Daily US Opening News And Market Re-Cap: July 3

From RanSquawk

  • State-run newspaper China Securities Journal calls for the PBOC to cut the RRR.
  • Barclays' CEO Bob Diamond resigns; Barclays shares see initial weakness, but recover to trade higher on the day.
  • Price action remains subdued ahead of tomorrow's US market holiday and ECB, BoE rate decisions on Thursday.

Market Re-Cap

After two days of solid gains, European equities continue the upward trend and are seen higher at the North American crossover, with the Basic Materials sector leading the way, followed by financials. The moves in equities follow overnight reports from Chinese press, once again calling for the PBOC to slash their RRR, as well as expectations that this Thursday both the ECB and the BoE will conduct monetary easing, possibly boosting future commodity demand.

In the fixed income markets, the European 2s/30s curve continues to see bear-steepening following last night’s announcement from the Dutch Central Bank that has changed Dutch insurers’ Solvency II interest rate curve; modifying the maturities in which the firms must hold assets towards the longer-end.

Today also saw official confirmation from the Irish debt agency that they are to return to capital markets with T-bill issuance on July 5th, their first return to the market since 2010. Investor reaction to this news is evident in the shorter-end of the Irish yield curve, where the 2-yr bond yield spread against their German counterpart is firmly indicating the risk of returning to the market; currently wider by around 20bps.

Looking ahead in the session, US markets are set for an early close in anticipation of tomorrow’s Independence Day market holiday, however data from the US comes before the close in the form of Factory Orders and Durable Goods data due at 1500BST/0900CDT.

Asian Headlines

Chinese Non-Manufacturing PMI (Jun) M/M 56.7 (Prev. 55.2) (Newswires)

State-run press China Securities Journal has called for the PBOC to lower its RRR, commenting that the move is necessary to inject cash into the market and spur credit demand, as well as benefiting debt financing and financial market reform. (China Securities Journal) Separately, according to a state researcher, China is likely to take small steps on interest rate liberalization, and the next move could be to lower the floor on China's lending rates. (Newswires)

China's four largest banks extended CNY 180bln in new CNY loans last month, a decline of around CNY 50bln from a month ago, according to unidentified banking sources. (Shanghai Securities News)
US Headlines

PIMCO's Bill Gross' biggest bond fund has recouped all the net outflow for 2011 as well as gaining USD 1.36bln in new cash across June, according to the latest data from Morningstar Inc. (Newswires) The USD amount for the first half of this year outnumbered the USD 4.97bln net outflow for the whole of 2011.

Economist Kenneth Rogoff has said while the US economy is slowing, it is premature to say it is heading back into recession. Rogoff has said growth is nearer the 1.5% level and could bounce back to 2% in the near term. (Newswires)

US ICSC Chain Store Sales (Jun 29) W/W 0.2% vs. Prev. 2.0% (Newswires)

US ICSC Chain Store Sales (Jun 29) Y/Y 1.4% vs. Prev. 2.7%

EU & UK Headlines

Spain are to enact upon further spending cuts by central and regional governments in order to further bring down the deficit, according to Spanish PM Rajoy. (El Pais) The newspaper said the Spanish cabinet anticipates that the new cuts as well as an increase in VAT will be announced at some point across July and August.

According to the IIF, weakening growth is spreading beyond Europe, ramping up the need for additional monetary easing across the globe. (Newswires) The IIF said that slowing growth is a result of various factors, particularly the intensification of the Eurozone debt crisis and the spike in oil prices at the beginning of the year.

Going into the US open, the Bund is seen lower following last night's announcement from the Dutch Central Bank, wherein they released their Solvency II interest rate curve for insurers, using an 'ultimate forward rate, which is set at 4.2%, to be reached in 40 years from the point of 20 years'. As such, the European 2s/30s curve continues to see bear-steepening throughout the European morning.

UK Construction PMI (Jun) M/M 48.2 vs. Exp. 52.9 (Prev. 54.4), lowest since Dec. 2009. (Newswires)
UK construction drop partly due to extra holiday in June, but wide reports of weaker underlying business, according to the figures.
UK Mortgage Approvals (May) M/M 51.1K vs. Exp. 50.0K (Prev. 51.8K, Rev. to 51.6K)


European equities are extending upon gains made over the past two sessions, led higher by Basic Materials and Financials. The gains are seen ahead of tomorrow's US market holiday and the BoE and ECB rate decisions on Thursday, where both central banks are expected to take action to boost their respective economies. US stock futures currently indicate a flat-to-marginally-higher open on Wall Street today.

Barclays' ongoing Libor-fixing drama continues, with the company's CEO Bob Diamond resigning premarket today. On the open, Barclays shares were seen as much as 3% lower, however the losses have been pared as shares in the bank now trade higher by around 4%.

In other equity news, German utility E.ON have raised their full year forecast having completed a settlement with Russian Gazprom on long-term gas supply and now sees 2012 EBITDA of EUR 10.4-11bln, up from the company's previous target of EUR 9.6-10.2bln. Following the news, E.ON shares spiked higher by around 3%, and remain markedly higher at the North American crossover.


EUR/USD has traded within a tight range for most of the morning, staying close the 1.2600 mark. A larger-than-average option expiry at that level may also prove magnetic towards the 10am NY cut (1500BST). Should the pair see any upside, unconfirmed market talk of offers at the 1.2650 may cap the gains should price action be observed.

USD/JPY has been observed on an upward trend throughout the European morning, but has failed to break above the 80.00 mark, with unconfirmed market talk of strong offers from exporters in the pair into the 80.00 handle possibly stemming gains.

GBP/USD saw some initial weakness following the below-expected Construction PMI from the UK to reach lows of 1.5671, but the pair has come
off its worst levels, as unconfirmed market talk of bids at 1.5660 possibly provide support. A touted option expiry at the 1.5700 mark for the 10am (1500BST) NY cut may also be proving magnetic.


Heading into the North American open, WTI and Brent crude futures were trading higher as supply concerns over the potential closure of the Strait of Hormuz continued to support the energy complex.

Oil & Gas News

  • Abu Dhabi oil pipeline bypassing Strait of Hormuz is not yet operational according to senior oil officials
  • Deutsche Bank says Brent will average roughly USD 107/bbl this year while WTI will average roughly USD 94/bbl.
  • China cuts July jet fuel prices by CNY 741 per ton.
  • Union bosses are set to meet again on today to decide whether to escalate strike action that has hit oil and gas production off Norway, as it started to have an impact on crude shipments. Norwegian gas flows to Europe were stable on Tuesday morning, data from the country's gas system operator showed.
  • Nigeria signed a Memorandum of Understanding in a project worth USD 4.5bln with Vulcan Energy to build six oil refineries.
  • More than 100 natural gas wells in northern Colorado remain shut as the most destructive wildfires in state history continued to burn on Monday.
  • The US SEC has set a date to vote on controversial new rules requiring companies to disclose payments to governments and whether any of their products use certain African "conflict minerals". The SEC said it would meet on 22 August to publicly vote on the two sets of rules, which are required by the 2010 Dodd-Frank Wall Street reform law.
  • Japanese gas utilities are considering expanding their participation in upstream developments for LNG as part of efforts to lower cost of importing the product.

Geopolitical News

The “shift” in the positions of Russia and China on Syria should not be underestimated, the spokesman for peace envoy Kofi Annan said on

  • Tuesday after international talks in Geneva.
  • Iran have test-fired a ballistic missile capable of striking Israel as part of war games designed to show its ability to retaliate if attacked, according
    to media reports.