Daily US Opening News And Market Re-Cap: July 19
- BoE's MPC may examine a rate cut following assessment of their FLS and ECTR credit-boosting schemes, according to their minutes release.
- Unconfirmed market talk of an Austrian sovereign downgrade takes its toll on the Austrian-German 10yr government bond yield spread, seen near its widest levels at the North American crossover.
- Germany sells Schatz with a yield of -0.060%, a record low.
European equities are trading in minor positive territory on light volume and a light economic calendar with the exception of the IBEX and the FTSE MIB which are down 0.3% and 0.4% respectively as US participants begin to come to their desks. Headline employment data from the UK was for the most part in-line with expectations, though the jobless claims change for June showed a 6.1K increase compared with the 5.0K expected, with downward revisions to May’s figures.
The BoE minutes showed the July increase in APF was not unanimous at 7-2, and a GBP 75bln increase was also discussed, and that should the additional easing measures not work, a further rate cut would be examined. The final comment caused a spike to the upside in the short Sterling strip of 6 ticks, Gilt futures rose to make highs of 121.78, and GBP/USD to slide back below 1.5600, though the pair has since come off its lows and trades back above this level.
Elsewhere, the German Schatz auction was strong, with the yield coming in at -0.060%, a new all time record low yield for the Schatz, which was in line with expectations. Market talk that Austria’s sovereign downgrade created one of the largest moves today; the 10-year spread over the benchmark bund is now wider by 4bps.
Looking ahead to the rest of the day, investors look forward to US Housing Starts and Building Permits for June scheduled to be released at1330BST/0730CDT, Fed Chairman Bernanke’s testimony to the US House, the weekly DoE inventories (1530BS/0930CDT) as well as the Fed’s Beige Book (1900BST/1300CDT), and more corporate earnings releases from the likes of IBM, American Express, and Qualcomm among others.
According to the BoJ minutes, the bank should not rule out any policy options in advance if risks stemming from the Eurozone crisis are realized, and the bank stands ready to take appropriate action. (Newswires)
China should shift its monetary stance to moderately ease to arrest a slowdown in economic growth, as the measures undertaken so far are insufficient, according to state-run press. The state council is expected to hold a meeting as early as this Wednesday to set the tone for policies in the second half. (Newswires) Chinese CPI may rise by less that 3% this year, according to a state researcher. (China Securities Journal)
The Fed could ease monetary policy in August or September, although a large move is more likely to come only after US elections later in the year, according to Goldman Sachs. (Newswires)
US MBA Mortgage Applications (Jul 13) W/W 16.9% vs. Prev. -2.1% (Newswires)
EU & UK Headlines
The Netherlands is studying the possibility of getting a collateral deal with Spain in the bailout of banks following in Finland's footsteps, according to a Dutch finance ministry source. (De Telegraaf)
UK Chancellor Osborne is to announce his latest plans to stimulate the UK economy that will see government guarantees provided on around GBP 50bln of private investment projects and exports. (Newswires) A second jobs and growth package is expected in the autumn, including an expansion of housebuilding. (Independent)
The release of the BoE's minutes showed they voted 7-2 to expand QE by GBP 50bln, with Dale and Broadbent opting to keep the APF on hold.
The key point of the release was that the board said they may examine a possible rate cut after assessing new measures. MPC members who supported more QE also discussed a GBP 75bln increase as well as GBP 50bln, with the key question for them being how big a boost to growth would come from their FLS and ECTR programs. (Newswires) In the immediate reaction, GBP/USD moved 25 pips lower, and continued to decline. Gilt futures moved 15 ticks to the upside but pared half of the move in the following 4 minutes and Short Sterling strip moved 6 ticks to the upside on a strong bid tone.
Germany sells EUR 4.173bln 0% Jun'14 Schatz, bid/cover 2.0, Prev. 1.90 (Yield -0.060%, Prev. 0.100%, Retention 17.0%, Prev. 19.9%)
An all time record low yield for the Schatz.
The Austrian-German 10yr government bond yield spread is observed as one of the largest movers today as unconfirmed market chatter of a potential Austrian sovereign downgrade does the rounds. Although the talk of a sovereign downgrade does remain unconfirmed the Austrian 10-year bund spread is still seen at its widest level of the day.
ECB's Asmussen has said German approval of ESM bailout fund is the key, and negative court judgement would mean ESM had "failed" (Newswires) As Germany is one of the largest contributors to the ESM their approval is key. The high court ruling on the ESM is due on September 19th, delayed after appeals from opposition MPs.
The core European bourses are seen in flat to minor positive territory as the periphery slips into the red, as the IBEX and FTSE MIB take losses at the North American crossover. Consumer services are seen as the outperforming sector today, closely followed by healthcare stocks. Equities trade relatively rangebound with little price action, but the FTSE-100 did see a slight lift when the BoE signalled that they could examine their base rate upon the results of their new FLS measures. US stock futures indicate a lower open on Wall Street today.
In individual equities news, Credit Suisse issued their earnings release early, reporting Q2 net of CHF 815mln vs. exp. CHF 802.8mln with Q2 pretax profits of CHF 1.10bln vs. exp. CHF 1.02bln. The key part of the company's release was their statement that in order to eliminate any doubt raised by the 2012 SNB financial stability report, Credit Suisse are to employ an immediate set of actions to increase their capital by CHF 8.7bln. (Newswires) At the North American crossover, Credit Suisse shares are seen higher by over 3%.
Anglo-Dutch supermajor Royal Dutch Shell are seen underperforming the Oil & Gas sector in Europe as overnight reports that the company is to face a USD 5bln charge over a Nigerian oil spill, however the losses are seen muted because the company has said there is no legal basis for the claims. Royal Dutch Shell shares currently trade lower by around 0.5%.
EUR/USD was trading in a relatively tight range in the early hours of the European morning, with unconfirmed market talk of bids at 1.2260 providing support just above this level, as an option expiry for the 10am (1500BST) NY cut at 1.2300 proved magnetic, as Asian corporate names buying adds to the incline. The pair came under some severe selling pressure as the USD-index saw strength and comments from ECB's Asmussen drew focus. The pair has now fallen below the 1.2230 level at the North American crossover, between two touted option expiries at 1.2200 and 1.2250.
GBP/USD has been a volatile pair this morning, with the BoE's minutes hinting that the board could examine a rate cut at some point down the line, prompting GBP weakness across the board, as such session lows were printed in GBP/USD at 1.5581. The pair has moved away from the lows at the midpoint of the European session, with an option expiry at the 1.5600 handle eyed, upon which the pair currently trades.
Crude futures trade in minor negative heading into the NYMEX pit open after paring overnight losses as sentiment in Asia dented appetite for riskier assets, and as markets showed disappointment following no hint of QE from the Fed chairman Bernanke.
Oil & Gas News
- China's apparent demand for oil products in the first half of the year rose 2.9% year on year to 121.74 million mt, according to the NDRC.
- The Pentagon is building a missile defence radar station at a covert location in Qatar. The site will be part of a system intended to defend the interests of the United States and its allies against Iranian rockets, unnamed officials told the US newspaper on Tuesday.
- South Korea have said there has been no sign of seismic activity to indicate a nuclear test from North Korea.