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Daily US Opening News And Market Re-Cap: November 7

Submitted by Tyler Durden on 11/07/2011 08:56 -0400

Political and debt concerns pertaining to Italy remained the main focus in the market today. News that the Italian PM Berlusconi may resign soon strengthened appetite for risk, however the news was later denied by Berlusconi
ECB's Mersch said that the ECB constantly discusses the possibility of ending bond-buys if Italy does not meet reform pledges
Market talk of the ECB buying the Italian government debt helped the Italian/German 10-year government bond yield spread to come off its widest levels
CHF came under pressure across the board following dovish comments from SNB's Hildebrand allied with an unexpected decline in the Swiss CPI data

Market Re-Cap

Political and debt concerns pertaining to Italy remained the main focus in the market today. In early European trade, appetite for risk was dented on the back of an uncertain position of the Italian PM Berlusconi ahead of tomorrow's confidence vote, together with comments from ECB's Mersch that the ECB constantly discusses the possibility of ending bond-buys if Italy does not meet reform pledges. A lack of clarity on the composition of the next Greek government also weighed on sentiment, which combined with the situation in Italy weighed on equities, with particular underperformance seen in the Spanish IBEX 35 and Italian FTSE MIB indices. Weakness in equities rendered support to Bunds and Gilts, whereas the Eurozone 10-year government bond yield spreads widened across the board. Notable widening was observed in the Italian/German spread in early European trade, however it came off its widest levels following market talk of the ECB buying in the Italian debt, whereas yield on the 10-year Italian government bonds traded over 6.6%. In the forex market, CHF came under pressure across the board following dovish comments from SNB's Hildebrand allied with an unexpected decline in the Swiss CPI data. Elsewhere, strength in the USD-Index weighed on EUR/USD, and commodity-linked currencies, whereas EUR/USD came under additional pressure following weaker than expected Eurozone retail sales data.

Moving into the North American open, the economic calendar remains thin, however consumer credit data from the US is scheduled for later in the session. In fixed income, BoE's Gilt purchase operation in the maturity range of 2015-202, together with another Fed's Outright Treasury Coupon Purchase operation in the maturity range of Feb'36-Aug'41, with a purchase target of USD 2.25-2.75bln are also due later. Market participants will also watch keenly any developments pertaining to Italy or Greece.

US Headlines:

Fed’s Williams said the Fed should wait to see how its recent moves to further ease monetary policy play out before taking any new steps, adding that if more easing is needed, MBS purchases is effective. (RTRS)

EU and UK Headlines

- Greek PM Papandreou survived a parliamentary confidence vote. Meanwhile, the Greek opposition has said that it is willing to help if the PM Papandreou goes, whereas according to a senior Greek lawmaker, the PM will quit when a coalition deal is done. Greece’s main political parties agreed that elections should be held on February 19th according to the finance ministry. (RTRS)
- Major political powers in Greece have reached an agreement to form a unity government. Under the deal, Greece’s government of national unity will not be headed by current PM Papandreou and the name of the new PM will be announced today. (Sources)

•       Eurozone Retail Sales (Sep) M/M -0.7% vs. Exp. -0.1% (Prev. -0.3%, Rev. to 0.1%)
•       Eurozone Retail Sales (Sep) Y/Y -1.5% vs. Exp. -0.5% (Prev. -1.0%, Rev. to -0.1%)
•       German Industrial Production SA (Sep) M/M -2.7% vs. Exp. -0.9% (Prev. -1.0%, Rev. to -0.4%)
•       German Industrial Production NSA WDA (Sep) Y/Y 5.4% vs. Exp. 7.2% (Prev. 7.7%, Rev. to 8.4%)
•       German 6-month Bubill auction for EUR 3.834bln, bid/cover 2.2 vs. Prev. 2.0 (yield 0.080% vs. Prev. 0.291%) (RTRS)

EQUITIES

Political and debt concerns pertaining to Italy remained the main focus in the market today. In early European trade, appetite for risk was dented on the back of an uncertain position of the Italian PM Berlusconi ahead of tomorrow's confidence vote, together with comments from ECB's Mersch that the ECB constantly discusses the possibility of ending bond-buys if Italy does not meet reform pledges. A lack of clarity on the composition of the next Greek government also weighed on sentiment, which combined with the situation in Italy weighed on equities, with particular underperformance seen in the Spanish IBEX 35 and Italian FTSE MIB indices. Equities received support following news that the Italian PM may resign soon, however the news was later denied by Berlusconi. Moving into the North American open, European equities are trading mixed, with utilities and financials as the best performing sectors.

FX

CHF came under pressure across the board following dovish comments from SNB's Hildebrand allied with an unexpected decline in the Swiss CPI data. Elsewhere, strength in the USD-Index weighed on EUR/USD, and commodity-linked currencies, whereas EUR/USD came under additional pressure following weaker than expected Eurozone retail sales data. EUR gained strength on news that the Italian PM may resign soon, however the move was quickly reversed after the news was denied by Berlusconi.

SNB’s Hildebrand said the SNB is ready to take further measures to weaken the CHF if the economic outlook and deflationary development make it necessary. (NZZ am Sonntag)

• Swiss CPI (Oct) M/M -0.1%vs. Exp. 0.2% (Prev. 0.3%)
• Swiss CPI (Oct) Y/Y -0.1% vs. Exp. 0.2% (Prev. 0.5%) (RTRS)

COMMMODITIES

Moving into the North American open, WTI and Brent crude futures came off their earlier lows to trade back in positive territory as the USD-Index weakened following news that the Italian PM Berlusconi may resign soon, which in turn could ease political uncertainty in Italy.

Oil & Gas News:

• BNP Paribas said they see scope for WTI-Brent premium to widen again and potentially returning to USD 20 per barrel or above in the near term.

Geopolitical News:

• A senior Iranian cleric dismissed talks of a military strike by Israel as empty propaganda. Meanwhile, the French foreign minister said military force against Iran would be totally destabilising, adding that France will continue the path of sanctions. In related news, according to sources, a report by the IAEA next week will support allegations that Iran built a large steel container for carrying out tests with high explosives that could be used in nuclear weapons. In other news, Iran is on the verge of ability to make a nuclear weapon with Iran getting nuclear assistance from Pakistan and North Korea according to the Washing Post citing intelligence provided to UN.

Corporate News:

• BP’s USD 7.06bln deal to sell its stake in an Argentine crude-oil producer to a joint venture involving Argentina’s Bridas Energy Holdings and China’s CNOOC has collapsed. However the co. is said to be unconcerned about the collapse of the Pan American Energy deal with Bridas as it no longer needs to strengthen its financial position.