- European Union finance ministers are examining ways of co-ordinating recapitalisations of financial institutions after they agreed that additional measures were urgently needed to shore up the region’s banks.
- Sixth EU/IMF aid tranche for Greece is not guaranteed but inspectors are optimistic they will eventually recommend releasing aid according to a Troika source.
- IMF recommended that the ECB should cut rates if downside risks persist, while the ECB may need to offer longer term loans to banks.
- ECB's Noyer said there was no concern over France's ‘AAA’ rating in light of the Dexia guarantees.
- UK Services PMI (Sep) M/M 52.9 vs. Exp. 50.5 (Prev. 51.1) UK GDP (Q2 F) Q/Q 0.1% vs. Exp. 0.2% (Prev. 0.2%) (RTRS)
- CME cut XAF (Emini SP500 Financial Sector Index) margins by 33%.
Sentiment in Europe has been supported by continued focus on the FT article from late last night regarding the informal discussions on bank recapitalisations which had reportedly taken place at yesterday’s EcoFin meeting, with the markets shaking off the Italian triple notch downgrade. Equity markets have traded in positive territory straight from open with banks in particular being supported. The French banks have outperformed with ECB’s Noyer stating that France’s ‘AAA’ rating is not threatened by the state guaranteeing Dexia. There was a brief period of risk aversion following the release of the Euro-area Services PMI’s which were weaker across the board, especially the German PMI which surprised by being lower than 50. Nevertheless markets have continued to follow a risk-on trend with Bund futures weighed by a successful Schatz auction which sold with a record low yield and continued reports of the SMP buying Eurozone secondary market debt with the Spanish and Italian spreads over Bunds tightening markedly. Elsewhere, the UK Services PMI was distinctly higher than expected causing a 40 pip spike higher in GBP/USD before being briefly pinned back following a weaker second quarter final GDP reading from the UK. The USD-index has weakened throughout the session given the risk appetite which has helped support the USD-related currency pairs. Worth noting is the sharp sell-off seen in commodities with spot Silver falling 5% and spot Gold falling 2% which did cause a dip in the energy complex.
Moving into the US session focus will be on the ADP Employment Change data ahead of non-farm payrolls on Friday with the ISM Non-Manufacturing Composite to follow. Out of the Eurozone will be release of the consolidated financial statement of the Eurosystem.
• BoJ Governor Shirakawa offered a bleak assessment on Japan’s economic outlook but said the central bank was already taking bold steps to support growth. (RTRS)
EU and UK Headlines:
• European Union finance ministers are examining ways of co-ordinating recapitalisations of financial institutions after they agreed that additional measures were urgently needed to shore up the region’s banks. (FT – More)
• Moody’s downgraded Italy’s sovereign rating by three notches to A2 with a negative outlook. (RTRS)
• IMF recommended that the ECB should cut rates if downside risks persist, while the ECB may need to offer longer term loans to banks. (Sources)
• UK Services PMI (Sep) M/M 52.9 vs. Exp. 50.5 (Prev. 51.1)
UK GDP (Q2 F) Q/Q 0.1% vs. Exp. 0.2% (Prev. 0.2%) (RTRS)
• German Services PMI (Sep) M/M 49.7 vs. Exp. 50.3 (Prev. 51.1) The 1st contraction and lowest level since July 2009 (RTRS)
• Dexia is set to park assets worth in excess of EUR 180bln into a so-called bad bank, a vehicle backed by guarantees from the French and Belgian governments. (WSJ)
• ECB's Noyer said there was no concern over France's ‘AAA’ rating in light of the Dexia guarantees. (RTRS)
Equity markets have been well supported in the European session with the European bourses opening positively for the first time in three days. The Basic Materials sector has been the best performing due to the turnaround in risk sentiment but focus has remained on the Financial sector which has been boosted by the FT article from late last night regarding the informal discussions on bank recapitalisations which had reportedly taken place at yesterday’s EcoFin meeting. The French banks in particular have performed strongly with the three major French banks gaining over 5%. The triple notch downgrade of Italy’s sovereign rating has been shaken off with Italian banks also trading positively. The mediocre reaction to Apple’s iPhone 4S last night has helped support Nokia shares in Europe which opened up 4%.
GBP/USD has seen the largest moves in the European session with a 40pip spike to the upside following the unexpectedly strong UK Services PMI. This was tempered slightly by the UK GDP data being lower than expected, however this was quickly shaken off due to the UK’s ONS saying the GDP revision was affected by the calculation methodology rather than structural weakness. The general USD weakness, given the healthy risk appetite, has helped support USD related pairs with EUR/USD moving firmly above 1.3300. Elsewhere, NZD/USD has been supported by market talk of buying by funds and real money names with participants also keeping a close eye on the CHF following yesterday’s rumours of the SNB possibly moving the EUR/CHF peg to 1.3000.
WTI crude futures traded in firm positive territory during the European session as yesterdays’ API crude oil inventory showed a large drawdown and renewed fuel demand.
Oil & Gas News:
• Iraq's Shahristani said he sees no need for OPEC to review its output levels in the next meeting.
• Iran's OPEC governor said emergency OPEC meeting is possible if crude prices continue to fall according to a newspaper interview.
• The giant oil-field Aldous-Avaldsnes discovery off Norway has a potential value of USD 13bln and could make a substantial contribution to the country’s oil supply from 2020, according to UK-based analysts Wood Mackenzie.