Daily US Opening News And Market Re-Cap: October 3

From RanSquawk

• Greek 2012 draft budget sees deficit at 6.8% of GDP vs. 6.5% Troika target, and 2011 budget deficit at 8.5% of GDP vs. 7.6% target.
• Moody's says Greek banking system may need EUR 44bln recapitalisation.
• EU's Rehn will discuss EFSF options including the ECB, adding that leveraging is one of the options for the EFSF bailout fund with the European banking sector still vulnerable.
• Chinese PMI Manufacturing (Sep) M/M 51.2 vs. Exp.51.1; HSBC China Services PMI (Sep) M/M 53.0 vs. Prev. 50.6
• Fed's Fisher says sees growth at below 2% for rest of the year, and he did not feel benefits of operation twist outweighed costs.

Market Re-Cap

Risk averse trade was observed in early European trade following the news over the weekend that Greece were to miss budget deficit targets set by the Troika with the Asian markets closing sharply lower into the beginning of the European session and consequently fixed income markets being heavily supported.  Focus remained on the banking sector following reports that consultations are underway regarding the nationalisation of Belgian bank Dexia with further comments from ECB’s Noyer on the dependence of French banks on USD funding.  At the Equity open Dexia opened down 12% with the French banks underperforming heavily, however as the session progressed risk sentiment did begin to creep back into the markets with the Euro-area manufacturing PMI’s generally being higher than expected.  This was allied with the ECB’s Securities Market Programmed rumoured to be buying in the Spanish and Italian curves with significant tightening observed in both countries 10-year government bond yield spread over Bunds.  Elsewhere, the fears of a “hard landing” in China were somewhat quelled with the PMI data over the weekend coming in higher than expected and an early release of the HSBC services PMI today also showing a strong reading.  In the forex space the GBP/USD pair demonstrated high volatility at the release of the UK manufacturing PMI with the headline number significantly higher than expected but the exports component particularly weak and a cumulative move of one point immediately after release.

Looking forward in the North American session focus will be on the Eurogroup meeting due to start at 1600BST where discussions on EFSF leveraging will be on the agenda.  In terms of data there will be the ISM manufacturing report for September and the start of Operation Twist, alongside the latest Outright Treasury Coupon Purchases.

Asian Headlines

•    Chinese PMI Manufacturing (Sep) M/M 51.2 vs. Exp.51.1 (Prev. 50.9)
Chinese Non-Manufacturing PMI (Sep) M/M 59.3 vs. Prev. 57.6
HSBC China Services PMI (Sep) M/M 53.0 vs. Prev. 50.6 (RTRS)

EU and UK Headlines:

•    Greek 2012 draft budget sees deficit at 6.8% of GDP vs. 6.5% EU/IMF target, and 2011 budget deficit at 8.5% of GDP vs. 7.6% target. Budget draft also sees 2012 GDP contracting by 2%, and 2011 GDP contracting by 5.5% all according to Sources. (RTRS/Sources)
•    Austrian FM Fekter said euro-region experts are working on measures to strengthen the EFSF. ECB’s Noyer said he is ‘open’ to the idea of using borrowed money to enhance the capabilities of a European rescue fund. (Die Welt/Sources)
•    Finance ministers from France and Belgium will meet today to discuss the future of Belgian bank Dexia.  One rescue proposal is for it to be merged with the French state lender Caisses des Dépôts. (Sunday Times)
•    UK Manufacturing PMI (Sep) M/M 51.1 vs. Exp. 48.6 (Prev. 49.0)
New export orders index falls to 45.0 from 46.9, lowest since May 2009 (RTRS)
•    Moody's says Greek banking system may need EUR 44bln recapitalisation. (Sources)
•    EU's Rehn will discuss EFSF options including the ECB, adding that leveraging is one of the options for the EFSF bailout fund with the European banking sector still vulnerable. (RTRS)

EQUITIES

Equity markets in Europe opened sharply lower following the lower closes in Asia, with the Hang Seng finishing down over 4.00% being weighed primarily by financials.  This continued into the European open with reports that consultations are underway regarding the nationalisation of Belgian bank Dexia with further comments from ECB’s Noyer on the dependence of French banks on USD funding. Despite equities coming off their worst levels the financial sector was still the worst performing in Europe with early indications that this was to continue after the Wall Street open as Morgan Stanley shares trading down 1.00% in premarket trade.  Focus will also be on Goldman Sachs at open following weekend press reports the bank is planning to slash bonuses to close to zero amid growing expectations that it is about to slide into the red for only the second time in its history

FX

Risk averse trade in the Asian and early European session supported the USD-index with the JPY also seeing pronounced strength across the board.  The generally higher than expected Euro-area manufacturing PMI data helped bring EUR/USD off its overnight lows with the USD-index slipping back to unchanged midway through the European morning, nevertheless the major European currency pairs are still in negative territory heading into the North American open.  Elsewhere, the Swiss finance minister said the SNB’s CHF ceiling of 1.2000 versus the EUR is at the right level but no real movement has been observed in the CHF currency. The GBP/USD pair demonstrated high volatility at the release of the UK manufacturing PMI with the headline number significantly higher than expected but the exports component particularly weak and a cumulative move of one point immediately after release.  Key for the EUR will be the later Eurogroup meeting at which EFSF leveraging discussion are due to take place and the ECB announcing the bond purchases it made last week under its Securities Market Programme.

COMMMODITIES

WTI and Brent crude futures have pared back most of this morning’s earlier losses as the USD-Index slips back into negative territory.

Oil & Gas News:

•    OPEC members are narrowing down differences over the group’s quota system due to crimping demand from deteriorating economic conditions according to Iran’s representative to OPEC. OPEC September output nudges higher on Libya’s oil come-back.
•    According to North Oil company sources, Iraq has resumed crude exports through its Kirkuk-Ceyhan pipeline at a rate of 400,000-450,000 BPD. Iraq sees oil production at 3 MBPD by the end of 2011, current output at 2.9 MBPD according to the oil ministry. Iraq sees oil exports at 2.5 MBPD at the start of next year and September oil exports at 2.101 MBPD, down 4% on the month. Iraq September oil revenues USD 6.6bln vs. USD 7.1 bln in August according to SOMO.
•    Iran is in talks to increase oil swap deals with its northern neighbours, oil ministry news agency Shana quoted the director of the state-run National Iranian Oil Company as saying over the weekend.

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