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Daily US Opening News And Market Re-Cap: May 16

Submitted by Tyler Durden on 05/16/2012 08:05 -0400

Greece confirms the passover to a caretaker government and a second wave of general elections due on June 17th.
BoE revise their near-term inflation expectations higher, and their growth forecasts lower; alongside analyst expectations.
BoE’s King remains somewhat dovish, keeping the option for further QE open in the face of increasing downside risks.

Market Re-Cap

European equities are seen lower across the board with the exception of the CAC-40 index as markets remain nervous towards the prospect of a second wave of Greek general elections. The outperformance of the CAC-40 follows the news from oil major Total, who have stemmed the gas leak from their Elgin well successfully after conducting intervention. As such, Total are seen higher by over 2%, strongly above the Oil & Gas sector.

The Bank of England have released their latest projections for the UK economy, revising lower their growth forecasts and higher their near-term inflation expectations, alongside analyst forecasts. The BoE have stuck to their long-term predictions that there will be a slow but steady return to recovery, but reiterated that major downside risks exist from Europe. Governor King’s subsequent press conference has shown him to remain somewhat dovish, commenting that an increase in downside risks would prompt the bank to commit to further actions, leaving the door to a boost in asset purchases open. The forecast revisions prompted a sharp move lower in GBP/USD, falling around 75 pips and Gilt futures moving 55 ticks to the upside after the opening comments. At the midpoint of the session, GBP/USD remains in negative territory despite seeing support before the inflation report after better than expected UK jobless claims data.

Looking ahead in the session, data from the US is heavy, with Housing Starts and Building Permits due at 1330BST/0730CDT, swiftly followed by Industrial Production at 1415BST/0815CDT ahead of the FOMC minutes at 1900BST/1300CDT.

Asian Headlines

According to unsourced reports, the BoJ could cut their interest rates on reserves. (Financial Facsimile Service)

The Vice-Chairman of the Chinese banking watchdog has said regulators do not plan to change the country’s RRR, and policymakers are now studying a regulatory system in which banks would extend loans at a steadier pace. (Sources)

New lending by China’s four largest state-owned banks was flat for the first two weeks of this month, and total deposits continued the decline from April to fall by approximately CNY 200bln. (Shanghai Securities News)

US Headlines

The Republican leader of the House of Representatives has set the stage for a new fiscal showdown with the Obama administration; reviving memories of the standoff last summer which saw the US lose its ‘AAA’ rating. (FT-More)

The Federal Housing Financing Agency has expressed concern on the potential Californian anti-robosigning laws, saying that the new ruling could have a chilling effect on lawful foreclosures. The FHFA added that the ruling could lead to a reduction in credit availability and could create significant risks for the housing markets. (Sources)

US MBA Mortgage Applications (May 11) W/W 9.2% vs Prev. 1.7% (Sources)

EU and UK Headlines

Greece is now heading for a second wave of elections on June 17th, after party leaders failed to form a stable governing coalition.

(ekathimerini) As such, markets remain cautious as the anti-bailout party Syriza lead in the latest opinion polls, suggesting the party could receive as much as 32% of the vote. (Athens News) The Greek President has now appointed a caretaker government for the country until the new elections pass.

The Bank of England have released their latest Quarterly Inflation Report, highlighting the risks that the UK still faces from the Eurozone crisis. The BoE have revised their inflation expectations and foresee CPI remaining above the 2% target for the next 12months, a longer period than previously expected in February. The bank has also revised lower its growth forecasts in the light of the most recent GDP prints, forecasting expansion to remain subdued in the near term, placed under pressure by European concerns, growing by 1.25% in Q4 on a yearly basis. Notably, BoE’s King, when questioned on future risks to the UK economy, responded by saying that if there were major downside developments in the Eurozone, the bank would respond in many ways, not just QE, leaving possible further asset purchases on the table. The somewhat dovish comments combined with the downwards revisions to growth pared strength seen in GBP/USD following better than expected jobs data from the UK. Safe-haven flows were also noted into Gilt futures, moving higher by over 55 ticks following the report.

Before the inflation report, the UK reported its largest fall in jobless claims since July 2010 in some much better than expected unemployment data. GBP did see strength following the release, but this was quickly sold off following the inflation report.
UK Jobless Claims Change (Apr) M/M -13.7k vs Exp. 5.0k (Prev. 3.6k, Rev. -5.4k)
UK Claimant Count Rate (Apr) M/M 4.9% vs. Exp. 5.0% (Prev. 4.9%)
UK ILO Unemployment Rate (3M) (Mar) 8.2% vs. Exp. 8.4% (Prev. 8.3%) (Sources)

Eurozone inflation data has come in alongside expectations, with trade balance figures showing a larger-than-expected surplus. (Sources)
Eurozone CPI (Apr) Y/Y 2.6% vs. Exp. 2.6% (Prev. 2.7%)
Eurozone CPI (Apr) M/M 0.5% vs. Exp. 0.5% (Prev. 1.3%)
Eurozone Trade Balance SA (EUR) (Mar) M/M 4.3bln vs. Exp. 3.8bln (Prev. 3.7bln, Rev. 4.0bln)
Eurozone Trade Balance (EUR) (Mar) M/M 8.6bln vs. Exp. 4.0bln (Prev. 2.8bln, Rev. 2.3bln)

EQUITIES

European stocks are seen mostly lower, with the exception of the CAC-40, which has been pressed higher into positive territory with a notable contribution from Total, who have confirmed the successful intervention at their Elgin gas field, plugging the leak.

In individual stocks news, ENI have made a significant discovery at their offshore Mozambique field, estimating the find to hold between 7-10 TCF of gas, bringing their total potential for the area to 47-52 TCF across the site. Following the reports, shares in ENI spiked higher by around 2.6%. Shares now trade roughly flat, but this is still an outperformance of the Eurostoxx index.

The basic materials sector is seen as the worst performing at the midpoint of the European session. Ahead of the open in Europe, BHP Billiton’s Chairman commented that he foresees commodities prices easing in the near-term future as major tailwinds that were supporting the sector diminish. The Chairman highlighted that investor demand may fall in future months as demand from China eases and commodity prices decline. As such, basic materials companies underperform in Europe, with BHP Billiton and Glencore shares seen lower by 1.4% and 3.8% respectively. Glencore shares are being further weighed upon by a broker move pre-market from UBS, cutting the company to neutral from buy. (Sources)

GBP/USD has seen some volatile movements throughout the morning, with both upside and downside factors prompting choppy trade. The UK posted some better-than expected jobs data halfway through the morning, providing some support, keeping the pair just below the 1.6000 mark. However, as BoE’s King presented his Quarterly Inflation Report, the cuts in GDP forecasts and the hints towards possible further QE in the future weakened GBP, spiking GBP/USD 75pips lower below 1.5900. The pair has recovered somewhat since then, and now trades lower by just over 50pips.

EUR/USD was seen grinding lower as Europe came to market touching session lows of 1.2681. The pair has somewhat recovered since then with unconfirmed market talk of bids in the pair at 1.2680 assisting the moves off the lows. EUR/USD is seen moving back towards the unchanged level for most of the European session so far but gains are seen somewhat capped with market talk of offers at the 1.2725 level, however this is also unconfirmed. The pair now trades between two touted option expiries at the 1.2700 and 1.2750 level.

COMMODITIES

WTI and Brent crude futures are trading markedly lower ahead of the NYMEX pit open amid ongoing European macroeconomic concerns, reaching multi-month lows ahead of the European open.

Oil & Gas News:

North Sea oil output in June is set to be the lowest this year, with output to average 2.11MBPD, down from 2.17MBPD in May, according to shipping schedules.
BHP Billiton’s Chairman has warned that he expects commodity markets to cool further as investors lose confidence in the global recovery.
According to IBM, new 3D imaging technology from the company can make geologists and engineers more effective at mining the wealth of data from oil reservoirs and refineries in order to help extractors find and process oil.
Under mounting pressure from the US, India are to cut their crude imports for refiners by 11% from Iran over the next fiscal year, according to the Indian junior oil minister.
Royal Dutch Shell’s CEO has said he expects weaker oil prices in the second half of 2012 as demand growth from China and other emerging markets slows.

Geopolitical News:

A former top US general has said Washington and Moscow should agree to an 80% cut in nuclear arsenals over the next decade to help encourage smaller atomic powers to engage in multi-lateral arms control negotiations.
China have been quietly and gently pressuring North Korea to scrap their plans for a third nuclear test, according to two sources with knowledge of discussions between the countries.