- In equities: European equity markets took their opening lines from wave of
negative, risk adverse sentiment that developed in yesterdays NY Afternoon.
Bearish FOMC comments calling for a deeper recession in 2009 and slower
recovery rate for the US in 2010 transferred out of the US session, into a
negative session in Asia (ex Taiwan) and into a heavy European pre-market
trade. Following pre-market indications of around -1% across the board,
European equity markets opened trading to the downside led by the FTSE. FTSE100
underperformed on the back of weak earnings out of real estate management firm BritishLand [BLND.UK] and Cable and
Wireless [CW.UK]. The CEO of ICAP [IAP.UK] selling a significant stake drove
those shares lower on the open along with the broader minerals and mining names
(sector cut at Credit Suisse). On continental exchanges, steel names led the
decline [MT.NV], [TKA.GE] along with mixed financials and a few analyst
downgrades [AF.FR]. Markets shrugged off positive sentiment out of the German
May PMI and Euro Zone May PMI (both ahead of expectations) and continued with a
bearish, risk adverse tone. While coming off their lows, the FTSE maintained
its role as leading underperformer as Cable and Wireless furthered its decline
following earnings reports. The CAC and DAX recovered off their lows but
maintained a footing below the -1.5% line at 4:00EST. Equity markets took an
additional leg down after the unexpected UK
sovereign ratings outlook change to negative (AAA) by S&P at 4:20EST. This
announcement, just ten minutes prior to a range of UK
data sent the FTSE below the -2.5% line as the CAC and DAX continued their
regressions. 4:30EST UK
data provided mixed results with better than expected retail numbers, but lower
than expected business investment for April. Equity markets showed signs of
stabilization despite continued volatility in Fx markets following the S&P
call by 5:00EST. A widening in Euribor fixing past 5:15EST added further risk
aversion into the markets. As the NY morning developed, the CAC and DAX traded
-1.75% on thin volume while the FTSE stood down -2.3% on heavy trading volume.
- In individual equities - BritishLand
[BLND.UK] Reported FY08 Pretax Â£268M v Â£266Me, Rev Â£598M v Â£596Me, NAV 398p v
1114p y/y, dividend 29.8p (+3% y/y). || Lloyds [LLOY.UK] Might have to sell
some assets as a condition for receiving state aid under EU rules - FT || Fiat
[F.IT] GM: Official bid for OPEL unit by Fiat made in yesterdays trading
session. Bid by Fiat targets OPEL and Vauxhall brands. If successful, bid would
include units into new Fiat-Chrysler venture. Terms of bid were not released .
|| Enel [ENEL.IT] Reportedly lining up banks for â‚¬8B share sale - Italian
press. Messaggero reports that company sent letters to the banks yesterday and
have until May 29th to respond
- Speakers: S&P cuts its outlook on UK's
"AAA" sovereign to negative from stable. The rating agency noted that
the UK's net general government debt burden might approach 100% of GDP and
remain near that level in the medium term, even assuming additional fiscal
tightening. ||| UK Treasury commented on the S&P action and noted that its
budget prepared a clear path to reduce deficit and stated that the outlook
could be restored. ||| ECB's Bonello stated that low inflation helping some
Euro-Zone consumers with real purchasing power ||| Fitch might increase China's
GDP forecast in its June review; but believes unlikely it would achieve its 8%
target || Italian Business Group commented that it saw 2009 GDP contracting by
over 4% and expected any recovery in the Italian economy as developing slowly
- In Currencies: A relatively quiet session was thrown into turmoil after
S&P cuts its outlook on UK's AAA sovereign rating to negative from stable. UK
has been rated AAA by S&P since 1978. The GBP was experiencing broad based
strength and at its best 2009 level on a trade weighted basis just prior to the
comments from the rating agency. GBP/USD slumped from 1.5800 area to test below
1.5550 within 30 minutes of the outlook change. EUR/GBP rose from 0.8720 to
0.8870. GBP/JPY cross-slumped over 300 pips from its intra-day highs of 149.90.
The GBP did mange some consolidation from its session lows when one part of the
S&P note commented that the UK outlook could be revised back to stable if
comprehensive measures were implemented. Nonetheless, dealers noting that
announcement by S&P puts more pressure on the next government to act
quickly on the budget front.
The USD remained vulnerable against other currency pairs as the FOMC minutes
revised growth forecast modestly and more hinted of more Quantitative easing
(QE). The USD's soft tone stemming from the growing concerns about excess
liquidity. EUR/USD tested above the 1.38 level while USD/CHF continues to probe
around the 1.0970/80 area.
- Dealers noting that risk aversion theme has a good chance to take hold in
markets following the FOMC minutes from Wednesday. This could help the USD and
JPY from a backdrop of risk aversion, while commodity and emerging market
currencies would be the most vulnerable. NYMEX Julycrude futures were
retreating from its fresh six-month highs and causing the AUD amd CAD
currencies to rebound from their best levels in the session.
-In Fixed Income: Gilts were aggressively offered following the S&P's
outlook revision, with the June contract moving as low as 130 ticks on
yesterdays close, finding support in the 118.70 area. Spread between UK-German
10-year widened towards the 30bps following the S&P action.
Despite this negative sentiment, the UK
managed to successfully sell Â£5B in 5y Gilts, with traders enjoying a generous
concession. The Gilts sold at an average yield of 2.91%, around 30bps cheap to
the 5y off the run issue. The auction was covered 2.6 times, with a yield tail
of 0.9bps. Earlier, Spain
sold â‚¬2.6B in 2017 and 2032 Bonos with healthy results. Three Month Euribor
fixed 1bps higher at 1.25%, for its second successive increase. Ahead of the
treasury's 2 , 5 and 7y note announcements, UST's have been modestly offered,
with the yield on the 2y Note unchanged at 0.834%, the 5y and 7 Notes about 1bp
higher at 2.032% and 2.71% respectively. The benchmark 10y Note has been steady
around the 3.20% area. Bunds slightly higher despite the better PMI series out
of Europe in the session. June Bunds up 21 ticks at
120.74 as the NY morning approached.
- In Energy: Nigerian Oil Minister commented that the country's Oil output chas
be reduced by over 50% from its 3.2M bpd capacity due to violence
||| South Korea's KNOC: South Korea is seeking to increase its joint crude
stockpiling to 40M barrels by 2010 (3.4% above current levels)
||| According to the State Grid Corp of China, by 2020 China's power demand is
seen at approximately 7.7T kilowatt-hours v 3.4T in 2008 ||| Chevron [CVX]
Resumed output at its Nigerian Makaraba-Otunana pipeline following attack back
in March. Capacity is 11.5K bpd and is a joint venture with Nigerian National
Petroleum Corp ||| Former OPEC Official Shihab-Eldin commented that OPEC was
not seriously mulling additional output cut at its meeting later this month
*** NOTES ***
- S&P lowers its outlook on UK's "AAA" sovereign rating on budget
outlook; Fitch says no plans to revise the United Kingdom's "AAA"
ratings at this time
- Several European countries celebrating Ascension Day
- European PMI series (soft data) continues recent trend of improvement
- Hard data not confirming any 'green shoots' at this time; Japan April steel
output -43.6% y/y; HK GDP below expectations and the HKMA noted that no
recovery in global economy seen soon.
- IMF more UK
banks may have to be nationalized.
- FOMC Minutes: Deeper recession possible.
- Looking Ahead:
- 8:00 (BR) Brazil Apr Unemployment Rate: 9.3% expected v 9.0% prior
- 8:30 (CA) Canadian International Securities Transactions: C$4.000B expected v
- 8:30 (US) Initial Jobless Claims w/e May 16thL 625k expected v 637k prior;
Continuing Claims w/e May 9th: 6.65M expected v 6.56M prior
- 10:00 (US) Apr Leading Indicators: 0.8% expected v -0.3% prior
- 10:00 (US) May Philadelphia Fed: -18.0 expected v -24.4 prior
- 10:00 (US) Geithner appears before House Financial Sub-committee
- 10:30 (CA) Bank of Canada releases review
- 11:00 (US) NY Fed to repurchase Sep 2013 to Feb 2016 Notes
- 11:00 (US) Treasury's 2-, 5- and 7-yr note announcement
- (RU) Russian Apr Unemployment rate: % v 10.2%e
- (RU) Russian Apr retail Sales M/M: % v 5.6% prior, Y/Y: % v -5.2%e
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