that could let the IRS lay claim to a portion of the USD 18trl sitting in 401k accounts and other tax breaks used by middle-class workers, including cutting the mortgage tax deduction. (NY Post)
EU and UK Headlines
Hollande tops first round of the French presidential vote with 28.6%, Sarkozy in second place with 27% and far-right candidate Marine Le Pen comes third with 18%. (FT-More)
The Dutch governing coalition collapsed on Saturday after talks over meeting the EU fiscal pact deficit targets failed. (FT-More) Party for Freedom’s Geert Wilders pulled out of the budget cut talks, commenting that it is not in the Netherland’s interest to meet the deficit limit of 3% imposed by the new EU fiscal pact. Current PM Rutte has said the move makes new elections inevitable and he is expected to hand in his resignation today as a caretaker government oversees proceedings until a new PM is elected, likely in September. The Dutch finance minister De Jager has promised to deliver a 2013 budget by April 30th in an effort to calm markets.
Data has surprised markets to the downside in Europe this morning. Manufacturing PMI for Germany disappointed, highlighting concerns for one of the core Eurozone countries, as well as a poor reading from French Services PMI weighing on sentiment.
German Manufacturing PMI (Apr A) M/M 46.3 vs. Exp. 49.0 (Prev. 48.4)
French Services PMI (Apr P) M/M 46.4 vs. Exp. 50.2 (Prev. 50.1)
Poor data continues, with Italian consumer confidence reaching its lowest level since records began in 1996:
Italian Consumer Confidence Index (Apr) M/M 89.0 vs. Exp. 96.2 (Prev. 96.8, Rev. 96.3) (Sources)
Euro-Zone Government Debt/GDP ratio (2011) Y/Y 87.2% (Prev. 85.4% Rev. 85.3%) (Sources)
The Bank of Spain has released its estimates for Spanish GDP growth, estimating a contraction of 0.4% in Q1 2012, worsening periphery sentiment. (Sources)
ECB's Constancio said the stance of the ECB’s monetary policy is fully appropriate, and expectations of inflation are well anchored, but he expects inflation to fall below 2% early next year. (RTRS/Sources) Concerning Spain, he said the measures that have been taken to deal with the country’s budget can ensure compliance with targets in 2012 and 2013.
Commentary from the IMF:
- The first new Greek programme review will take place after the May elections and there is currently no change in Greece's debt trajectory. (Sources)
- IMF’s policy-steering committee advised Europe to recapitalize weak banks to promote financial stability. (Sources)
- IMF’s mission head to Ireland said that risks for the country remain high and package for Portugal is on track. (Irish Times/Sources)
The EIB is asking Greek companies to sign loan agreements that include clauses to renegotiate debts in case the country reverts to the Drachma. (Kathimerini)
European equities are trading lower as markets pass through the midpoint of the European session, with risk-aversion stemming from political uncertainties in the Netherlands and France. Financials are the worst performing sector of the day, investors turning away from the riskier stocks and moving towards the safe haven fixed-income assets. As such, the worst performing individual stocks of the day mostly consist of European financials, with French banks over-represented following the success of Socialist Candidate Hollande over the weekend.
In individual stocks news, Old Mutual have been removed from Goldman Sachs’ conviction buy list and are the single worst performing stock of the day, currently trading lower by over 14%. Danone have been beaten by Nestle in the bidding race for Pfizer’s infant nutrition unit, in a deal said to be worth USD 11.85bln. With Danone no longer needing to outlay the significant quantity of cash, shares in the company currently trade higher by 1.8%. Vodafone have reached an agreement with Cable & Wireless Worldwide to acquire the company for GBP 0.38 per share, giving Cable & Wireless Worldwide a value of GBP 1.044bln, as such, Cable & Wireless Worldwide and Vodafone shares currently trade higher by 15.5% and 0.76% respectively.
Top performing sectors in the BE500: Telecommunications (-0.72%), Health Care (-1.17%), Utilities (-1.51%)
Worst performing sectors in the BE500: Financials (-2.92%), Basic Materials (-2.90%), Industrials (-2.88%)
The FX markets are signalling risk aversion across the board in Europe, with the USD seeing strength and benefitting from safe haven flows. As such, EUR/USD is seen lower by over 80 pips, moving through 1.3150 to the downside, with further weakness possible as North America come to market. The USD is only seen weaker against the JPY as further safe haven flows place strengthening pressure on the JPY. The pair is seen on a downwards trajectory and may pass through the 81.00 mark, a touted option expiry for the 10am NY cut. Weekend commentary regarding BoJ easing has failed to weaken the currency as a BoJ source said that the bank is not considering buying longer-term JGBs, but the current expectation is still for an expansion in their APF. Commodity-linked currencies are also trading lower, with spot gold prices falling since the open in Europe. AUD/USD moved through 1.0300 to the downside and continues to see selling pressure, however the pair may see some support with market talk of bids at the 1.0280 level but this remains unconfirmed.
WTI and Brent Crude futures are trading lower ahead of the NYMEX pit open, with downbeat political commentary from Europe weighing on risk sentiment across markets on the continent.
Oil & Gas News:
· Oil trading is coming under close scrutiny as the industry-backed Extractive Industries Transparency Initiative explores ways to increase disclosure in deals between private trading firms and national oil companies.
· Iran plans to produce 850,000 BPD from fields it shares with Iraq and Qatar by 2015 according to the director of combined planning at National Iranian Oil Company.
· Iraq halted crude exports from Northern oil fields because of a technical fault at a pipeline network in neighbouring Turkey according to the oil ministry. The exports stopped at 1945 local time on Saturday.
· China may cut gasoline and diesel prices next month as the slowing economy reduces demand, according to a private sector researcher on China National Radio.
· China’s crude imports in March fell 54.1% from a year earlier to 253,302BPD due to pricing disputes over term contracts, according to customs data.
· Iran’s trade partners are looking for ways to avoid being hit by US sanctions on Iranian oil transactions that take effect mid-year, with Turkey looking for other suppliers, India exploring options and smaller Asian countries arguing their imports from Tehran are very small.
· Israeli army Chief of General Staff Gantz said the military is prepared to strike Iran’s nuclear facilities if called on to do so.
· North Korea’s military have announced it would soon launch “special operations” against South Korea’s conservative president, accusing him of insulting Pyongyang’s past leaders, without disclosing further details.
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