From RanSquawk [22]
- European equities trade modestly higher, however BP's disappointing Q2 earnings weigh on the FTSE-100.
- Unconfirmed market talk of a weaker-than-expected Chinese Manufacturing PMI heightens concerns towards China, with the data due to be released overnight.
- Market price action remains muted ahead of central bank rate decisions this week, kicking off with the FOMC tomorrow
Market Re-Cap
European equities are trading in flat-to-positive territory going into the North American crossover with the FTSE-100 the primary laggard, being driven lower by individual earnings releases. Oil supermajor BP released a disappointing set of Q2 earnings, reporting a net loss of USD 1.39bln, pressing the stock lower by 4.25% at the midpoint of the European trading day.
Data releases from Europe today have picked up in volume, but come alongside expectations, proving unreactive across the asset classes, as German unemployment changes matches estimates at a reading of +7K for July.
The topic of a banking licence for the ESM has arisen once more, as German politicians have begun voicing their concerns on the issue, with a German senior lawmaker commenting that he cannot see an ESM banking licence becoming a reality. However, this appears to be another reiteration of the German political stance, and therefore not a particular shock to markets.
With today the last trading day in the month, larger than average month-end extensions have proved supportive in the longer-end of the curve today, with notably large extensions in Germany, France and the Netherlands.
Market focus remains on the latter-end of the week with the FOMC, BoE and ECB rate decisions, but Chinese data due for release overnight tonight has garnered some attention, as market chatter begins to do the rounds of a weaker-than-expected manufacturing PMI, heightening concerns towards the world’s second largest economy.
Looking ahead in the session, a slew of macro data from the US is expected with personal income, personal spending and PCE figures are due at 1330BST/0730CDT, followed by US consumer confidence at 1500BST/0900CDT.
Asian Headlines
Market talk of a weaker than expected Chinese PMI number has been doing the rounds; typically any weaker Chinese data does reignite talk of Chinese rate cuts, and historically we have seen China cut their benchmark interest rate around the same time as the Bank of England rate and asset purchase target decision. The Chinese RRR currently stands at 20% with the last cut on 12th May by 50bps. The 1-year deposit rate was last cut by 25bps to 3%, and 1-year lending rates by 31bps to 6% on July 5th. (RANsquawk)
US Headlines
According to known Fed-watcher Hilsenrath, this Wednesday, the Federal Reserve could unveil a new program for buying mortgage or government securities to bring down long-term interest rates. (WSJ)
Some Federal Reserve officials are urging pre-emptive stimulus, reminiscent of former Fed Chairman Greenspan's 'taking out nsurance' policies. (NY Times)
BarCap month end extensions Treasury: +0.02y
EU & UK Headlines
The Spanish government will not hand in its budget for 2013 and 2014 by today, as required by the European Commission when it agreed to delay Spain's 3% deficit target until 2014, according to EU sources. (El Pais) Spain's central government have reported a deficit Jan-June of 4.04% of GDP according to the treasury, In terms of 2011 the period Jan-Jun the Spanish central government deficit was 2.61% of GDP. The treasury added that they are on track to meet 2012 budget deficit target. (Newswires)
In the fixed income markets, caution is still rife, with the Spanish and Italian 10yr government bond yields wider on the day against the German benchmark, with participants continuing to eye this Thursday's ECB rate decision. Newsflow regarding this has been thin today, but markets will be keeping a close eye on any commentary from the Italian PM Monti and French President Hollande, who are due to meet today to discuss the ongoing European issues. The Spanish and Italian 10yr yields continue to be seen markedly lower since last week's ECB President Draghi comments, however they do remain elevated, highlighting that there is stubborn risk aversion present. Spanish and Italian 10yr government bond yields are last seen at 6.6% and 5.98% respectively. (RANsquawk)
Equities
European equities are seen making gains with the exception of the FTSE-100, dragged lower by BP's disappointing release in premarket today. Health care leads the way higher followed by basic materials, as industrials and financials are seen as the primary laggards today. US stock futures are currently indicating a higher open on Wall Street today, and may see some fluctuations along with the slew of macroeconomic releases from the US, including personal income and spending as well as July's consumer confidence reading.
The SMI has been heavily weighed upon by UBS, today's worst performing European stock, after they reported a Q2 net of CHF 425mln vs. Exp. CHF 1.12bln, lowering its balance sheet target for its group and investment bank. UBS shares trade lower by over 5% at the midpoint of the European trading day.
To the upside, Bayer shares are performing strongly today after boosting their forecast along with their premarket earnings, despite recording a lower than expected Q2 net. Analysts at JP Morgan have noted that a forecast increase from Bayer was already anticipated, so the upside in their share price may be limited. At the North American crossover, Bayer are one of the strongest performers in Europe today, last seen higher by around 2.5%.
FX
EUR/USD is trading in minor positive territory at the North American crossover despite spending the early hours of the European session in the red. EUR has appreciated across the board this morning, with desks noting month-end buying as a catalyst for the moves, particularly in EUR/GBP. The pair did break above 1.2300 briefly, however remains within a tight range as investors wait out for the ECB announcements (or lack thereof) on Thursday. Touted option expiries at 1.2300 and 1.2235 could further define trade as the session progresses towards the 10am (1500BST) NY cut.
GBP has underperformed its European counterpart from the open, as Moody's highlights the UK's weaknesses despite taking no affirmative ratings action. The UK remains at Aaa; Outlook negative. GBP/USD has been on a downward trend throughout the European morning on a relatively uninterrupted path as EUR/GBP drives the moves amid market talk of a European national central bank buying in EUR/GBP heading into month-end. The pair currently trades in close proximity to a touted option expiry at 1.5660 for today's 10am (1500BST) NY cut.
Commodities
After making losses in the Asian session, WTI and Brent crude futures are seen on an upward path heading into the NYMEX pit open, as participants remain hopeful of central bank intervention at this week's FOMC and ECB rate decisions, moving in tandem with the European and US stock futures. Tonight's API oil inventory numbers will be carefully eyed aftermarket, ahead of tomorrow's DOE figures. Gold and silver spot prices are observed moving in tandem with the broader commodities market, moving into minor positive territory at the North American crossover.