Daily US Opening News And Market Re-Cap: July 10
- Unconfirmed market talk that the PBOC may cut their banks' RRR offsets weak Chinese trade data.
- UK Manufacturing and Industrial Production data firmly beats expectations.
- Italian and Spanish 10-yr government bond yields move back below their 'unsustainable' psychological levels of 6% and 7% respectively.
European equities are seen firmly in the green at the North-American crossover, with outperformance noted in the peripheral bourses. Overnight news from the Eurogroup has confirmed that the EFSF/ESM rescue funds will be given the powers to intervene in the secondary bond markets, easing sentiment towards the European laggard economies. Gains are being led by a particularly strong technology sector, with the riskier financials and basic materials also making solid progress. Asset classes across the board in Europe are benefiting from risk appetite, with the Bund seen lower and both the Spanish and Italian 10-yr yields coming below their key levels of 7% and 6% respectively. The moves follow a spurt of activity in Europe with a number of factors assisting the way higher.
The UK posted expectation-beating manufacturing and industrial production numbers alongside a narrower-than-forecast trade deficit, easing pressure on the UK’s troubles. This was followed by market talk of the PBOC cutting their banks’ RRR either tonight or tomorrow, however this remains unconfirmed. The market chatter concerning China has somewhat counteracted the disappointing Chinese import numbers, which were seen weighing on sentiment in the overnight session.
The moves in the equity markets have been reflected in currency space, with EUR/USD benefiting from the declines in Spanish and Italian borrowing costs, as well as short-covering helping the pair through the Asian high, to print 1.2335 in the rally. German banking names are also noted buying in the pair, offsetting touted corporate sellers.
Looking ahead in the session with the US calendar remaining light, price action could be muted, but IBD/TIPPs optimism and JOLTs job openings will be watched.
Japanese Consumer Confidence (Jun) M/M 40.4 vs. Exp. 40.7 (Prev. 40.7) (Newswires)
The Japanese government hopes the BoJ will maintain powerful montary easing until deflation is overcome, according to a draft government growth strategy, adding that Japan will act appropriately as needed against excessive forex volatility. (Newswires)
Chinese Trade Balance (USD) (Jun) M/M 31.72bln vs. Exp. 24.00bln (Prev. 18.70bln)
Chinese Exports (Jun) Y/Y 11.3% vs. Exp. 10.6% (Prev. 15.3%)
Chinese Imports (Jun) Y/Y 6.3% vs. Exp. 11.0% (Prev. 12.7%) (Newswires)
Chinese CPI may be below 2% in July, according to a government economist at the State Council's Development Research Center. (People's Daily)
Market talk that the PBOC may cut banks' RRR either tonight or tomorrow - Unconfirmed. (RANsquawk)
US Treasury Secretary Geithner is to meet with Senate Democrats in order to discuss tax cuts; including the proposal to extend the Bush-era's USD 250,000 threshold. (Newswires)
EU & UK Headlines
- In return for the looser deficit targets for Spain, PM Rajoy will commit to fresh tax increases, likely to be announced this week, to shore up revenues. (FT-More)
- Eurozone finance ministers are to give final approval to the Spanish banking bailout by the 20th July. (Newswires)
- EU's Juncker has said the Spanish deal could see a EUR 30bln tranche by the end of the month, adding that maturities on the Spanish loans are to have an average 12-and-a-half year maturity, with some loans having up to 15 year maturities.
- EFSF's Regling added that the EFSF will provide resources for any secondary market bond-buying and the ECB would act as a fiscal agent and the EFSF/ECB agreement means the ECB can intervene without impacting their balance sheet.
- The Eurogroup are to reiterate their pledge to enable the bailout funds to buy bonds, according to EU sources.
- According to a further Eurogroup statement, technical discussions on ESM direct banking recapitalisations is to begin in September. (Newswires)
UK Manufacturing Production (May) M/M 1.2% vs. Exp. -0.1% (Prev. -0.7%, Rev. -0.8%)
UK Manufacturing Production (May) Y/Y -1.7% vs. Exp. -1.9% (Prev. -0.3%, Rev. -1.5%)
UK Industrial Production (May) M/M 1.0% vs. Exp. -0.2% (Prev. 0.0%, Rev. -0.4%)
UK Industrial Production (May) Y/Y -1.6% vs. Exp. -2.1% (Prev. -1.0%, Rev. -2.0%)
UK Visible Trade Balance (GBP) (May) M/M -8.363bln vs. Exp. -9.100bln (Prev. -10.103bln, Rev. -9.709bln)
UK Trade Balance Non EU (GBP) (May) M/M -3.865bln vs. Exp. -4.700bln (Prev. -5.202bln, Rev. -5.125bln)
UK Total Trade Balance (GBP) (May) M/M -2.717bln vs. Exp. -3.500bln (Prev. -4.421bln, Rev. -4.088bln) (Newswires)
Sentiment towards the UK economy has eased somewhat as official figures for industrial and manufacturing production unexpectedly show a strong performance, and with a narrowing in the trade balance, the UK export market now appears firmer than previously thought. Upon the release of the data, GBP saw immediate strength, and Gilt futures saw an spike to the downside in the immediate fast money move, however this was quickly pared.
The Greek finance ministry have said the Troika are to return to Greece on July 24th and it is very unlikely that Greece will get a program extension at this point. The finance ministry added that the country needs an additional EUR 3bln in saving measures before the end of this year. (Newswires)
European equities are seen firmly in the green ahead of the Wall Street open, being led higher by technology stocks. The riskier sectors are also seeing a boost, with basic materials, industrials and financials also making strong progress. Risk appetite is evident in the equity markets today, with defensive health care stocks seen as the only laggard so far today. US stock futures are also benefiting, indicating a higher open on Wall Street today.
In individual equity news, Italian industrial group Finmeccanica have seen volatility in today's European session, following further news from the Farnborough Airshow, in which a company unit has announced it's plans to manufacture a new long-range civil helicopter, with production to begin in Somerset, UK. Finmeccanica shares have dipped in and out of trade, limit up, throughout the morning, and are currently indicated higher by 5%. European food caterers Compass Group and Sodexo are seen as the worst performers in Europe today, following Sodexo's sales figures taking a significant hit from the economic downturn, which in turn has weighed upon Compass Group shares in a sector-related move. Compass Group shares are currently seen lower by 2.5%, with Sodexo lower by over 5% today.
EUR/USD has been assisted through the Asian highs of 1.2322 to print a European session high of 1.2335 on the back of a risk-rally observed across the European asset classes. Much of the moves higher have been attributed to Asian names short-covering in the pair, with further upwards pressure noted from German names countering corporate sellers. A large option expiry for the 10am (1500BST) NY cut at the 1.2300 level may prove definitive in the pair for the next few hours.
GBP/USD saw similar benefits from the flurry of activity, particularly following the UK posting stronger-than-expected manufacturing and industrial production figures, which pushed the pair to test offers at the 1.5500 mark. Further option expiries for tomorrow's NY cut at the 1.5500 and 1.5540 levels could define the range for the pair across today's and tomorrow's sessions.
WTI and Brent crude futures are seen lower ahead of the NYMEX pit open as Chinese import data further fuels concerns of a slowdown in the world's second largest economy. Elsewhere, the Norwegian government have intervened to prevent an oil worker strike in the county, easing supply concerns from the European producer.
Oil & Gas News:
The Norwegian government have said they have ordered compulsory arbitration to end a two-week oil and gas production strike, according to a labour ministry statement. Following the announcements, Statoil have said they are preparing to restart production at affected installations and they are expected to be back in full output mode by the end of the week.
China are to cut their gasoline and diesel prices tomorrow by CNY 420/ton and CNY 400/ton respectively, according to the Chinese NDRC. China's crude oil imports in the first half of this year reached 140MMT, up 11% from a year earlier, according to the Chinese customs office.
However, the country's monthly imports of crude fell to their lowest daily rate this year, from a record high in May.
Iran's oil production fell to 3.2MBPD in June, its lowest level since 1992, under the impact of Western sanctions, according to oil traders. In other news, Iran have raised their official selling price for August-loading crude to Asia for most of its grades, according to an industry source with knowledge of the matter.
Nat Gas slipped into backwardation for the first time since August 29th at yesterday's Nymex floor close.
Iran’s foreign minister said Iran could close the Strait of Hormuz if denied access to Persian Gulf but does not think such a time will come.
A prominent US lawmaker has asked Tuvalu to stop reflagging Iranian oil tankers and has warned the government of the risks of running against US sanctions.