- Liquidity remains thin as market participants await release of the Nonfarm Payrolls data from the US. Early market talk has been for a number as high as +200k
- The Eurozone 10-year government bond yield spreads remained generally tighter across the board, with the exception of the French/German spread
- Eurodollar and Euribor futures traded under pressure during the European session on continued bank funding fears
- According to reports, EU finance chiefs gave go-ahead for work on central bank loans, and ECB lending via IMF is seen in the EUR 100-200bln range
Owing to the US Non-farm Friday, liquidity remained thin, which was partly attributed to a sharp spike in European equity futures in early trade after stops were triggered to the upside. Outperformance was observed in the Italian FTSE MIB and Spanish IBEX 35 indices, with gains seen in the financials sector. In fixed income, the Eurozone 10-year government bond yield spreads remained generally tighter across the board, with the exception of the French/German spread where some widening was observed. Eurodollar and Euribor futures traded under pressure during the European session as market participants remained sceptical about the effectiveness of the recent coordinated action taken by major central banks to ease liquidity in the global financial system, and with the highest amount of deposits left overnight with the ECB this year. In the forex market, weakness in the USD-Index rendered some support to EUR/USD, which received additional strength on the back of market talk of Eastern European demand.
Moving into the North American open, the NFP report from the US remains the main focus, however markets will also keep a close eye on developments in the Eurozone. In fixed income, Fed's Outright Treasury Coupon Purchase operation in the maturity range of Feb'36-Nov'41, with a purchase target of USD 2.25-2.75bln, together with another Fed's Outright Treasury Coupon sales operation in the maturity range of Apr'13-Oct'13, with a sales target of USD 8-8.75bln are also scheduled for later in the session.
China may have more scope for fine-tuning of policies in the short-term as inflation lowers and economic growth slows according to Peng Wensheng, chief economist at China International Capital. China should appropriately adjust monetary policy to sustain growth according to Gao Wei, a researcher at the State Council’s Development Research Centre. (Shanghai Securities/China Securities Journal)
Fed’s balance sheet liabilities totalled USD 2.797trl as of Nov. 30 vs. USD 2.805trl the prev. week, Fed holdings of treasuries totalled USD 1.672trl as of Nov. 30 vs. USD 1.665trl the prev. week, Fed discount primary borrowing averaged USD 42mln a day as of Nov. 30 vs. USD 25mln a day the prev. week, Fed holding of MBS totalled USD 827.05bln as of Nov. 30 vs. USD 841.6bln the prev. week and Fed holdings of agency debt total USD 105.9bln as of Nov. 30 vs. unchanged from the prev. week. Also, foreign central bank US debt holdings rose USD 16.64bln to USD 3.466trl as of Nov 30th. (RTRS)
In other news, Fed’s Fisher and Fed’s Bullard said the central bank would not need to cut the discount rate it charges on emergency loans for banks despite the worsening situation in Europe. (WSJ)
Elsewhere, the Monster employment index fell 2.6% to 147 points last month from 151 in October. But the index was up 9.7% from 134 a year ago. (RTRS)
EU and UK Headlines
German banks will need to raise almost EUR 10bln after the EBA completes its latest stress tests, according to people familiar with the matter. One source said that the EBA won’t raise its requirements above EUR 10bln as some banks and supervisory authorities have feared. (Sources)
• Eurozone PPI (Oct) M/M 0.1% vs. Exp. 0.2% (Prev. 0.3%)
• Eurozone PPI (Oct) Y/Y 5.5% vs. Exp. 5.6% (Prev. 5.8%)
• UK Construction PMI (Nov) M/M 52.3 vs. Exp. 52.0 (Prev. 53.9) (RTRS)
Owing to the US Non-farm Friday, liquidity remained thin, which was partly attributed to a sharp spike in European equity futures in early trade after stops were triggered to the upside. Outperformance was observed in the Italian FTSE MIB and Spanish IBEX 35 indices, with gains seen in the financials sector. In equity specific news, Research in Motion said that it no longer expects to meet full year 2012 adjusted share guidance, and its adjusted revenue in the third quarter is expected to be slightly lower than the previous guidance. Moving into the North American open, European equities continue to trade in positive territory, with financials and basic materials as the best performing sectors.
Weakness in the USD-Index rendered some support to EUR/USD, which received additional strength on the back of market talk of Eastern European demand. Elsewhere, CAD weakened across the board on the back of an unexpected decline in the net change in employment data, together with higher than expected unemployment rate from Canada.
• Canadian Net Change in Employment (Nov) M/M -18.6K vs. Exp. 20.0K (Prev. -54.0K)
• Canadian Unemployment Rate (Nov) M/M 7.4% vs. Exp. 7.3% (Prev. 7.3%) (RTRS)
WTI crude futures traded higher in the European session along with European equity markets as news-flow remains quiet ahead of the well-anticipated US Non-Farm Payroll number.
Oil & Gas News:
• Bank of America cut its 2012 Brent crude forecast to USD 108 per barrel, however increased its 2013 Brent crude forecast to USD 118 per barrel.
• European Union foreign ministers have agreed to ratchet up economic sanctions on Iran by adding 180 new names to a list of targeted companies and individuals, according to EU officials in Brussels.
• The U.S. Senate unanimously approved a measure yesterday to sanction the Central Bank of Iran, a move intended to shrink Iran’s oil exports and deprive it of cash that might be used in nuclear or missile programs.