- ECB deposits fall dramatically following the cut to zero-deposit rates, however ECB current account sees significant uptick in evidence that shows European banks continue to sit on reserves as opposed to increase lending.
- Riskier assets weighed upon ahead of Chinese GDP data due out overnight.
- Italian yield reflects renewed caution as the Italian Business Lobby forecasts Italy's GDP contraction to be greater than official
European equities are seen softer at the North American crossover as continued concerns regarding global demand remain stubborn ahead of tonight’s Chinese GDP release. Adding to the risk-aversion is continued caution surrounding the periphery, evident in the Spanish and Italian bourses underperforming today.
A key catalyst for trade today has been the ECB’s daily liquidity update, wherein deposits, unsurprisingly, fell dramatically to EUR 324.9bln following the central bank’s cut to zero-deposit rates. The move by the ECB to boost credit flows and lending has slipped at the first hurdle, as the fall in deposits is matched almost exactly by an uptick in the ECB’s current account. As such, it is evident that the banks are still sitting on their cash reserves, reluctant to lend, as the real economy is yet to see a boost from the zero-deposit rate. As expected, the European banks’ share prices are showing the disappointment, with financials one of the worst performing sectors, and CDS’ on bank bonds seen markedly higher.
A brief stint of risk appetite was observed following the release of positive money supply figures from China, particularly the new CNY loans number, however the effect was shortlived, as participants continue to eye the upcoming growth release as the next sign of health, or lack thereof, from the world’s second largest economy.
Preference for safe haven assets continues to be observed among investors, as the UK DMO sells 10yr debt at another record low yield. As such, fixed income is seen higher today, with the Gilt futures outperforming. Peripheral 10yr government bond yield spreads against the German equivalent are seen wider on the day, as borrowing costs for Spain and Italy resume their incline as the Italian Business Lobby forecasts the country’s growth contraction to be greater than official estimates.
Looking ahead in the session, participants await the weekly jobs figures and a 30yr note auction from the US.
The BoJ have held their target rate unchanged at 0.10%, alongside expectations and maintained its view that the Japanese economy is gradually picking up, pointing towards solid domestic demand as a spur for growth countering the need for additional stimulus. (Newswires) The total size of the BoJ's asset buying and lending program is unchanged at JPY 70trl, however the bank has made a technical revision to the scheme, and are to increase the buying of short-term securities by JPY 5trl while reducing the amount it offers under fixed-rate market operations by the same amount.
According to a Chinese government economist, Chinese GDP is set to grow by around 8%, expecting the economy to rebound slightly in the second half of this year. The economist adds that the rate of growth outweighs the need for massive stimulus. (Newswires) Elsewhere, the ADB sees the Chinese economy growing at a rate of 8.2% in 2012, and 8.5% in 2013.
- China New CNY Loans (Jun) M/M 919.8bln vs. Exp. 880.0bln (Prev. 793.2bln)
- Money Supply M0 10.8% vs. Exp. 10.6% (Prev. 10.0%)
- Money Supply M1 4.7% vs. Exp. 4.0% (Prev. 3.5%)
- Money Supply M2 13.6% vs. Exp. 13.5% (Prev. 13.2%) (Newswires)
San Bernardino City's attorney has said the country plans to declare a fiscal emergency but may bypass bankruptcy mediation, according to an interview. (Newswires)
EU & UK Headlines
Ireland is to unveil a multi-billion euro stimulus package later this month in an effort to kick-start its flagging economy and curb unemployment as it presses the Eurozone to take over a large chunk of bank-related debts to aid its recovery. (FT-More) Finance minister Noonan said the Troika had approved the package as long as spending limits are not breached.
Greek coalition leaders have agreed to bring forward the bailout renegotiation. (ekathimerini) The leaders of the three parties that form Greece’s coalition government have agreed to speed up the process by which Athens will ask its lenders for changes to the bailout.
The ECB's overnight deposits have fallen dramatically to EUR 324.9bln, with EUR 722mln borrowed overnight. (Newswires) The fall in ECB deposits has been matched almost exactly by an uptick in ECB current account figures, showing that European banks are continuing to sit on reserves as opposed to lend them to the real economy.
The Italian economy minister has said the Bank of Italy forecast of -2.0% GDP growth this year should be seen with maximum respect, However the Italian business lobby head has said GDP fall in 2012 will likely be more than 2.4%. (Newswires)
Italy sells EUR 7.5bln 12-Month BOTs, bid/cover 1.55, Prev. 1.73 (yield 2.697%, Prev. 3.972%) - Lowest yield since May (Newswires)
UK DMO sells GBP 3.5bln 1.75% Sep'22 Gilts, bid/cover 2.2, Prev. 1.63 (yield 1.719%, Prev. 1.920%, yield tail 0.3bps, Prev. 0.5bps) - Record low yield. (Newswires)
The Spanish government are looking to tighten 2013 regions deficit target according to an official (Newswires) The official said regions 2013 target may be 0.7% of GDP vs. 1.1% now, but they are to keep 2012's target unchanged.
The BoE are to announce the details of the "Funding for Lending" programme tomorrow at 1100BST/0500CDT. (Newswires)
French CPI (Jun) Y/Y 1.9% vs. Exp. 1.9% (Prev. 2.0%) (Newswires)
French CPI (Jun) M/M 0.0% vs. Exp. 0.0% (Prev. -0.1%)
European equities are seen lower at the North American crossover with underperformance noted in the peripheral bourses, as the Italian Business Lobby head warns that Italy's GDP contraction is likely to be greater than official figures suggest. The primary laggards today are seen as the technology sector, closely followed by the telecommunications sector, with the riskier assets also taking notable losses as financials and basic materials are seen lower by over 1% apiece ahead of tonight's Chinese GDP data. US stock futures are seen lower, indicating a lower open on Wall Street today.
DAX-listed SAP are seen firmly outperforming following the company reporting that their Q2 software revenue has reached the upper end of the Q2 outlook, reporting their revenues at EUR 1,059mln. SAP shares saw a sharp spike higher 5% in the immediate reaction, with Sage Group also benefiting strongly in the sector-related move.
In individual equities news, HSBC are seen as the primary laggards amongst the UK banks, following overnight reports that they are to face a significant USD 1bln fine from the US for failing to have appropriate controls in place to ensure it did not facilitate the financing of terrorism and other criminal activities. On top of this, the Co. have reported that their Chairman Andrew Flockhart is to retire as Chairman of the Board. At the midpoint of the European session, HSBC shares are seen lower by as much 2%.
EUR/USD continues its downward trend, breaking below the 1.2200 mark, as a slew of options at 1.2230 and the 1.2200 handle fails to contain price action. Unconfirmed market talk of Asian names selling in the pair added pressure early in the European morning, with the effect being compounded by French and Japanese names selling in EUR/JPY.
The GBP/JPY cross has been somewhat of a focus this morning, as Japanese M&A deals of around GBP 3.2bln prompt expectations of support, however this has failed to materialise into the cross, but could become more influential as the session progresses.
AUD weakness has been prevalent, carrying across into the European session as Australian employment change data disappoints, coming in at -27.0K against the expected 0.0K. As such, AUD/USD is seen moving closer to the 1.0100 level, currently down over 125 pips on the day.
WTI and Brent crude futures are seen lower and on a downward trajectory ahead of the NYMEX pit open, as further concerns that global energy demand may falter carry across into the European session. The monthly report from the IEA failed to provide support for the energy complex, despite forecasting an uptick in demand growth next year. Energy participants now look ahead to the weekly EIA Natural Gas Storage Change (Jul 6) W/W Exp. 27, Low 22, High 34 (Prev. 39) due at 1530BST/0930CDT.
Oil & Gas News:
- The IEA have forecast a pickup in world oil demand growth in 2013 as the global economy begins to recover. The agency forecasts world oil consumption to increase by 1MBPD to average 90.0MBPD next year. The IEA have said OPEC will need to provide an average of 30.5MBPD next year in order to meet market requirements.
- Abu Dhabi are to price the first oil exports from their Hormuz-bypassing pipeline to Fujairah at the same price it charges for crude loaded inside the Persian Gulf, according to three sources close to the matter.
- Credit Suisse have said the global LNG market will be tighter than expected this year due to Japan's demand for chilled fuel and production project delays. Credit Suisse estimate the LNG supply deficit to peak in 2014 or 2015, at 36mln tons per year in 2014.
- A hike in diesel prices in India is likely after the Presidential polls, according to an oil ministry source.
- Nigeria's cabinet has approved a final draft of an oil law, years in the making, that will be sent to President Goodluck Jonathan before going to parliament in a few days, the oil minister said on Wednesday.