Daily US Opening News And Market Re-Cap: July 7

From Ran Squawk

  • The ECB raised its benchmark interest rate by 25 basis points to 1.50% as expected. Focus of the market now shifts to Trichet’s press-conference to gaze into the central bank’s future policy direction
  • Moody's downgraded Portuguese banks' government guaranteed debt following their rating action on the country earlier this week
  • The Irish/German 10-year government bond yield spread breached the 1000 BPS key level
  • Well received bond auctions from Spain, allied with strong German industrial production data helped appetite for risk
  • The BoE kept its benchmark interest rate and asset purchase target unchanged at 0.50% and GBP 200bln as expected

Market Re-Cap
Moody's downgraded Portuguese banks' government guaranteed debt following their rating action on the country earlier this week, which promoted risk-aversion and weighed upon the EUR as well as equities. European peripheral 10-year government bond yield spreads generally widened, and the Irish/German spread breached the 1000 BPS key level. However, as the session progressed, equities came off their earlier lows on the back of well-received bond auctions from Spain, allied with higher than expected industrial production date from Germany. In other news, AUD received a boost overnight following an unexpected rise in the employment change data from Australia. Elsewhere, the BoE kept its benchmark interest rate and asset purchase target unchanged at 0.50% and GBP 200bln as expected.
Moving ahead, the focus of the market remains on the ECB's rate-decision, where the expectation is for a hike by 25 basis points to 1.50%, as well as Trichet's press-conference following the rate-decision to see the future policy direction of the central bank. Also, jobless claims data from the US, allied with PMI and housing figures from Canada are also scheduled for later in the session. In fixed income, there is 3-, 10-, and 30-year Note refunding announcement from the US at 1600 BST.
Asia Headlines:
China inflation will likely drop to around 4% later this year or early next, but will remain in the 3%-5% range over the next 5 to 10 years, according to a PBOC adviser, Li Daokui. Li brushed aside concerns that China faces risk of stagflation, arguing that the country’s economic growth, which may reach 9.4%-9.5% this year and around 9% in 2012, is anything but stagnant. Li said that China’s decision yesterday to raise benchmark interest rates was timely and would help curb stubbornly high inflation. (21st Century Business Herald)
US Headlines
A small team of US Treasury officials is discussing options to stave off default if Congress fails to raise the debt limit by August 2nd deadline, sources familiar with the matter said. The Treasury team is examining legal options to prioritise debt after August 2nd, and have discussed whether 14th amendment of constitution allows the Treasury to ignore the debt ceiling and keep borrowing, the source said. Treasury has also talked to the Fed about how Fed will be able to sell Treasuries if the debt limit is not raised, however the Fed is not involved in contingency planning, according to the source. Meanwhile, the US Treasury said that it sees no alternative to raising debt limit. (RTRS)
In other news, President Obama is pressing congressional leaders to consider a far-reaching debt-reduction plan that would force Democrats to accept major changes to Social Security and Medicare in exchange for Republican support for fresh tax revenue. At a meeting with top House and Senate leaders set for Thursday morning, Obama plans to argue that a rare consensus has emerged about the size and scope of the nation’s budget problems and that policymakers should seize the moment to take dramatic action. (Washington Post)
EU and UK Headlines:
Yesterday’s meeting of key participants in the Greek aid package ended in somewhat of a stalemate as no consensus was reached on the modifications to the rollover plan. While the central idea is the French 30-year rollover, an alternative rollover – also mentioned in the French proposal – would involve a five-year extension with a coupon of 5.5%.  But the IIF is also keen to advance a third idea – encouraging buybacks of Greek debt. The buybacks could be funded out of EU/IMF aid money, advisers said, but there was also a push to encourage sovereign wealth funds in Europe, the Middle East and Asia to co-invest alongside the IMF. It was “not unreasonable” to expect EUR 40bln–EUR 50bln to come from such sources, one negotiator said. (FT-More)
German Industrial Production SA (May) M/M 1.2% vs. Exp. 0.8% (Prev. -0.6%, Rev. to -0.8%)
German Industrial Production NSA WDA (May) Y/Y 7.6% vs. Exp. 7.0% (Prev. 9.6%, Rev. to 9.3%)
UK Industrial Production (May) M/M 0.9% vs. Exp. 1.1% (Prev. -1.7%); Highest since March 2010
UK Industrial Production (May) Y/Y -0.8% vs. Exp. -0.5% (Prev. -1.2%)
UK Manufacturing Production (May) M/M 1.8% vs. Exp. 1.0% (Prev. -1.5% Rev. to -1.6%); Highest since March 2010
UK Manufacturing Production (May) Y/Y 2.8% vs. Exp. 2.1% (Prev. 1.3% Rev. to 1.2%) (RTRS)
Spanish bond auction for EUR 1.5bln, 3.30% 31-Oct-2014, bid/cover 2.3 vs. Prev. 1.61 (yield 4.291% vs. Prev. 2.839%)
Spanish bond auction for EUR 1.497bln, 3.25% 30-Apr-2016, bid/cover 2.9 vs. Prev. 1.86 (yield 4.871% vs. Prev. 4.549%) (RTRS)

Full note



No comments yet! Be the first to add yours.