Daily US Opening News And Market Re-Cap: May 23
- BoE minutes show the MPC voted 8-1 to keep their Asset Purchase Facility on hold at GBP 325bln.
- Markets await any commentary from the informal EU leaders summit after the European close.
- USD index touches 20-month highs, pressing EUR/USD, GBP/USD lower.
Following the morning in Europe, a generally risk-off tone is observed, with stock futures sitting just above session lows and the German Schatz auction resulting in record low yields. Some of the risk-averse moves were noted following unconfirmed market talk that a troubled Dutch housing association may be pressed towards bankruptcy, however this seems to be linked towards an article concerning the Dutch central bank probing into the sale of derivatives to the housing group Vestia. Nonetheless, the long end of the Dutch curve remains well-bid and European 10-yr government bond yield spreads are seen generally wider across the board.
Releases from the UK have come under particular focus; the BoE minutes showed an alongside-expectations vote of 8-1 to keep QE on hold. With some analysts estimating more of a lean towards further asset purchases, the initial reaction was strength in the GBP currency, but countering this effect was the parallel release of UK retail sales, with the monthly reading showing the sharpest decline since January 2010. Additionally, it was noted that several members of the board saw further QE as a finely balanced decision, placing GBP/USD back on a downward trajectory and briefly below 1.5700. Elsewhere in foreign exchange, current sentiment is reflected in EUR/USD, printing multi-month lows earlier in the session of 1.2615, with the USD index at 20-month highs which in turn has weighed on commodities.
Looking ahead in the session, markets will be awaiting any commentary from the extraordinary EU leaders summit. Also, New Home Sales data is expected from the US and the latest DOE crude inventory figures due at 1530BST/0930CDT.
BoJ Target Rate (May) M/M 0.00-0.10% (Prev. 0.00-0.10%)
The BoJ have kept the size of their Asset Purchase Program at JPY 70trl. (Newswires)
The BoJ unanimously voted to keep their policy rate unchanged and have said the Japanese economy is more or less flat, and will keep conducting policy in an appropriate manner. The BoJ have vowed to keep watching long-term inflation expectations and commodity prices.
Following yesterday’s Fitch downgrade of Japan, Moody’s have said their view on the country has not changed, but have said that the concerns cited in their downgrade last August still remain, with the tax debate being a key factor to assess policy response effectiveness. (Newswires)
US President Obama and Presidential candidate Romney are locked in a tight race for the White House amid deep pessimism about the nation’s future and unease with the President’s stewardship of a still-troubled economy, according to a WSJ/NBC News poll. (WSJ)
US MBA Mortgage Applications (May 18) W/W 3.8% vs. Prev. 9.2% (Newswires)
EU and UK Headlines
Much of the focus remains on Greece as overnight, the former Greek PM Papademos clarified that there are currently no preparations in Greece for the country to leave the Eurozone. (CNBC) This has failed to reassure sentiment as a flight to quality is observed in the European markets at the midway point of the session.
The release of the BoE’s May minutes has shown the board to have voted unanimously to keep benchmark borrowing rates unchanged at 0.5%, and has shown that the board voted 8-1 to keep the Asset Purchase Facility on hold at GBP 325bln. David Miles, a known dove, voted for GBP 25bln in further asset purchases. Since the release, BoE’s Bean has said that if conditions deteriorate significantly, the bank may need to resume asset buying. (Newswires)
Following the minutes, comments from the meeting arose that struck a modestly dovish tone, with the bank saying the decision not to expand QE was finely balanced for several members, but the longer-term CPI outlook suggests there is no need for more QE currently. (Newswires)
Coinciding with the minutes release was Retail Sales data from the UK. The figures were far below expectations, with the ONS commenting that poor weather dampened consumer demand across the month.
UK Retail Sales w/ Auto Fuel (Apr) M/M -2.3% vs. Exp. -0.8% (Prev. 1.8%) - Sharpest monthly drop since January 2010
UK Retail Sales w/ Auto Fuel (Apr) Y/Y -1.1% vs. Exp. 1.0% (Prev. 3.3%) (Newswires)
Attention has been paid to unconfirmed market talk that an ailing Dutch housing association is close to declaring bankruptcy. The comments follow the posting of an article in the Dutch press concerning housing group Vestia, in which the Dutch central bank are said to be investigating the sale of derivatives to the company. (De Telegraaf)
According to German press, the ECB has a working group that has been established to look towards the Greek situation. Additionally, the Bundesbank has set up a crisis committee, with ECB’s Asmussen in place as the chair, according to the report. Following this, the ECB had no comment. (Die Zeit)
European equities are seen lower in the cash and futures as the US comes to market, with basic materials leading the decline, closely followed by oil & gas and financials. The moves lower follow the sentiment of the market, as any Greek commentary steers market direction ahead of the EU leaders meeting later today.
In individual stocks news, UK-listed Cove Energy have removed their recommendation for Royal Dutch Shell’s cash offer for the company and agreed upon the terms of a higher offer from Thailand’s PTTEP. Participants now look ahead to any response from Royal Dutch Shell towards the new offer. As such, Cove Energy shares and Royal Dutch Shell shares trade 11% higher and 1.8% lower respectively.
Basic materials companies are overrepresented in the top losers of the day, with Vedanta Resources, Xstrata, Glencore and Kazakhmys all seen markedly lower ahead of the US open. The downward pressure on basic materials firms follows USD strength throughout the morning weighing on commodities prices as well as the World Bank reporting that China requires further policy tweaking to work against the headwinds of the Chinese economy.
The current risk sentiment is reflected across all asset classes as the USD index touches 20-month highs, pressing EUR/USD and GBP/USD lower throughout the morning. EUR/USD broke through Asian session lows relatively early in the European morning, printing multi-month lows at 1.2615. The pair has recovered somewhat since then and now trades in close proximity to a touted option expiry at 1.2650 for the 10am NY cut. (1500BST).
The JPY currency has carried across strength observed in the Asian session following the BoJ keeping rates on hold. USD/JPY now sits comfortably below the 80.00 level as markets await any commentary from Japanese officials who remain concerned about their currency’s strength on the nation’s exporters. USD/JPY now trades in close proximity to a touted option expiry at the 79.75 level for the 10am NY cut (1500BST)
Heading into the North American open, WTI crude futures are trading lower on the back of a firmer USD, as well as reports that Western powers are prepared to offer Iran an “oil carrot” that would allow it to continue supplying crude to Asian customers in exchange for guarantees it is not building an atomic bomb.
Oil & Gas News:
- China signalled on Wednesday it wanted to ramp up private investment in its energy sector, in line with recently unveiled government plans to fast-track infrastructure investment to help combat a protracted economic slowdown.
- Western powers are prepared to offer Iran an ‘oil carrot’ that would allow it to continue supplying Asian customers in exchange for guarantees that it is not building an atomic bomb. Diplomats and oil executives said Washington and Brussels were likely to hold out the prospect of a possible suspension of an EU insurance ban on ships carrying Iranian oil, adding that a deal is unlikely today.
- Iran's foreign minister says more Iranian sanctions would be a strategic mistake.
- Senior ministers are discussing how Britain would respond in the event of a military confrontation between Israel and Iran later this year.
- Israel's defense minister says Iran's preliminary agreement to open its nuclear facilities to U.N. inspectors doesn't rule out a possible Israeli military strike. Ehud Barak said on Wednesday that he's skeptical about the deal, which he calls an Iranian ploy to fend off international pressure to curb Tehran's nuclear ambitions.
- North Korea has undertaken a major upgrade of a launch pad that could pave the way for longer-range missiles, according to satellite images taken by a research group. The group suspects that North Korea are looking at rockets larger than its Unha-3, which failed at the test stage on April 13th.
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