Daily US Opening News And Market Re-Cap: August 8

From RanSquawk

  • Bank of England's Quarterly Inflation Report and subsequent press conference comes out less-dovish than expected, as King
    comments that a rate cut would be counter-productive.
  • In the Spanish debt market, the short-end continues to underperform, but the moves lower in 2yr yields since Draghi's press
    conference last week are far from being pared.

Market Re-Cap

The European start was quiet in terms of news-flow, with concentration still centered on the finances of the peripheral nations as Spain still refuses to accept they may need a bailout for the country as a whole. The Spanish short-end has seen a continuation of yesterday’s downside, with profit-taking noted following last weeks rally. Bund futures have seen a part-retracement of yesterday’s weakness, boosted by a well-bid 10yr German auction and as sentiment takes a turn towards safer havens.

The headline event today came out of London with the Bank of England quarterly inflation report. Alongside expectation they cut growth forecasts for this year and next, although against forecasts the report and comments from Governor King were less dovish than anticipated causing strengthening of GBP, with moves to fresh highs in GBP/USD. Short sterling suffered downside following comments from King who said cutting interest rates would damage some financial institutions and would be partly counter-productive.

Spanish banks have seemingly shrugged off last night bank rating downgrade by S&P, although with Bankia escaping with no downgrade and just an affirmation, the bank is seen up over 10% so far today. Standard Chartered have also shrugged off yesterday’s downside pressure following remarks that the company may be fined following allegations filed by New York regulators, and have seen a correction to now trade higher by over 7%.

EU & UK Headlines

The focal point of the EU and UK session today has been the release of the Bank of England's Quarterly Inflation Report, which disappointed those who were looking for dovish tones from the governor as well as clear signs of further action as Mervyn King warned that a further rate cut would be counter-productive and would damage the country's financial institutions. As such, participants' expectations of firm action from the bank were thoroughly dampened, bringing the short-sterling strip under heavy pressure. Another comment of note was the Board suggesting that weak growth in the UK may not have such a marked effect on bringing down inflation next year, reducing their scope for intervention in the medium-term future. (RANsquawk)

A continuation of yesterday's trend in the Spanish debt markets has been observed today, as domestic accounts continue to sell Spanish paper, leading to underperformance in the Spanish short end. However it should be noted that 2yr yields are still markedly lower since Draghi's press conference last week, and the move is not close to being pared. In terms of the peripheral yields against the German benchmark, both Spanish and Italian 10yr borrowing costs are wider on the day, coinciding with a weaker EUR today. (RANsquawk)

The EU have once again clarified that there has been no formal request for EFSF aid. Elsewhere, Spain will not seek a bailout if there are new conditions, according to EU sources. Separately, it was reported that Spanish banks will likely receive a first tranche of EU aid of EUR 30bln in the next few days, according to sources at the Spanish Finance Ministry. (El Pais/France24)

German Industrial Production SA (Jun) M/M -0.9% vs. Exp. -0.8% (Prev. 1.6%, Rev. 1.7%) (Newswires)

German Industrial Production NSA WDA (Jun) Y/Y -0.3% vs. Exp. 0.3% (Prev. 0.0%, Rev. -0.3%)


European stock futures are lower heading into the North American open, with the Spanish IBEX-35 the underperformer of the day, currently just under 2% down on the day. In terms of the sector breakdown, oil & gas are leading the way downwards. On the other side of the Atlantic, US stock futures are moving in line with their European counterparts, indicating a lower open on Wall Street today.

In individual equities news today, Rio Tinto reported their earnings premarket, with H1 underlying earnings of USD 5.2bln, down 34%, albeit with a beat on H1 net of USD 5.885bln vs. Exp. USD 5.04bln. The world's second largest miner also proposed an interim dividend of USD 0.725, an increase of 34% from 2011. On strategy, the company said it has taken further steps to shape its portfolio and holds its FY capex expectation at USD 16bln. After a morning's trade, Rio Tinto shares trade higher by 2.8%, lifting the basics materials sector in the FTSE-100.


GBP/USD has exhibited the widest fluctuations this morning in Europe, trading in a near 100 pip range. The pair was seen weaker heading into the Bank of England's inflation report, but King's comments against the efficacy of a further rate cut provided GBP strength across the board as expectations of a rate cut in the medium-term were firmly reduced. The move saw GBP/USD reclaim the 1.5600 handle, breaking far above the day's range to print session highs at 1.5671. The coinciding move in EUR/GBP brought the cross to lows of 0.7890, trading just above this level at the midpoint of the European session. As the session progresses, a touted option expiry at 1.5650 may prove magnetic heading into the 10am (1500BST) NY cut.

In EUR/USD, the pair is lower on the day, trading within a far tighter range than it's GBP equivalent. Trending lower throughout the day with a mid-morning rally failing to sustain, EUR/GBP weakness dragged the EUR/USD as the USD-index remains broadly flat on the day. Heading into the US session, the pair is heading away from 1.2400, however a large option expiry at the handle could prove definitive if any upside in the pair closes the gap.


WTI crude futures trade within a USD 0.50 range this morning, and are lower on the day despite a broadly unchanged USD-index, but are seen on an upward trend in the hours ahead of the NYMEX pit open. The next flashpoint for activity in the energy complex comes at 1530BST/0930CDT at the release of the weekly DOE crude oil inventories, with the headline figure expected to show a drawdown of 1600K bbls today. In the precious metals, spot gold and silver prices are softer on the day, moving in line with the broader commodities index.