- WTI and Brent crude futures traded under pressure in the early European session weighed upon by the news that Libyan rebels have taken control of most of capital Tripoli
- Equities received strength partly on the back of asset re-allocation from fixed income into equities
- Weakness in the USD-Index underpinned the strength in EUR/USD, GBP/USD and commodity-linked currencies
- Moody’s said further bilateral collateral agreements with Eurozone periphery nations would be credit negative
WTI and Brent crude futures traded under pressure in the early European session weighed upon by the news that Libyan rebels have taken control of most of capital Tripoli and increasing prospects that the ongoing civil war may come to an end soon. However, as the session progressed, prices came off their earlier lows with a weakening USD-Index. News from Libya also supported the oil & gas sector in the hope that companies may resume their business in the country, which also helped European equities to trade higher. Equities received additional strength on the back of early market talk of asset re-allocation from fixed income into equities, which exerted downward pressure on Bunds. Elsewhere, weakness in the USD-Index underpinned the strength in EUR/USD, GBP/USD and commodity-linked currencies, however CHF weakened across the board partly on the back of market talk that the SNB was active in one-month forward market. In other forex news, a sharp uptick was observed in USD/JPY overnight, however there was no confirmation of any forex intervention by Japan.
Moving into the North American open, the economic calendar remains thin, however the Chicago Fed report from the US is scheduled for later in the session. In fixed income, another Fed's Outright Treasury Coupon Purchase operation in the maturity range of Nov'21-Aug'41, with a purchase target of USD 0.5-1bln is also due later.
At Jackson Hole last August, Fed’s Bernanke heralded a second round of bond-buying aimed at propelling the economy known as quantitative easing, or QE2. The Fed's recent declaration that it's prepared to take other measures to promote the recovery clearly opened the door to QE3. But don't expect the Fed chairman to rush through that door on Friday. (WSJ)
In other news, Goldman Sachs cut its estimates for US growth in the second half of this year to between 1%-1.5%, and now expects GDP growth of 1.0% in the third quarter and 1.5% in the fourth, both down from 2% previously. (RTRS)
Elsewhere, S&P said there was no “math error” in the US rating downgrade, adding that US Treasury’s suggestion of a math error was disingenuous. In other news, according to a Chinese think tank researcher, Wang Tianlong, the US may be on its way to default on its debt despite the US government’s ability to print more money. (Sources)
EU and UK Headlines:
**Latest on the Eurozone debt concerns** (ZDF/RTRS/Welt am Sonntag/Realnews/Der Spiegel/Les Echo)
· Moody’s said further bilateral collateral agreements with Eurozone periphery nations would be credit negative. It also said that broader reticence puts pressure on France and Germany to take more concrete and timely steps than proposals last week to protect EMU. Meanwhile, S&P’s Beers said that Greece will default on debt by the end of this year.
· German chancellor Merkel said Eurobonds are exactly the wrong answer to the current crisis and it will lead to a debt union and not a stability union. Merkel further said that she sees nothing pointing towards a recession in Germany, and she expects German government lawmakers to approve changes to the EFSF. Also, European Council’s president, Van Rompuy, said this is not the time to push ahead with Eurobonds. Meanwhile, according to finance ministry experts, issuing joint Eurobonds could cost Germany billions of EUR each year, with EUR 2.5bln of additional interest rate costs in the first year alone. Also, president of Germany’s IFO has dismissed proposals for Eurobonds.
· German finance minister, Schaeuble, said he personally is prepared to pass national sovereignty to Brussels to secure the long-term stability of the Eurozone but the Eurozone is not ready for it yet. He also said that as long as we don’t collectivise financial policy, we also cannot have a uniform interest rate level. He further said that there is no need to increase size of the EFSF.
· Belgian OLO auction for EUR 0.655bln, 4.00% Mar'14, bid/cover 3.15 vs. Prev. 4.13 (yield 2.357% vs. Prev. 2.827%)
· Belgian OLO auction for EUR 0.835bln, 4.25% Sep'21, bid/cover 2.53 vs. Prev. 1.94 (yield 3.884% vs. Prev. 4.274%)
· Belgian OLO auction for EUR 1.041bln, 5.00% Mar'35, bid/cover 2.07 vs. Prev. 1.79 (yield 4.396% vs. Prev. 4.157%) (RTRS)
Equity markets in Europe have traded positively this morning amid speculation of a USD 3bln asset re-allocation trade which has been buying equities and selling fixed income. The oil & gas sector has outperformed following the overnight developments in Libya, with investors anticipating the resumption of oil output from the country. The FTSE MIB has seen particular strength, with ENEL benefiting the most from the Libyan news and Italian banks outpacing their peers, amid further market talk of the ECB buying Italian debt on the secondary market. The DAX in Germany has lagged throughout the session, despite trading in positive territory, after the German finance ministry said that economic growth in the country will slow in the second half of the year.
Weakness in the USD-Index underpinned the strength in EUR/USD, GBP/USD and commodity-linked currencies, however CHF weakened across the board partly on the back of market talk that the SNB was active in one-month forward market. In other forex news, a sharp uptick was observed in USD/JPY overnight, however there was no confirmation of any forex intervention by Japan.
Elsewhere, according to an opinion poll by SonntagsZeitung, 63% of participants wanted the SNB to wage new currency interventions, even if this were to lead to higher inflation. Also, 27% of respondents wanted the SNB to set an exchange rate target of the CHF to the EUR. Meanwhile, Switzerland’s parliament may not back a government plan to allocate CHF 2bln to help cushion the impact of the record-strong currency in its current form. Also, according to a report in SonntagsZeitung, the Swiss Cabinet sees SNB target of CHF 1.2 per EUR. (SonntagsZeitung/TagesAnzeiger).
WTI and Brent crude futures traded under pressure in the early European session weighed upon by the news that Libyan rebels have taken control of most of capital Tripoli and increasing prospects that the ongoing civil war may come to an end soon. However, as the session progressed, prices came off their earlier lows with a weakening USD-Index.
Oil & Gas News:
· Iran's oil minister said there is no need for an emergency OPEC meeting for now and OPEC will react to falling oil prices. In other news, Iran is in talks with an Indonesian company to export 1.5mln tons of LNG annually to the Southeast Asian country citing an Iranian Energy Official, according to reports from Press TV.
· According to a Gulf OPEC source Libya’s oil output is likely to gradually recover, however it could take a long time. OPEC is monitoring Libya and no emergency meeting is planned. In related news, Saudi Arabia will lower output if demand slows according to a Gulf OPEC source.
· China’s July diesel imports rose 25.2% Y/Y at 155,261 tonnes with July fuel oil imports rising 21% Y/Y at 2.24mln tonnes.
· Bank of America cut their US gas price forecast to USD 4.25 per MMBTU in Q4. Bank of America said they see natural gas prices picking up moderately to an average of USD 4.70 per MMBTU in 2012, from USD 4.20 per MMBTU in 2011. Bank of America added they see US natural gas fundamentals hardly improving in 2012.
· Jubilant rebel fighters swept into the heart of Tripoli as Gaddafi’s forces collapsed and crowds took to the streets to celebrate what they saw as the rapidly approaching end of his four decades of absolute power. Two of Gaddafi sons, including Seif Al-Islam, have been captured by rebels; however Gaddafi has not yet been captured. In the latest news, according to Arabia TV, Libya rebels, International Criminal Court negotiate the surrender of Gaddafi’s son Seif.
· Leading Syrian opposition figures, encouraged by international support for their cause, met in Istanbul on Saturday to nominate a council that could aid in a transition of power if President Assad is toppled by an uprising against his rule.
· Iran has started the transfer of centrifuges to the Fordo nuclear site. In other news, Russia offered to co-operate with Iran on building new nuclear power plants, according to the chairman of the IAEA.