Daily US Opening News And Market Re-Cap: May 22

From RanSquawk

  • OECD cuts Euro-area GDP forecast to -0.1% from 0.2%.
  • Fitch downgrades Japan to 'A+’ from ‘AA’; outlook negative.
  • Greek banks to get EUR 18bln recapitalisation down-payments Friday, according to a source.

Market Re-Cap

UK CPI this morning came in weaker than expected at 3.0% Y/Y in April, weighed by a fall in air fares, alcohol, clothes and sea transport, according to the ONS. The release saw aggressive selling of GBP in the currency market and has underpinned the rise in gilt futures. Alongside the 26th month low in UK CPI the IMF also issued their latest assessment on the UK economy and said further policy easing is required and that the Bank could cut its interest rate from the current 0.5% level.

In other market moving news a Greek government source said that Greek banks are to receive a EUR 18bln recapitalisation down payment this Friday which initially saw the EUR and stock futures rally, however, the move was short lived as it became clear that the payment is scheduled as part of the bailout programme for Greece. Elsewhere, Fitch made a surprise announcement and downgraded the Japanese sovereign rating by two notches to A+, outlook negative. The move means Fitch has the lowest rating for Japan of the three main rating agencies so we remain vigilant for any comments from S&P and Moody’s today.

Looking ahead the main data from the US comes in the form of existing home sales for April and Richmond Fed manufacturing, both of which are scheduled for release at 1500BST. In terms of fixed income, the US Treasury will be kick start its issuance for the week offering a 2yr note for USD 35bln at 1800BST.

Global Headlines

The OECD have released their latest forecasts for global economy:
-cuts 2012 China growth forecast to 8.2% from 8.5%
-raises 2012 US growth forecast to 2.4% from 2.0%
-sees UK GDP +0.5% on year in 2012, +1.9% in 2013
-cuts Euro-area GDP forecast to -0.1% from 0.2%. (Newswires)

Asian Headlines

Fitch have downgraded Japan to ‘A+’ from ‘AA’; Outlook negative. The downgrades and negative outlooks reflect growing risks for Japan's sovereign credit profile as a result of high and rising public debt ratios. (Newswires)

A top Chinese think-tank has said the country should continue its tight controls over the property market, as a further correction in housing prices is necessary before the Chinese economy can return to sustainable growth. (Newswires)

China are to fast track approvals for infrastructure investment within the economy in order to combat a slowdown, according to a state-backed newspaper. (China Securities Journal)

US Headlines

The US Treasury has no immediate plans to alter the size of their 2012 debt issuance which will be close to its full-year plan, according to a senior official from the US Treasury Department. However the official did say that T-Bill issuance volume can still be altered should the economic recovery change the department’s views. (Newswires)

US ICSC Chain Store Sales (May 18) W/W -1.7% vs. Prev. -0.8%
-The ICSC expects May comparable store sales to rise by about 3% (Newswires)

EU and UK Headlines

UK CPI came in below expectations at 3.0%, indicating a slowdown back towards the BoE’s 2.0% mandate target. As the rate was within one percentage point of the target, the BoE’s King will not be required to send a letter to the Chancellor. The downside pressures to the rate came from declines in air fares, alcohol, clothes and sea transport.
-UK CPI (Apr) Y/Y 3.0% vs Exp. 3.1% (Prev. 3.5%)
-UK CPI Core (Apr) Y/Y 2.1% vs. Exp. 2.0% (Prev. 2.5%)
-UK CPI (Apr) M/M 0.6% vs Exp. 0.6% (Prev. 0.3%) (Newswires)

Elsewhere from the UK, the government posted the largest public sector net repayment on record over April, as well as Public Sector Net

Borrowing data being boosted by Royal Mail asset transfers and the BoE’s special liquidity scheme.

The OECD have said the ECB has room for further monetary easing, and could move toward common Eurobonds. On bond-buying, the OECD commented that the ECB should resume purchases if volatility increases in the European market. On the ESM, the OECD have suggested the facility could be used to directly recapitalize banks. (Newswires)

On the topic of Eurobonds, a senior German official has reiterated that they are not one of the instruments that have a chance to resolve the crisis, adding that Berlin’s stance on the bonds is set and will not change in the run-up to the June summit. (Newswires)

Spain is pushing for a big ECB role in the new EU strategy to boost growth and wants the ECB to support the volatile debt markets, according to a Spanish government official. (Newswires)

Taking guidelines from how badly Ireland's banks were hit in its financial crisis, economists at the IIF institute said they expect the losses to be in the range of between EUR 216bln and EUR 260bln. (Telegraph)


European equities are trending higher in both the cash and the futures markets, with tighter European bond yield spreads observed against the German 10-year Bund, indicating some modest risk appetite present in participants today. In terms of sectors, Industrials are seen as the outperformer heading into the US session, closely followed by Basic Materials.

European Financials are seen in minor positive territory as the US comes to market, with some relief coming from reports that Greece are to receive EUR 18bln in recapitalization funds this Friday, according to source comments. Heading into the US session, JP Morgan may continue to garner focus as unsourced reports comment that the company’s recent trading losses could rise to USD 7bln from the initial USD 2bln revealed. (Independent)

In individual stocks news, the largest cap stock on the FTSE-100, Vodafone, has reported a very modest beat in FY revenues, with the figure standing at GBP 46.4bln vs. Exp. GBP 46.3bln. However, Vodafone’s CFO has commented that the company are to miss their 2013 service sales medium-term target, but have reported that their margin decline is to continue to improve. As such, Vodafone shares are currently seen higher by 3.7%.

In other news, Bankia are seen markedly lower and are one of the worst performers today following reports from the IIF that Spanish banking losses could total between EUR 216-260bln. Bankia have been seen trading lower throughout the day, and are now seen down 3.7%.


Following the Fitch downgrade of Japan, most volatility was noted in USD/JPY, which spiked higher by around 25pips. The pair did retrace the initial spike, but continues on an upward trend at the midpoint of the European session. Market talk of offers in the pair may cap further gains at the 80.00 level, however this remains unconfirmed.

Elsewhere, GBP/USD saw rapid weakness following the lower-than-expected CPI report from the UK, moving lower by 25pips in the minutes following the release. The pair saw further downside moves following IMF comments that the UK requires further monetary easing. The IMF commented that the BoE has room to conduct more QE, and could even cut the benchmark interest rate. The pair now trends at around the 1.5775 level, failing to recoup losses experienced earlier in the session.


Heading into the North American open, WTI crude futures are trading lower after OECD cut growth forecasts for Europe, while Iran reached an agreement that will allow the IAEA to investigate alleged nuclear-weapons work in the Persian Gulf nation.

Oil & Gas News:

  • Qatari oil minister says he sees no shortage of crude supplies.
  • TransCanada Pipelines on Monday began a non-binding open season to gauge shipper interest in proposed changes to its ANR system that are designed to move natural gas production from the Marcellus and Utica shales to premium markets.
  • Oil storage capacity in the UAE's port of Fujairah is expected to rise to around 7.8 million cubic meters by 2014 from its current capacity of 5.8 million cubic meters, the harbour master at the Fujairah port said on Tuesday.

Geopolitical News:

  • The US Senate unanimously approved a package of further economic sanctions on Iran’s oil sector days ahead of a meeting in Baghdad between major world powers and Tehran.
  • Iranian Foreign Minister Ali Akbar Salehi in a meeting with Director-General of the IAEA Amano called on the IAEA to adopt a balanced attitude towards member states and defend their rights to access nuclear energy.
  • United Nations atomic inspectors and Iran reached an agreement that will allow the IAEA to investigate alleged nuclear-weapons work in the Persian Gulf nation.
  • Japanese importers are searching for new ways to pay for Iranian oil imports worth close to USD 3bln per month after a US district court froze bank accounts held by Tehran. Failure to resolve the payments issues could not only threaten Iranian oil imports, which account for 6.2% of Japan’s oil, but also further squeeze the Iranian economy, ultimately endangering its repayment of nearly USD 4bln in loans to Japan.
  • Baghdad has hit back at plans for a big oil pipeline between Turkey and Iran’s Kurdish region, in the latest sign of tension between the two countries and deepening strains within Iraq itself. The 1MBPD pipeline could give Turkey direct access to oil from the semi-autonomous Kurdish region rather than funnelling crude through Baghdad-controlled territory.


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