- Overnight press reports ECB's Asmussen backs the ECB buying peripheral debt, boosting risk appetite
- Spain sells more than the indicative range in 12- and 18month T-bills, with lower yields but mixed bid/covers
- German CDU lawmakers says there may be "small concessions" for Greece
- The UK posts an unexpected budget deficit in July as corporate tax receipts plunge
Tuesday has see little in the way of macroeconomic data, and much focus so far has remained on speculation over whether the ECB will buy periphery debt. Comments from the German ECB representative Jorge Asmussen overnight that he backs the ECB buying periphery debt as a means to prevent the "disintegration of the Euro", a seeming change in stance given that the Bundesbank continues to opposed such measures, lifted risk assets in early trade. As such, the Spanish and Italian spreads over the benchmark Bund are seen tighter by 12.9bps and 14.4bps on the day.
Spain's 12- and 18-month T-bill was also well received, the country selling slightly more than the indicative range at EUR 4.512bln, with lower yields, though only the 18-month had a stronger bid/cover. Both the Spanish and the Italian 2-year yields have declined to lows last seen in May of this year.
Similarly, two separate comments from German Christian Democratic Union (CDU) lawmakers concerning Greece and the possibility of making "small concessions" for the country so long as they lie within the existing programme also boosted risk appetite, as the probability of a Greek exit looks much less likely if it has the full support of Germany.
Elsewhere, the UK unexpectedly posted a budget deficit in July as corporation tax receipts plunged, though this was slightly skewed due to the closure of Total's Elgin gas field in the North Sea. Today also saw UK CBI orders for August plunge, with the industrial order book balance at its lowest this year led by a weakening in the consumer goods sector.
The rest of the session looks to be fairly quiet, with ICSC chain store sales and Redbook data due to be released from the US at 1245BST/0645CDT and 1355BST/0755CDT, followed by the weekly API inventories after-market. FOMC voting member Dennis Lockhart is scheduled to speak on the US economic outlook and the implications of Latin American at 1345BST/0745CDT.
Following recent data that showed China's export and import growth slowed for the second straight month in July, raising fears about the strength of the world's second-largest economy, reports over night said that China is considering rolling out more incentives in the second half of this year to boost domestic consumption amid sluggish overseas demand for China's exports.
A former adviser to the People's Bank of China (PBOC) said the country should cut its reserve ratio requirement (RRR), which currently stands at 20.0%. The adviser also said China's Q4 growth might be above 8.5%, with FY 2012 GDP growth of 8.1%.
US ICSC Chain Store Sales (Aug 17) W/W -1.5% vs. Prev. -0.3%
US ICSC Chain Store Sales (Aug 17) Y/Y +3.1% vs. Prev. +3.6%
ICSC expects August comparable store sales to rise by +0.5%. (Newswires)
EU & UK Headlines
ECB's Asmussen said he backs the ECB buying Spanish and Italian debt to prevent the "disintegration of the Euro", brushing aside warnings from the German Bundesbank that large-scale purchases would amount to debt monetisation and a back-door fiscal rescue of insolvent states in breach of EU treaty law. (Telegraph)
German CDU lawmaker Barthle said the Greek loan interest and maturity could be adjusted, and some small concession would be possible for the country, though these must lie within the existing programme. Another CDU lawmaker said he is open to pulling forward payments to Greece, but the IMF would have to agree to any changes, and an early payment would only be possible if it didn't open up a financing hole later on. The lawmaker said he wants Greece to stay in the Eurozone, but ruled out adding more money to the Greek rescue package.
UK Public Finances (GBP) (PSNCR) (Jul) M/M -22.9bln vs. Prev. 3.0bln (Rev. 0.9bln)
UK PSNB ex. Interventions (GBP) (Jul) M/M 0.6bln vs. Exp. -2.2bln (Prev. 14.4bln, Rev. 14.6bln)
UK Public Sector Net Borrowing (GBP) (Jul) M/M -1.8bln vs. Exp. -3.2bln (Prev. 12.1bln, Rev. 12.2bln). (Newswires)
EFSF sold EUR 1.5bln 6-month bills,with a bid/cover ratio 2.6 vs. Prev. 3.00, yield -0.018% vs Prev. -0.0113%, in line with expectations.
As we enter the North American cross over, stocks in Europe are trading with modest gains of around 0.4%, led higher by the financials sector. Glencore posted better than expected sales update, where the company reiterated that it will not be offering more shares in order to complete the Xstrata deal. On that subject, Qatar raised its holdings in Xstrata and there is a risk that they will block the deal when shareholders sit down to vote on the merger in September.
EUR gained on the back of reports by the Telegraph that Germany backs ECB's Draghi bond buying plan, with EUR/USD having breached the 1.2400 level to the upside to print a two week high of 1.2429. Market talk of Middle Eastern accounts selling USD also supported the upward traction by the pair. Talk that UK clearers buying EUR/GBP also led to stops being tripped in EUR/USD. GBP has also strengthen in spite of the average UK data, with GBP/USD rapidly approaching 1.5800 and testing levels last seen in June of this year.
WTI crude futures are trading in positive territory having made fresh 3-month highs of USD 97.10 earlier this morning, moving in tandem with the general market where risk appetite was boosted following reports that ECB's Asmussen will support the ECB buying periphery debt. Later sees the release of the US API report, which last week showed a build of 2784K for crude oil stockpiles. Spot gold has also traded in tandem with the general market, making highs of USD 1626.