Daily US Opening News And Market Re-Cap: May 25

From RanSquawk

  • ECB’s Weidmann says the ECB has reached the limit of the mandate with tools.
  • Spain may have to raise its 2011 deficit figure for the second time after the examination of accounts of regions and city halls is completed.
  • Lack of data in both the EU and US sessions keeps focus on speakers and macro concerns.

Market Re-Cap

European stock futures saw a jump higher at the cash equity open as the Eurostoxx broke through yesterday’s high of 2160. Comments from the Italian PM from late yesterday, who said that the majority of ministers are in favour of Euro bonds was noted but the move was largely technically driven with stops tripped on the ascent. In reaction to this the European bond yield spreads in the 10yr part of the curve tightened aggressively with OAT’s outperforming once again edging back toward the psychological 100bps level.

Meanwhile in the FX market the USD weakened in early trade on the renewed risk appetite which bolstered the gains in EUR/USD alongside touted option defence by a Swiss name at the 1.2500 level. Commodity linked currencies such as the AUD was the main benefactor of a moderate move higher in crude futures and precious metals but has been capped so far by offers at 0.9800.

Into the North American open prices have pared, with European equities in the cash and futures both slipping into the red, excepting the DAX. A distinctly light calendar from the US with only the May final Michigan report due, coupled with an early closure in the Treasury pit today, ahead of the Memorial day holiday, means that volumes will likely decline into the latter stages of the US session today.

Asian Headlines

According to a central bank-run paper, the possibility of cuts to China’s benchmark lending rates in the near term cannot be ruled out, although room for such cuts is ‘very limited’. (Financial News)

An ADB senior economist has said China’s economy will likely bounce back between July and September after reaching a low in the current quarter, as Beijing works to spur growth with infrastructure investments and monetary policy fine-tuning. The economist is sticking with his 8.5% forecast for Chinese growth in 2012. (Newswires)

JP Morgan now sees Chinese GDP growth of 8% in 2012. (Newswires)

EU and UK Headlines

With little data of note released today, the focus has remained on macro commentary; however, it is worth noting the German GfK Consumer Confidence Survey recording a slight beat on expectations coming in at 5.7 vs. Exp. 5.6 (Prev. 5.6, Rev. 5.7). Elsewhere, French Consumer Confidence came in higher: 90 vs. Exp. 88 (Prev. 88, Rev. 89). (Newswires)

ECB's Weidmann has said the ECB has reached the limit of mandate with tools, adding that the ECB has taken considerable risks with their measures. On the LTROs, Weidmann commented that they did not solve the structural causes of the financial crisis. (Newswires)
Spain may have to raise its 2011 deficit figure once again after the examination of accounts of regions and city halls is completed. (El Pais) The reports follow the Spanish government having previously revised higher their 2011 deficit figure to 8.9% from 8.5% of GDP.

Changes to inflation calculations that could save the Chancellor billions of pounds a year - while hurting gilts investors - are being considered. (Times) A committee that advises the UK Statistics Authority may recommend an overhaul that could permanently pare back gains in the retail prices index. If the changes are adopted, they could lead to a reduction in interest payments on government bonds that are linked to the RPI. This would help George Osborne to save as much as GBP 3bln a year in interest paid on index-linked gilts, according to calculations from Alan Clarke, an economist at Scotia Capital.

French OATs continue their outperformance from yesterday’s session with the French 2- and 5-year bonds touching record low yields in today’s session, with UK Gilts also touching record low yields in their 30-year lines. European bond yield spreads against the German 10yr were seen significantly tighter in the first half of the European morning, however they have come far off their tightest levels in recent trade, with the Spanish 10yr yield coming back above 6%, and holding there at the midpoint of the session.


European equities in cash and futures have managed to slip into negative territory after a few hours of gains following the open, with comments from ECB’s Weidmann somewhat weighing on sentiment heading into the North American open. The health care sector is seen benefitting from its defensive status, as financials come off their highs and move to trade lower by around 0.5% in Europe. Looking at the weekly performance in equities, all major indices are looking to close higher since Monday, with the exception of the Spanish IBEX 35, faltering under the strain of selling in its financial sector throughout the last five days.

In individual stocks news, Siemens are performing particularly strongly ahead of the US open, currently trading higher by over 1.5%, following a broker upgrade at Deutsche Bank. Elsewhere, closely watched Spanish lender Bankia has had its share suspended as the bank intends to present their recapitalization plan. Source comments have said that Bankia will ask for over EUR 15bln when they do present the blueprints, so should the presentation go ahead, focus will be European peripheral financials, with UniCredit, Banca Monte dei Paschi and Banco Popular already in negative territory.


EUR/USD was seen on an upwards trajectory in the early hours of the session, moving in line with the stock futures amid unconfirmed market talk of the BIS on the bid in the pair. EUR/USD moved above 1.2600 to print session highs of 1.2603, but did not last above this level, following the paring of gains in stock futures and the widening of European bond yield spreads. EUR/USD now trades comfortably below the 1.2600 handle, between two touted option expiries at 1.2550 and 1.2600 for the 10am NY cut (1500BST).

Commodity linked currencies NZD and AUD are seen higher against the USD moving into the US open, with AUD/USD stabilising in a tight range just below a touted option expiry at 0.9800 for the 10am NY cut and NZD/USD is seen higher by almost half a cent, in line with the moves in gold and commodities.


WTI and Brent crude futures are seen modestly higher, picking up from lows seen overnight in Asia and moving in line with European stock futures. Volumes remain thin ahead of the NYMEX pit open, but may pick as the session progresses. The next risk event will come from the US with the final reading of University of Michigan Confidence data due at 1455BST/0855CDT.

Oil & Gas News:

  • The CME group have cut margins for Crude by 13%.
  • China may consider cutting diesel and gasoline prices for a second time this year after a fall in a basket of crude oil costs passed a trigger point used by Beijing to set prices, according to a Chinese information provider. However, C1 Energy have forecast that such a move will not be considered until early June as it has been less than a month since the last cut.
  • A new draft of Nigeria's long delayed oil bill, whose passage is needed to unblock billions of dollars of stalled investment into exploration and production, will be finalised this week, sources close to the matter said on Thursday.
  • Asia is seen as replacing the US as Nigeria’s biggest crude customer, amid surging output and refinery closures in the US.

Geopolitical News:

  • EU's Ashton said that following the P5+1 talks, it is clear that both sides want progress to be made, but there are some significant obstacles to overcome. The next talks will be in Moscow between June 18-19th.