- Spanish government will give guarantees for EUR 66bln to the country's FROB as part of the process to recapitalize Spanish banks.
- Underperformance in the German Bund throughout the morning as Germany's creditworthiness is increasingly affected by the further bailouts of Europe's periphery.
- OPEC due to meet in Vienna across the next few days to discuss the cartels' output ceiling.
Equity markets have traded with moderate volatility so far today as peripheral news concerning Spain and Italy continues to be keenly watched by market participants. Overnight the Italian PM Mario Monti said he does not see any need for a bailout either now or in the future with the Italian and Spanish 10yr yields seen off their highs yesterday, lower by 9.8bps and 7.6bps respectively. On a sector breakdown tobacco stocks saw some slight support after US firm Philip Morris announced a new USD 18bln 3yr share buyback program, however, industrials have lagged as a whole following a profit warning from Swedish firm SKF.
In terms of fixed income, the bund has continued yesterday's slide with the Bundesbank coming to market with a July 2022 tap. In initial reaction to the results, bunds saw a 20 tick spike higher, off session lows, following what was perceived to have been a "smooth" auction despite some concerns about the eventual credit worthiness of Germany given the recent bailout of the peripheral nations. Meanwhile, the long end of the EUR curve steepened in early trade as reports from the Danish government who have agreed to change the discount rate that pension funds estimate liabilities being noted. In FX, EUR/USD trades higher into the N.American cross-over with an Asian sovereign name being a touted buyer this morning. In other news the AUD also caught a bid shortly after comments from the German central bank who said that they are considering buying the antipodean currency.
Looking forward to the US session, advanced retail sales and PPI data for May will take precedence with oil traders awaiting the release of the weekly DoE inventories where crude oil is expected to show a build of 1.5mln today. The release comes as OPEC oil ministers continue their meeting in Vienna today and tomorrow. Over in fixed income the NY Fed will be targeting the 8-10yr part of the curve for USD 4.5-5.5bln with the USD 21bln 10yr note auction due at 1800BST.
The amount of additional money Brazil plans to contribute to the IMF will depend on commitments to bolster the influence of emerging-market nations at the IMF, according to a senior Brazilian government official. The official said the leader of the BRICS nations will meet on June 18th to discuss additional resources for the IMF, according to the official. (Newswires)
Japanese Machine Orders (Apr) M/M 5.7% vs. Exp. 1.6% (Prev. -2.8%)
Japanese Machine Orders (Apr) Y/Y 6.6% vs. Exp. 4.9% (Prev. -1.1%) (Newswires)
China may soon loosen policies on loans to local government financing vehicles and the property sector as part of the government's efforts to spur economic growth, according to unnamed sources. (21st Century Business Herald)
China's Q2 GDP growth may be below 7%, according to the People's Daily.
- Cites a state researcher.
- China's economy expected to bottom out in Q2 or Q3 and rebound in Q4.
US MBA Mortgage Applications (Jun 8) W/W 18% vs Prev. 1.3%. (Newswires)
EU & UK Headlines
Italian PM Monti said he does not see any need of a bailout now or in the future. (Newswires) The German finance minister Schaeuble has said Italy does not run risks if it continues on PM Monti's reform path, according to Italian press.
The Spanish government will give guarantees for EUR 66bln to the country's FROB as part of the process to recapitalize the banking sector, according to Spanish finance ministry sources. (Cinco Dias)
Spanish lawmakers will today get their first chance to question PM Rajoy on the terms of the EUR 100bln banking bailout as doubts rise about the aids' effectiveness. (WSJ)
According to Fitch analysis, the Spanish banking recapitalization will need around EUR 90-100bln, and a break-up of the Eurozone is a long way from their base scenario. According to Fitch, the Eurozone will likely need a third LTRO even in the most positive case. (Newswires) On Spain, Fitch said the spike in Spanish bond yields reflects broader market nervousness on the Eurozone and Greek elections this weekend.
Eurozone Industrial Production SA (Apr) M/M -0.8% vs. Exp. -1.2% (Prev. -0.3%, Rev. -0.1%)
Eurozone Industrial Production WDA (Apr) Y/Y -2.3% vs. Exp. -2.7% (Prev. -2.2%, Rev. -1.5%) (Newswires)
Despite the industrial production data beating expectations, reaction across the asset classes was relatively muted as markets remain focused on the macroeconomic concerns.
Germany sells EUR 4.042bln in its 1.75% July 2022 bund with a B/C 1.4 (Prev. 1.50), yield 1.52% (Prev. 1.470%), Retention 19.0% (Prev. 17.9%) (Newswires)
- Bunds were already coming off intra-day lows a few minutes ahead of the release and have seen a further 20 tick move higher following a smooth auction. Despite this the Spanish and Italian 10yr yields have taken a moderate move to the upside following the release.
Throughout the morning, the German Bund has underperformed and was seen lower by as much as 100 ticks at around the midpoint of the European morning. The security has somewhat recovered, but does remain in firm negative territory ahead of the US open. Some analysts have highlighted that Germany's creditworthiness is being increasingly affected by the further bailouts being provided for the European periphery. As such, the spreads between the German 10-yr yield and its peripheral counterparts have tightened on the day.
European equity markets are primarily seen in negative territory ahead of the US open, with the Spanish IBEX-35 the only market consistently in the green today. The financials sector is holding onto some gains and is seen higher by around 0.10% after a mornings trade, but weight is seen from industrials, trading lower by over 1.7% after a mornings trade. US stock futures are indicating a modestly lower open on Wall Street, in line with their EU counterparts.
In individual equities news, EUROSTOXX-listed Inditex are seen performing strongly in a tough market this morning after publishing solid results pre-market today. The Spanish company reported a beat on Q1 sales, net and EBITDA and have settled in strong positive territory after a mornings' trade. Inditex shares currently trade higher by %.
The industrials sector is taking heavy losses ahead of the US open, with Swedish SKF leading the moves lower after issuing a profit warning. The news has also had an impact on the larger cap industrials, including CAC-40 listed Alstom, who are currently seen lower by over 5%.
EUR/USD is seen making gains at the midpoint of the EU session, seeing particular moves higher following unconfirmed market talk of Middle Eastern names bidding in the pair. EUR/USD now trades in close proximity to the 1.2550 mark, which is a touted option expiry for the 10am NY cut today.
GBP/USD is floating around the unchanged level, and has mostly been seen moving in tandem with its EUR couterpart, but market talk of offers at the 1.5600 level have capped upside moves. If the pair sees any significant downside, a touted option expiry for the 10am NY cut at the 1.5500 handle will be eyed.
AUD saw some volatility earlier in the session, with sources comments stating that the German central bank were considering increasing exposure to the currency, moving the AUD/USD pair higher by 16pips in the immediate move. The pair has held on to some of the gains and now trades just below parity at 99.80.
WTI and Brent crude futures are trading relatively unchanged ahead of the NYMEX pit open, with focus for the energy market remaining on the OPEC meetings in Vienna, where they are to discuss production ceilings for the cartel. The next risk event for energy participants will be DOE inventory figures set for release at 1530BST/0930CDT.
Oil & Gas News:
- OPEC and the US government agreed yesterday that global oil markets could loosen further in the second half of this year, with prospects for demand dimming while non-OPEC supply races ahead more quickly than expected.
- The Kuwaiti oil minister has said it is very likely OPEC will keep their output target unchanged at 30MBPD.
- The IEA have said OPEC crude output was at 31.87MBPD in May, with 2012 demand growth unchanged at 820,000BPD.
- SocGen lowered their 2013 price forecast for ICE Brent from USD 115 to USD 105/bbl and lowered their 2013 price forecast for Nymex WTI by USD 22.60 to USD 94.40/bbl. The IEA said the oil market is better supplied, but uncertainties lie ahead.
- The US Energy Department has reduced its crude oil price projection for 2012 as production increases and slower economic growth curbs fuel use. The agency estimates WTI will average USD 96.80/bbl, down 7% from the May forecast.
- Global financial market regulators are seeking to impose unprecedented disclosure rules on oil traders, stepping up a campaign ordered by the G20 to combat manipulation in energy markets.
- A top energy advisor to US Presidential candidate Romney has told US lawmakers that ending a tax break that allows oil companies to quickly deduct labour and other drilling costs would be a devastating hit on the country's energy sector.
- Iranian oil stored on tankers at sea rose as much as 42mln bbls, according to the IEA.
- Libya's oil minister expects to return to their normal level of crude production of around 1.6MBPD by the end of this year.
- China shipped missile launch vehicles to North Korea last year in breach of UN resolutions, but was never rebuked because the US did not want to embarrass Beijing, according to Japanese press.
- Iran's NITC, the country's largest tanker operator, is continuing trade with Asian countries without difficulty despite Western sanctions, according to a senior official of the country.
- The US is pressing Turkey to follow up on a 20% cut in their oil imports from Iran with additional cuts set for six months time.
- The Iranian parliament have stressed that they will not back down from their nuclear rights, but have softened their stance on high-level uranium enrichment.