Daily US Opening News And Market Re-Cap: August 31

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From RanSquawk

  • A German government spokesman said that the German cabinet has approved framework for a draft law on expanding the Eurozone rescue mechanism
  • A French government spokeswoman said that France wants full application of a Eurozone agreement on Greece and no bilateral deals
  • A German government draft mentioned that the EFSF will be allowed to recapitalise banks but only via national governments, which negated an earlier press report suggesting that the fund can lend to banks directly
  • According to an Italian government source, the government is set to drop pension changes from its austerity package
  • Strength was observed in CHF across the board as no comments emerged on curbing the currency's strength following the Swiss government's regular meeting

Market Re-Cap
 
A dovish tone in the FOMC minutes yesterday raised prospects for further monetary easing by the Fed in the near term, which provided strength to European equities during the session. Equities received further support following comments from a German government spokesman that the German cabinet has approved framework for a draft law on expanding the Eurozone rescue mechanism, which also resulted in EUR/USD moving up by over 50 pips. However, as the session progressed, some negative sentiment entered the market after a French government spokeswoman said that France wants full application of a Eurozone agreement on Greece and no bilateral deals. Also, a German government draft mentioned that the EFSF will be allowed to recapitalise banks but only via national governments, which negated an earlier press report suggesting that the fund can lend to banks directly. In other news, strength was observed in CHF across the board as no comments emerged on curbing the currency's strength following the Swiss government's regular meeting.
 
Moving into the North American open, markets look ahead to a slew of economic data from the US in the form of ADP employment change, Chicago PMI, factory orders, durable goods revision, and the DOE oil inventories report. GDP data from Canada is also scheduled for later in the session.
 
Asian Headlines:
 
Japan’s new Prime Minister Noda said he held a courtesy phone call with US Treasury Secretary Geithner, but they did not discuss foreign exchange rate movements or other policy issues. (RTRS)
 
•    Japan Markit/JMMA Manufacturing PMI (Aug) M/M 51.9 vs. Prev. 52.1
•    Japan Industrial Production (Jul P) M/M 0.6% vs. Exp. 1.4% (Prev. 3.8%)
•    Japan Industrial Production (Jul P) Y/Y -2.8% vs. Exp. -1.9% (-1.7%) (RTRS)
 
US Headlines:
 
Fed’s Bullard said the Fed could embark on a third round of quantitative easing depending on upcoming economic data but should first confirm that inflation has eased. Bullard further said that the Fed will need to confirm whether its economic outlook is still on track, and reiterated his view that if the Fed were to buy additional government debt it should do so incrementally. (RTRS)
 
•    US Challenger Job Cuts (Aug) Y/Y 51.1K vs. Prev. 66.4K
•    US MBA Mortgage Applications (Aug 26) W/W -9.6% vs. Prev. -2.4% (RTRS)
 
Barcap US Treasury month end extension: +0.13yrs
 
EU and UK Headlines:
 
•    Eurozone Unemployment Rate (Jul) M/M 10.0% vs. Exp. 9.9% (Prev. 9.9%, Rev. to 10.0%)
•    Eurozone CPI Estimate (Aug) Y/Y 2.5% vs. Exp. 2.5% (Prev. 2.5%)
•    German Unemployment Change (000's) (Aug) M/M -8K vs. Exp. -10K (Prev. -11K, Rev. -10K)
•    German Unemployment Rate SA (Aug) M/M 7.0% vs. Exp. 7.0% (Prev. 7.0%)
•    UK GfK Consumer Confidence (Aug) M/M -31 vs. Exp. -33 (Prev. -30) (RTRS)
 
Barcap Pan Europe Aggregate month end extension: +0.01yrs
UK IBOXX Sterling month-end extension seen at +0.08 years
 
EQUITIES
 
A dovish tone in the FOMC minutes yesterday raised prospects for further monetary easing by the Fed in the near term, which provided strength to European equities during the session. Equities received further support following comments from a German government spokesman that the German cabinet has approved framework for a draft law on expanding the Eurozone rescue mechanism. Weakness in the USD-Index provided support to the basic materials sector, and moving into the North American open, equities continue to trade in positive territory, with industrials and basic materials as the best performing sectors.

FX
 
Strength was observed in CHF across the board as no comments emerged on curbing the currency's strength following the Swiss government's regular meeting. Elsewhere, the USD-Index traded in negative territory for a vast majority of the European session, however it did recover from losses suffered after dovish FOMC minutes yesterday.

COMMODITIES
 
WTI crude futures have traded under pressure in the European session after bearish API inventories numbers were seen after-market yesterday. The premium between WTI and Brent crude extends for a second day today.
 
Oil & Gas News:

•    The New York State Department of Environmental Conservation is investigating a petroleum spill blamed on Tropical Storm Irene at an oil storage terminal.
•    According to EU, diplomats EU sanctions on six Libyan ports, four oil companies and other entities could be lifted as early as Friday.
 
Geopolitical News:

•    Loyal followers of Gaddafi are refusing to surrender to the rebel forces, raising the prospect of new fighting in Libya when an ultimatum expires after this week’s Eid holiday.
•    Syrian troops backed by tanks raided houses looking for activists in two main districts of the city of Hama today according to residents.
 
Other News:

•    Chinese companies and investors are stepping up their purchases of industrial commodities such as copper, in a show of confidence in the global economy that stands in contrast to the turmoil in western markets. (FT - More)