Daily US Opening News And Market Re-Cap: September 11
- The German Constitutional Court have said the ruling on the ESM is to go ahead as planned tomorrow despite recent complaints.
- Spanish PM Rajoy's comments that the ECB's bond-buying program makes a Spanish bailout less urgent garner further focus in the European morning.
- Focus remains on the upcoming risk events this week: German high court ruling tomorrow, followed by the FOMC rate decision on Thursday.
Equities traded lower in Europe today as market participants continued to book profits after a rally to 13-month highs on growing concerns that even though the Constitutional Court in Germany will dismiss the injunction, it may enforce certain conditions. In addition to that, yesterday’s comments from Spain’s Rajoy who said that the new ECB backstop makes a bailout for his country less urgent. As a result, there is a risk that markets may scale back their expectations of an imminent full-scale bailout and in turn lead to another speculative attack on Spanish bonds. This, together with touted profit taking, saw the short-end in Spain and Italy come under pressure (2y Spanish yield up 8bps and 2y Italian yield up 7bps). In turn, this supported duration assets throughout the session. Looking elsewhere, the looming elections failed to deter investors from the latest DSL tap, which drew a record low yield.
Reports overnight that Australia's state of Queensland hiked taxes on coal miners, aiming to raise up to AUD 1.6bln in extra revenue, weighed on the likes of Rio Tinto and BHP Billiton. However it was Burberry (shares were trading as low as -18%) that attracted attention today, albeit for the wrong reason, after the company said that its full-year profits would now be at the lower end of market expectations due to weak sales. In tandem, given the interlinked nature with LVMH (-4.5%), meant that its EU competitor also traded lower. Looking elsewhere, EUR/USD benefited from the reports that the Federal Constitutional Court of Germany rejected a new complaint filed by a lawmaker against the ESM. As such, the vote is still scheduled to go ahead as planned on Wednesday.
Going forward, the second half of the session will see the release of the latest Trade Balance data from the US, as well as the weekly API report. In addition to that, the US Treasury will sell USD 32bln in 3y notes.
Speaking at the World Economic Forum, Chinese Premier Wen has said China has implemented measures to expand domestic demand, and may use their CNY 100bln fiscal stability fund if needed to boost growth. (Newswires)
IMF's deputy managing director Zhu Min has said the US must avoid the fiscal cliff and give further clarity on their fiscal policy. (Newswires)
EU & UK Headlines
The German constitutional court have said the ruling on euro rescue fund to go ahead as planned on September 12th despite recent complaints. (Newswires) Yesterday, the German finance ministry says Germany are still confident that the court will approve the ESM.
The Dutch/German 10y bond yield spread has been observed on a tightening trend throughout the session, as the Dutch state sold 10yr bonds at a record low yield of 1.846%. The tightening in the spread may also have been supported by the news that the Dutch Actuarial Association have raised their life expectancy forecasts by 1%, increasing obligations for pensions funds by up to 1% - supporting the longer-end of the Dutch curve. (RANsquawk/Newswires) The UK posts a record high level of non-EU goods exports in earlier trade balance data, with July's trade deficit much tighter than expected at GBP -7.149bln. (Newswires)
European equity futures have trended lower from the open, with the basic materials sector seen leading the way downwards in a reversal of the steep gains observed in the sector since the start of the week. The DAX future saw some support after the German constitutional court said tomorrow's ruling on the ESM is to go ahead as planned, with the German finance minister commenting earlier in the week that he expects the court to approve the ruling smoothly. However, apprehension towards the ongoing Greek crisis and Spanish PM Rajoy's comments that Spain will not be told where to trim spending have weighed on stocks in today's session. US stock futures are currently seen
The luxury sector is a heavy underperformer in Europe today as UK-listed Burberry issued a profit warning premarket, stating that FY adjusted pretax will likely be at the lower-end of market expectations, with Q2 retail sales growth at constant FX of 6%. The warning from the company has taken its toll on sector-related luxury stocks such as LVMH and PPR, who trade lower by 4.3% and 3.7% respectively. Burberry, unsurprisingly, have taken the brunt of the losses, trading lower by around 18% ahead of the North American crossover. As such, Tiffany shares may draw focus upon the Wall Street open to see if they keep their sparkle. In premarket trade, Tiffany already trade lower by 2.6%.
EUR/CHF edged back towards the 200DMA line at 1.2059, as market participants reduced their speculative bets that the SNB may raise the CHF floor, which also depressed shorter-dated implied vols. Talk of Dutch names selling EUR/USD, linked to SNB diversification, meant that the pair failed to make a convincing break above the 1.2800 level. Aggressive selling by a German name, as well as fast money accounts, saw USD/JPY briefly trade below 78.00 level, with stops seen below 77.90. (RANsquawk)
Crude futures trade flat heading into the NYMEX pit open as markets still await several key events tomorrow and the FOMC on Thursday. Elsewhere, OPEC have kept their 2012 and 2013 world oil demand estimates unchanged, and Saudi Arabia tells OPEC it trimmed output in August by about 50,000BPD to 9.75MBPD. Spot gold and silver prices are seen higher on the day, moving in line with the broader commodities index as participants continue to look ahead to the FOMC on Thursday, where Bernanke is expected to announce fresh stimulus. (RANsquawk)
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