- Comments from ECB's Weidmann injected volatility into price action, with his comment that 'governments overestimate ECB possibilities'; however, the moves were quickly pared upon the realisation that the interview is over a month old.
- UK Manufacturing PMI disappointed even the lowest expectations, heavily weighing on the GBP currency at the North American crossover.
- Investor focus turns to today's FOMC rate decision due at 1915BST/1315CDT
The European Equities are in positive territory at the North American cross over. The CAC-40 was the initial outperformer following SocGen’s earnings. Despite reporting a drop of more than 40% in Q2 net profits year over year, the co. beat analyst expectations on Q2 CIB net and announced the completion of its cost cutting measures and traded up to highs of EUR18.57, though shares have since pulled back into negative territory. The FTSE-100 now leads the way despite a sharp decline in July’s UK Manufacturing PMI, which came in at 45.5, the lowest reading since May 2009. This saw GBP/USD also tumble to intra-day lows of 1.5619, though the pair has since stabilised around 1.5650.
European equities as a whole have also been buoyed by market talk of USD 4bln asset allocation from fixed income into equities, thus German bund futures have declined gradually throughout the session. The technology sector is outperforming, up 1.00% following renewed takeover Nokia chatter. As it stands, the stock is up more than 14% on the day, and more than 50% in the last five days.
Elsewhere, comments from ECB’s Weidmann that “governments overestimate ECB possibilities”, going against general consensus and speculation that the ECB will announce further stimulus measures at tomorrow’s meeting, provoked a sharp drop in the riskier assets and the Bund to gain 8 ticks, though as it came to light that these comments were taken from an article published on June 29th, the move was pared.
In early European trade the Italian 10-year yield saw downside attributed to a EUR 9.2bln coupon payment due today, moving down back below 6.0% to 5.92%, with the spread over the benchmark Bund tightening by 19.97bps. The Spanish yield has also declined, though not as notably, the spread tighter by 13.55bps.
Chinese Manufacturing PMI (Jul) M/M 50.1 vs. Exp. 50.5 (Prev. 50.2) (Newswires)
Chinese HSBC Manufacturing PMI (Jul) M/M 49.3 (Prev. 48.2) - Highest reading since February, with the output sub-index showing its first rise in five months at 50.9, however the employment index fell over July.
US MBA Mortgage Applications (Jul 27) W/W 0.2% vs Prev. 0.9% (Newswires)
EU & UK Headlines
Peripheral government bond yield spreads are seen markedly tighter on the day against the German benchmark, with the German yield curve bear steepening as the longer-end underperforms ahead of this Thursday's ECB rate decision. The moves coincide with Italian BTP futures sitting just below session highs at the midpoint of the European session. Analysts have also been noting a payment of EUR 9.32bln of coupons from Italy today, aiding the moves below 6% in the country's 10year government bond yield. Volatility was also observed following Weidmann's comments, pushing the level above 6%, but the moves were quickly pared well ahead of the North American crossover. (RANsquawk)
UK Manufacturing PMI (Jul) M/M 45.4 vs. Exp. 48.5 (Prev. 48.6, Rev. 48.4); lowest since May 2009 (Newswires)
Many economists have been betting that some of the output lost will be recovered in Q3, but these latest figures will likely fuel expectations that the BoE will add stimulus once the current GBP plan to buy government bonds ends in November. Of note, Morgan Stanley have changed their BoE rate call; seeing a 25bps rate cut in November with GBP 50bln additional QE and another GBP 50bln to follow in February.
S&P have affirmed Spain at 'BBB+'; outlook negative. (Newswires)
The ratings agency have said Spain's commitment to the ongoing implementation of comprehensive fiscal and structural reform agenda remains strong. The news was unreactive across the asset classes as the action was an affirmation, not a ratings change.
European equities started on a positive note on the back of some strong individual earnings reports, as well as unconfirmed market talk of a USD 4bln asset reallocation trade from the fixed income market and into European equities, with a US name said to be behind the moves. However much of the gains have been stemmed, as comments from ECB's Weidmann halted the incline. Although the initial moves were completely pared on the announcement that the comments were dated, European equities have yet to pick up momentum. At the midpoint of the European session, the core indices are mixed, with the FTSE-100 and the CAC-40 the only cash bourses holding onto solid gains, with the Spanish and Italian bourses the primary laggards. US stock futures currently indicate a higher open on Wall Street today.
Ever-volatile stock Nokia have seen a choppy morning of trade, making steady gains since the open touching session highs of EUR 2.28 (+15%), as renewed chatter of a takeover for the company aided the moves. The company said to be considering a bid was Lenovo, however, a company spokesman soon referred to the chatter as 'a joke'. This prompted a sharp sell-off in Nokia's share price, but they still remain in positive territory, last seen higher by over 5.5%.
EUR/USD is seen in unchanged to minor positive territory at the midpoint of the European trading day after making gains in the first few hours amid unconfirmed market talk of Middle-eastern names buying in the pair to session highs on 1.2337, where further progress was capped by market talk of an Asian central bank selling at 1.2320-30. The pair saw sharp volatility, falling around 30 pips, after Weidmann commented that the ECB should not be overestimated. The moves were completed pared after the realisation that the interview was over a month old. Since then, the pair has traded in a relatively tight range, now in close proximity to a touted option expiry at the 1.2300 handle for today's 10am (1500BST) NY cut.
GBP weakness is seen across the board going into the US session, as manufacturing data came in far below expectations, pressing the pair to session lows of 1.5619, prompting further speculation that the Bank of England as well as the UK government may have to do more in order to stimulate growth in the future. The pair has recouped around 20 pips of the losses at the North American crossover but remains in firm negative territory. The pair currently trades in close proximity to a touted option expiry at 1.5625 for today's 10am (1500BST) NY cut, which may provedefinitive as the session progresses.
Losses seen in the overnight session in WTI crude futures, where the USD 87.50 level was tested to the downside following mixed Chinese PMI data, have gradually been pared throughout the morning session and turned into modest gains, the move driven largely by speculation that the Fed might announce further QE to boost the stalling US economy. Prior to the Fed announcement sees the release of the weekly US DoE numbers, which could show a larger than expected drawdown if last night’s API numbers are anything to go by where a dr aw down of 11.6mln BBLs was reported. Gold and silver are underperforming the general commodities market, spot gold currently trading flat on the session and spot silver in minor negative territory.