- Chinese inflation and industrial production figures come in broadly alongside expectations. However, imports decline by 2.6% over August against an expected rise of 3.5%.
- Spanish PM Rajoy is planning to delay a bailout request until after the Galicia region holds their elections on October 21st, according to unidentified sources.
- European trade remains quiet as participants await the key risk events due later in the week, in the form of the German Constitutional Court ruling on Wednesday, and the FOMC rate decision due on Thursday.
Stocks in Europe traded lower throughout the session, as market participants reacted to another round of weak data from Asia. In particular, China’s imports fell 2.6% on the year in August vs. Exp. 3.5%, underpinning the need for policy easing measures from the People's Bank Of China. Some of the weakness in equity space was also attributed to profit taking following last week’s gains. Spanish bonds continued to benefit from the ongoing speculation that the government will seek a full scale bailout. As a result, SP/GE 10y bond yield spread is tighter even though there is an outside chance that the constitutional court vote in Germany will delay this. On the other hand, IT/GE and NE/GE bond yield spreads are wider, reflective the upcoming issuance, as well as elections. EUR/USD and GBP/USD, both seen lower on the back of touted profit taking, as well as pre-positioning into near-term risk events mentioned above. Commodity linked currencies are also weaker, weighed on by the weaker data from China, which also showed that imports of crude oil hit a 22-month low. In terms of notable stocks news, Glencore said it will not improve its offer for Xstrata after the company raised offer for Xstrata to 3.05 from 2.8.
Chinese data from over the weekend comes in roughly alongside expectations, with CPI figures slightly higher than the previous at 2.0% and Industrial Production just below the expected 10.2% at 10.1%. Of note, Chinese Trade Balance figures show a contraction in imports of 2.6%, against expectations of a 3.5% growth over August, indicating a slowdown in domestic demand for the country. (RANsquawk)
The Nikkei share average closed lower by 0.03%, however most stocks made gains as data from the Japan and China, and from the US on Friday indicate that policy makers may embark on stimulus in order to combat slowing economic growth. The technology sector in Japan suffered after last week's release from US stock Intel, wherein they cut their Q3 revenue forecast. (RANsquawk)
IMF's Lagarde has said US tax increases and spending cuts set to take effect by the beginning of next year that make up the fiscal cliff pose one of the greatest threats to the global economy. (Newswires)
EU & UK Headlines
Spanish PM Rajoy is planning to delay a bailout request until after the Galicia region holds their elections on October 21st, according to unidentified sources. According to EU sources, Spain will “soon, but no earlier than the end of September” request help from the EU rescue fund. (El Economista/Efe/FTD) The Spanish-German spread spent much of the day tighter, however has come back to unchanged on the day, with price action remaining muted ahead of this week's key risk events.
Italian finance minister Grilli said the Italian view on an aid request has not changed after the ECB announcements. Grilli added that he sees
no risk of Italy losing market access. (Newswires)
Greek PASOK party officials have confirmed weekend reports that the Troika have disputed around EUR 2bln of the proposed cuts by the Greek leaders, and negotiations are likely to continue for a number of weeks. (Newswires)
Despite weekend reports that a German lawmaker in German Chancellor Merkel's CDU party has filed a complaint against the legality of the ESM, the German finance ministry has quashed suspicions that the vote could be delayed, saying that they are confident the court will approve the ESM this Wednesday. Additionally, legal experts and MPs have said this is unlikely to prevent the court ruling this week. (Newswires)
Equities in Europe traded lower, underpinned by another round of weaker than expected macro data from Asia. Also, reports that China is holding back on announcing further stimulus due to inflation and overcapacity fears, prompted fears that any new stimulative measures will not prove enough. Of note, according to press reports, bankers are studying debt packages for possible purchases of Marks and Spencer after they were approached by a number of private equity buyers according to sources. The sources said CVC, Advent, Lyons Capital and Bain have looked at the co. which would be sold for GBP 6-8bln.
According to the latest reports, Glencore are not to increase the merger ratio further, holding it at 3.05. Xstrata's CEO Davis is to become the CEO of the combined group, but is to step down after 6 months to allow Glencore's Glasenberg to take the CEO position. The terms of the new proposals remain subject to the agreements of the Xstrata board, who are to carefully consider the proposals and consult with shareholders before responding by 0700BST on Monday 24th September. Elsewhere, Shareholders have warned directors at Xstrata that they risk being removed if they block the GBP 56bln merger with Glencore. Activist fund Knight Vinke, who rejected Glencore's latest offer for Xstrata, have called upon the Xstrata board to seek the highest offer possible by inviting third-party offers. (Times/Newswires) After a mornings trade in Europe, Glencore and Xstrata shareholders look ahead to any further commentary or hints as to whether the revised offer is to be accepted. Xstrata shares have gained from the proposals, higher by around 2.4% last, and Glencore shares are seen lower by just over 1%.
EUR/USD edged lower, on the back of touted profit taking, as well as pre-positioning into the near-term risk events such as the constitutional vote in Germany, as well as elections in the Netherlands. Another factor in play, is the 1.2750 option expiry, which is said to be in good size. An option expiry in GBP/USD at 1.6000 for today’s NY cut helped to anchor the price action. Commodity linked currencies are also weaker, weighed on by the weaker data from China, which showed that imports of crude oil hit a 22-month low. EUR/CHF shorter-dated implied vols are better bid, underpinned by the ongoing speculation that the SNB will raise the highly controversial EUR/CHF floor.
Heading into the North American crossover, WTI crude futures trade in negative territory on the day, however still register strong gains over the past few sessions as participants continue to look ahead to expected further QE at Thursday's FOMC rate decision. Additionally, Saudi Arabian oil minister Al-Naimi has said the supply/demand fundamentals do not reflect the recent increases in pricing. Spot gold and silver register losses as participants take profits on the steep increases in pricing observed following last week's disappointing non-farm payrolls release.