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Daily US Opening News And Market Re-Cap: February 23

Submitted by Tyler Durden on 02/23/2012 09:05 -0400

Members of the G20 plan to renew pressure on Europe to expand their bailout funds.
The European Commission have estimated 2012 Eurozone GDP growth at -0.3%.
German IFO Business Climate data comes in with the highest reading since July 2011.

Market Re-Cap

Despite the release of better than expected German IFO survey, stocks in Europe remained on the back foot after the EU Commission slashed forecasts for 2012 Eurozone GDP to -0.3% vs. 0.5% previously, while EU's Rehn added that the Euroarea has entered a mild recession. As a result Bunds advanced back towards 139.00, whereas the spread between the Italian/German 10-year bond yields widened marginally on the back of touted selling by both domestic and foreign accounts ahead of the upcoming supply on Friday. Looking elsewhere, EUR/USD erased barriers at 1.3300 and 1.3325, while today’s strength in GBP/USD can be attributed to a weaker USD, as well as touted EUR/GBP selling by a UK clearer.

Global Headlines

Members of the G-20 plan to renew pressure on Europe in the coming days to expand their bailout funds quickly, despite the latest rescue deal in Greece. (Sources)
- US Treasury's Brainard said that the US will not seek more funding for the IMF this year and that the US has not put a precise number on the European firewall. (RTRS) He added that he does see the possibility of talks on IMF funds after a completed EU firewall deal, with the G-20 to look at the risks from rising oil prices.
- Japan is considering a JPY 4trl contribution to the expanded IMF crisis fund, according to Japanese press. However, Japan will first determine what progress is being made by European nations to deal with the crisis and so will not make an official announcement at the upcoming G-20 meeting. (Sources)

US Headlines

The second half of the European session sees the release of the weekly US jobs data, as well as the DoE report.

Asian Headlines

BoJ’s Shirakawa has said a 1% rise in JGB yields will result in a loss of JPY 3.5trl for major Japanese banks. The central banker has said that Japan will continue with powerful easing measures, adding that deflation cannot be beaten only by increasing liquidity. Shirakawa has also said there are severe fundraising conditions for smaller countries in the country. (Sources)

A report by the World Bank and a Chinese government think tank has said that China could face an economic crisis unless it implements deep reforms. The report urged China to scale back its vast state-owned enterprises and make them operate more like commercial firms. (WSJ)

A PBOC report is calling for greater liberalisation of the nation’s capital account by loosening control of overseas direct investment before opening up investments in real estate, stocks and bonds. (Shanghai Securities News) China is considering steps to boost foreign direct investment from the US and EU, according to a senior trade official. (China Daily)

EU and UK Headlines

The German government is set to resist or delay increasing the size of the Eurozone’s financial firewall against contagion from the Greek debt crisis, in the face of mounting pressure from the IMF and the US. (FT-More) A spokesman for German Chancellor Merkel insisted that Berlin saw no reason to increase the size of the ESM from EUR 500bln.

An IMF official has said that peak funding by the IMF will not likely top EUR 30bln. The official went on to say that there are huge Greek program implementation risks in the next few days, adding that “it is not yet in the bank”. (Sources)

German IFO data came in stronger than expected earlier in the European session, however positive market sentiment was quickly dashed after the release of the European Commission forecasts, showing downwards revisions of most European country’s GDP growth. The forecasts estimate 2012 Eurozone GDP growth at -0.3%. (Sources)

EQUITIES

European indices have shown volatility ahead of the North American open with most indices trading down with the exception of the FTSE.

Financial earnings released earlier in the session have shown the effects of Greek exposure in the latter half of last year, with Commerzbank and Credit Agricole reporting heavy writedowns on Greek bonds in their corporate earnings. Commerzbank and Credit Agricole shares trade down 4.6% and 3.9% respectively.

After opening sharply lower, Royal Bank of Scotland shares have recouped their losses as market participants react to the company’s corporate earnings report. RBS reported an 11% increase in operating profits for 2011, however there were significant costs from PPI charges and writedowns from Greek and Irish exposure. RBS shares currently trade up 4.6%.

Top performing sectors in the BE500: Technology (+0.50%), Health Care (+0.50%), Basic Materials (+0.40%)
Worst performing sectors in the BE500: Utilities (-0.85%), Telecommunications (-0.57%), Consumer Goods (-0.47%)

FX

The USD index has shown weakness across the board for most of the European session, with EUR/USD, GBP/USD trading in positive territory and USD/JPY trading down ahead of the North American open. This follows some earlier market talk that Middle-Eastern names were buying against the USD, however this remains unconfirmed.

EUR/USD has shown some volatility ahead of the North American open, showing a move above the 1.3300 level, however following the European Commission’s forecasts of a Eurozone contraction in GDP for 2012, EUR/USD sold off some of its earlier gains and sits below the 1.3300 level.

COMMODITIES

Brent rose to its highest level in nine months following some better than expected German IFO data. Markets are still cautious on Iran following news that UN inspectors were denied access to a suspected nuclear base.

Oil & Gas News:

•   The energy pipeline project Nabucco may not go ahead as planned, citing a BP spokesman. A smaller project may remain, known as ‘Nabucco West’.
•   Saudi Arabia’s deputy oil minister has said the country’s main concern is to keep the global oil market well supplied. The minister said Saudi Arabia’s current production stands at 9.8MPBD, with spare capacity currently standing at 2.5MBPD.
•   Iran’s oil production in February is expected to be around 3.5MBPD, steady from January, according to the Iranian OPEC governor.
•   UK oil imports exceeded production for the first time since 1978, according to the UK Department for Energy and Climate Change.

Geopolitical News:

• Japan is in final talks for an agreement with Washington to cut the volume of its crude oil imports from Iran by over 20% per to year to win waivers from US sanctions.
• According to a State Department spokesman the US will continue to weigh its options on Iran and the US is not jumping to any quick decisions on the country. Iran’s refusal to let United Nations experts investigate allegations of illicit nuclear activities at a military base did not inspire confidence for a return to negotiations with the international community, according to US officials.