- The Slovak Parliament rejected the EFSF ratification bill late yesterday. However, risk-appetite re-emerged following news that a new bill could be introduced in the Slovak Parliament as soon as this afternoon
- A much lower than anticipated allotment in the ECB’s 3-month USD operation waned some concerns surrounding the Eurozone banks’ funding
- Strength in equities together with a “technically uncovered” 30-year bond auction from Germany weighed upon Bunds
- Renewed risk-appetite allied with the release of the FOMC minutes later in the session exerted downward pressure on the USD-Index
The Slovak Parliament rejected the EFSF ratification bill late yesterday, which spurred risk-aversion overnight and in early European trade. However, in a stark reversal of fortunes, market sentiment changed following news that a new bill could be introduced in the Slovak Parliament as soon as this afternoon. Also, markets took positively comments from Chancellor Merkel who said that the EFSF changes will get full approval before the EU summit on the 23rd October, as well as a much lower than anticipated USD-allotment in the ECB's 3-month USD-operation, which waned some concerns surrounding the Eurozone banks' funding. Strength in equities weighed upon Bunds, whereas the Eurozone 10-year government bond yield spreads with respect to Bunds narrowed across the board. Bunds came under further pressure following a "technically uncovered" 30-year bond auction from Germany. In the forex market, the USD-Index came under extensive pressure amid renewed risk-appetite, which provided a boost to EUR/USD, GBP/USD and commodity-linked currencies. EUR/USD received additional support on the back of market talk of Swiss names and US bulge bracket names buying in the pair. Also, GBP/USD moved higher after an unexpected decline in the Jobless Claims Change data from the UK. Elsewhere, moving into the North American open, WTI and Brent crude futures ventured in positive territory as risk-appetite gathered pace and the USD-Index weakened.
Moving into the North American open, markets look ahead to minutes from the FOMC meeting of 20th-21st September, together with the API inventories report. Any comments pertaining to the EFSF ratification in Slovakia will also be keenly watched. In terms of fixed-income, USD 21bln 10-year Note auction, allied with Fed's Outright Treasury Coupon sales in the maturity range of Mar'13-Oct'13, with a sale target of USD 8-9bln are scheduled for later in the session. The BoE is also conducting its asset purchase operation worth GBP 1.7bln in the maturity range of 2022-2036.
• Japanese Machine Orders (Aug) M/M 11.0% vs. Exp. 3.9% (Prev. -8.2%)
• Japanese Machine Orders (Aug) Y/Y 2.1% vs. Exp. -3.6% (Prev. 4.0%) (RTRS)
President Obama said the Senate vote on jobs package is not the end of the fight for his proposal, and he said Republicans obstructed the Senate from moving forward on the jobs bill. (RTRS)
In other news, Fed, seeking to reduce operational costs for banks, is asking for comments from the public on proposals that would simplify the administration of reserve requirements. The Fed said it is proposing to provide more flexibility to banks on the way they satisfy reserve requirements by creating a common maintenance period, lasting two weeks. (Fox Business)
Elsewhere, PIMCO’s Gross leaves treasury holdings unchanged in September, and boosts MBS holdings in flagship bond fund in Sept. (Sources)
• US MBA Mortgage Applications (Oct 7) W/W 1.3% vs. Prev. -4.3% (RTRS)
EU and UK Headlines:
EU’s Junker said the next tranche of aid to Greece will not be paid if the Troika report finds Athens completely missing targets. Junker said can only consider alternatives to ensure Greek debt sustainability when all consequences are considered. He also called for automatic sanctions should Euro-zone member states repeatedly miss fiscal targets. (Handelsblatt)
• Eurozone Industrial Production SA (Aug) M/M 1.2% vs. Exp. -0.8% (Prev. 1.0%, Rev. 1.1%)
• UK Jobless Claims Change (Sep) M/M 17.5K vs. Exp. 24.0K (Prev. 20.3K, Rev. to 19.1K)
• UK Claimant Count Rate (Sep) M/M 5.0% vs. Exp. 5.0% (Prev. 4.9%)
• UK ILO Unemployment Rate (Aug) 3M/Y 8.1% vs. Exp. 8.0% (Prev. 7.9%) (RTRS)
• ECB allotted USD 1.353bln in its 3-month USD operation vs. Exp. USD 5bln
• ECB allotted USD 500mln in its 7-day USD operation
• German Bund auction for EUR 1.625bln, 3.25% 04-Jul-42, bid/cover 1.10 vs. Prev. 1.30 (yield 2.820% vs. Prev. 3.430%, retention 18.8% vs. Prev. 17.90%) (RTRS)
Asian equities came under pressure overnight after the Slovak Parliament rejected the EFSF ratification bill. However, in a stark reversal of fortunes, market sentiment changed following news that a new bill could be introduced in the Slovak Parliament as soon as this afternoon. Also, markets took positively comments from Chancellor Merkel who said that the EFSF changes will get full approval before the EU summit on the 23rd October, as well as a much lower than anticipated USD-allotment in the ECB's 3-month USD-operation, which waned some concerns surrounding the Eurozone banks' funding. Elsewhere, weakness in the USD-Index provided support to basic materials and oil & gas sectors, and moving into the North American open, equities continue to trade higher with basic materials and financials as the best performing sectors.
**US Corporate Earnings**
Alcoa – Co.’s Q3 cont-ops EPS USD 0.15 vs. Exp. USD 0.22, and Q3 sales USD 6.42bln vs. Exp. USD 6.23bln. (RTRS)
The USD-Index came under extensive pressure amid renewed risk-appetite, which provided a boost to EUR/USD, GBP/USD and commodity-linked currencies. EUR/USD received additional support on the back of market talk of Swiss names and US bulge bracket names buying in the pair. Also, GBP/USD moved higher after an unexpected decline in the Jobless Claims Change data from the UK.
Elsewhere, the US senate approved a controversial bill aimed at forcing China to raise the value of the CNY in an effort to save American jobs. China said the US currency bill is protectionist and legislation would hurt China-US ties. They reiterated concern it could hurt global recovery efforts. (RTRS)
WTI and Brent crude futures traded higher during the first half of the European session as the USD-Index weakened over 1% and a boost in risk appetite was seen across the markets.
Oil & Gas News:
• IEA Monthly Oil Report:
- Global oil demand is revised down by 50KBPD for 2011 and by 210KBPD for 2012
- Global oil supply fell by 0.3MBPD to 88.7MBPD in September
- OPEC crude oil supply nudged down to 30.15MBPD in September
- Global crude runs estimates for Q3 2011 and Q4 2011 are revised down by 50KBPD and 75KBPD respectively
• Libya’s interim oil and finance minister said the country’s output was expected to ramp up to about 1 million barrels of oil per day within a year and confirmed output from a major oilfield was expected to resume within days.
• Norway directorate chief said he expects Norway oil and gas output to stay at current level for the next decade.
• The head of Norway’s oil agency has sounded the alarm over high drilling costs on the country’s continental shelf that are putting a serious restraint on its ability to tap new reserves to reverse a production decline.
• Bank of America sticks to their view that Brent crude oil will average USD 114 per barrel in 2012 and Brent will trade in a range of between USD 90 – USD 115 per barrel, averaging USD 103 per barrel over the next six-months.
• The US accused Iran yesterday of backing a plot to kill the Saudi ambassador to Washington, escalating tensions with Tehran and stirring up a hornet’s nest in the Gulf, where Saudi Arabia and Iran have long jostled for power. The US state department issues worldwide travel alert for US citizens for potential anti-US actions after a plot linked to Iran discovered.