- In equities news overnight: European equity markets opened to a heavy tone as yesterday's gains were quickly erased as equities took a cue from the Euro/USD and EUR/JPY and looked set to print week on week declines (would be the 4th straight week of equity declines). Trading in Asia had been mixed with India outperforming following solid Q2 figures from major out-source firm Infosys [INFY]. European bourses opened lower and then bounced near their lows though the first 30min of trading. It should be noted this heavy trend ignored better than expected Industrial and Manufacturing figures out of France that displayed positive m/m growth. Renault [RNO.FR] Ghosn stating that FY2010 will be as difficult at FY2009 sent strong negative waves into the broad automotive sector with declines recorded on a pan-European basis. Auto' as a sector were the leading lag sector. Metal names continued their decline as the USD showed further strength affecting miners and energy names. Insurance sector names also led the downward trend following a bearish note in yesterday's session from Accenture. Equities attempted a rally past 4:00EST following the second consecutive better than expected industrial production number (Italian) and IEA statements boosting their 2010 oil demand outlook. On the back of these statements, bourses moved off their lows with the DAX outperforming and briefly touching the unchanged line. This uplift lasted for approx 30min before continued currency weakness in the Euro and continued circulation of poor performance regarding an under-subscription of a Japanese Toshin offer muted positive sentiment past 5:00EST. Trading volumes for European bourses remain strongly subdued with both the FTSE and CAC trading over 40% below their moving averages.
- Speakers: German Chancellor Merkel commented that China's FX proposal was of no practical relevance and was not an official summit topic. She did note that the EUR would supplement USD as a reserve currency |||SNB's Roth reiterated the view that the central bank does not want further appreciation in the Swiss Franc currency to avoid deflationary pressures. SNB will not provide specific currency target for the Swiss Franc but adds it has not risen further since it acted back in March. The SNB to stick to policy decidedly and is a long way from reversal point in interest rates. Risks to economy remain to the downside but some signs for some moderate growth in 2010 ||German Fin Min Steinbrueck made on Thursday recirculted back into the German press today. He reiterated Bundesbank might purchase corporate bonds if necessary and saw a potential threat of a credit crunch in H2 || China Premier Wen reiterated that China should maintain an appropriately loose monetary policy and to maintain an active fiscal policy. The recent 'good' economic trend does not imply difficulties are over as recovery is not yet on solid footing || Russian Central Bank (CBR) commented that future interest rate cuts depend on a number of factors including inflation outlook, lending activity in banking sector, ruble currency level and stock market. The CBR also noted that commercial lending rate remain high despite recent interest rate cuts || German DIW Institute marginally improved its Q2 GDP view for Germany to -0.7% from -0.8% prior. The think tank saw increasing signs that slump has bottomed || OECD comments that its leading indicator for May signals potential recovery emerging in France and Italy and possible Trough emerging in US, Canada, UK, China and India economies
- In Currencies: The USD was firmer ageist the European pairs as market participants analyst the G5 and China comments on reserve currencies. The FT article stresses that China "Attacks Dollars Dominance" but under the surface of the headline the story has no teeth. The official release of the Chinese trade data aided the risk aversion them as import and exports continue their downward trend in the data, EUR/USD back below the 1.39 level as the NY morning approached. USD/CHF back above 1.09 helped by renewed SNB verbal intervention.
- The JPY maintained its firm tone. Dealers commented that JPY strength was highlighted by recent 'lack of appetite' for Toshin issues. Dealers noted the Nikko/Pimco High Income Toshin attracted Â¥4.9B out of Â¥300B target. USD/JPY at 92.65, lower by 50 pips while EUR/JPY off almost 200 pips below the 129 handle.
- Continued softness in energy sector weighed upon the AUD currency as it moved back below the 0.78 level towards 0.7750. NYMEX Aug crude holding below $60/barrel despite some 'optimistic' view by the IEA for 2010 demand growth.
- In Energy: IEA modestly revised higher their 2010 global oil demand to an y/y growth rate of 1.7% versus their prior view for a 1.4% increase. Thus it sees 2010 oil demand to rise by 1.4M bpd. It saw 2010 non-OPEC supply higher by 400K bpd as new sources in Azerbaijan and Brazil come on-line. It did leave its 2009 demand growth forecast unchanged at 83.3M bpd || Russian oil export tax might rise to $220-224 per ton
- In Fixed Income: The ECB Announced its first covered bond purchases, as of July 9, with â‚¬23M settled. Gilts continue to underperform following yesterdays decision by the BoE not to employ the additional Â£25B worth of quantitative easing for which it is already has permission. The 10y Gilt yields 3.79% at the time of writing, a full 15bps higher than its pre quantitative easing levels, leading many to ponder where yields would be had the BoE chosen a different path. Treasuries are benefiting from the risk aversion bid, in line with USD strength in currency markets, with 10y year yields back to 3.34% in current trade. Bunds meanwhile are holding onto gains despite revelations from the German Finance Minister that the government expected total outstanding debt to reach a staggering â‚¬2T by 2013. The yield on the 10y European benchmark is about 1bps lower at 3.287%.
*** NOTES ***
- IEA slightly revises higher its 2010 oil demand to +1.7% from its prior view of a +1.4%
- China Jun Trade Balance: $8.3B v $15.5B expected
- Russia lowers its Refi rate by 50bps to 11.0%
- Commodities are also being pressure, NYMEX Aug back below $60/barrel
- SNB's Roth: reiterates that the central bank has no fixed currency target. Points out that the CHF currency not risen further
- Japan bond yields mark 4 year lows.
- Nikko/Pimco High Income Toshin attracted Â¥4.9B out of Â¥300B target.
- Handelsblatt: 10 Eastern European countries are negotiating with IMF for billions of urgently needed credit.
- 7:00 (CA) Canadian Jun Unemployment Rate: 8.7%e v 8.4% prior
- 7:00 (CA) Canadian Jun Net Change in Employment: -35.0K v -41.8K prior
- 8:30 (CA) Canadian May Int'l Merchandise Trade: -0.5B v -0.2B prior
- 8:30 (CA) Canadian May New Housing Price Index MoM: -0.5% e v -0.6% prior
- 8:30 (US) May Trade Balance: -$30.0B v -$29.2B prior
- 8:30 (US) Jun Import Price Index MoM: 2.0% e v 1.3% prior, YoY: -18.6% e v -17.6% prior
- 10:00 (US) July Preliminary U. of Michigan Confidence: 70 e v 70.8 prior
- 10:00 (US) Treasury Sec Geithner to testify before House on derivatives regulation
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