Daily US Opening News And Market Re-Cap: July 27

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From Ran Squawk:

  • German finance minister expressed his reluctance in the use of EFSF/ESM to purchase government bonds in the secondary market, and said it would be wrong to think that Eurozone crisis could be permanently solved by a one-off summit
  • ECB's Provopolous said ECB’s rates are appropriate, however the ECB will act if there is a need to contain inflation
  • The impasse over the issue of raising US's debt ceiling prevailed ahead of an August 2nd deadline

Market Re-Cap
 
Markets remained apprehensive as the impasse over the issue of raising US's debt ceiling prevailed, and further risk-aversion materialised after German finance minister expressed his reluctance in the use of EFSF/ESM to purchase government bonds in the secondary market. This resulted in weakness in European equities, led by financials, which provided support to Bunds, and also weighed upon the EUR across the board. In other news, AUD received strength following higher than expected inflation data from Australia overnight, whereas a downtick was observed in GBP/USD after a sharp decline in CBI trends total orders figures from the UK.
 
Moving into the North American open, markets look ahead to key economic data from the US in the form of durable goods report, DOE inventories figures, as well as the release of Fed's Beige Book. In terms of fixed income, USD 35bln 5-year Note auction is scheduled for later in the session. Markets will also watch keenly US corporate earnings from the likes of Boeing, ConocoPhillips, and Visa.
 
Asia Headlines:
 
BoJ’s board member, Kamezaki, said Japan’s economy will resume moderate recovery in October-March second half of fiscal 2011/12, adding that the BoJ needs to be proactive in taking necessary steps for growth and price stability. He added that the BoJ needs to be mindful of downside risks to Japanese economic outlook in long term, adding that large downside risks exist for BoJ’s long-term growth forecasts. (RTRS)
 
In other news, according to an adviser to the PBOC, Xia Bin, China should gradually make real benchmark bank deposit rate positive and continue to use open market operations and bank reserve requirements to slow money supply. He also said that flexible CNY will help to curb imported inflation, adding that monetary policy should stay relatively tight. (People’s Daily)
 
US Headlines
 
The US House of Representatives postponed an expected Wednesday vote on a Republican plan to raise the debt ceiling after budget experts said it would not deliver the spending cuts it claimed. The House will delay action until Thursday, while the US House speaker Boehner is reworking his debt plan to ensure spending cuts are larger than debt ceiling increase. Meanwhile, Treasury Secretary Geithner said it is essential Congress lifts the US’s USD 14.3trl debt ceiling to ward off a historic default and preserve financial stability. (RTRS)
 
In related news, US money market funds are stockpiling cash in case Congress fails to raise the debt ceiling, distorting the short-term market for US government debt and raising borrowing costs for banks and other financial institutions. (FT-More)
 
Also, S&P’s global head of sovereign ratings, David Beers, said prioritising US debt payments to avoid a default would be deeply disruptive to the economy, adding that a small increase in the US debt ceiling would be negative to US ratings. S&P also said that it is looking for some programme to make a difference in medium term in slowing rising government debt to avoid a downgrade, and will look at potential deal to determine if it is actionable and credible. S&P said it would be concerned if debt ceiling debate comes back soon, adding that partial payment would not be a default but not tenable for long. S&P further said it is not going to say a downgrade is imminent and will judge plan when it comes, adding that decreasing rating would mean higher interest rates. (RTRS/CNBC)
 
BarCap month-end extensions: US Treasury +0.07years
 
EU and UK Headlines:
 
S&P’s global head of sovereign ratings, David Beers, said a new and bigger restructuring of Greek debt is likely within the next two years, and a further downgrade of Greece’s sovereign debt rating was “pretty certain”. (RTRS)
 
•    German CPI - Baden Wuerttemberg (Jul) Y/Y 2.7% vs. Prev. 2.3%
•    German CPI - Bavaria (Jul) Y/Y 2.3% vs. Prev. 2.1%
•    German CPI - North Rhine West (Jul) Y/Y 2.7% vs. Prev. 2.5%
•    German CPI - Brandenburg (Jul) Y/Y 2.2% vs. Prev. 1.9%
•    German CPI - Hesse (Jul) Y/Y 2.2% vs. Prev. 2.1%
•    German CPI - Saxony (Jul) Y/Y 2.5% vs. Prev. 2.3%
•    UK CBI Trends Total Orders (Jul) M/M -10 vs. Exp. -3 (Prev. 1) (RTRS)
 
BarCap month-end extensions: Euro +0.14years
BarCap month-end extensions: Sterling +0.02years
 
EQUITIES
 
Markets remained apprehensive as the impasse over the issue of raising US's debt ceiling prevailed, and further risk-aversion materialised after German finance minister expressed his reluctance in the use of EFSF/ESM to purchase government bonds in the secondary market, which resulted in weakness in European equities, led by financials. European peripheral indices, including the Italian FTSE MIB and Spanish IBEX 35, underperformed its European peers in particular. However, basic materials remained one of the better performing sectors partly on the back of strong corporate earnings from ArcelorMittal. Moving into the North American open, equities continue to trade lower, with financials and utilities being the worst performing sectors.

FX
 
Weakness was observed in EUR across the board after German finance minister expressed his reluctance in the use of EFSF/ESM to purchase government bonds in the secondary market, and came under further pressure following comments from ECB’s Provopolous that ECB’s rates are appropriate. In other news, AUD received strength following higher than expected inflation data from Australia overnight, whereas a downtick was observed in GBP/USD after a sharp decline in CBI trends total orders figures from the UK.
 
•    Australian Consumer Prices (Q2) Q/Q 0.9% vs. Exp. 0.7% (Prev. 1.6%)
•    Australian Consumer Prices (Q2) Q Y/Y 3.6% vs. Exp. 3.4% (Prev. 3.3%) (RTRS)
 
Elsewhere, Japanese finance minister Noda said that he would continue to watch foreign exchange rates closely. Meanwhile, BoJ’s board member, Kamezaki, said JPY’s gains could hurt exports and corporate profits, adding that the US debt ceiling issue is affecting currencies. He also said that currency intervention could have effect when done at a time of rapid movement. (RTRS/Sources)

COMMODITIES
 
WTI and Brent crude futures traded under pressure during the European session, weighed upon by strength in the USD-Index, an impasse over the issue of raising US’s debt ceiling, and the ongoing Eurozone debt concerns.
 
Oil & Gas News:
•    Iranian president proposed to parliament a Revolutionary Guards commander, Rostam Qasemi, as his choice for oil minister. Parliament will debate a vote of confidence for Qasemi on August 3rd.
•    Iran has temporarily cut oil exports to India by 90,000 BPD due to technical problems, according to Mehr News Agency.
•    China’s crude oil output in the first half of 2011 rose 4.6% on year to 103mln tonnes, according to the China Petroleum and Chemical Industry Federation.
 
Geopolitical News:
•    Continued bombing of Libya by NATO forces will see Venezuela refuse to support any increase in oil production quotas from OPEC, according to AFP, citing Venezuelan oil minister.
•    UK's foreign secretary, Hague, said Britain will recognise the Libyan Opposition Council as the sole legitimate governing authority.

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