Daily US Opening News And Market Re-Cap: May 7
- Francois Hollande wins the French Presidency; is to be sworn in on May 15th.
- Greece’s PASOK and New Democracy fail to establish a majority and now attempt to form a stable coalition with Greek splinter parties.
- German Factory Orders (Mar) M/M 2.2% vs. Exp. 0.5% (Prev. 0.3%)
European cash equities opened sharply lower this morning following electoral uncertainties arising from various corners of Europe, notably Greece and France. Volumes also remain light as the market closure across the UK reduces the number of participants today.
The mainstream political parties from Greece, PASOK and the New Democracy, failed to establish a majority this weekend as voters firmly expressed their discontent with the political establishment, evident in the rise of fringe parties. As such, the leaders of New Democracy and PASOK will now attempt to establish a coalition party with the splinter group Independent Greeks (a party notable for its anti-EU/IMF stance), due to begin as soon as today. The uncertainty in Greece’s future has taken its toll across the markets today, with EUR/USD beginning the session sub-1.3000 and all European equities trading markedly lower throughout most of the morning session. Elsewhere on the political front, Francois Hollande has won the French Presidency and is to be inaugurated on May 15th, as such; participants now look out for any comments regarding the relationship between the new French leader and German Chancellor Merkel.
The Spanish government are set to make an announcement on Friday concerning the continuing troubles over the Spanish banking sector, with a government source commenting that the plans will include the creation of a 10- and 15-year ‘bad bank’.
Recent trade has seen a recovery across forex and stocks as EUR/USD grinds higher and stock futures move closer to unchanged. Strong German factory orders data has helped the moves off the lowest levels, as demand from outside the Eurozone helps lift the figure above expectations of +0.5% to +2.2% for March.
Looking ahead in the session, markets await Canadian Building Permits data as well as US Consumer Credit due at 1330BST and 2000BST respectively.
According to the BoJ minutes from their April 9-10th policy meeting, the board shows it is particularly important for the central bank to quickly produce visible results by achieving a 1% inflation rate. The minutes further show that the government expects the bank to make the utmost efforts in monetary policy while cooperating with government measures to overcome deflation swiftly. (Sources)
EU and UK Headlines
François Hollande grabbed victory in the French presidential election on Sunday, defeating Nicolas Sarkozy. Hollande had taken 51.7 per cent with three-quarters of the vote counted, becoming the first French socialist President since 1995. (FT-More) Hollande is to be inaugurated into the position May 15th and will engage in discussions with German Chancellor Merkel and EU’s Barroso as the soonest possible opportunity.
Greek voters deserted traditional governing parties in droves at elections on Sunday, putting the country's future in the euro zone at risk, according to an early projection by the Interior Ministry. (Sources) The projection, confirming a pattern in earlier exit polls, showed the two parties supporting an EU/IMF bailout that is keeping Greece from bankruptcy would struggle to form a workable coalition government.
Following the election results, the Greek conservative leader Samaras is to meet with various party leaders throughout the day to attempt to establish a stable coalition. (Sources)
German Factory Orders SA (Mar) M/M 2.2% vs. Exp. 0.5% (Prev. 0.3%, Rev. 0.6%)
German Factory Orders NSA (Mar) Y/Y -1.3% vs. Exp. -2.8% (Prev. -6.1%, Rev. -6.0%) (Sources)
EU's Rehn signals end of 'Merkozy' austerity drive. (Telegraph/FT-More) The EU's top economic official has called for a new European investment pact, in the latest sign Brussels is preparing to reconcile Angela Merkel's austerity drive with the growth agenda of French presidential François Hollande. Rehn called for additional spending for large-scale infrastructure projects, arguing that there is not sufficient private-sector demand to create jobs.
German Chancellor Merkel and her government, fearful over resistance in Germany, have made it clear in recent weeks that they would not soften their austerity demands, no matter who won the French presidency. (WSJ)
Initial polling result forecasts for the German state of Schleswig-Holstein elections show the following distribution of seats: CDU: 22, SPD: 22, Greens 10, FDP: 6, Pirates 6, SSW: 3. The most stable majority (44 seats) would have a grand coalition of the Merkel CDU and opposition SPD parties. (FT Deutschland)
At the end of March, ten of Europe’s biggest banks had parked a total of USD 1.2trl in cash at central banks across the world, according to WSJ analysis. (WSJ) The figure is 12% higher than in December and 66% higher than the end of 2010.
European equities opened sharply lower in Europe, as uncertainty grips participants following the European elections over the weekend. Following the open, stocks have been grinding modestly higher, buoyed by the strong German Factory Orders data released earlier in the session.
In individual stocks news, Spanish banking conglomerate Bankia are one of the top losers in Europe today following reports from Spain that the government are to announce measures on the Spanish banking sector this Friday. Government source comments have said the plan involves major changes to the company’s management and the Bank of Spain foresees asset sales for the company. As such, Bankia shares now trade lower by over 3%.
Elsewhere, Credit Agricole is also taking heavy losses as the Greek political landscape dampens sentiment regarding the bank’s Greek unit Emporiki. Credit Agricole are now seen trading far lower than the other large cap names in France such as BNP Paribas and SocGen due its extended exposure to Greece. The bank’s shares now trade lower by just under 3%.
Top performing sectors in the BE500: Oil & Gas (+0.17%), Consumer Goods (+0.16%), Utilities (+0.12%)
Worst performing sectors in the BE500: Health Care (-0.88%), Basic Materials (-0.26%), Telecommunications (-0.09%)
Following the uncertain election results across Europe, EUR/USD suffered from sharp weakness spiking lower following the release and continuing downwards through 1.3000 to the downside before Europe came to market. The pair has seen a bounce from the lows of 1.2956 and now trades in close proximity to an option expiry at the 1.3050 level.
GBP’s relative distance from the Eurozone has aided moves in GBP/USD and pushed the pair into positive territory at the midway point of the European session. Although the electoral uncertainty did have initial downside effects, the pair now trades close to the 10-day MA at 1.6187.
WTI and Brent crude futures are trading lower as uncertainty grips Europe following election results from Greece and France that leave the future of the Eurozone cloudy.
Oil & Gas News:
- Morgan Stanley have said oil prices may fall further due to adverse macroeconomic conditions weigh on demand and oil stockpiles continue to build above normal levels.
- Saudi Arabia’s state oil company has cut their price differentials for June shipments of all crude grades to Asia and raised them for exports to the US and Europe.
- The National Iranian Oil Co. will offer its light crude to customers in Asia at the lowest premium in nine months following similar moves in Saudi Arabia.
- Japan have begun shutting down the country’s last active nuclear reactor on Saturday, leaving Japan with no nuclear-derived electricity for the first time since 1970.
- Bahrain plans to invest USD 15bln in order to develop its oil and gas resources over the next twenty years, according to the country’s oil minister.
- The Philippine President has said he is open to an agreement with the Chinese authorities that would allow companies to explore oil and gas reserves in the South China Sea while the two respective governments separately resolve their border disputes.
- US Secretary of State Clinton has said she hopes India will go further in their cutting of Iranian oil imports as there is plentiful supply available from other countries such as Saudi Arabia.
- Iran has transferred nuclear weapon-making installations to secret Dasht e-Kavir (Great Salt Desert) sites, including nuclear-capable ballistic missile plants.
- Israeli PM Netanyahu has called for early general elections in September, a year ahead of schedule, to ensure "political stability".