- Late yesterday German chancellor Merkel signalled her support for the ECB and Eurozone
- The White House is dusting off old plans on a potential oil SPR release as prices rise according to a source with knowledge of the situation
- The IBEX35 continues to outperform, up 7.5% on the week vs. its German counterpart the DAX which is up just 1% since Monday. These gains are a continuation of the theme seen throughout the week as Spanish banks await a banking bailout disbursement.
Peripheral stock indices continued to outperform today, as market participants reacted to yet another reiteration of support for ECB’s pledge to do all necessary to defend the Eurozone. As a result, banks in Europe are trading up with decent gains, with health care sector in the red given its traditional appeal as a safe-haven investment. German DAX continues to consolidate above the key 7000 mark, being driven higher by Daimler and Deutsche Bank. Looking at other asset classes, there is visible outperformance in the short-end of the curve, with the in-focus Spanish 2s tighter by around 20bps mark. The ongoing speculation of an intervention in the bond market also weighed on the German Bund, which underperformed its US counterpart. USTs come off overnight highs to trade little changed, with the move attributed to deal related selling. In the FX market, the EUR continued to re-price risks surrounding what is inevitable an unlikely scenario of a Eurozone break up. To the upside, resistance levels are seen at the 55DMA line at 1.2395 and then at 1.2400, which is also an intraday option expiry for the session.
Looking forward to the second half of the session, attention will turn to the release of the preliminary U. Michigan survey, as well as Leading Indicators report. Also of note, various equity options will expire today, which will likely distort the price action at the US equity cash open given the light trade volumes.
The People's Bank of China may decide to cut rates before their reserve requirement ratios, according to Chinese press.(Securities Times) The latest reports are in-fitting with comments seen on Thursday from the Chinese Premier Wen, who highlighted that the easing inflation profile in China allows more room for monetary stimulus.
The US Treasury is to accelerate the run-off of Fannie and Freddie mortgage portfolios, and treasury to amend terms of Fannie and Freddie bailout agreement. The treasury is preparing to revamp the terms of its nearly 4yr old financial backing of Fannie Mae and Freddie Mac in a bid to allay investor concerns that the companies could one day exhaust their federal lifelines. (WSJ)
EU & UK Headlines
German chancellor Merkel said she would have liked stronger intervention rights in the fiscal compact. (Newswires) She added that ECB's Draghi vow to do all necessary to defend Eurozone is in line with what European leaders have been saying for a long time, and ECB's conditionality is positive development for Euro.
Finland prepares for break-up of Eurozone. (Telegraph) “We have to face openly the possibility of a euro-break up,” said Erkki Tuomioja, the country’s veteran foreign minister and a member of the Social Democratic Party, one of six that make up the country’s coalition government. These comments have be refuted by a government spokesman who said this view is not that of the Finnish government and simply the personal view of the veteran foreign minister.
Peripheral stock indices continued to outperform today, as market participants reacted to yet another reiteration of support for ECB’s pledge to do all necessary to defend the Eurozone. As a result, banks in Europe are trading up with decent gains, with health care sector in the red given its traditional appeal as a safe-haven investment. GlaxoSmithKline is one of the worst performing stocks in Europe inspite of reports that co.'s experimental drug Mepolizumab for treating severe asthma nearly halved the number of attacks suffered by patients with a hard-to-treat form of the disease. German DAX continues to consolidate above the key 7000 mark, being driven higher by Daimler and Deutsche Bank. Lonmin shares continued to get hit, according to latest reports the death toll at co.'s Marikana mine in South Africa may be at least 30 after police shot striking workers yesterday.
AUD has come under consistent albeit moderate pressure since the overnight session. A combination of comments out of the Australian Treasury who said that they should lower rates if the domestic currency remained high, and with crude futures under pressure following comments late yesterday that the White House is dusting off plans for an SPR release have both weighed on the currency, with AUD/USD now trading around its low print of 1.0424 and close to an option expiry at 1.0450 for the 10am NY cut (1500BST).
GBP has seen weakness in today’s session, underperforming its European peer, evident in the EUR/GBP cross which trades with gains of around 20 pips. Some attention was paid to overnight comments from BoE's Fisher who said they could adjust QE based on the Funding for Lending success, however the lack of clarify failed to give justification for moves lower in GBP/USD.
USD/JPY has lacked direction this morning, trading flat heading into the US session as the USD-Index sits higher by just 0.1%. Moves to the upside in the pair were capped around 79.50 with talk of large offers around this level. Strength in EUR is evident against the JPY currency, as it is against GBP and other majors, after Merkel signalled support for the ECB late yesterday, which now sees EUR/JPY trading higher by around 10 pips.
The energy complex has see choppy trade during this mornings session but is still weighed down by comments at the pit close yesterday from a source who said the White House is dusting off old plans on a potential oil SPR release as prices rise. Speculation of an imminent release were damped by further comments that the White House wants to wait and see if prices fall after Sept 3rd Labor day holiday, and that IEA partners were receptive to a possibility in spring; however a response from UK and French representatives this morning who noted that they stand ready to call upon the IEA to take action regarding high oil prices has seen crude futures trade under pressure ahead of today’s pit open.
In the precious metals, the major components are all trading higher with particular strength seen in Platinum and Palladium as ongoing tensions halt mining at one of the world’s largest miner for these metals, at Lonmin’s mine in South Africa. Spot Gold is trading flat on the day, with similar price action seen in the USD, as there is little in the way of news-flow the give markets firm direction.