- In equities: Following Thursday's declines, equity futures opened to the
positive side on light/mixed corporate news. On the open, European bourses
snapped a negative streak with the FTSE, DAX and CAC opening between +0.25% to
0.60%. Following disappointing FY08/09 earnings out of British Airways
[BAY.UK], shares underperformed to the downside, other large cap carriers
including Air France
[AF.FR] and Lufthansa [LHA.GE] underperformed their respective indicators.
Analyst upgrades from Goldman on miners/basic resource names sent those shares
higher in first trades, Kazakhmys [KAZ.UK] and Rio Tinto [RIO.UK] outperforming
following upgrades. Goldman commentary on the Euro steel sector, making
cautiously positive statements sent ArcellorMittal [MT.NV] and ThyssenKrupp
[TKA.GE] higher in first crosses. Buying enthusiasm quickly waned and by
3:30EST both the CAC and DAX had surrendered all their gains, moving into
negative territory. Weakness at this time developed in pan-European automotive
names following comments seen pre-market out of the Washington Post regarding a
bankruptcy of GM and other concerns regarding OPEL bids and the potential
changes in the European car market makeup. By 3:45EST all three major equity
bourses had surrendered opening gains and had moved into negative territory.
This equity weight was short-lived, however, as markets bounced positive on an
extremely choppy session. Once turning positive, all markets continued that
flow, in light volume, printing new session highs past 4:15EST. UK
provision Q1 GDP data at 4:30EST saw markets pare some gains prior to the
number as traders positioned themselves for the second of three Q1 readings.
Provisional reading at -1.9% as expected accelerated the rally post 4:30EST.
Into the 5:00EST hour equity markets have held on to gains in positive
territory while trending off their best levels. Trading themes in this Friday
morning session would be characterized by light volume, and choppy price
actions ahead of a long US
equity markets will be closed on Monday,
May 25, 2009 in observance of Memorial Day Holiday
- In equities -GlaxoSmithKline [GSK] Company potentially involved in $1.9B IRS
dispute - WSJ. IRS is said to object to company's tax transaction with a Swiss
subsidiary. || Marston's [MARS.UK] Reported H1 Net Â£13.2M compared to estimates
of Â£7.8M. Rev came in at Â£307.5M above the Â£295M consensus. || Bank of Ireland
[BKIR.IR] Guaranteed Irish banks to be asked to establish subsidiaries to
administer toxic loans being transferred to Nama according to a Irish Time
- Speakers: BoJ Shirakawa commented that Japan's
Q2 GDP to show "sharp" improvement on Q1 decline of -15.2%. He noted
that the Japanese economy was performing in line with BoJ expectations. Capital
increase in Japanese banks was an important step for stabilization. BOJ noted
that the risk of an economic free fall was fading from previous levels but
Japanese economic pick up would be dependent on demand trends. The drop in
wages could weigh upon consumption. ||| India Central bank: No clear sign of
turnaround in export demand.- If conditions remain calm, could experience
economic turnaround by end of 2009. As economic growth picks up, liquidity will
have to be absorbed; such challenge is not as daunting for India
compared to other countries. New Gov't might pressure more fiscal stimulus and
large Gov't borrowings run against central bank's effort to keep interest rates
low. Can manage Gov't borrowing in an orderly manner ||| OECD's Gurria noted
that some economic indicators have demonstrated improvements but added the risk
that the economic crisis could be prolonged without fiscal discipline. He did
the US economic
recovery could be faster than any one taking place in Europe.
He also commented that he saw no justification for UK sovereign rating cut at
this time |||
- In Currencies: Continued concerns over the implications of a potential US
sovereign rating downgrade continued to weigh upon the USD sentiment. Dealers
noting that next weeks Treasury auction size and rating fears have scare away
any prospect of any near-term dollar recovery. One dealer noted that the recent
trend of Equity-dollar price movement correlation might shift to towards a
stronger Bonds/dollar correlation. The EUR/USD approached the 1.4000 level
during the session,a level last tested back on Jan 2nd. The dollar's soft tone
lingered over the concerns that the "AAA" US sovereign rating could
come into question thanks to the revisions to the deficit projections. On
Thursday, the Congressional Budget Office (CBO) commented in early NY that its
March economic forecast was too optimistic and that any economic recovery could
take several years. CBO also saw US
jobless rate peaking above 10% in 2010 from the current level of 8.9%. Currency
and fixed-income dealers noted of the potential of higher US
budget deficits from this revision in growth. This brought back comments from
May 11th when the Obama Administration revised its forecast for the 2009
federal deficit to $1.84T from $1.752T, while the 2010 deficit was also nudged
higher, to $1.258T from $1.171T. Dealers have noted that comments from Fed
Chairman Bernanke talking up the dollar were presumably designed to help fund
massive deficits in the wake of the revisions, hence the dollar dilemma. The
USD/JPY briefly tested below the 94.00 level where some good buying surfaced
(Chatter of Far Eastern names). USD/CHF was softer and tested below the 1.09
- The GBP was also softer against the major pairs due to reports that U.K.
Treasury refused to release stress tests on RBS and Lloyds that the Financial
Services Authority (FSA) carried out earlier this year. Reportedly the UK
Treasury commented that disclosure of the results "at this time may lead
to uncertainty in financial markets, either in relation to specific
institutions or more generally," GBP/USD was off over 100 pips at one time
to test 1.5760 before consolidating its losses.
-In Fixed Income: Bunds have under performed this morning, losing out most in
the game of catch up with Treasuries, which were aggressively sold yesterday
post NY Fed intervention. The yield on the Bund is higher by about 7bps at
3.51%, but the Bund is now just 18bps cheap relative to the 10y Note compared
to 29bps on Thursday. Gilts are still weaker, however, with the 10y Gilt is now
35bps cheap relative to the 10y Note compared to 29bps yesterday. European
Interbank rates increased for the third successive day, with 3-Month Euribor
higher by another 0.7bps at 1.259%.
- I n Energy: Reportedly Russia will not attend the May 28th OPEC meeting
- Credit Crisis: Business Week article noted that Pension Insurer's might need
aid as corporate bankruptcies increase . The article noted that the government
agency that insures the pensions of 44M Americans has amassed a record $33.5B
deficit, triple what it was six months ago.
*** NOTES ***
- Moody's: Comfortable with US AAA now but not guaranteed forever. Dealers
noting that there are clear long-term pressures.
- US bank
regulators close Bank United in biggest bank failure this year.
- Washington Post reported that the Obama administration could send GM into
bankruptcy next week. However, US Treasury commented that there were no plans
to send GM into bankruptcy ahead of Jun 1 deadline.
- US Pension Insurer may need aid as corporate bankruptcies increase as it
accumulates $33.5B deficit
- BoJ leaves its interest rates and upgrades view on economy and says its
likely to stop deteriorating. It expands it acceptance of collateral
- Fed's Plosser (non voter) noted that the economy not yet ready for an
interest rate hike yet but will have to at some point. US default chances
- Japans Fin Min Yosano: Not planning to intervene in FX markets
- Looking Ahead:
- 8:30 (CA) Canadian Mar Retail Sales M/M: % v 0.5%e; Retail Sales less Autos
M/M: % v -0.1%e
- (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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