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EUROPEAN OPENING NEWS INCLUDING: ECB’s Mersch said small Eurozone states should not be excluded from veto right

Published: 08:06 16 Dec 2011 GMT

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ASIA

JGBs trimmed losses overnight, with the benchmark yield falling to a fresh three-week low, supported by persistent worries over the European debt crisis. JGBs were trading at 142.33 (-0.06) at 0559GMT. (RTRS)

China may target growth of 10% for foreign trade next year according to people familiar with the matter. (21st Century Business)

GLOBAL

Australia’s banks have been ordered to stress test their ability to withstand potential fallout on their business from Europe’s debt crisis. (Australian Financial Review)

Fitch downgraded seven large banks based in Europe and the US, citing increased challenges in the financial markets. (RTRS)

US

T-notes settled in minor negative territory yesterday in a largely quiet session, at the CBOT pit open profit taking was touted from hedge funds unwinding long positions, aided by risk-off sentiment following positive US economic data. Treasuries bounced after downbeat comments from Moody's on the US 2012 macro outlook and the positioning of desks into the 5y TIPS auction. At the pit close, t-notes settled at 130.23, down 3 ticks. Finally DJIA finished +0.55% at 11888.00, S&P 500 finished +0.56% at 1218.66 and Nasdaq 100 finished -0.28% at 2226.71.                                                           

Yesterday’s USD 12bln 5y TIPS auction drew a yield of -0.877% vs. exp. -0.854%, b/c was 3.01 vs. avg. 2.83 (prev. 2.49), indirect bidding was 48.8% vs. avg. 39.27% (prev. 46.67%) and the allotted at high was 63.94%. (RTRS)                                                                          

US Fed balance sheet liabilities were USD 2.885trl Dec 14th vs. USD 2.803trl the prior week, Fed holdings of treasuries totalled USD 1.673trl as of Dec 14 vs. USD 1.675trl the prev. week, Fed discount primary borrowing averaged USD 393mln/day week vs. USD 13mln/day the prev. week, Fed holdings of agency debt total USD 105.9bln as of Dec 14, unchanged from the prev. week and Fed holdings of MBS totalled USD 858.08bln vs. USD 827.05bln the prev. week (RTRS)

Fed’s Dudley said if the Europe situation deteriorates it would have a negative impact on the US economy and possibly banking system and financial markets. US financial institutions do not face difficulty obtaining liquidity in short-term funding markets, and Dudley said if conditions were to deteriorate the Fed has a range of tools to provide effective liquidity backstops for US institutions; prepared to use as needed. (RTRS)

The chairman of the Senate Appropriation Committee said that he had formally signed off a bipartisan agreement that would fund the government for the remainder of the 2012 fiscal year. (Sources)

EUROPE

EFSF considers euro warning clause. (FT-More) A draft prospectus prepared for the latest Eurozone bail-out instruments includes explicit warnings to investors that the euro could break apart or even cease to be a “lawful currency” entirely. The EFSF is debating whether the “risk factors” should be included in the final version.

Germany’s central bank expects any bigger involvement by the IMF in trying to resolve Europe’s debt crisis to increase the risk of financial losses for Germany, as its participation would also be enlarged. (FT Deutschland) About 2,000 votes out of the total of 22,000 in Germany’s FDP’s vote on the Euro bailout fund have not been included as of yesterday as membership for the party couldn’t be proven. (Sueddeutsche Zeitung)

According to the Dutch finance minister De Jager, Euro-Zone ministers may meet on 19th December. (RTRS)

France’s GDP is seen at -0.2% in Q4, -0.1% in Q1 2012 and +0.1% in Q2 according to France’s national statistics office INSEE. (RTRS) 

France has entered a short and shallow recession as it heads towards a presidential election in April, and the downturn will destroy more than 60,000 jobs in Q1 2012.

ECB’s Mersch said small Eurozone states should not be excluded from veto rights. (Sources) 

Spain's Valencia region is unlikely to be able to sell the full amount of their new EUR 1.8bln bond meant to ensure the repayment of a maturing bond. (Sources)

FX

The NY Fed said the Fed dollar swap facility with foreign central banks totalled USD 52.387bln in new borrowing. (Sources)

The CNY jumped to a record high today against the dollar on suspected intervention orchestrated by the central bank, its most explicit action in three months to deter speculators from betting on a fall in the currency. (RTRS)

COMMODITIES

WTI crude futures rose overnight on worries about supply disruption after the US Congress approved a bill imposing sanctions against Iran's central bank, limiting buyers' ability to pay for oil they buy from the Islamic Republic. WTI crude futures were trading at USD 93.98, up USD 0.11, at 0621GMT. (RTRS)

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