Submitted by RanSquawk:
- ECB said to debate new 12-month loans at the October 6th policy meeting where they may discuss a rate cut
- EU may speed up ESM enactment to stem the crisis with Euro aides discussing setting up the fund in 2012 a year early.
- German IFO data higher than expected on all three readings
- CME raises margin requirements for longest dated T-Bond futures by 20%
In early trade much of the attention and sentiment was driven by the weekends meeting of G20 leaders, and talk that the G20 is now preparing itself for Greek default after October, but markets remain resilient and early losses have been pared back as a solution for Greece feels slightly nearer. Commodity prices have come under some downward pressure as the CME hiked gold margins by 21%, silver by 16% and copper by 18% as of last Friday, and all trade in solid negative territory. In the European session we have also had several comments in relation to the ECB's interest rate, with BofA and ECB's Nowotny saying cuts are a possibility, although ECB's Mersch said wild expectations about ECB rate cut show that some people have lost direction. However news came later that the ECB may discuss a rate cut at the next meeting, but this is not on the official agenda. In addition the ECB is said to consider restarting covered bond purchases and they are to debate new 12-month loans at the October 6th policy meeting.
Looking ahead into the North American open, markets will pay close attention to the US New Home Sales number and any comments from both Fed's Bullard and Kocherlakota. Markets also await the ECB's announcement for bond purchases in the previous week, which has seen a general decline in purchases since the first re-activation in August.
PBOC Governor Zhou says that high inflation remains the top concern as there were no immediate ways to control it. However, the Chinese growth outlook is positive and consumption has been boosted. He also said the general tone of the country’s fiscal and monetary policies won’t be changed. (Sources/China Business News)
EU and UK Headlines:
· ECB said to debate new 12-month loans at the October 6th policy meeting where they may discuss a rate cut at the next policy meeting however this is not on official agenda, also they are said to consider restarting covered bond purchases.
· According to sources the G20 is now preparing itself for Greek default after October with all efforts behind the scenes now going into recapitalising banks and preparing economies for default which could see the EFSF boosted to EUR 3trl.
· According to a Draft, the EU may speed up ESM enactment to stem the crisis with Euro aides discussing setting up the fund in 2012 a year early. The ESM fund replacing the EFSF would have capital of EUR 500bln.
· ECB’s Nowotny reiterated that the ECB could use 12-month tenders again and that the Eurozone could follow a US TARP/TALF system. Nowotny also said that ECB interest rate cuts cannot be excluded.
· German deputy finance minister Asmussen said euro-region finance ministers won’t be in a position to decide on the disbursement of the next tranche of aid to Greece when they meet on October 3rd because a report by the IMF, ECB and EC has been delayed. (RTRS/Sources/El Economista/Corriere della Sera/Sky News/Caixin/Sunday Times)
· German IFO Business Climate (Sep) M/M 107.5 vs. Exp. 106.5 (Prev. 108.7)
German IFO Current Assessment (Sep) M/M 117.9 vs. Exp. 115.7 (Prev. 118.1)
German IFO Expectations (Sep) M/M 98.0 vs. Exp. 97.3 (Prev. 100.1)
Equity markets have performed surprisingly well in the European session so far, with the DAX index trading with a 4.00% gain on the day. Risk appetite being fuelled by expectations of an ECB rate cut at the next meeting and the re-introduction of 12-month liquidity tenders. As a result, the financial sector has outperformed with French banks in particular reaping the benefits of the rally, BNP Paribas shares trading up 8%. The Oil & Gas and Basic Materials sectors weighed by the CME hiking commodity margins effective from today.
EUR/USD rallied off Asian session lows below 1.3400 as risk sentiment picked up through the European session. The USD-index slipped into negative territory after being up 0.75% at the European open as markets focused on the comments from ECB’s Nowotny that interest rate cuts cannot be excluded, also helped by the German IFO numbers coming in higher than expected. The weakness in the USD-index provided strength to the energy complex and in turn the commodity linked currencies moved off their worst levels with AUD/USD and NZD/USD moving back into positive territory. GBP/USD shook off dovish comments from BoE’s Broadbent to trade above 1.5500 amid talk that HSBC is buying in the pair ahead of dividend payments in the near future.
Moving into the NYMEX pit open WTI and Brent crude futures have traded in negative territory as European debt concerns weigh on oil prices, although much of their earlier losses have been pared back.
Oil & Gas News:
· The OPEC Research Director said that expectations for 2011 demand had been revised down by 300,000BPD and that he expected non-OPEC oil production to increase by 800,000BPD. Meanwhile the Qatar oil minister said that OPEC is closely monitoring supply/demand developments with the market currently well supplied.
· Saudi Arabia is likely to try to stop Brent crude oil prices falling below USD 90 a barrel, according to Sonia Song, head of Asia Oil & Gas research at HSBC Holdings.
· The UAE and Kuwait’s oil exports fell in June, despite both backing a June 8th proposal for OPEC to raise supplies.
· China will encourage investments in shale gas exploration and development through the formation of joint ventures.