Daily US Opening News And Market Re-Cap: August 16

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From RanSquawk:

  • Worse than expected quarterly German GDP data, together with news that France may downgrade its growth forecast dented appetite for risk
  • Markets keep a close eye on a meeting between German Chancellor Merkel and French President Sarkozy later in the session
  • The European Commission said that for the time being the level of the EFSF is enough, adding that the idea of Eurobonds is interesting
  • GBP received a boost following higher than expected year-on-year CPI reading from the UK
  • T-Bill auctions from Spain, Greece, and Belgium passed without any hurdles

Market Re-Cap
 
Early European trade witnessed risk-averse sentiment following much weaker than expected quarterly GDP data from the European powerhouse Germany, together with fading optimism for the issuance of Eurobonds to help troubled Eurozone countries. This resulted in weakness in the EUR and equities, with particular underperformance seen in financials, which provided support to Bunds and the Eurozone 10-year government bond yield spreads widened across the board. However, as the session progressed, some tightening was observed in peripheral spreads on the back of market talk of the ECB buying in the Italian and Spanish government bonds, together with successful T-Bill auctions from Spain, Greece and Belgium, which also led European equities to come off their earlier lows. Elsewhere, GBP received a boost following higher than expected year-on-year CPI reading from the UK, however AUD traded under pressure following downbeat comments from the RBA in its MPC minutes.
 
Moving into the North American open, markets will keep a close eye on the meeting between German Chancellor Merkel and French President Sarkozy in anticipation of any comments on the subject of Eurobonds. A slew of key economic data from the US in the form of housing starts, building permits, import price index and industrial production are also due for release later in the session. In fixed income, another Fed’s Outright Treasury Coupon Purchase operation in the maturity range of Aug’15 – Feb’17, with a purchase target of USD 2.5-3bln is also scheduled.
 
Asia Headlines:
 
China central bank raised bill yield for first time in 7-weeks. In other news, Shanghai Securities News writes that China may ask banks to set a minimum 11.5% capital ratio. (sfgate/Shanghai Securities News)
 
Also, according to China’s State Information Centre, China’s average inflation rate is likely to accelerate in Q3 to 6.2% from 5.7% in the previous quarter. However, it said that Chinese inflation would peak in the third quarter. It forecasts China’s economy would grow by 9.2% in Q3. (RTRS)
 
US Headlines
 
President Obama said modest sacrifices are needed to solve deficit problems, adding that he will introduce very specific plans to boost the economy in September. Obama hopes that Congress takes tax reforms seriously. (Sources)
 
EU and UK Headlines:
 
German Chancellor Angela Merkel's coalition partners are threatening a withdrawal from government if she agrees to Eurobonds or any form of fiscal union to prop up southern Europe. (Telegraph) In other news, France is likely to cut its growth forecast after the economy stagnated in the Q2 vs. Q1, according to a source close to President Sarkozy. (Les Echos)
 
•    Eurozone GDP SA (Q2 P) Q/Q 0.2% vs. Exp. 0.3% (Prev. 0.8%)
•    German GDP SA (Q2 P) Q/Q 0.1% vs. Exp. 0.5% (Prev. 1.5%, Rev. to 1.3%)
•    German GDP WDA (Q2 P) Y/Y 2.7% vs. Exp. 3.1% (Prev. 4.9%, Rev. to 4.7%)
•    German GDP NSA (Q2 P) Y/Y 2.8% vs. Exp. 3.2% (Prev. 5.2%, Rev. to 5.0%)
•    UK CPI (Jul) Y/Y 4.4% vs. Exp. 4.3% (Prev. 4.2%)
•    UK Core CPI (Jul) Y/ Y 3.1% vs. Exp. 3.0% (Prev. 2.8%)
•    UK RPI (Jul) Y/Y 5.0% vs. Exp. 5.0% (Prev. 5.0%)
•    UK DCLG House Prices (Jun) Y/Y -2.0% vs. Prev. -1.6% (RTRS)
 
•    Spanish 12-month T-Bill auction for EUR 4.15bln, bid/cover 2.1 vs. Prev. 2.18 (yield 3.335% vs. Prev. 3.702%)
•    Spanish 18-month T-Bill auction for EUR 1.54bln, bid/cover 3.2 vs. Prev. 5.49 (yield 3.592% vs. Prev. 3.912%)
•    Greek 13-week T-Bill auction for EUR 1.3bln (incl. EUR 300mln in non-competitive bids), bid/cover 2.95 vs. Prev. 3.08 (yield 4.50% vs. Prev. 4.580%)
•    Belgian 3-month T-Bill auction for EUR 1.300bln, bid/cover 3.40 vs. Prev. 2.03 (yield 0.879% vs. Prev. 1.146%)
•    Belgian 12-month T-Bill auction for EUR 1.704bln, bid/cover 2.00 vs. Prev. 1.54 (yield 1.113% vs. Prev. 1.884%) (RTRS)
 
EQUITIES
 
European equities came under pressure in early trade following worse than expected quarterly GDP data from Germany, together with news that France may cut its growth forecast after the economy stagnated in the second quarter compared to the first quarter. This resulted in particular underperformance in financials, with weakness observed in French bank shares. Fading optimism on the issuance of Eurobonds anytime soon weighed upon the Eurozone peripheral indices, including the Italian FTSE MIB and the Spanish IBEX 35. Elsewhere, strength in the USD-Index exerted downward pressure on basic materials and oil & gas sectors. However, as the session progressed, equities came off their worst levels following successful T-Bill auctions from Spain, Greece, and Belgium together with market talk of the ECB buying in the Italian and Spanish government debt. Moving into the North American open, equities continue to trade in negative territory, with industrials and basic materials as the worst performing sectors.

FX
 
The USD-Index gained strength amid risk-aversion which weighed upon EUR/USD and GBP/USD, however the latter did recover from its earlier lows to trade near unchanged on the back of higher than expected year-on-year CPI reading from the UK. In other news, AUD came under pressure following downbeat comments from the RBA in its MPC minutes, whereas weakness in energy-complex weighed upon commodity-linked currencies. Elsewhere, early weakness was observed in CHF following market talk that the SNB is checking rates in the forward FX market, however the currency recovered later in the session on the back of risk-averse trade.

COMMODITIES
 
WTI and Brent crude futures traded under pressure amid risk aversion together with strength in the USD-Index.
 
Oil & Gas News:

•    China’s oil demand may increase by 5% to an average 9.37 MBPD this quarter from a year earlier according to a report by Neil Beveridge, senior analyst at Sanford C. Bernstein & Co.
•    Asian demand for October-loading crude may improve on the back on firm product cracks, although excess supplies may weigh on the spot market. Most regional refiners especially in North Asia, have completed scheduled refinery maintenance and may need more crude.
 
Geopolitical News:

•    North Korea said the Korean peninsula faced its worst crisis ever because of a joint military exercise between South Korea and the US that began on Tuesday, adding that an all out war can be triggered.
•    Libyan rebels have threatened to isolate Tripoli by cutting oil pipelines and blocking key supply routes as they edge closer to the capital. In related news, Libyan rebels said they had seized a second strategic town near Tripoli within 24 hours, completing the encirclement of the capital.
•    Syrian forces shelled Sunni Muslim districts in Latakia according to residents, the third day of military assault on the northern port cut aimed at crushing protests against President Bashar Al-Assad.

full report:

Daily Us Opening News