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US OPENING NEWS INCLUDING: A positive close in Asia was not carried over to the European session

Last updated: 14:27 08 Oct 2013 BST, First published: 13:27 08 Oct 2013 BST

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Moody's says the AAA rating and stable outlook for US reflects that default is an extremely unlikely event. 

EU regulators overseeing next year’s long-awaited stress tests of the region’s banks are preparing to penalise any lender that remains reliant on the ECB’s landmark cheap funding scheme. 

Alcoa and Yum! Brands kick-off Q3's earning season as they are due to report after the close on Wall Street.

Market Re-Cap

Despite stocks trading lower throughout the European morning, as fears of the political deadlock in the US having economic consequences grows and reports that future reliance on ECB funding may result in penalties for banks EU, financials were among the best performing sectors.

Reports that EU regulators overseeing next year’s stress tests are preparing to penalise lenders that continue to rely on ECB’s funding schemes resulted in the steepening of the Euribor curve. This was offset by bullish comments from Templeton’s Mobius on Greek and Portuguese banks, as well as the fact that Monti Paschi announced further measures to secure EUR 4.1bln in state aid. Nevertheless, despite USTs and Bunds also trading lower, concerns over potential implication of US failing to meet its financial obligations meant that money rates remained bid, with FT reporting that financial firms trading in US Treasury securities are preparing contingency plans in the event of a debt default.

The FTSE MIB is the only EU index to trade positively as its banking sector benefits from the aforementioned Monti Paschi restructuring plan as well as remaining up after the political turmoil has been resolved last week. Despite the cautious sentiment, EUR/CHF and USD/JPY traded higher, benefiting from favourable interest rate differential flows.

Going forward, market participants will digest the release of US NFIB and the release of the weekly API report. Also, Alcoa will kickoff the latest earnings season after the closing bell on Wall Street.

Asian Headlines

Chinese HSBC Services PMI (Sep) M/M 52.4 (Prev. 52.8)

China Q4 2013 economy may grow 7.6%, according to the State Information Centre

EU & UK Headlines

EU regulators overseeing next year’s long-awaited stress tests of the region’s banks are preparing to penalise any lender that remains reliant on the ECB’s landmark cheap funding scheme.

British Chambers of Commerce said British firms reported broad-based growth in business and confidence in Q3, pointing to a rise of around 1% in GDP.

UK RICS House Price Balance (Sep) M/M 54% vs. Exp. 45% (Prev. 40%, Rev. 41%), fastest pace of increase in 11 years.

UK house sales hit 4-year high in September.

UK BRC Sales Like-For-Like (Sep) Y/Y 0.7% vs. Exp. 2.0% (Prev. 1.8%), weakest since April.

UK BRC Total Sales Values (Sep) Y/Y 2.4% (Prev. 3.6%), weakest since April.

Italian Deficit to GDP (YTD) (Q2) 4.1% (Prev. 7.3%)

German Factory Orders (Aug) M/M -0.3% vs. Exp. 1.1% (Prev. -2.7%, Rev. to -1.9%) 

German Factory Orders (Aug) Y/Y 3.1% vs. Exp. 4.0% (Prev. 2.0%, Rev. to 2.3%)

US Headlines

Moody's says the AAA rating and stable outlook for US reflects that default is an extremely unlikely event. However the FT reported that financial firms trading in US Treasury securities are preparing contingency plans in the event of a debt default. (FT-More)

Equities

A positive close in Asia was not carried over to the European session with all but one, the Italian FTSE MIB, trading in the red. The FTSE MIB mainly benefits from the fact that its third largest bank announced an improved restructuring plan to secure EUR 4.1bln in state aid. Financials are among the best performing sectors after two successive days which have seen bullish comments by US investors on prospects for the sector in the European periphery

FX

Despite the risk averse sentiment as evidenced in lower trading stocks, USTs and Bunds traded lower which in turn saw USD/JPY benefit from favourable interest rate differential flows, which also saw the pair move above the key 200DMA line. Elsewhere, AUD and NZD benefited overnight following an improving NAB Business Confidence and an increased ANZ Job Advertisements. Elsewhere a brief spike lower was seen in GBP/USD when at 1040BST newswires reported a Bank of England LTRO announcement. However price action was quickly retraced as it was clarified that this was part of their regular operations and not anything new from the BoE.

Commodities

Both Goldman Sachs and Credit Suisse see shorting gold as the best commodity trade and with Credit Suisse also recommending shorting iron ore. Credit Suisse analysts also note that PGMs will do well over the next year, led by palladium and then platinum. Commerzbank's Head of Commodities Research Weinberg, however, said he expects gold prices to rise and sees 'value' in industrial metals such as zinc, lead and copper.

According to the FT there is to be a big shake up in the US gas market as the northeast region of the country that is traditionally seen as the biggest area for consumption in the US is set to become the biggest supplier due to increased drilling in the area. 

According to shipping data fuel oil supplies to Asia have risen to 3.7mln tons in November while Russia's Putin has called for other Asian nations to follow Russia by expanding the Northern Sea route as Russian companies have capacity to increase energy exports to the Asia-Pacific region. 

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