Warren Buffett“A public opinion poll is no substitute for thought.”
Adlin Sinclair“Success is a welcomed gift for the uninhibited mind.”
US Morning Briefing
Wed, Feb 24 2010, 12:56 GMT
JGBs rose, with futures moving back towards a seven-week high, as a slide in Tokyo stocks and a rally in US Treasuries fuelled bids for safe-haven debt. JGBs were trading at 139.63 (+0.22) at 0624 GMT. Nikkei fell 1.5% with exporters hit by a stronger JPY and after a sharp drop in US consumer sentiment dented investor confidence in the global economy. Trade was also cautious ahead of congressional testimony from Federal Reserve chairman Ben Bernanke on interest rate policy beginning on Wednesday and from Toyota President Akio Toyoda on the company’s vast recall troubles. (RTRS)
In other news, Bank of Japan’s Deputy Governor Yamguchi said the central bank was ready to act to beat deflation. But Yamaguchi offered few clues on what exactly the BOJ might do beyond keeping interest rates near zero. (RTRS) Also in the news, China’s banking regulator has told commercial lenders to restrict new credit they provide to local governments’ financing vehicles, to ward off potential risks of default, state media reported. (Shanghai Securities News)
Fed’s Bullard said measures passed in the US House to restrict the central bank’s emergency-lending powers and create a council of regulators may not prevent another crisis. He added that Fed may not have to raise its emergency lending discount rate to a full percentage point above the interbank fed funds rate to normalise lending. (BBG/RTRS)
In other news, the “Volker Rule” may not be included in the Senate’s financial regulatory legislation, the Wall Street Journal reported, citing unidentified people familiar with the matter. (WSJ) Also in the news, the US Treasury Department said it plans to increase its programme for selling bills on behalf of the Federal Reserve to USD 200bln over the next two months, up from USD 5bln, through weekly auctions of USD 25bln in 56-day bills. (BBG)
Elsewhere, US securities regulators are considering new short-sale restrictions with no exemptions for market makers, people familiar with the regulators’ plans said. (RTRS)
MBA Mortgage Applications (Feb 19) W/W -8.5% vs. Prev. -2.1% (BBG)
ABC Consumer Confidence (Feb 21) W/W -50 vs. Exp. -49 (Prev. -49) (BBG)
iBoxx Treasury month-end extension: +0.12 years
German 10-year bund futures opened in minor negative territory, however soon gained strength following weakness in equities on the back of renewed concerns over Greece’s fiscal situation, resulting in a widening of Greek/German 10-year government bond yield spread as well as Greek 5-year CDS. A reasonably well bid Portuguese auction did put some pressure on bund futures, diminishing concerns regarding fiscal situation in Portugal, however moving into the North American open bunds are trading sideways in the positive territory ahead of Bernanke later in the session.
Front month Euribor spiked this morning after Eurozone monetary sources suggested that the ECB is likely to extend lending unlimited funds at fixed rates into start of Q3 at March meeting, and that it is likely that ECB will make one-month operations permanent, but without flat rate. (RTRS)
In other news, ECB’s Bini Smaghi said targeting higher inflation is backward looking, adding that low interest rate maintained over long term can create new imbalances, and market bubbles. He also said that ECB is not precommitted, and rates are adequate (RTRS)
Also in the news, wealthy Greeks are pulling their money out of local banks and sending it abroad, fearing increased government scrutiny on assets and a run on the banks if Athens is forced to turn to the International Monetary Fund, according to private bankers and other people with knowledge of the situation (WSJ) In related news, German lawmaker said aid to Greece is legally not possible, and Germany must make clear it won’t pay for Greece, adding that aid for Greece would trigger spiral, and stability pact must have sanctions. (BBG)
Eurozone Industrial New Orders SA (Dec) M/M 0.8% vs. Exp. -1.0% (Prev. 1.6%, Rev. to 2.7%)
Eurozone Industrial New Orders SA (Dec) Y/Y 9.5% vs. Exp. 7.6% (Prev. -1.5%, Rev. to -0.6%) (BBG)
German GDP SA (Q4 F) SA 0.0% vs. Exp. 0.0% (Prev. 0.0%)
German GDP WDA (Q4 F) Y/Y -2.4% vs. Exp. -2.4% (Prev. -2.4%)
German GfK Consumer Confidence (Mar) M/M 3.2 vs. Exp. 3.0 (Prev. 3.2, Rev. to 3.3) (BBG)
Portuguese Bond Tap Auction for EUR 1bln, 3.35% 15-Oct-15, Bid/Cover 1.8 vs. Prev. 2.0 (BBG)
iBoxx Euro Sovereign month-end extension: +0.02 years
NYSE LIFFE Gilt futures opened in minor negative territory however soon gained strength following comments from BOE’s Posen that the possibility for further QE is open, stops triggered upon the breach of technical resistance at 115.00 and with a well bid 10yr auction.
UK Conventional Tap Auction for GBP 3bln, 3.75% 2019, Bid/Cover 2.25 vs. Prev. 2.38 (BBG)
BOE’s Posen said we will keep the door open for more QE, and if we have to we will. Posen also said BOE is eager for investing in inflation link Gilts. (RTRS/BBG) Also, BOE’s King said the possibility of a weaker-thanexpected recovery in the Eurozone, Britain’s main trading partner, poses a threat to UK economic revival, according to his testimony to a parliamentary committee. (WSJ)
iBoxx Sterling Index month-end extension: +0.02 years
European bourses came under pressure in early trade following comments from a German lawmaker that aid to Greece is not possible, an article in the Wall Street Journal regarding wealthy Greeks pulling their money out of local banks, and yesterday’s action by Fitch downgrading the largest four banks in Greece resulted in Greek spreads re-widening. This coupled with some under performance in Commerzbank for a second day this time due to reports in the Handelsblatt that they may need further capital to repay the government weighed on the financial sector. However, prices did stabilise after better than expected Eurozone Industrial New Orders and as the market looks forward now to the latest housing update and Bernanke’s semi annual speech.
EUR gained strength following better than expected Eurozone Industrial New Orders figures, and received further uplift following a reasonable Portuguese bond auction, waning concerns regarding the fiscal situation in Portugal.
However, EUR got hit following comments from ECB regarding extending lending unlimited funds at fixed rate citing Reuters sources.
In other news, GBP came under pressure across the board following comments from BOE’s Posen that BOE’s QE programme may be extended further.
PBOC’s deputy governor Zhu Min, said that his fear was that the carry trade might start to unwind, pushing the USD higher and derailing the rally in asset markets that has accompanied the global economy’s emergence from the financial crisis. (FT)
Heading into the North American open, WTI crude futures are trading lower, in tandem with stocks which came under renewed selling pressure as worries over Greece contagion effect resurfaced in early European trade.
China has more than tripled diesel and doubled gasoline exports in January from a year earlier as recovery in domestic demand lagged behind high production.
Bad weather cuts oil exports from Iraq’s Basra to 792,000bpd down from 1.728mln bpd on Tuesday.
The Norwegian Petroleum Directorate today said that remaining recoverable resources off Norway stood at 8.1bcm of oil equivalent, and cut its estimate for the size of the Ormen Lange gas field. The NPD said that total oil and gas resources on the Norwegian shelf, including already produced volumes, were more or less steady around 13bcm of oil equivalent at the end of 2009.
**Prices taken at 12.14 GMT