Daily US Opening News And Market Re-Cap: April 25
- UK GDP (Q1 A) Q/Q -0.2% vs. Exp. 0.1% (Prev. -0.3%) - UK economy falls back into a technical recession.
- Bundesbank holds technically uncovered Buxl auction.
- Markets await FOMC Rate Decision and the Fed’s Projections release.
European equities are seen making modest gains at the midpoint of the European session; however underperformance is observed in the FTSE 100, with the UK economy falling back into a technical recession with an advanced Q1 GDP reading of -0.2%. Data from the ONS has shown that the UK’s weak construction sector weighed down upon the relative strength in services and manufacturing, pushing the economy into contraction during the first three months of the year.
Following the UK GDP release, GBP/USD spiked lower by around 40 pips and the Gilt moved around 30 ticks higher, with GBP remaining weak as the US comes to market.
Elsewhere, the Bundesbank held a technically uncovered 30-yr Bund auction, with the German Debt Agency commenting that the results reflect volatile and uncertain market conditions. Following the results, the Bund printed session lows and remains in negative territory.
Looking ahead in the session, participants look forward to the FOMC rate decision, and the Fed’s projections release.
OECD’s Gurria has said Japan needs to improve its fiscal situation and is very vulnerable to run-up in interest rates. The OECD official commented that he thinks the plan to double consumption tax is an important step. (Sources)
US MBA Mortgage Applications (Apr 20) W/W -3.8% vs. Prev. 6.9% (Sources)
BarCap US Treasury month end extension seen at +0.01yrs.
EU and UK Headlines
The UK economy has fallen back into a technical recession with the release of its advance reading for Q1 GDP:
UK GDP (Q1 A) Q/Q -0.2% vs. Exp. 0.1% (Prev. -0.3%)
UK GDP (Q1 A) Y/Y 0.0% vs. Exp. 0.3% (Prev. 0.5%)
Data from the ONS has shown that falls in construction and production have offset the growth in the services sector. Following the release, UK Chancellor Osborne said that abandoning the deficit reduction plan is one thing that would make the UK situation worse. The British Chamber of Commerce commented on the data saying that it is overly pessimistic, and the BCC expects the data will be revised upwards. (Sources)
The German Bundesbank have held a technically uncovered Buxl auction:
Bundesbank sells EUR 2.405bln 2.50% Jul '44 Bunds, bid/cover 1.1, Prev. 2.1 (Yield 2.41%, Prev 2.62%, Retention 19.8%).
Following the release, the German Debt Agency commented that the results show that volatility and uncertainty still remains in market conditions. The 10-yr Bund printed session lows following the auction.
Hollande, the French socialist Presidential candidate, is seeking to add to the EU fiscal pact with tools to promote economic growth, according to one of his senior advisers. (FT-More) The adviser said that Hollande will not ratify the treaty without changes, adding that concrete moves to regenerate growth are essential. The Presidential candidates are adjusting their campaigns in order to win over Le Pen’s right-wing voters. Sarkozy has hardened his anti-immigration rhetoric and Hollande is attempting to win over voters who have expressed dissatisfaction with the state of the economy and the handling of the Eurozone crisis. (WSJ)
Irish business activity has shown its first upturn in four years, but recovery for the Irish economy will take some time to take hold, according to a survey conducted by the KBC Bank and Chartered Accountants Ireland. (Sources)
In a visit to Europe, Chinese Premier Wen has avoided direct comments on the Eurozone crisis, but has highlighted long-standing trade concerns in a subtle reminder of what Beijing wants in return for helping bail out the Eurozone. (WSJ)
Deputy PM Clegg is due to say banks in the UK should get their balance sheets in order and meet new capital requirements, but not unnecessarily hoard capital when businesses need loans. (Sources) Clegg is due to comment that the more stringent capital requirements under the Basel III regulations are not a reason to sacrifice business lending because banks have until 2019 to meet them.
Financial firms have made ‘insufficient progress’ towards ensuring that their boards provide proper oversight of management and risk taking, according to the outgoing head of the FSA Hector Sants. (FT-More)
Nearly half of those over 50 and in employment may have to keep working well into their late 70s to claim their target income in retirement, according to a report by The Pensions Policy Institute. (FT-More)
BarCap Pan Euro Agg month end extension seen at +0.10yrs.
European cash equities are trading higher halfway through the European session, with the FTSE-100 the laggard as a negative GDP reading holds down the market. Modest risk appetite is observed in European equity space as financials are the strongest performing sector, with French banks in particular making gains, and defensive health care stocks seen lower.
GlaxoSmithKline reported their earnings at the midpoint of the European session. Shares in the company were trading relatively unchanged before the release, but following a miss on EPS estimates and a below-expected rise in total sales figures. Post-earnings, GlaxoSmithKline shares trade lower by 2.5%.
GlaxoSmithKline (GSK LN) Q1 adjusted EPS GBP 0.273 vs. Exp. GBP 0.2898 (Sources)
- Q1 total sales GBP 6.64bln vs. Exp. 6.83bln
- Q1 sales up 2%
- Q1 pharma sales GBP 4.55bln
- sees 2012 buybacks now at GBP 2-2.5bln
- Q1 dividend up 6% GBP 0.17
- FY outlook for sales; core margin unchanged
Royal Bank of Scotland shares are seen outperforming the FTSE index, alongside the financial sector, amid news that the company is to conduct a reverse 10-1 stock split, hoping to boost their share price to levels not seen since 2008. The action, if approved, is set to take place in the first week of April. RBS shares currently trade higher by 1.6% since the market open. (FT-More)
Top performing sectors in the BE500: Basic Materials (+1.88%), Financials (+1.62%), Industrials (+1.47%)
Worst performing sectors in the BE500: Health Care (-0.60%), Consumer Services (+0.12%), Utilities (+0.21%)
GBP has seen relative strength over the last few sessions, however the currency saw weakness after the UK GDP release, with GBP/USD spiking lower by around 40 pips and EUR/GBP moved through 0.8200 to the upside, with unconfirmed market talk of offers in the cross at 0.8200 failing to prevent a move to session highs of 0.8224.
EUR/USD trades within a relatively tight range and is seen modestly higher with unconfirmed market talk of offers at the 1.3250 level preventing further gains in the pair. EUR/USD now trades between two touted option expiries for the 10am NY cut, one at 1.3200 and another at 1.3250.
WTI and Brent crude futures are trading higher following a drawdown in API inventories after the pit close yesterday. Energy participants now look ahead to the DOE inventory data as well as the FOMC rate decision at 1730BST/1130CDT.
Oil & Gas News:
· Goldman Sachs’ head of commodities research has said oil demand will grow faster than production capacity even as the global economy slows, pushing prices higher. The analyst has added that Saudi Arabia is building crude supplies to meet an expected increase in domestic demand for power generation, which will draw on the stockpiles substantially in the coming months.
· On natural gas, Goldman Sachs analyst Currie has said the US price for natural gas may rebound to USD 4.00/MMBTU relatively quickly as production growth slows and colder weather returns.
· Bank of America have cut their 2013 US natural gas price forecast to USD 3.50 from USD 3.80.
· Iraq's Oil Minister has said output at the West Qurna 2 oilfield is to reach an average of 150,000 BPD in 2013, 500,000BPD in 2014.
· North Korea is armed with ‘modern weapons’ capable of defeating the US ‘in a single blow’, according to the North Korean Vice Marshal Ri Yong Ho.
· The command of the joint Gulf Arab armed force, the Peninsula Shield, plans to conduct an exercise known as ‘Loyalty Islands’ on April 29th-30th to test the coordination between their land, air and naval components, according to UAE state news.
· Pakistan have test fired a medium-range ballistic missile capable of carrying a nuclear warhead shortly after India launched a long-range missile test, according to the Pakistani military.