- Lack-lustre European corporate earnings, together with concerns surrounding a lack of progress in the US debt negotiations promoted risk-aversion
- Renewed market talk that the Italian finance minister, Tremonti, is set to resign further dented sentiment, although the rumour was later denied by the Italian government
- NZD traded higher after the Reserve Bank of New Zealand signalled it may hike interest rates in the near futures
Markets witnessed a risk-averse sentiment in early European trade following lack-lustre European corporate earning releases from the likes of Credit Suisse, Telefonica, Siemens, France Telecom, among many others, together with concerns surrounding a lack of progress in the US debt negotiations. Renewed market talk that the Italian finance minister, Tremonti, is set to resign further dented sentiment, although the rumour was later denied by the Italian government. The negative news flow resulted in European equities to trade lower, whereas Bunds and Gilts traded higher, with particular widening seen in the Italian/German 10-year government bond yield spread. Bunds did come under some pressure following market talk of the ECB buying in Eurozone peripheral debt, however that failed to provide any sustainable appetite for risk. Elsewhere, strength was observed in safe-haven currencies including USD, CHF and JPY, whereas the EUR traded under pressure for a vast majority of the European session.
Moving into the North American open, markets look ahead to key economic data from the US in the form of jobless claims, and pending home sales reports. In fixed income, USD 29bln 7-year Note auction is also scheduled for later in the session. Markets will also keep a close eye on US corporate earnings from the likes of ExxonMobil.
According to a report by China’s State Information Centre, Chinese export may grow 20% in 2011 and imports may increase 24.5%, narrowing the annual trade surplus to USD 157bln from last year’s USD 183bln. (RTRS)
A bill to cut the US deficit faced a nail-bitingly close vote in Congress on Thursday as the US House speaker Boehner sought to quell an internal revolt and push his plan to avoid a ruinous default. President Obama has threatened to veto the bill and the majority of the Democratic-controlled Senate has vowed to vote against it. Meanwhile, the US Treasury said it will provide more information closer to August 2nd on how the government will operate if Congress does not raise the country’s debt cap in time. Also, a congressional panel is examining whether the Obama administration tried to unduly influence S&P before the rating agency revised its outlook on the US debt rating to negative. (RTRS)
BarCap month-end extensions: US Treasury +0.07years
EU and UK Headlines:
Representatives of leading emerging market countries at the IMF have warned the fund’s management against pouring more large sums of money into another Greek bail-out with uncertain prospects. Paulo Nogueira Batista, who represents Brazil and eight other countries on the IMF’s executive board, said the Greek government’s austerity plan was too tough and the restructuring of Greek debt held by European banks was too small. (FT-More)
• Eurozone Business Climate Indicator (Jul) M/M 0.45 vs. Exp. 0.83 (Prev. 0.92, Rev. to 0.95)
• Eurozone Consumer Confidence (Jul F) -11.2 vs. Exp. -11.4 (Prev. -11.4)
• Eurozone Economic Confidence (Jul) M/M 103.2 vs. Exp. 104.0 (Prev. 105.1, Rev. to 105.4)
• Eurozone Industrial Confidence (Jul) M/M 1.1 vs. Exp. 1.6 (Prev. 3.2, Rev. to 3.5)
• Eurozone Services Confidence (Jul) M/M 7.9 vs. Exp. 9.2 (Prev. 9.9, Rev. to 10.1) (RTRS)
• Italian BTP auction for EUR 3.5bln, 4.25% Jul'14, bid/cover 1.313 (yield 4.80%), gross yield highest since Jul'2008
• Italian BTP auction for EUR 2.696bln, 4.75% Sep'21, bid/cover 1.376 vs. Prev. 1.33 (yield 5.770% vs. Prev. 4.940%), gross yield highest since Feb'2000 (RTRS)
BarCap month-end extensions: Euro +0.14years
BarCap month-end extensions: Sterling +0.02years
Markets witnessed a risk-averse sentiment in early European trade following lack-lustre European corporate earning releases from the likes of Credit Suisse, Telefonica, Siemens, France Telecom, among many others, together with concerns surrounding a lack of progress in the US debt negotiations. This allied with market talk that the Italian finance minister is set to resign weighed on equities. Strength in the USD-Index exerted further pressure on basic materials and oil & gas sectors, and moving into the North American open, equities continue to trade lower with technology and basic materials as the worst performing sectors.
A risk-averse sentiment supported safe-haven currencies such as USD, CHF and JPY, whereas CAD came under pressure partly on the back of weakness in WTI crude futures. However, NZD traded higher after the Reserve Bank of New Zealand signalled it may hike interest rates in the near futures. Also, AUD received support following comments from the Australia and New Zealand Banking Group economists that the Reserve Bank of Australia will increase its benchmark interest rate by 25 basis points to 5% next month.
In other news, Japanese economy minister, Yosano, said currency intervention as big as JPY 1-2trl would be quite difficult. He also indicated that JPY intervention is unlikely before August 2nd. (Jiji)
Moving into the NYMEX pit open, WTI crude futures are trading under pressure weighed upon by strength in the USD-Index, an increase in the US oil inventories, together with sovereign debt concerns in the US and Eurozone.
Rebels fighting in Libya’s western mountains prepared on Thursday for a new offensive against Gaddafi’s troops, raising pressure on the Libyan leader a day after Britain granted diplomatic recognition to the opposition. Meanwhile, Gaddafi said he is ready to “sacrifice” to defeat rebels.
US diplomats will sit in New York with Kim Kye-gwan, North Korea’s top nuclear negotiator, for the first talks in two years, a move that could herald the start of further engagement with Pyongyang. However, Washington remains highly doubtful about the prospects for any meaningful progress with Kim Jong-il’s regime, which has broken all previous agreements, using talks as a way simply to extract rewards.