- Moody's said that rising French bond yields increase the fiscal challenges facing France
- Members of the congressional deficit reduction committee voiced little hope of a breakthrough ahead of Wednesday’s deadline to agree a deal to reduce the US deficit
- EU's Rehn said that the sovereign crisis is hitting core Eurozone countries, and there should be no illusion
- ECB's Nowotny said an interest rate cut is possible, adding that the ECB will consider worsening economy at the next meeting
- Bundesbank slashed its 2012 German growth forecast to 0.5%-1% from its previous forecast of 1.8%, sees German economy entering 'difficult waters' in the coming months
- According to sources, EU governments rejected mutual guarantees for bank term funding, adding that the German opposition was key to the decision against mutual guarantees
Risk-aversion remained the predominant theme during the European session partly on the back of comments from Moody's during the weekend that rising French bond yields increase the fiscal challenges facing France, together with a potential deadlock on talks related to the US deficit-cutting measures. Comments from EU's Rehn that the sovereign crisis is hitting core Eurozone countries further weighed on sentiment, and resulted in European equities to trade lower, with stark underperformance seen in the Italian FTSE MIB and Spanish IBEX 35 indices. Weakness in equities rendered support to Bunds, and although volume in Bunds remained moderate, market talk of macro funds buying supported prices. The Eurozone 10-year government bond yield spreads widened across the board, with particular widening observed in the French/German spread. In the forex market, the USD-Index traded higher throughout the European session, which in turn exerted pressure on EUR/USD, GBP/USD and commodity-linked currencies, whereas GBP/USD came under further pressure following an unexpected decline in the Rightmove House Prices data from the UK. Also, weakness was observed in EUR after ECB's Nowotny said that an interest rate cut is possible, as well as the Bundesbank slashing German 2012 growth forecast.
Moving into the North American open, the economic calendar remains thin, however markets look ahead to the Chicago Fed National Activity Index and existing home sales reports from the US. In fixed income, USD 35bln 2-year Note auction, together with BoE's Gilt purchase operation in the maturity range of 2015-2021 are also scheduled. Also, Fed's Outright Treasury Coupons sales operations in the maturity ranges of Feb'12-Jul'12 and Mar'14-Nov'14, with respective purchase targets of USD 8-8.75bln each are also due later in the session.
Some BoJ board members warned of a small risk that Europe’s debt crisis would develop into a repeat of the Lehman shock and hit Japan’s economy, minutes of its Oct. 27th meeting showed. One board member Miyao proposed topping up the asset buying scheme through a bigger JPY 10trl increase in JGB purchases. Some board members said that buying government bonds with short maturities was an effective tool in stabilising exchange rates. (RTRS)
In other news, Jim O'Neill, the head of Goldman Sachs Asset Management, has predicted that China could overtake the US as the world's largest economy by 2027 and urged a fundamental rethink of the operation of the G7 which he believes is too dominated by the West. (Sunday Telegraph).
Members of the congressional deficit reduction committee voiced little hope of a breakthrough ahead of Wednesday’s deadline to agree a deal to reduce the US deficit. The Republican and Democratic leaders of a 12-member congressional ‘super committee’ planned to declare defeat after three months of talks failed to bridge deep divides over taxes and spending. (RTRS)
In other news, the survey from the NABE found 62.4% of the economists polled think the central bank’s USD 600bln stimulus plan is working. 21.8% see the policy having no impact and another 18.5% said the program was actively harmful. (RTRS)
EU and UK Headlines
ECB's Nowotny, when asked about China and Russia investment in the Eurozone periphery debt, said Europe should be, and is, able to deal with problems by itself. Nowotny also said that turning on printing press is not a current option. (RTRS)
In other news, Spain’s centre-right People’s Party won the General Election with an absolute majority of 43.5% or 186 seats in the 350-seat lower house according to an exit poll. (RTVE/RTRS)
• UK Rightmove House Prices (Nov) M/M -3.1% vs. Prev. 2.8%
• UK Rightmove House Prices (Nov) Y/Y 1.2% vs. Prev. 1.2% (RTRS)
Risk-aversion remained the predominant theme during the European session partly on the back of comments from Moody's during the weekend that rising French bond yields increase the fiscal challenges facing France, together with a potential deadlock on talks related to the US deficit-cutting measures. Comments from EU's Rehn that the sovereign crisis is hitting core Eurozone countries further weighed on sentiment, and resulted in European equities to trade lower, with stark underperformance seen in the Italian FTSE MIB and Spanish IBEX 35 indices. Elsewhere, strength in the USD-Index resulted in underperformance in basic materials and oil & gas sectors. Moving into the North American open, equities continue to trade lower, with basic materials and industrials as the worst performing sectors.
WTI and Brent crude futures came under downward pressure during this morning’s European session as the USD-Index strengthen and with the US congressional deficit-reduction committee still at deadlock.
Oil & Gas News:
• OPEC’s December meeting may lack the discord of its last gathering according to its secretary-general, as the 12-nation group weighs signs of declining growth in demand for oil. The secretary general also said some producers need to cut back as Libyan output rebounds.
• Iran's governor to OPEC foresees 'positive' December meeting, and says OPEC should be wary of softer oil demand in 2012
• Iran’s energy minister said that Iran could use oil as a political tool in the event of any future conflict over its nuclear programme. In other news the US plans to sanction Iran’s petrochemical industry according to sources familiar with the matter.
• At least 12 people were killed in clashes between security forces and crowds protesting against Egypt’s ruling military council in some of the worse violence since the overthrow of Hosni Mubarak. Protesters demanding that Egypt’s ruling generals hand over power beat back a new police raid to evict them from Cairo’s central Tahrir Square on Monday according to witnesses.