From RanSquawk [12]
- ECB says reports that it will cap periphery bond yields and intervene should the cap be breached are "absolutely misleading"
- Bundesbank reiterates its anti-ECB bond buying programme stance in the monthly bulletin
- Bundesbank says German growth may be hit harder by Eurozone crisis from Q3
Market Re-Cap
A weekend article from Der Spiegel has been the centre of must attention this morning amid a light economic calendar on both sides of the pond. The article reported that the ECB would set limits to the yields of periphery country debt and intervene should these limits be breached. This weighed on the German Bund from the Eurex open and saw the Spanish curve trade lower by 25bps to 35b ps, as well as buoying the EUR currency and riskier assets in early trade.
Risk-on moves in EUR and DAX futures were retraced as the ECB denied these reports, saying that it was misleading to report on decisions not yet taken, though it will act within its mandate. A German finance ministry spokesman also denied all knowledge of the reports a short while before hand. Furthermore, the latest monthly bulletin from the Bundesbank that once again reiterated the disapproving German stance toward the ECB's controversial bond-buying programme also dampened the mood.
The rest of the session looks to be quiet, with only Chicago Fed National Activity for July on the calendar at 1330BST, and no speakers on the slate.
Asian Headlines
Overnight, the Shanghai Composite was weighted down as strong July property prices led market participants to speculate that new property cubs would be needed. However, a Chinese official said that the property market is comparatively stable and the situation is quite optimistic, and no new property curbs would be needed. Elsewhere, the resumption of 14-day reverse repurchase operations last week suggest that the People's Bank of China has no intention of cutting the Reserve Requirement Ratio in the short term as a way to increase liquidity in the money supply.
US Headlines
There has been no major market moving news from the US this morning, and a light economic calendar today, where the only data due to be released is the Chicago Fed National Activity for July at 1330BST/0730CDT. Elsewhere, there will be a USD 60bln3- and 6-month T-bill auction, and more Fed operations, this time a USD 4.25-5.0bln in the maturity range of Aug'18-Aug'20.
EU & UK Headlines
The ECB said bond yield targets have not been discussed by the council, and it was misleading to report on decisions not yet taken. The ECB did say it will act within its mandate, and it is wrong to speculate on the future of ECB bond interventions.A German finance ministry spokesman said the ministry had not heard of any ECB plans to set yield limits on periphery country debt and intervene should the cap be breached.
Greece aims to reach deal on 2013-14 cutbacks by mid-September, according to sources, and the Troika is expected to return to the country in the first week of September. Preliminary Troika reports leaked over the weekend suggest that Greece has underestimated their budget gap, which might now be as much as EUR 14bln, EUR 2.5bln more than previously expected. EU's Juncker said Greece will not leave the Eurozone unless the country "totally refuses" to fulfil any of its reform targets.
The monthly German Bundesbank bulletin said the bank remains critical of the ECB’s controversial securities and markets programme due to the considerable stability risks. The bulletin added that government solvency risks must not be shared via an ESM bank aid, but it should be governments, not the ECB, that should decide on sharing solvency risks.
Concerning German growth, the Bundesbank monthly bulletin said Germany might be hit harder by the Eurozone crisis from Q3, but the bank does not see a downturn for the German economic growth cycle.
Eurozone Construction Output SA (Jun) M/M -0.5% (Prev. 0.1%, Rev. -0.2%)
Eurozone Construction Output WDA (Jun) Y/Y -2.8% vs. (Prev. -8.4%, Rev. -8.1%)
Equities
Equities in Europe have reversed course in the last hour of trade and moved into negative territory after the ECB downplayed that it is willing to cap bond yields when it resumes bond purchases. As a result, financials surrendered most of the earlier gains across Europe. The UK benchmark stock index underperformed its peers throughout the session, with Xstrata as the worst performer there after it was reported that the Qatari state investment fund has boosted its stake in Xstrata to levels that can lead to a collapse of the Xstrata/Glencore deal.
FX
Having benefited from reports in Der Spiegel that the ECB is considering setting yield limits on the debt of each country, which saw the major EUR pair edge towards the 55DMA at 1.2391, the pair has since retraced the move and is seen lower after the ECB said that bond yield targets have not been discussed by the council. To the downside, supports are seen at 1.2300 and then at the 21DMA line at 1.2285.
Looking elsewhere, there is a large 79.50 USD/JPY intraday option expiry. Risk averse sentiment which gathered momentum following the most recent comments from the ECB also saw GBP/USD slip below the 15700 level. Next technical support level is seen at 1.5638 which is the 21DMA line.