- Markets witnessed a risk-averse sentiment today on the back of contagion fears in the Eurozone, with particular focus on Italy, together with growing signs of a faltering global economic recovery
- The USD-Index traded higher throughout the session, which in turn weighed on EUR/USD and GBP/USD
- Stronger than expected construction PMI data from the UK provided support to the GBP
- European equities traded lower with particular weakness seen in the Italian FTSE MIB index as contagion fears in the Eurozone dominated sentiment
Markets witnessed a risk-averse sentiment today on the back of contagion fears in the Eurozone, with particular focus on Italy, together with growing signs of a faltering global economic recovery. This resulted in weakness in European equities, led by peripheral indices, which provided support to Bunds and Gilts, whereas a general widening was observed in the Eurozone peripheral 10-year government bond yield spreads. The USD-Index traded higher throughout the session, which in turn weighed on EUR/USD and GBP/USD, however GBP/USD did receive some strength following higher than expected construction PMI data from the UK. In other forex news, some market players mentioned the possibility of a JPY intervention, although Japanese officials declined to comment.
Moving into the North American open, markets look ahead to a slew of economic data from the US in the form of personal income/spending, PCE report, as well vehicle sales figures. Today is also the deadline for the US to raise its debt ceiling, and following an approval of the bill from the House last night, the Senate is expected to vote at 1700BST, and if successful, it will be signed by President Obama.
The BoJ will consider easing monetary policy this week as JPY trades near a record high against USD threatening to hurt the economy, sources familiar with the central banks thinking said. The Central bank will loosen policy further if Tokyo intervenes in the currency market to weaken the JPY said sources. Even without intervention, the BoJ will consider easing if further gains in the JPY and heightening uncertainty over the US economy appear set to damage Japan’s economy, one of the sources said. (RTRS)
Elsewhere, China may raise interest rates around August 10th Xinhua News Agency said citing its own research. China’s CPI growth in July may hit 6.3%, the mid-point of a 6.2% to 6.4% range, according to the report. Meanwhile, China is expected to maintain relatively fast growth in H2 of this year citing Li Pumin, deputy Secretary General of the NDRC. (Xinhua/ China National Radio)
The US House of Representatives on Monday passed a measure to increase the country’s debt ceiling by a vote of 269 to 161 and sent it to the Senate for final congressional approval. The Senate will vote on a bill to raise the country’s debt ceiling today at 12:00PM EDT (1600GMT), Senate Democratic leader Reid said. The measure will need 60 votes to pass the 100 seat body, Reid said. If it passes, it will be passed to President Obama to sign into law. In other news, US Treasury Secretary Geithner said the compromise plan to raise the debt ceiling will boost the economy. (RTRS/Sources)
Elsewhere, the US Treasury unveiled plans to borrow USD 331bln in the current quarter some USD 74bln less than it previously estimated because it ended Q2 with more cash on hand than anticipated, assuming Congress hikes the debt limit so it can legally do so. (RTRS)
EU and UK Headlines:
JP Morgan warned clients that Italy has a thin margin of safety and risks running out of cash to cover spending as soon as September. "Italy and Spain will run out of cash in September and February respectively, if they lose access to funding markets," said the bank's fixed income team of Pavan Wadhwa and Gianluca Salford. Worries about Italy's immediate cash level risks leading to "a self-fulfilling negative spiral." While Italy has low private debt and avoided much of the credit bubble, it suffers from economic stagnation and a steady loss of competitiveness. Monetary tightening by the European Central Bank has compounded the problem, triggering a collapse of all key measures of the Italian money supply. JP Morgan said Italy had EUR 44bln in liquidity for government operations at the end of May. It did not follow other countries in "front-loading" debt auctions while the going was good. (Telegraph)
• Eurozone PPI (Jun) M/M 0.0% vs. Exp. 0.1% (Prev. -0.2%)
• Eurozone PPI (Jun) Y/Y 5.9% vs. Exp. 5.9% (Prev. 6.2%)
• UK Construction PMI (Jul) M/M 53.5 vs. Exp. 53.0 (Prev. 53.6) (RTRS)
• Belgian 3-month T-Bill auction for EUR 1.185bln, bid/cover 2.03 vs. Prev. 1.20 (yield 1.146% vs. Prev. 1.305%)
• Belgian 6-month T-Bill auction for EUR 1.566bln, bid/cover 2.09 vs. Prev. 2.59 (yield 1.241% vs. Prev. 1.884%)
• UK Conventional Gilt auction for GBP 2bln, 4.5% 2034, bid/cover 2.23 vs. Prev. 1.53, yield tail 0.3BPS (RTRS)
Markets witnessed a risk-averse sentiment today on the back of contagion fears in the Eurozone, with particular focus on Italy, together with growing signs of a faltering global economic recovery. This resulted in weakness in European equities, led by peripheral indices, with a sharp underperformance seen in the Italian FTSE MIB index. Elsewhere, strength in the USD-Index weighed upon basic materials and oil & gas sectors. However, financials did receive some support following upbeat comments from Barclays (+3.89%) in its quarterly earnings release, who said its capital, liquidity and funding position remains rock solid. Moving into the North American open, equities continue to trade in negative territory, with industrials and basic materials as the worst performing sectors.
The USD-Index traded higher throughout the session, amid risk-averse trade, which in turn weighed on EUR/USD and GBP/USD, however GBP/USD did receive some strength following higher than expected construction PMI data from the UK. In other forex news, some market players mentioned the possibility of a JPY intervention, although Japanese officials declined to comment.
In other news, Japanese finance minister Noda said he was in communication with various parties on currency policy but declined to comment on whether the Japanese government would sell its own currency to rein in the rising JPY. Noda said the JPY is too high and current FX moves are one-sided. (RTRS)
• Australia’s RBA Cash Target (Aug) M/M 4.75% vs. Exp. 4.75% (Prev. 4.75%) (RTRS)
WTI and Brent crude futures traded lower during the European session weighed upon by contagion fears in the Eurozone, increasing signs of a faltering global economic recovery, allied with strength in the USD-Index.
Oil & Gas News:
• Russia pumped 10.26 MBPD of crude oil in July, up 0.6%, matching a post-Soviet high record in May. Natural gas output stood at 48.40bln BCM, down 7.6% on a daily basis in July vs. 50.67 BCM in June.
• A two day assault by Syrian government forces on anti-protestors in the city of Hama was widely condemned in the West and prompted European powers to re-launch a dormant UN resolution condemning Damascus for its crackdown.
• Japan voiced concern over China’s growing assertiveness and widening navel reach in the South China Sea and Pacific Ocean, and what it called the “opaqueness” of Beijing’s military budget. In other news, China backed calls by North Korea for an early resumption of six-party denuclearisation talks, saying it was in the common interest of all countries involved.
• South Korea’s central bank bought some 25 tonnes of Gold between June and July using the country’s foreign reserves, its first purchase of Gold in more than a decade, an official at the Bank of Korea said. (RTRS)