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US OPENING NEWS INCLUDING: The SMI is the worst performing bourse in Europe
January 21 2013, 2:28pm
Volumes in Europe are thin today and are expected to remain light throughout the day due to Martin Luther King Jr. Day in the US, with floor trade closed and electronic trade operating on a reduced trading schedule.
JPY strength observed overnight due to touted profit taking ahead of BoJ announcement where the central bank are expected to formally declare they are working to a 2.0% inflation target rather than the current 1.0%, in addition to an increase in the asset purchase programme.
The SMI is the worst performing bourse in Europe, led lower by Richemont's poor Q3 earnings which has weighed on other luxury goods makers.
RANsquawk European Morning Briefing Video: http://youtu.be/Er_uXXqlosc
Market Re-Cap
European equities opened in positive territory with low volumes observed in early European trade ahead of Martin Luther King Jr. Day in the US where US floor trade is closed and electronic trade closes early. The SMI is underperforming against its European counterparts as Richemont posted a poor earnings update this morning, with shares currently trading down approximately 5%. These results have also weighed on the luxury goods sector with Burberry (-1.37%) and LVMH (-1.45%) also nursing losses. Peripheral bond yields spreads are marginally tighter with the Bund future drifting lower amid thin volumes. Overnight, JPY strength was observed, with touted profit taking ahead of the Bank of Japan rate announcement later on tonight. Profit taking was also observed in the Nikkei 225 (-1.5%) which caused the index to move lower, after it closed the session with the largest gains since March 2011 on Friday. Looking ahead, the session remains light on speakers and macroeconomic data due to today’s market holiday in the US although participants can look ahead to today’s Eurogroup meeting where the Eurozone finance ministers are expected to discuss Cyprus and the new head of the Eurogroup. Arrivals for the meeting begin at 1600GMT.
Asian Headlines
The Nikkei 225 closed with losses of around 1.5% as profit taking was observed in Japan ahead of tonight's BoJ rate decision. JPY strength can also be attributed to profit taking with USD/JPY currently down 60 pips.
A special adviser to the Japanese PM Abe has said the BoJ should continue to pursue monetary easing until USD/JPY rises to 100.00. These comments come ahead of tonight's BoJ meeting and rate announcement. Japanese economy minister Amari has said that progress is being made in closing a gap in views between the government and the Bank of Japan over a joint statement on cooperation expected to be released alongside this week’s rate decision.
Chinese Business News reported a state council official said China 2013 CPI may rise about 4%. Bank of America have said the People's Bank of China may use reverse repos more often for liquidity and China RRR cut is less likely due to the PBoC's liquidity operations.
EU & UK Headlines
Over the weekend, IMF's Lagarde has said could approve another haircut for Greece if the country meets its commitments. Additionally, the Troika have approved a six-month moratorium during which they will not demand any new austerity measures.
In the Lower Saxony election in Germany, the SPD and Greens took 69 seats, compared with 68 seats for Merkel's Christian Democrats and their coalition partner, the Free Democrats (FDP). In the wake of this, FDP leader Roesler offered to step down according to sources although a party spokesman said Roesler is to remain party leader and parliamentary leader Bruederle is to head campaign.
In his first interview, the newest BoE MPC member McCafferty said he is skeptical on QE and thinks ‘the economy is growing modestly’ at 0.3% a quarter. McCafferty's comments come ahead of UK GDP figures on Friday with expectations of negative growth in Q4 2012. In relation to this, there were a number of downbeat articles this weekend on the prospects for the UK economy after several high-street retailers have collapsed recently.
US Headlines
House majority leader Cantor said the House is to authorise bill this week to extend debt limit by three months. The three-month debt limit extension will give senate time to pass the budget.
Equities
The majority of European equity markets are trading in minor positive territory heading into the North American crossover. The SMI is the worst performing bourse in Europe, led lower by Richemont (-5.59%) as their Q3 sales growth missed estimates in this mornings trading update. This has weighed on other luxury goods makers with Burberry and LVMH both trading with losses in European trade.
As a reminder, Chicago trading floor closed and New York trading floor closed and in electronic trade, CME Equity Products close early at 1630GMT/1030CST.
FX
USD/JPY continues to trade heavy, with options implieds also underpressure as profit taking, as well interest rates product related selling by a major US name weighed on prices. Talk of bids at 89.25/00 and 89.25/50/75 mark option expiry levels.
Similar price action was also observed in EUR/CHF, where the spot rate is down around 30pips following an impressive rally last week. Bids are seen at 1.2390 and stops below 1.2380. To the upside, barriers are said to be placed at 1.2575 and then at 1.2600 level.
EUR/USD traded steady throughout the session, however the pair remains on track to make a test on 1.3400 and a convincing break above will open the door towards the 50% retracement of the May 2011 to July 2012 bear trade at 1.3493. Given the light trade volumes, intraday 1.3300/50 option expiries are expected to influence the price in the short-term.
Commodities
WTI crude futures drifted lower overnight and continue to trade in minor negative territory after posting their highest levels in four months last week. As a reminder, the NYMEX floor is closed today while electronic trade will close at the earlier time of 1815GMT/1215CST due to Martin Luther King Jr. Day in the US.
