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US OPENING NEWS INCLUDING: S&P said that it may reconsider Japan’s sovereign rating if economy worsens or deflation persists
S&P said that it may reconsider Japan’s sovereign rating if economy worsens or deflation persists
Worse than expected UK house prices and construction PMI weighed upon GBP
Well received auctions from Spain and France helped renew risk-appetite
RANsquawk European Morning Briefing Video: http://www.youtube.com/watch?v=a57lDynhvsU
Overnight News
ASIA
JGBs fell overnight and the yield curve continued to steepen after better-than-expected US and Chinese data assuaged some of the pessimism towards the global economy. Nikkei rose 1.5%, moving further away from a 16-month low touched the previous day, after US and Chinese manufacturing data eased investors worries about the global economy. (RTRS)
In other news, S&P said that it may reconsider Japan’s sovereign rating if economy worsens or deflation persists, adding that frequent Japanese government changes hurt odds of long term fiscal fix. (Sources)
US
Fed’s Kohn said the central bank’s decision to reinvest proceeds from maturing mortgage-backed securities won’t necessarily lead to additional stimulus. Kohn added that shift on managing balance sheet reflected view that letting policy tighten in any way was not appropriate when economic outlook is deteriorating. (Sources)
Also, Fed’s Evans said that while the US economy and housing market have shown signs of stability, more improvement is needed. (Sources)
In other news, the Monster US employment index rose 12% in August from a year ago, however on a M/M basis it dropped 1% in August. The Index was at 136 in August from 138 in July. (RTRS)
Bonds
EUROPEAN GOVERNMENT BONDS
In early European trade bund futures traded in minor negative territory weighed upon by strength in Asian equities as well as approximately EUR 13bln supply coming from Spain and France. After reasonably well received auctions from Spain and France, bund futures have continued to be under pressure, as European peripheral 10-year bond yield spreads tightened across the board. Sources have indicated that foreign interest in the Spanish 5yr sale was at 50%, another healthy sign for investor appetite for the recently faltering Spanish economy. Moving into the North American open, prices have maintained their weakness and have continued trading in negative territory, as the market looks ahead to the ECB rate decision and key economic figures from the US later in the session.
· Eurozone GDP SA (Q2 P) Q/Q 1.0% vs. Exp. 1.0% (Prev. 1.0%)
· Eurozone GDP SA (Q2 P) Y/Y 1.9% vs. Exp. 1.7% (Prev. 1.7%) (RTRS)
· Spanish Bond auction for EUR 3.31bln, 3% 30-Apr-15, bid/cover 1.63 vs. Prev. 1.70 (yield 2.964% vs. Prev. 3.657%)
· French OAT tap for EUR 0.685bln, 3.25% 25-Apr-16, bid/cover 5.044 vs. Prev. 1.69 (yield 1.78% vs. Prev. 2.97%)
· French OAT tap for EUR 2.895bln, 3.5% 25-Apr-20, bid/cover 2.166 vs. Prev. 3.51 (yield 2.55% vs. Prev. 3.04%)
· French OAT tap for EUR 3.97bln, 3.5% 25-Apr-26, bid/cover 1.283 vs. Prev. 1.45 (yield 3.00% vs. Prev. 3.54%)
· French OAT tap for EUR 1.33bln, 4.5% 25-Apr-41, bid/cover 1.94 vs. Prev. 1.88 (yield 3.17% vs. Prev. 3.84%) (RTRS)
GILTS
NYSE LIFFE Gilt futures traded in tandem with bunds in negative territory for most of the European session, and moving into the North American open, prices have maintained weakness.
In other news, Britain's public finances remain "constrained" and among the most precarious of the major advanced economies, the International Monetary Fund (IMF) warned yesterday. Ranking nations by their "fiscal space" – the insulation that they have against further unforeseen shocks to their economic systems – the IMF said the UK was only one notch above those countries most commonly thought of as being bust. (Independent)
· Nationwide House Prices SA (Aug) M/M -0.9% vs. Exp. -0.3% (Prev. -0.5%)
· Nationwide House Prices NSA (Aug) Y/Y 3.9% vs. Exp. 4.9% (Prev. 6.6%)
· Construction PMI (Aug) M/M 52.1 vs. Exp. 53.2 (Prev. 54.1) (RTRS)
· Treasury Stock auction for GBP 3.75bln, 5% 2014, bid/cover 1.69 vs. Prev. 2.28 (RTRS)
EQUITIES
European bourses traded lower in early European trade as they came off their best levels achieved yesterday, however as the session progressed, equities gained strength paring back most of the earlier losses. Well received auctions from Spain and France provided support to the CAC index in particular. As the European session progressed and the USD index ventured into negative territory, commodities received an uplift, which in turn resulted in the basic materials sector outperforming. Moving into the North American open, equities are trading in minor positive territory.
FX
GBP came under pressure across the board on the back of weaker Nationwide House Prices and construction PMI figures from the UK. Following the UK construction PMI, GBP/USD moved 10 pips lower, whereas EUR/GBP touched a three-week high of 0.8333. In other news, EUR/USD retraced its overnight losses on market talk of a UK clearer and Swiss name buying in the pair, and moving into the North American open EUR/USD is trading in positive territory.
In a reversal of fortunes, the AUD lost strength across the board following a sharp decline in Australian trade balance.
· Australian Trade Balance (Jul) M/M 1888mln vs. Exp. 3100mln (Prev. 3539mln, Rev. to 3438mln) (RTRS)
Elsewhere, CHF gained strength on the back of strong GDP and retail sales figures from Switzerland. Following the Swiss GDP data, EUR/CHF printed fresh intraday low at 1.2964, and after the release of the retail sales the pair plunged a further 10 pips.
· Swiss GDP (Q2) Q/Q 0.9% vs. Exp. 0.8% (Prev. 0.4%, Rev. to 1.0%)
· Swiss GDP (Q2) Y/Y 3.4% vs. Exp. 2.6% (Prev. 2.2%, Rev. to 2.3%)
· Swiss Retail Sales (Real) (Jul) Y/Y 4.8% vs. (Prev. 0.9%, Rev. to 1.0%) (RTRS)
It is also worth noting that according to the Kyodo news agency, the Bank of Japan may consider further easing if JPY surges. (Kyodo)
COMMMODITIES
Prices in WTI crude futures have been volatile throughout the European morning session, as the market waits for US Employment data today and tomorrow.
Oil & Gas News:
Oil production in Alaska fell 4.4% to 550,252 barrels a day in August, as maintenance curbed output from BP’s Northstar field for most of the month.
Oil production in Russia rose 0.9% to 10.06 mln BPD in August, at levels close to the post-Soviet record set in June.
China plans to spend CNY 250bln to CNY 300bln under its new five-year development plan to boost offshore oil production by 50mln metric tonnes
GDF Suez has flowed significant gas volumes from an exploration well drilled on the Sierra prospect, off the Netherlands, potentially opening up a new fairway in the Dutch sector of the North Sea.
