- BoE keeps benchmark borrowing rate at 0.50% and APF at GBP 325bln; as expected.
- Greece’s PASOK leader Venizelos takes the mandate and attempts to form a coalition government.
- ECB forecasters revise 2012 GDP estimates for the Eurozone downwards to -0.2% from -0.1%, and revise up inflation expectations for the year to 2.3% from 1.9%.
European equities continue the downward trend throughout the morning, despite opening slightly higher. Similarly to yesterday the moves are not data-driven, however the ECB have revised their forecasts for Euroarea growth downwards to -0.2% this year from -0.1% and have revised their inflation outlook upwards to 2.3% from 1.9%.
The focus remains on Greece as the PASOK leader Venizelos grabs the baton and now attempts to form a stable coalition. Commentary from Greece so far has not been revelatory; Venizelos has reiterated that he wishes to remain within the Eurozone and affirmed that his party has not changed its policy with respect to the bailout.
Flight to quality is observed throughout the markets, with the German Bund already testing yesterday’s highs several times and the major cash equities seen lower throughout the continent.
Looking ahead in the session, participants await US trade balance data for March due at 1330BST/0730CDT.
Chinese Trade Balance (USD) (Apr) M/M 18.43bln vs. Exp. 9.90bln (Prev. 5.35bln)
Chinese Exports (Apr) M/M 4.9% vs. Exp. 8.5% (Prev. 8.9%)
Chinese Imports (Apr) M/M 0.3% vs. Exp. 10.9% (Prev. 5.3%) (Sources)
Japanese Current Account Total (JPY) (Mar) M/M 1589.4bln vs. Exp. 1431.3bln (Prev. 117.8bln)
Japanese Current Account Balance (Mar) Y/Y -8.6% vs. Exp. -17.1% (Prev. -30.7%)
The drop in the 2011 full year current account surplus was the largest since 1985, and is the smallest surplus since 1996. (Sources)
Japanese Eco Watchers Survey: Current (Mar) M/M 50.9 (Prev. 51.8)
Japanese Eco Watchers Survey: Outlook (Mar) M/M 50.9 (Prev. 49.7) (Sources)
BoJ’s Shirai has said there is still a need to watch the global financial markets, including FX, as uncertainty remains. On recent easing, Shirai has said the BoJ actions were appropriate to show the bank’s unshakeable commitment to monetary policy and was important to ensure positive developments in the economy. Shirai expects a return to a moderate growth path in the first half of this year. (Sources)
The FDIC have announced that should another crisis bring a major financial firm to its knees, US regulators will seize the parent company but allow its units around the globe to keep operating while the issues are solved. The equity stakeholders of the firm will be wiped out, and bondholders will face losses as their holdings are swapped for equity in a new entity, according to the plans. (WSJ)
EU and UK Headlines
The EFSF confirmed the release of EUR 5.2bln for Greece, with EUR 4.2bln to be disbursed today and the remaining EUR 1bln not needed before June. (Sources)
The Bank of England keeps interest rates and APF unchanged at 0.50% and GBP 325bln respectively; as expected. The minutes of the meeting are to be published on Wednesday 23rd May at 0930BST.
GBP/USD made a move higher following the BoE rate and APF announcement with Gilt futures initially moving lower by 28 ticks although bounced off worst levels. (Sources)
The head of the German CSU party, Markus Ferber, has demanded that debt-relief payments to Greece be halted immediately. (Die Welt) He said Greece must have stable conditions for the continuation for budget discipline before obtaining further aid.
Eurozone governments are expected to give Spain more leeway to meet its budget deficit target next year according to sources, and austerity will still be the guiding principle of European fiscal policies. (WSJ)
IMF is mulling using EU cash first if more Eurozone loans are needed, and IMF may scale back proportion of Eurozone loan programs according to sources. The sources added that the IMF board is likely to be reluctant to lend money to Spain and Italy. (WSJ)
The Bank of Spain announced that Bankia has requested a partial takeover, stating that BFA has asked for EUR 4.5bln, or 45% of the company, in loans to convert into capital. (Sources) The Bank of Spain said that the new BFA-Bankia management must announce its clean-up plans as soon as possible, demanding the co.’s asset disposal plan. The conversion of Bankia does require EU and Spanish clearance, and the Spanish government said the Bankia measure implies state control, not state intervention. The Frob, the Spanish bank bailout fund, will hold the stake.
ECB forecasters have revised their views in the May monthly reports and see 2012 inflation at 2.3%, up from their previous estimates of 1.9%. The ECB forecasters have also revised downwards their 2012 GDP outlook to -0.2% from
French Industrial Production (Mar) M/M -0.9% vs. Exp. -0.6% (Prev. 0.3%, Rev. to 0.9%)
French Industrial Production (Mar) Y/Y -0.9% vs. Exp. -1.3% (Prev. -1.9%, Rev. to -1.4%) (Sources)
UK Industrial Production (Mar) M/M -0.3% vs. Exp. -0.3% (Prev. 0.4%)
UK Industrial Production (Mar) Y/Y -2.6% vs. Exp. -2.6% (Prev. -2.3%) (Sources)
All major European bourses are seen lower ahead of the North American open, with particular underperformance noted in the CAC-40. The Spanish IBEX-35, however, is bucking the trend in Europe, trading in positive territory on the day.
In individual stocks news, reports that Deutsche Telekom may approach MetroPCS communications for a merger between the company and Deutsche Telekom’s T-Mobile-USA unit have assisted a lift in their share price, currently trading higher by around 3.5%. However, when questioned on the reports, Deutsche Telekom’s CEO declined to comment.
Bankia shares continue to slide as shareholders come to terms with reports from the Bank of Spain that Bankia requested a partial takeover and their parent company BFA has asked for EUR 4.5bln in loans to convert into capital for the country.
Following the reports, Bankia shares have been taking losses since the open and underperform the Spanish IBEX. Bankia shares currently trade lower by over 3.5%.
GBP/USD was seen lower throughout the morning going into the BoE rate decision, however once the MPC held rates unchanged, as expected, GBP strength was observed across the board. GBP/USD reversed its trend and moved through 1.6150 to the upside. Following the rate decision, EUR/GBP took a move to the downside and now trades in close proximity to a touted option barrier at 0.8000, however this remains unconfirmed.
EUR/USD saw some recovery overnight, but has come under continued selling pressure since the European open. In recent trade it has seen some support at the lows with European names rumoured to be behind the rise. As such, the pair has tipped over into positive territory as North America comes to market and trades in close proximity to a touted option expiry at the 1.2950 mark.
USD/JPY is seen in a tight range throughout the European morning with resistance at Wednesday’s low of 79.43. Should the pair break below this, the fall may accelerate, but unconfirmed market talk of bids at 79.40 could slow the moves.
WTI and Brent crude futures continue to make losses as poor Chinese trade balance data overnight dampens speculated future energy demand for the world’s second-largest oil consumer.
Oil & Gas News:
- Enbridge Inc, following their earnings report, remain committed to building the controversial Northern Gateway pipeline. Should the pipeline continue as planned, it would carry 525,000BPD of Alberta Sands crude to a port at Kitimat, Canada. Enbridge have said they continue to expect to take crude from Cushing, OK to refineries on the Texas Gult coast on the reversed Seaway pipeline due to start on May 17th.
- Commerzbank estimate WTI crude to exceed USD 100/BBL when the Seaway pipeline is reversed.
- OPEC keeps 2012 global demand forecast stable at 88.7MBPD
- OECD oil stockpiles can cover 59 days worth of demand
- Saudi Arabia are to supply the full contracted volumes of crude oil to at least three Asian buyers, as Asian oil buyers attempt to find alternatives to supply from Iran, according to industry sources.
- Iraq’s Oil Minister Al-Luaibi has said crude oil prices between USD 100-120/BBL are acceptable and will not hurt the world economy. Al-Luaibi has further said that Iraq’s crude output will reach 3.4MBPD by the end of this year.
- China’s April crude oil imports stood at 22.26mln tons, according to customs figures, up 9.3% from a year earlier.
- European refiners are likely to cut processing runs and limit their crude oil purchases due to declining demand and falling profits, according to JBC Energy.
- Morgan Stanley analysts believe that US natural gas futures are set for a ‘cyclical rally’ in the first six months of 2013 on lower production and higher demand.
Iran may be cleaning their suspected nuclear site, according to reports