Daily US Opening News And Market Re-Cap: July 9

From RanSquawk

  • Focus in Europe remains on the periphery, with the Spanish 10-year yield breaching 7% to the upside once more.
  • Apprehension surrounding the Chinese economy heightens as CPI falls to multi-month lows of 2.2%.
  • Market attention now shifts to the Eurogroup meeting, where they are set to discuss Greece, Spain and banking supervision

Market Re-Cap

European equities have been grinding lower throughout the European morning, with basic materials seen underperforming following the release of a multi-month low Chinese CPI figure, coming in at 2.2%, below the expected 2.3% reading.

The focus in Europe remains on the Mediterranean periphery, as weekend reports from Spanish press suggest that the heavily weighted Valencia region may be pressed into default unless it receives assistance from the central government. The sentiment is reflected in the Spanish debt market today, with the long-end of the curve showing record high yields, and the 10-yr bond yield remaining elevated above the 7% mark. News from an EU council draft, showing that Spain is to be given extra time to meet its deficit targets did bring the borrowing costs off their session highs, but they do remain stubbornly high at the North American crossover.

The gap between the core European nations and their flagging partners continues to widen, as Germany sell 6-month bills at a record low of -0.0344%. As such, the 10-yr government bond yield spread between the Mediterranean and Germany is seen markedly wider on the day.

Looking ahead in the session, data remains light on both sides of the pond, with participants looking ahead to the Eurogroup meeting arrivals, scheduled for 1300BST/0700CDT and the subsequent press conference at 2000BST/1400CDT.

Asian Headlines

Japanese Machine Orders (May) M/M -14.8% vs. Exp. -2.6% (Prev. 5.7%)
Japanese Eco Watchers Survey: Current (Jun) M/M 43.8 vs. Exp. 47.5 (Prev. 47.2)
Japanese Eco Watchers Survey: Outlook (Jun) M/M 45.7 (Prev. 48.1) (Newswires)
The Cabinet Office have said the Japanese economy had been picking up moderately but weak movement had been seen recently, down from its previous view that the pace of the economic recovery had been moderating.
Chinese CPI (Jun) Y/Y 2.2% vs. Exp. 2.3% (Prev. 3.0%)
Chinese PPI (Jun) Y/Y -2.1% vs. Exp. -2.0% (Prev. -1.4%) (Newswires)
Chinese Premier Wen called for more aggressive efforts to preset and fine-tune economic policies, due to China's economy running at a generally stable pace, but there is still huge downward pressure. (Xinhua) In related news, According to a former PBOC adviser, China  does not need a new stimulus package like the CNY 4trl package in order to counter an economic slowdown.

US Headlines

Fed's Rosengren has said slow US economic growth will probably continue for quite some time as firms postpone hiring and investment in the face of an uncertain global economy. (Newswires) The Fed speaker added that it is possible to see a new round of quantitative easing.

Rosengren has added that he expects growth and inflation to come in below the Fed's forecast. In other news, Fed's Evans has said he supports the use of Fed's balance sheet for further easing, supporting more aggressive action to aid the weak economy.

US President Obama may extend a Bush-era tax cut extension for people earning below USD 250,000, according to US administration officials. (New York Times)

EU & UK Headlines

S&P's France head said their AA+ remains a “very high” rating. He added that the EU summit decisions are a factor of stability and limits possible downgrades. (Newswires)

The ECB's decision to cap the funding banks can have using government-guaranteed bonds as collateral is credit negative for bondholders of banks without other forms of ECB-eligible collateral, according to Moody's. (Newswires)

Greek PM Samaras said the economic programme has gone off track; the fiscal programme has missed its targets, and he does not want to renegotiate Greece’s targets. (Newswires) According to sources, the Troika have informed the Greek government that the earliest it can expect to receive its next loan tranche is in mid-September, placing more pressure on the government to stretch its finances. (eKathimerini)

The ECB official added that dropping ESM seniority is in lenders' interests, but it is not possible for the ECB to lend to the ESM to buy government bonds. The ECB might be able to lend the ESM for bridge financing, and the ESM does have the means to intervene. ECB’s Asmussen said the European Stability Mechanism shouldn’t have a banking license or tap the ECB directly. (La Stampa)

Senior European finance officials are settling on a framework that would create a new agency reporting to the ECB to police the largest banks in the Eurozone, according to sources involved in the discussions. (WSJ) The agency is expected to be up and running in the second half of 2013.

Spain is ready to create a single “bad bank” to house the distressed assets of its teetering financial sector, as it prepares to finalise terms of an EU bailout that is dividing the eurozone and spooking markets. (FT)

Spain's Valencia region has warned that it may fall into default unless it receives aid from the Spanish central government. (El Mundo)
Spain is to be given new deficit targets of 6.3% of GDP for 2012, 4.5% in 2013, 2.8% in 2014, according to an EU Council draft. (Newswires) As part of the deal, Spain must take immediate additional fiscal measures to meet their 2012 fiscal target obligations and must provide a detailed multi-annual budget plan 2013-14 by month-end.
Germany sells EUR 3.29bln 6-Month Bubills, bid/cover 1.70, prev. 1.20 (yield -0.0344%, prev. 0.007%), a record low yield (Newswires)


European bourses are seen lower across the board with the exception of the DAX index, managing to hold on to some minor gains at the North American crossover. Basic materials and consumer goods are seen leading the way lower, however, the telecommunications sector is seen outperforming all others today, seen higher by over 0.6%. The riskier assets have been weighed upon since the open by Chinese inflation data coming in at multi-month lows, adding to the already cautious market sentiment regarding a Chinese slowdown. US stock futures currently indicate a lower open on Wall Street, moving in line with their European counterparts.

In other equity news, Airline and Aircraft stocks are under particular focus during the ongoing annual Farnborough airshow, wherein a number of related stocks have provided optimistic updates on their order books, business plans and model releases. One stock of note is EADS' Airbus unit, which has revealed its revamped A330M model, showing streamlining and increased payload characteristics. As such, EADS, Deutsche Lufthansa and easyjet are seen among the top gainers in Europe today, and Boeing's share price following the open will also be closely watched.

With further focus on the periphery heading into the Eurogroup meeting, Spanish financials are seen taking heavy losses despite the news that they may be relieved of their troubled assets with the creation of a Spanish bad bank, as sovereign concerns continue to build. As such, Santander, BBVA and Bankia are seen among the top losers at the North American crossover today.


FX markets are reflecting the cautious trade observed across the asset classes and are have been trading within a tight range heading into the North American crossover, as participants eye the Eurogroup meeting as the next risk event.

The uptick in borrowing costs for Spain and Italy has weighed upon the EUR currency throughout the morning, however the downside remains limited as a 1.2300 option expiry for the 10am (1500BST) NY cut proves magnetic throughout the European morning, however large option expiries sub-1.2100 set for later in the week could add pressure to the somewhat directionless trade observed this morning.

The narrow range of trading is also reflected also seen in GBP/USD, however the pair was pushed upwards to session highs of 1.5515 amid unconfirmed market talk of Swiss and Middle-Eastern buying in the pair. A touted option expiry at the 1.5500 for the 10am (1500BST) NY cut may also influence trade at the North American crossover.


WTI and Brent crude futures are seen higher ahead of the NYMEX pit open, with an upcoming shutdown of Norwegian production placing upwards pressure on prices, however analysts have noted that the upward momentum may not last with Chinese data this week  expected to come in soft, in addition to last week's weak Non-farm payrolls report from the US.

Oil & Gas News:

  • A lockout of workers on Norwegian oil platforms will go ahead as planned at midnight today, shutting down all oil and gas production, unless a solution is found today, according to the Norwegian Oil Industry Association.
  • Goldman Sachs expects the Norwegian government to intervene and settle a dispute between employers and unions in the ongoing  pensions strike. Elsewhere, Goldman Sachs have maintained their 3-month Brent crude oil forecast at USD 120/BBL, saying that modest growth in the global economy should support demand.
  • Oil facilities in eastern Libya resumed normal operations after political protests shutdown production, as of Sunday.
  • Gulf OPEC states oppose a group emergency meeting.
  • The recent slide in oil prices is unwarranted and caused by countries pumping excess oil, according to an Iraqi minister.
  • Saudi Aramco are to provide full contracted supplies to Japanese customers in August, according to buyers at two refiners who received  notification from the company.
  • Venezuela, overseer of the world's largest oil reserves, is growing more dependent on fuel imports from the US, importing record   uantities of gasoline, fuel additives and liquefied petroleum gas in the first four months of this year, according to EIA data.

Geopolitical News:

  • An association of Iranian oil-products exporters will help the government bypass European Union sanctions on Iran’s crude and ship as much as 500,000BPD.
  • Iran has plans to close Strait of Hormuz if it is threatened, according to its top military commander.
  • UN's Annan was holding talks in Damascus on Monday with Syrian President al-Assad, who said U.S. political support for "terrorists" was hindering the peace envoy's plan to end 16 months of bloodshed.