Daily US Opening News And Market Re-Cap: March 27

From RanSquawk

  • Chinese President Hu Jintao will encourage Chinese industry to look towards Italy with confidence, according to Italian press reports.
  • Der Spiegel cites economists warning that the German Central Bank may face up to EUR 500bln of liabilities in the form of unsettled claims within the European payments settlement system.
  • Market looks forward to US Consumer Confidence due at 1500BST.

Market Re-Cap
As we head into the US open, European cash equities are seen in positive territory with strong performance observed earlier in the session from the FTSE MIB. This follows reports from the Italian press regarding commentary from the Chinese President Hu Jintao who promised to encourage Chinese industry to look towards Italy with confidence, in a conversation with the Italian PM Monti on the sidelines of the nuclear safety summit in Seoul.
Markets have also been reacting to an article from Der Spiegel, citing economists who have warned that the German central bank could be facing hidden liabilities of up to EUR 500bln should there be a break up in the Eurozone. This has prompted some risk-averse flows into the Bund which has seen fluctuating trade so far in the session but remains in positive territory as North America comes to market.
In individual equities news, following overnight reports from Abu Dhabi concerning buying a stake in RBS, company shares were seen up 6%. Source comments from earlier in the session regarding the sale speculated that the stake could be up to a third of RBS.
Looking ahead in the session, the market awaits US Consumer Confidence data due at 1500BST.
US Headlines
BarCap US Treasury month end extension seen at +0.02yrs.
Asian Headlines
BoJ’s Shirakawa has said increased JGB purchases may lead to a rise in long-term rates if regarded as monetization. (Sources)
EU and UK Headlines
ECB’s Draghi said there are signs of stabilization in the financial markets and overall economic activity, but Euro-area must continue with great diligence. These signs of stabilization do not signal higher inflation pressure. (RTRS) Concerning Spain, he said that there was some progress on the budget, and both Spain and Italy have both shown determination to address fiscal and macroeconomic imbalances.
Deutsche Bank’s CEO has said that while the solution to Greece’s crisis reduced the risk of contagion to Spain and Portugal, such a scenario is not completely off the table. (N-TV) The CEO added that Europe has taken good steps to resolve the crisis, but fundamental tasks remain.
The ISDA is to review a clause in the CDS contracts that some market participants are blaming for the current Greek yields. (Sources) Greek 10-year bond yields have risen to just under 20%, and have been rising since the restructuring event. The clause concerned is a 60-day look-back provision, giving buyers of protection the right to collect compensation on certain missteps by borrowers, even if the mistakes were made before they bought protection. This could mean sellers of CDS on new Greek debt are forced to pay out right at the start of their contracts, since existing CDS holders were already paid out on a recent credit event ruled by the ISDA.
Some economists warn that the German central bank faces hidden liabilities of EUR 500bln in the form of unsettled claims within the European payments settlement system, and could lose that sum if the euro zone breaks apart. According to the piece, the German government has said it sees no such risks. But a Greek euro exit could still cost the German central bank billions. (Der Spiegel)
According to Italian press reports, the Italian PM Monti has been holding conversations on the sidelines of the Seoul Nuclear safety summit, in which the Chinese President Jintao promised to commit to encouraging Chinese industry to look towards Italy with confidence. Elsewhere, US President Obama commented that Italy has a “very important role”. (Corriere della Sera)
The UK needs to make further progress on rebalancing its economy, according to BoE’s Dale. Analysis from the BoE has highlighted the potential pitfalls that policy makers may face when economic shifts are underway. A research note from BoE staff has said that low levels of national saving, a persistent current account deficit and the rapid expansion of household and company balance sheets in the run-up to the crisis all suggest that the UK needs to rebalance. (Sources)
BoE’s Miles has said spare capacity will bear down on inflation, adding that the BoE’s balance sheet may be permanently larger. The central banker has added that asset purchases were not made to finance deficit in a speech in America. (Sources)
German GfK Consumer Confidence Survey (Apr) M/M 5.9 vs. Exp. 6.0 (Prev. 6.0) (Sources)
BarCap Pan Euro Agg month end extension seen at +0.13yrs.
BarCap UK Agg Month end extension seen at +0.31yrs.
European equities are mixed ahead of the US open with some stronger performance observed earlier in the session. Following some reports in the Italian press, some risk appetite was observed from the European peripheries, with the FTSE MIB outperforming the core European bourses for most of the session.
In individual equity news, Royal Bank of Scotland have seen high volumes following overnight reports from the Persian Gulf, in which Abu Dhabi is reportedly considering purchasing a 33% stake in the company. Company shares were seen up around 6% but have come down from those levels. Company shares now trade higher by around 4.2%.
One of the weaker stocks of the day is STMicroelectronics. Before the European open, the company was cut to hold from buy at SocGen, citing disappointing prospects for a joint venture between the company and Ericsson. Company shares now trade lower by 3.37%.
Top performing sectors in the BE500: Financials (+0.92%), Basic Materials (+0.60%), Technology (+0.55%)
Worst performing sectors in the BE500: Oil & Gas (-0.80%), Health Care (-0.13%), Utilities (-0.10%)

FX markets have been relatively muted ahead of the US open, EUR/USD gained slightly following the reports from Italian press, however it has retraced these gains and trades roughly flat going into the US open. Analysts have noted DNT option expiries at 1.2750/1.3425. The pair may see some activity later in the session following the release of US Consumer Confidence due at 1500BST. (IFR)
GBP/USD has also had a quiet morning, failing to break the 1.5600 barrier and now trades roughly flat on the session, stabilising at around 1.5560.

WTI and Brent crude futures are seen on a positive trajectory as we move into the US open. The energy complex is moving in tandem with the European stocks. This follows some reports of possible Chinese investment in Italy, lifting sentiment.
Oil & Gas News:

•   The US Senate voted yesterday to begin debate on a bill that would strip billions of dollars' worth of tax subsidies from oil and natural gas companies and funnel that money to renewable-energy producers. The bill moved forward 92-4 in a procedural vote, easily clearing the 60-vote hurdle to advance.
•   Iraq’s Kurdistan regional government has threatened to stop oil exports in a month if Baghdad continues to withhold payment from producers.
•   Deutsche Bank has lowered its 2012 and 2013 natural gas price forecast to USD 2.75/MMBTU and USD 3.75/MMBTU respectively.
•   Deutsche Bank raise their 2012 oil price forecast to USD 117/BBL from USD 115/BBL on a full year average Brent basis due to ongoing supply disruptions and concerns over spare capacity constraints.
•   Enbridge and Enterprise will more than double the capacity of the Seaway pipeline, easing a major oil glut in the US that has led to distortion in crude markets.
•   The Russian ministry are to raise their average 2013 oil forecast to USD 100.
Geopolitical News:

•   Japanese PM Noda is to urge North Korea to show self-restraint over rocket launch, according to a draft speech for the nuclear summit.
•   Japanese Defence Minister Tanaka has ordered the Self-Defense Forces to prepare for a possible fall of a North Korean rocket on Japanese territory in mid-April. Following the order, the SDF have started preparations to deploy ground-based Patriot Advanced Capability-3 interceptors as well as the previously deployed Aegis Destroyers.
•   US President Obama has pleaded with Russia’s Medvedev for “space” to deal with the issue of missile defence. Obama added that he would have greater flexibility to deal with the issue following the 2012 elections. The comments were made in private but caught on a microphone.
Gold April options expiry (1830BST/1230CDT)
Silver April options expiry (1825BST/1225CDT)
Heating Oil/RBOB/Nat Gas April options expiry (1930BST/1330CDT)


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