- Moody’s downgrade Greece’s sovereign rating by three notches, to Ca from Caa1, and warned that it is almost inevitable the country will be considered to be in default following last week’s new bailout package
- US lawmakers have so far failed to come up with a concrete proposal to raise country’s debt ceiling and to manage US’s soaring debt, raising fears of a sovereign default
- CHF and JPY emerged as major beneficiaries of the risk-averse trade, whereas commodity-linked currencies traded lower
Despite frantic efforts to reach an agreement to raise the US debt ceiling, no concrete measures emerged during the weekend, which allied with Moody's downgrade of Greece's sovereign rating by three notches today, promoted risk-aversion in the market. European equities traded under pressure, weighed upon by financials, which in turn provided support to Bunds, whereas the Eurozone peripheral 10-year government bond yield spreads widened across the board. Particular widening was observed in the Belgian/German spread leading up to the bond auctions from Belgium, however the spread narrowed somewhat after they went through successfully. Elsewhere, CHF and JPY emerged as major beneficiaries of the risk-averse trade, whereas commodity-linked currencies traded lower.
Moving into the North American open, the economic calendar remains thin, however Chicago Fed National Activity and Dallas Fed Manufacturing reports are scheduled for later in the session. Also, Texas Instruments, and Anadarko Petroleum are among some of the companies reporting their corporate earnings today.
BoJ’s Governor Shirakawa said the BoJ would consider what it can do to support Japan’s economy but repeated his opposition towards calls for the central bank to underwrite government debt or buy bonds to be issued to fund reconstruction costs for the devastating earthquake in March. (RTRS)
In other news, China’s annual economic growth is likely to slow to 9.3% in the third quarter from 9.5% in the second quarter, with inflation staying stubbornly high, according to forecast by the National School of Development at Peaking University. (RTRS)
US Treasury Secretary Geithner said Republicans realise tax-reform is a requirement and a deal has to get done, there is no other option. Geithner added Obama and House speaker Boehner are still in negotiations and that budget/debt deals will take two stages, with the first stage being spending cuts. He also went on to say, a short term deal is not a viable option, and the House needs to start deliberations on Monday night. Geithner said there is a possibility that Q2 GDP will be slower than Q1, however, H2 US growth should be better. (Sources)
Also, US House speaker Boehner said it is too early to know whether a Bipartisan deal is possible. If there is no Democrat support then Republicans will go it alone. Boehner added that we’re not there yet on a debt deal. Meanwhile, Gang of Six member Senator Warner says leaders are coming together on debt process. Also, Senator Kyle says Republicans are working on a temporary lift in debt cap. (Sources)
In related news, US Chief of Staff Daley said there should be no short term debt fix and that Democrats can deliver votes for a serious plan. Daley added that in the end Congress will act on the debt limit. Daley says the White House opposes a two-phase deal if no long-term debt ceiling increase is found. (WSJ/Sources)
Elsewhere, US states are devising contingency plans to deploy in the event of a federal default, which would threaten their budgets and stall the payments they receive from Washington. California on Tuesday plans to raise a USD 5bln bridge loan in lieu of an annual public debt offering. Virginia is considering a short-term loan from its own state treasury if federal transfers are temporarily delayed. (FT - More)
EU and UK Headlines:
Moody’s downgraded Greece to Ca from Caa1, with a developing outlook. Moody’s said the EU programme and proposed debt exchanges will increase the likelihood Greece will stabilise and reduce its debt. The support package is to benefit all the Euro-zone sovereigns in containing near-term contagion risks, however, Greece still faces medium term solvency challenges. The ratings agency added that the support package permits an orderly default and buys time for Greece. (RTRS/Sources)
In other news, Eurozone officials and bankers plan to conduct a voluntary swap of privately-held Greek bonds for longer maturities within a few weeks to minimise the period during which Greece is in partial default, according to an unnamed senior EU official. The official said talks were continuing aimed at starting the bond exchange in late August and concluding it in early September. (RTRS)
• UK Hometrack Housing Survey (Jul) M/M -0.1% vs. Prev. -0.1%
• UK Hometrack Housing Survey (Jul) Y/Y -3.9% vs. Prev. -3.9% (RTRS)
• German 12-month Bubill auction for EUR 2.515bln, bid/cover 1.80 vs. Prev. 3.90 (yield 1.2507% vs. Prev. 1.299%)
• Belgian OLO Tap for EUR 0.403bln, 3.50% 28-Jun-17, bid/cover 2.78 vs. Prev. 1.72 (yield 3.819% vs. Prev. 3.753%)
• Belgian OLO Tap for EUR 1.062bln, 4.25% 28-Sep-21, bid/cover 1.94 vs. Prev. 1.67 (yield 4.274% vs. Prev. 4.202%)
• Belgian OLO Tap for EUR 1.040bln, 4.25 28-Mar-41, bid/cover 1.61 vs. Prev. 1.49 (yield 4.826% vs. Prev. 4.815%) (RTRS)
European equities traded lower, weighed upon by financials, amid risk-aversion emerging from hindrances in raising the debt-ceiling in the US, allied with debt-contagion fears in the Eurozone. The Italian FTSE MIB and Spanish IBEX 35 indices underperformed their European peers, and moving into the North American open, equities continue to trade in negative territory, with financials and consumer services as the worst performing sectors.
In other news, Several European banks with large exposures to Greek sovereign debt have yet to sign up to a plan for private-sector bondholders to contribute EUR 37bln to a second Greek rescue package. The UK’s Royal Bank of Scotland, Germany’s DZ Bank and LBBW and Austria’s Erste Bank, which between them hold about EUR 3bln of Greek sovereign debt, are among the lenders that have not yet committed to take part in a programme. (FT)
CHF and JPY emerged as major beneficiaries of the risk-averse trade, whereas commodity-linked currencies, such as CAD, AUD and NZD, traded lower. GBP came under further pressure partly after UK’s Business Secretary, Vince Cable, called on the BoE to do more quantitative easing if demand continues to falter.
In other news, BoJ’s Governor Shirakawa warned that recent JPY rises were risks to Japan’s economic outlook as they may hurt growth by undermining exports, corporate revenues and sentiment. Meanwhile, Japan’s finance minister Noda said he sees current FX moves as one sided, adding that need to watch forex market moves closely, as was the case at March joint G7 intervention. He also said that the government will take resolute actions when necessary in the currency market. (RTRS/Kyodo)
WTI and Brent crude futures have come under pressure due to concerns surrounding the US debt talks ahead of an August 2nd deadline and Greece’s sovereign rating being cut to Ca by Moody’s. However, heading into the North American, with the USD-Index narrowing its gains, prices have come off their session lows.
Oil & Gas News:
- Iran will sign a USD 10bln contract today to export natural gas to Iraq and Syria, the oil ministry said on its news website. In other news, Iran and China are discussing using a barter system to exchange Iranian oil for Chinese goods and services, as US sanctions have blocked China from paying at least USD 20bln for oil.
- Iraq is satisfied with current international oil prices and the oil market is balanced, according to Iraqi oil minister Abdul-Kareem Luaibi. In other news, according to an official, Iraq will export 10,000 BPD of oil to Syria
- India's June crude oil output was at about 773,500 BPD, up 7.7%,Y/Y, according to the government. However, June’s Natural gas output was down 11.7%, Y/Y at 3.97bln cubic meters.
- Bashar al-Assad, Syria's president, has sacked the governor of the flashpoint province of Deir az-Zor, two days after massive protests demanding his ousting were held in the oil-producing region.
- The US is in no rush to resume nuclear talks with North Korea even though Washington has invited a senior diplomat to New York this week, according to US officials.
Spot Gold printed a record high of USD 1624.07 per ounce during the Asian session.