Daily US Opening News And Market Re-Cap: April 3
- Irish Fiscal Panel says more budget cuts may be needed to reach 2012 targets.
- EU/ECB report notes that Portuguese contraction in 2012 is likely to be more pronounced than originally thought.
- UK Construction PMI (Mar) M/M 56.7 vs. Exp. 53.5 (Prev. 54.3).
European cash equities are trading in the red heading towards the US session, with particular underperformance in the periphery as financials continue to remain the biggest laggard. The EU session so far has consisted of downbeat commentary in regards to both Ireland and Portugal. An EU/ECB report noted that, Portuguese debt is now predicted to peak at 115% of GDP in 2013 and that contraction in 2012 is likely more pronounced than thought. Elsewhere, the Irish Fiscal panel said Ireland may need extra budget cuts to reach its 2012 target and 2012 growth has weakened. In terms of economic releases the UK observed a stronger than expected reading on its Construction PMI hitting a 21-month high, which saw some brief strength in GBP.
Overall across various assets classes’ volumes have remained fairly light as we head towards the Easter holiday and as market participants await the release of the FOMC minutes at 1900BST. Looking ahead in the session, in terms of major data releases; US factory orders and durable revisions are due to be released at 1500BST.
Japanese finance minister Azumi has commented on Japan’s contribution to the IMF by saying it is better to make progress later this month in Washington as he wants to consult with the US and others. (Sources)
Japanese economy minister Furukawa has said he hopes the BoJ will take appropriate steps to realize the 1% inflation goal, adding that the government and the central bank have been working closely to exit deflation. (Sources)
Japan and China will hold their fourth finance ministers meeting on April 7th to discuss both respective economies, according to the Japanese finance minister. (Sources)
Chinese Non-Manufacturing PMI (Mar) M/M 58.0 (Prev. 57.3) (Sources)
**Note: Chinese Market Closed
PBOC Governor Zhou has said the US must take more responsibility for the global economy when conducting quantitative easing; adding that he hopes liquidity injections by the US will stay in the US as some emerging economies see excessive capital inflows following the operations. (Sources)
EU and UK Headlines
Eurozone PPI M/M (Feb) 0.6% vs. Exp. 0.5% (Prev. 0.7%, Rev. 0.8%)
Eurozone PPI Y/Y (Feb) 3.6% vs. Exp. 3.5% (Prev. 3.7%, Rev. 3.8%) (Sources)
UK Construction PMI (Mar) M/M 56.7 vs. Exp. 53.5 (Prev. 54.3), 21 month high reading. (Sources)
- New orders in the UK construction sector rise at fastest pace 4.5 years
The EU and ECB have released a report concerning the state of the Portuguese economy, stating that contraction in the country is likely to be more pronounced than originally thought, however the Portuguese program remains on track. The report adds that Portugal may have to implement deeper labour market reforms and Portuguese banks may struggle to reach 2012 recapitalization needs. (Sources) Following the report an EU official said the assumption is that Portugal will not require a second aid package.
The Irish Fiscal Panel have commented on the ongoing issues in Ireland, stating that further budget cuts will be needed in order to meet 2012 targets, additionally the growth outlook for 2012 has worsened. (Sources)
Spanish Finance Minister Guindos said that Spain has embarked on a high risk overhaul of its own economy that will depress output and increase public debt to about 78% of GDP in 2012, but the country should return to growth in 2013. (Sources) External aid for the banking sector was ruled out, and the Spanish Finance Minister also noted that the 2012 bond issuance was little changed.
Spain’s government is determined to tackle its debt and there is no need to discuss bailing out the country, according to an envoy to German Chancellor Merkel. The envoy added that Spain is doing everything it can to reach PM Rajoy’s goal of reducing the budget deficit to 5.3% of GDP in 2012. (Sources)
A four-page report obtained by the FT said that the “Budgetary situation in Italy” was number three on the Euro-group’s agenda over last Friday and Saturday, and the report warns that any slippage in growth of a rise in borrowing rates could force the Italian government to start making more cuts, which the PM Monti has already ruled out. (FT- More)
Nomura’s chief economist Richard Koo argues that Europe’s leaders have misdiagnosed their economic crisis and is forecasting a return to wintry conditions. (FT-More) Koo suggests that at a time of collapsing private sector demand in several states, the Eurozone’s obsession with slashing public spending will only aggravate its problems. Koo adds that the fiscal compact is more likely to kill the patient than cure it.
The UK is to avoid recession this year; however the government needs to do more to increase lending to help a ‘weak’ recovery, according to the British Chambers of Commerce. (Sources) The BCC estimates that GDP grew at around 0.3% and forecasts 0.6% growth over the full year. BCC Director General Longworth said the British economy has potential to recover, but to achieve that the government has to set businesses free to grow.
All major European markets are seen trading lower as North America comes to market, with particular underperformance noted in the European peripheries. Other than very low volumes, markets have been reacting to downbeat comments from EU reports on Portugal and commentary from the Irish fiscal panel.
The largest losses in Europe so far are seen in the peripheries, with Spanish industry and Mediterranean banks showing the most weakness and the most significant losses. Namely, Banco Popolare are performing particularly poorly, both moving with market sentiment as well as participants reacting to the news that Standard and Poor’s have placed the bank’s BBB-/A-3 long- and short-term ratings on creditwatch negative. Banco Popolare shares currently trade lower 3.6%.
In terms of gainers in Europe so far, Deutsche Lufthansa are seen performing strongly following the release of an IATA report showing improvements in passenger demand of 8.6% over February. Deutsche Lufthansa shares currently trade higher by 1.6%. Elsewhere, smaller UK stock Cairn Energy is seen trading higher by 4% following the overnight news that they are to obtain Agora Oil & Gas for an enterprise value of USD 375mln. (Sources)
Top performing sectors in the BE500: Health Care (+0.51%), Technology (-0.16%), Consumer Goods (-0.32%)
Worst performing sectors in the BE500: Financials (-1.11%), Telecommunications (-0.51%), Basic Materials (-0.50%)
GBP saw some support earlier in the session following the release of much better than expected UK Construction PMI, however the strength was short lived as the pair continues to move towards 1.6000 to the downside, drifting closer to a touted option expiry at 1.5990.
Australian RBA Cash Rate Target (Apr) M/M 4.25% vs. Exp. 4.25% (Prev. 4.25%), the RBA followed with some relatively dovish comments leading certain analysts to recommend selling in AUD/CAD at 1.0288 due to the divergence in tone between the dovish RBA and the relatively hawkish BoC. In other pairs, AUD/USD is trading in close proximity to a touted option expiry at 1.0370 for the NY cut. (Sources)
WTI and Brent Crude futures were seen trading lower due to the strength being observed in the USD and the overall risk-averse flow in the markets.
Oil & Gas News:
• Indian oil minister said India is looking at buying more oil and gas from Qatar.
• Japanese refiners secure force majeure in Iranian oil contracts to cover for inability to lift cargoes due to sanctions, according to sources.
• Turkey may raise gas prices by an additional 15% after raising them by 18.7% on April 1 to avoid losses at the state run provider.
• The Syrian government has told Arab League envoy Annan it will complete military withdrawal from towns by April 10th 2012, and if Annan is able to verify this withdrawal on April 10th, then both sides will have 48 hours to cease hostilities, according to an Annan spokesman. (Sources)
• Israel’s defence forces are setting up a ground battalion to fire rockets at military targets that can now be hit only by aircraft.