Daily US Opening News And Market Re-Cap: February 22
- BoE release minutes for February meeting showing they voted 7-2 to increase the APF by GBP 50bln, with 2 board members voting for a GBP 75bln increase.
- European PMI manufacturing and services data disappoints.
- Peugeot-Citroen confirms that they are in talks with General Motors concerning a possible alliance.
The softer PMI reports have weighed on risk markets, which as a result saw equities trade lower throughout the session. In addition to that, market participants continued to fret over the latest Greek debt swap proposals, which according to the Greek CAC bill will give bond holders at least 10 days to decide on new bond terms following the public invitation, and the majority required to change bond terms is set at 2/3 of represented bond holders. Looking elsewhere, EUR/USD spot is flat, while GBP/USD is trading sharply lower after the latest BoE minutes revealed that BoE's Posen and Miles voted for GBP 75bln increase in APF. Going forward, the second half of the session sees the release of the latest Housing data from the US, as well as the USD 35bln 5y note auction by the US Treasury.
The Fed discount minutes said that ten out of twelve regional directors sought to keep the Fed discount rate unchanged at 0.75%, with the Kansas City Fed voting for a discount rate increase to 1%, and the Boston Fed voting for a discount rate cut to 0.5%. They also noted that Fed regional bank directors had said the economy had improved somewhat, and the Fed's board expressed 'no sentiment' for changing discount. (Sources)
An IMF representative has said China is likely to keep property curbs despite opposition from local governments. However, the representative added that a severe European downturn could prompt Beijing to lift property curbs. This was later confirmed by the Shanghai government. (Sources)
HSBC China Manufacturing PMI (Feb) M/M 49.7 (Prev. 48.8) (Sources)
EU and UK Headlines
According to the Greek CAC bill, bond holders will be given at least 10 days to decide on new bond terms following the public invitation, and the majority required to change bond terms is set at 2/3 of represented bond holders. Furthermore, half of bond holders must be represented to change the bond terms. (Sources)
The Greek government have been given nine days to complete reforms or forfeit the EUR 130bln bailout. (FT-More) These conditions include the sacking of underperforming tax collectors, liberalisation of the country’s closed professions and readying at least two large state-controlled companies for sale by June. The short timetable possibly reflects the collapse of trust between the Greeks and their creditors.
Portugal is under pressure on its bailout terms from opposition, business and trade union leaders. (FT-More) Leaders are urging the government to renegotiate the terms on which it received its EUR 78bln bailout last year in order to alleviate the impact of painful austerity measures on the economy.
Fitch downgrades Greece to 'C' from 'CCC'. (Sources)
Fitch downgraded Greece by three notches to 'high default risk', the announcement follows yesterday's Eurogroup statement on a second financing programme for Greece. The rating action is in line with Fitch's statement on 6th June 2011, which outlined its rating approach to a sovereign debt exchange. In Fitch's opinion, the exchange, if completed, would constitute a 'distressed debt exchange' in line with its criteria. Fitch considers that the proposal to reduce Greece's public debt burden via a debt exchange with private creditors will, if completed, constitute a rating default and will result in the country's IDR being lowered to 'Restricted Default' upon completion. Fitch have said the proposal to reduce Greece's public debt via debt swap would constitute a rating default.
The first half of the European session saw the release of disappointing Eurozone PMI data, this pulled down EUR-led currency pairs and stirred risk-averse sentiment across the European equity markets.
Eurozone PMI Manufacturing (Feb A) M/M 49.0 vs. Exp. 49.5 (Prev. 48.8)
Eurozone PMI Services (Feb A) M/M 49.4 vs. Exp. 50.6 (Prev. 50.4)
German Manufacturing PMI (Feb A) M/M 50.1 vs. Exp. 51.5 (Prev. 51.0)
German Services PMI (Feb A) M/M 52.6 vs. Exp. 53.9 (Prev. 53.7)
French Services PMI (Feb P) M/M 50.3 vs. Exp. 52.0 (Prev. 52.3)
French Manufacturing PMI (Feb P) M/M 50.2 vs. Exp. 49.0 (Prev. 48.5) (Sources)
The release of the BoE’s minutes have shown the MPC voted unanimously to keep interest rates on hold, however two board members voted to increase the APF by GBP 75bln instead of the passed through GBP 50bln, citing spare capacity in the UK economy. This prompted a spike lower in GBP/USD immediately following the release. (Sources)
All European industry sectors are trading in negative territory ahead of the North American open, this follows some disappointing PMI manufacturing & services data as well as a Greek downgrade from ratings agency Fitch. This negative sentiment concerning the European environment has dragged down on stocks.
Against the trend in Europe, Peugeot-Citroen shares are performing particularly strongly. This follows confirmation of the rumours that the company are in talks with General Motors regarding a possible alliance or a cooperation agreement. Company shares currently trade up 16%.
Banca Monte dei Paschi are again performing strongly amid an underperforming financials sector. This follows news that Italy’s Malacalza family are considering buying a stake in the company according to Spanish press. Company shares currently trade up 4.5%.
Vedanta Resources are among the biggest losers ahead of the North American open, this follows news that the company’s proposed consolidation of the minorities Sesa Goa and Sterlite Industries would require double the outstanding shares in the company. Vedanta Resources’ aluminium unit has also been suffering losses which offset profits in the company’s other arms. Shares now trade down 4.8%.
Top performing sectors in the BE500: Industrials (+0.07%), Oil & Gas (-0.03%), Consumer Goods (-0.33%)
Worst performing sectors in the BE500: Financials (-0.90%), Telecommunications (-0.78%), Technology (-0.66%)
EUR/USD has experienced a volatile morning following disappointing Eurozone PMI manufacturing and services data as well as the Fitch downgrade of Greece to ‘C’ from ‘CCC’.
USD/JPY is trading above 80.00 after buy-stops were tripped, allowing the pair to print a six-month high in the process. Barriers are touted at 80.50.
GBP/USD is trading negatively following a spike lower after the publication of the BoE minutes for February. The release showed the MPC voted 7-2 to increase the APF by GBP 50bln, with board members Miles and Posen voting for a greater increase of GBP 75bln.
WTI started the European session in a strong position following positive performance in the Asian indices, however, WTI has fallen into negative territory ahead of the North American open following disappointing manufacturing PMI data from Europe as well as a strong USD index.
Oil & Gas News:
• China, India and Japan are planning cuts of at least 10% in Iranian crude imports as tightening US sanctions make it difficult for the top Asian buyers to keep doing business with the country. These countries together buy around 45% of Iran’s crude exports.
• Japan is hoping to reach an agreement to import liquefied natural gas from US projects in Louisiana and Maryland at a summit meeting slated for this spring, according to Japanese press.
• The White House have said there is still time and space for diplomacy to work and for Iranian behaviour to change with regards to the current nuclear issue, and that Israel and the US share the same objective, which is to prevent Iran from acquiring a nuclear weapon.
• The IAEA have said Iran denied them access to its Parchin military site during their visit, adding that it had failed to agree with Tehran on how to move forward in settling unresolved issues concerning its nuclear programme. An IAEA inspector has said they are unable to formalize a way forward with Iran.
• Iran have commented on the IAEA visit saying that they expect to continue to hold more talks with the UN nuclear watchdog.
• Iran’s Deputy Oil Minister has said Iran will not sell oil to any company that gives oil to Britain or France, further to comments from over the weekend.
• According to the Iranian Supreme Leader Khamenei, the country is not seeking nuclear weapons, however he did further comment that Iran’s nuclear course cannot be stopped even when under pressure from sanctions and assassinations.
• According to reports, North Korea have developed a new long-range artillery system.