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TradeTheNews.com EU Market Update: BOE minutes show close call to increase QE; All eyes on the FOMC decision whether to tweak the twist
By TradeTheNews.com -
Wed 20 Jun 2012 04:42:21 CT
***Economic Data***
- (EU) ECB: €5.8B borrowed in overnight loan facility vs. €4.4B prior; €764.5B parked in deposit facility vs. €763.6B prior
- (DE) Germany May Producer Prices M/M: -0.3% v -0.2%e; Y/Y: 2.1% v 2.2%e
- (DK) Denmark Jun Consumer Confidence: -2.6 v -1.8e
- (JP) Japan May Convenience Store Sales Y/Y: 1.7% v 6.1% prior
- (SE) Sweden Jun Consumer Confidence:3.1 v 4.0e; Manufacturing Confidence: -4 v -2e; Economic Tendency Survey: 98.7 v 99.7e
- (NL) Netherlands Jun Consumer Confidence: -40 v -38 prior
- (TW) Taiwan May Export Orders Y/Y: -3.0% v -3.7%e
- (IT) Italy Apr Industrial Orders M/M: -1.9% v -2.0%e; Y/Y: -12.3% v -8.6%e
- (IT) Italy Apr Industrial Sales M/M: -0.5% v 0.0% prior; Y/Y: -4.1% v -3.1% prior
- (ZA) South Africa May CPI (all items) M/M: 0.1% v 0.4%e; Y/Y: 5.7% v 5.9%e
- (UK) May Jobless Claims Change: +8.1K v -4.0Ke; Claimant Count Rate: 4.9% v 4.9%e
- (UK) Apr Average Weekly Earnings 3M/Y: 1.4% v 0.8%e; Weekly Earnings exBonus 3M/Y: 1.8% v 1.8%e
- (UK) Apr ILO Unemployment Rate: 8.2% v 8.2%e; Employment Change 3M/3M: +166K v +135Ke
- (UK) The BOE minutes: Voted 5 to 4 to maintain Asset Purchase Target unchanged at £325B (prior was 8-1)
- (UK) The BOE minutes: Voted 9 to ) (unanimous) to leave interest rate unchanged at 0.50%
- (CH) Swiss Jun Credit Suisse ZEW Expectations Survey : -43.4 v -4.0 prior
- (IT) Italy Apr Current Account: -€1.1B v -€2.4B prior
Fixed Income:
- (IN) India sold total INR140B vs. INR140B indicated in 3-month and 6-month Bills
- (RU) Russia sold RUB21.7B vs. RUB39.0B indicated in OFZ Bonds; Yield 8.45% vs. Guidance 8.35-8.45%
- (EU) ECB allotted $1.6B in 7-day USD Liquidity Operation at fixed 0.66% vs. $2.5B prior
- (EU) ECB allotted $9.9B in 3-month USD Liquidity Operation at fixed 0.67% vs. $10.3B prior
- (SE) Sweden sold total SEK10B vs. SEK10B indicated in 3-month and 6-month Bills
- (DE) Germany sold €4.005B in Jun 2014 Schatz; Avg Yield 0.10% v 0.07% prior; Bid-to-cover: 1.9x v 1.7x prior
*** SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM ***
***Notes/Observations***
- BOE has a split 5-4 vote on QE with Gov King in the minority
- Japan May trade deficit was the third highest on record
- Greece set to cement a three party coalition between New Democracy, Pasok and Democratic Left
***Equities***
FTSE 100 +0.20% at 5596, DAX +0.20% at 6375, CAC-40 -0.10% at 3114, IBEX-35 +1.1% at 6768, FTSE MIB +1.6% at 13,657, SMI -0.50% at 6004, S&P 500 Futrues +0.10% at 1351.25
- With all eyes on the later today US Fed decision, European bourses had a mixed open. As of the time of writing most European banks and resource-related shares are trading higher. Indices in Spain and Italy have outperformed, amid the move lower in peripheral bond yields. In terms of the Italian and Spanish bond markets, an article from yesterday's UK Telegraph said that funds from the ESM and EFSF may be used to buy peripheral government debt (did not cite any sources). A similar story was run by the UK's Guardian, but this report was later denied by German officials. During today's session ECB official Weidmann reiterated that Bundesbank's critical view of government bond purchases is known.
- Shares of Aer Lingus [AERL.UK] have gained over 20%, as the company received a €694M bid from Ryanair [RYA.UK]. Kesa Electricals [KESA.UK] is lower by over 5% after reporting a y/y decline in its adjusted profits, citing difficult trading conditions in Europe. Today's strength in shares of ITV [ITV.UK] has been attributed to renewed takeover speculation. In Sweden retailer H&M [HMB.SE] has advanced by more than 2%, as the company's Q2 results beat analyst expectations. European consumer products names including Nestle [NESN.CH], Unilever [UNA.NL] and Beiersdorf [BEI.DE] are trading lower after Procter & Gamble warned on its Q4 outlook.
Speakers:
- The BOE minutes took on a more dovish tone with the vote being 5 to 4 to keep Asset Purchase Target steady at £325B. BOE Gov King, Miles and Posen voted to increase QE by £50B while Fisher voted to increase QE by £25B. The last time the BOE Gov last voted in the minority was back in Aug 2009. The MPC discussed merits of cutting rates and saw no advantage over further QE but ruled it would be best to 'wait-and-see' on Euro Area before more QE. The MPC also discussed changes to banks' reserves with BOE, but saw drawbacks. All MPC viewed risks to inflation shifting to the downside compared to May forecasts. Fall in commodity prices and latest wage data suggested near-term inflation outlook weaker. Risks to UK and global activity from Euro Zone crisis had intensified
- German Fin Min Schaeuble commented that he was in support of a European banking union and saw a common European finance policy soon
- France PM Ayrault copmmented that it would take several years for joint debt to be possible
- ECB's Weidmann reiterated it was key that Greek reforms were implemented and could not let ourselves to be blackmailed on contagion fears . He added that if Troika decided Greece program had been derailed then it would be to Greece to bring it back on track. Lastly he reiterated his opposition to Eurobills
- German CDU party leader Kauder rejected the concept of Euro Bills and Redemption Fund. He did not see that there would be any majority in the Bundestag for a change to constitution
- UK DMO official Stheeman commented that overseas investors hold approx 30% gilts while the BoE held over a third of UK gilt portfolio. The avg maturity for UK debt portfolio was 14.5 years and that super long Gilts were still under consultation.
- ECB stated that had yet to receive letter from Hungary regarding central bank law
- Moody's raised Turkey's sovereign bond rating to Ba1; Outlook Positive
- Spain Budget Min Montoro reiterated that Spain did not need to be rescued and had EU support. EU institutions must address Euro Crisis. He noted that the banking sector figures were dependent upon the audit results
- Czech Central Bank Gov Singer: Anti inflationary risks are substantially more significant at the moment
- BOJ Gov Shirakawa reiterated that the European debt issue was the biggest concern for both global and domestic economy and that uncertainties remained high. Greece still faced a difficult situation. The BOJ Gov also reiterated that Japan's economy had started to pick up moderately and to return to a moderate growth path and effects of past easing likely to increase
- Bank of Korea (BOK) FX Reserve Group commented that it was not selling Euro assets due to Euro Zone debt woes and was targeting investment grade assets in Asia and Latin America. Its current gold holdings were too small and might increase holdings this year. It did purchased more Chinese bonds recently and would exhaust its CNY20B quota by end of 2012
- Japan Upper House approved government guarantees on insurance for crude oil cargoes from Iran; effective Jun 27th. he law would allow the Japanese government to provide cover of up to $7.6B for each tanker carrying Iranian crude bound for Japan in the event of accidents
- Algerian Oil Minister Khelil commented that the recent OPEC decision gave flexibility to Saudi Arabia cut production. He expected oil demand to rise in bot Q3 and Q4 of 2012 and push prices higher
Currencies:
- The USD maintained a softer tone heading into today's FOMC decision. Over the last 24 hours Risk appetite had found traction on QE hopes and potential rate cuts in Europe. The BOE minutes fanned the flames even further. Dealers noting that the FED most likely could tweak the twist but rhetoric on outlook for both economic growth and employment situation. The EUR/USD held above the 1.27 handle as the NY morning approached.
- The GBP plunged on the split vote on the QE portion of its most recent minutes but managed to recover the bulk of its session losses. Cable traded at 1.5720 by the latter part of the European morning after testing 1.5655 after the release of the BOE minutes.
- Peripheral yields were lower across the board. Press reports that European funds from the ESM and EFSF might be used to purchase Spain and Italy bonds help to sooth recent concerns. The Spanish 10-year stayed below the 7% level while the Italian rested below 6%
Political/ In the Papers:
- The Swedish National Institute of Economic Research (NIER) amended its GDP forecast raising the 2012 GDP to 0.7% (from 0.4% prior) and cutting the following year 2013 GDP to 2.3% (from 2.5% prior). It also maintained end-2012 Repo Rate at 1.50%.
- The FT reported certain hedge funds are betting on a large sell-off in the German Bunds. Over 50% of managers polled at an industry conference said that they expect Bund yields to double within a year, as some investors believe they have become too expensive. Others cite the possibility that Germany's bailout related costs could rise if larger Euro Zone countries require assistance.
- The Telegraph's Ambrose Evans-Pritchard expects the first ESM operations will be limited in its capacity. Although the ESM has a theoretical limit of about €500B, its initial paid up capital will only be around €22B. It is not clear if the ESM will be able to raise the large sums on the markets, which are needed to fund its operations. He also suggested the recent German Constitutional Court ruling regarding the ESM could make it more difficult for officials to expand the powers of the fund.
- A group of German economists and professors have proposed a 'Northern Euro' to Chancellor Merkel. In a letter, the group expressed concerns about Germany's liabilities related to the EU debt crisis and urged against the ratification of the ESM. The Group asked Merkel to examine the pro and cons of returning to the Deutsche Mark (D-Mark) or forming a 'North Euro'.
***Looking Ahead***
***All times listed for economic events are denominated in Eastern Standard Time (Add 4 hours for GMT equivalent)
- (UK) BOE Extended Collateral Term Repo (ECTR) lending facility
- (ES) Spain Apr Trade Balance: No est v -€3.3B prior
- 6:00 (PL) Poland to sell PLN2.0B in 4.75% Apr 2017 Bonds (Prior yield 5.047%)
- 6:00 (RU) Russia to sell Up to RUB39.0B in OFZ Bonds; Guidance seen between 8.35-8.45%
- 6:30 (GR) Greece New Democracy leader Samaras to meet Pasok chief Venizelos
- 7:00 (US) MBA Mortgage Applications w/e Jun 15th: No est v 18.0% prior
- 8:00 (NO) Norway Central Bank (Norges) Interest Rate Decision: Expected to leave the Deposit Rates unchanged at 1.50%
- 8:00 (PL) Poland May Core Inflation M/M: 0.3%e v 0.5% prior; Y/Y: 2.7%e v 2.7% prior
- 8:00 (PL) Poland May Sold Industrial Output M/M: +2.9%e v -7.5% prior; Y/Y: 2.5%e - 8:00 (PL) Poland May Producer Prices M/M: 0.5%e v 0.6% prior; Y/Y: 5.0%e v 4.3% prior
- 10:30 (US) Weekly DOE US Crude Oil Inventories
- 12:30 (US) FOMC Rate Decision: Expected to leave interest rates unchanged at 0.25%
- 12:30 (DE) German Chancellor Merkel meets Netherlands PM Rutte
- 14:00 (US) FOMC to release projections for US economy and Fed Funds Rate
- 14:15 (US) Fed Chairman Bernanke holds post rate decision press conference
- (DE) German Chancellor Merkel meets opposition party to discuss fiscal pact
View All Market Commentary
- (EU) ECB: €5.8B borrowed in overnight loan facility vs. €4.4B prior; €764.5B parked in deposit facility vs. €763.6B prior
- (DE) Germany May Producer Prices M/M: -0.3% v -0.2%e; Y/Y: 2.1% v 2.2%e
- (DK) Denmark Jun Consumer Confidence: -2.6 v -1.8e
- (JP) Japan May Convenience Store Sales Y/Y: 1.7% v 6.1% prior
- (SE) Sweden Jun Consumer Confidence:3.1 v 4.0e; Manufacturing Confidence: -4 v -2e; Economic Tendency Survey: 98.7 v 99.7e
- (NL) Netherlands Jun Consumer Confidence: -40 v -38 prior
- (TW) Taiwan May Export Orders Y/Y: -3.0% v -3.7%e
- (IT) Italy Apr Industrial Orders M/M: -1.9% v -2.0%e; Y/Y: -12.3% v -8.6%e
- (IT) Italy Apr Industrial Sales M/M: -0.5% v 0.0% prior; Y/Y: -4.1% v -3.1% prior
- (ZA) South Africa May CPI (all items) M/M: 0.1% v 0.4%e; Y/Y: 5.7% v 5.9%e
- (UK) May Jobless Claims Change: +8.1K v -4.0Ke; Claimant Count Rate: 4.9% v 4.9%e
- (UK) Apr Average Weekly Earnings 3M/Y: 1.4% v 0.8%e; Weekly Earnings exBonus 3M/Y: 1.8% v 1.8%e
- (UK) Apr ILO Unemployment Rate: 8.2% v 8.2%e; Employment Change 3M/3M: +166K v +135Ke
- (UK) The BOE minutes: Voted 5 to 4 to maintain Asset Purchase Target unchanged at £325B (prior was 8-1)
- (UK) The BOE minutes: Voted 9 to ) (unanimous) to leave interest rate unchanged at 0.50%
- (CH) Swiss Jun Credit Suisse ZEW Expectations Survey : -43.4 v -4.0 prior
- (IT) Italy Apr Current Account: -€1.1B v -€2.4B prior
Fixed Income:
- (IN) India sold total INR140B vs. INR140B indicated in 3-month and 6-month Bills
- (RU) Russia sold RUB21.7B vs. RUB39.0B indicated in OFZ Bonds; Yield 8.45% vs. Guidance 8.35-8.45%
- (EU) ECB allotted $1.6B in 7-day USD Liquidity Operation at fixed 0.66% vs. $2.5B prior
- (EU) ECB allotted $9.9B in 3-month USD Liquidity Operation at fixed 0.67% vs. $10.3B prior
- (SE) Sweden sold total SEK10B vs. SEK10B indicated in 3-month and 6-month Bills
- (DE) Germany sold €4.005B in Jun 2014 Schatz; Avg Yield 0.10% v 0.07% prior; Bid-to-cover: 1.9x v 1.7x prior
*** SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM ***
***Notes/Observations***
- BOE has a split 5-4 vote on QE with Gov King in the minority
- Japan May trade deficit was the third highest on record
- Greece set to cement a three party coalition between New Democracy, Pasok and Democratic Left
***Equities***
FTSE 100 +0.20% at 5596, DAX +0.20% at 6375, CAC-40 -0.10% at 3114, IBEX-35 +1.1% at 6768, FTSE MIB +1.6% at 13,657, SMI -0.50% at 6004, S&P 500 Futrues +0.10% at 1351.25
- With all eyes on the later today US Fed decision, European bourses had a mixed open. As of the time of writing most European banks and resource-related shares are trading higher. Indices in Spain and Italy have outperformed, amid the move lower in peripheral bond yields. In terms of the Italian and Spanish bond markets, an article from yesterday's UK Telegraph said that funds from the ESM and EFSF may be used to buy peripheral government debt (did not cite any sources). A similar story was run by the UK's Guardian, but this report was later denied by German officials. During today's session ECB official Weidmann reiterated that Bundesbank's critical view of government bond purchases is known.
- Shares of Aer Lingus [AERL.UK] have gained over 20%, as the company received a €694M bid from Ryanair [RYA.UK]. Kesa Electricals [KESA.UK] is lower by over 5% after reporting a y/y decline in its adjusted profits, citing difficult trading conditions in Europe. Today's strength in shares of ITV [ITV.UK] has been attributed to renewed takeover speculation. In Sweden retailer H&M [HMB.SE] has advanced by more than 2%, as the company's Q2 results beat analyst expectations. European consumer products names including Nestle [NESN.CH], Unilever [UNA.NL] and Beiersdorf [BEI.DE] are trading lower after Procter & Gamble warned on its Q4 outlook.
Speakers:
- The BOE minutes took on a more dovish tone with the vote being 5 to 4 to keep Asset Purchase Target steady at £325B. BOE Gov King, Miles and Posen voted to increase QE by £50B while Fisher voted to increase QE by £25B. The last time the BOE Gov last voted in the minority was back in Aug 2009. The MPC discussed merits of cutting rates and saw no advantage over further QE but ruled it would be best to 'wait-and-see' on Euro Area before more QE. The MPC also discussed changes to banks' reserves with BOE, but saw drawbacks. All MPC viewed risks to inflation shifting to the downside compared to May forecasts. Fall in commodity prices and latest wage data suggested near-term inflation outlook weaker. Risks to UK and global activity from Euro Zone crisis had intensified
- German Fin Min Schaeuble commented that he was in support of a European banking union and saw a common European finance policy soon
- France PM Ayrault copmmented that it would take several years for joint debt to be possible
- ECB's Weidmann reiterated it was key that Greek reforms were implemented and could not let ourselves to be blackmailed on contagion fears . He added that if Troika decided Greece program had been derailed then it would be to Greece to bring it back on track. Lastly he reiterated his opposition to Eurobills
- German CDU party leader Kauder rejected the concept of Euro Bills and Redemption Fund. He did not see that there would be any majority in the Bundestag for a change to constitution
- UK DMO official Stheeman commented that overseas investors hold approx 30% gilts while the BoE held over a third of UK gilt portfolio. The avg maturity for UK debt portfolio was 14.5 years and that super long Gilts were still under consultation.
- ECB stated that had yet to receive letter from Hungary regarding central bank law
- Moody's raised Turkey's sovereign bond rating to Ba1; Outlook Positive
- Spain Budget Min Montoro reiterated that Spain did not need to be rescued and had EU support. EU institutions must address Euro Crisis. He noted that the banking sector figures were dependent upon the audit results
- Czech Central Bank Gov Singer: Anti inflationary risks are substantially more significant at the moment
- BOJ Gov Shirakawa reiterated that the European debt issue was the biggest concern for both global and domestic economy and that uncertainties remained high. Greece still faced a difficult situation. The BOJ Gov also reiterated that Japan's economy had started to pick up moderately and to return to a moderate growth path and effects of past easing likely to increase
- Bank of Korea (BOK) FX Reserve Group commented that it was not selling Euro assets due to Euro Zone debt woes and was targeting investment grade assets in Asia and Latin America. Its current gold holdings were too small and might increase holdings this year. It did purchased more Chinese bonds recently and would exhaust its CNY20B quota by end of 2012
- Japan Upper House approved government guarantees on insurance for crude oil cargoes from Iran; effective Jun 27th. he law would allow the Japanese government to provide cover of up to $7.6B for each tanker carrying Iranian crude bound for Japan in the event of accidents
- Algerian Oil Minister Khelil commented that the recent OPEC decision gave flexibility to Saudi Arabia cut production. He expected oil demand to rise in bot Q3 and Q4 of 2012 and push prices higher
Currencies:
- The USD maintained a softer tone heading into today's FOMC decision. Over the last 24 hours Risk appetite had found traction on QE hopes and potential rate cuts in Europe. The BOE minutes fanned the flames even further. Dealers noting that the FED most likely could tweak the twist but rhetoric on outlook for both economic growth and employment situation. The EUR/USD held above the 1.27 handle as the NY morning approached.
- The GBP plunged on the split vote on the QE portion of its most recent minutes but managed to recover the bulk of its session losses. Cable traded at 1.5720 by the latter part of the European morning after testing 1.5655 after the release of the BOE minutes.
- Peripheral yields were lower across the board. Press reports that European funds from the ESM and EFSF might be used to purchase Spain and Italy bonds help to sooth recent concerns. The Spanish 10-year stayed below the 7% level while the Italian rested below 6%
Political/ In the Papers:
- The Swedish National Institute of Economic Research (NIER) amended its GDP forecast raising the 2012 GDP to 0.7% (from 0.4% prior) and cutting the following year 2013 GDP to 2.3% (from 2.5% prior). It also maintained end-2012 Repo Rate at 1.50%.
- The FT reported certain hedge funds are betting on a large sell-off in the German Bunds. Over 50% of managers polled at an industry conference said that they expect Bund yields to double within a year, as some investors believe they have become too expensive. Others cite the possibility that Germany's bailout related costs could rise if larger Euro Zone countries require assistance.
- The Telegraph's Ambrose Evans-Pritchard expects the first ESM operations will be limited in its capacity. Although the ESM has a theoretical limit of about €500B, its initial paid up capital will only be around €22B. It is not clear if the ESM will be able to raise the large sums on the markets, which are needed to fund its operations. He also suggested the recent German Constitutional Court ruling regarding the ESM could make it more difficult for officials to expand the powers of the fund.
- A group of German economists and professors have proposed a 'Northern Euro' to Chancellor Merkel. In a letter, the group expressed concerns about Germany's liabilities related to the EU debt crisis and urged against the ratification of the ESM. The Group asked Merkel to examine the pro and cons of returning to the Deutsche Mark (D-Mark) or forming a 'North Euro'.
***Looking Ahead***
***All times listed for economic events are denominated in Eastern Standard Time (Add 4 hours for GMT equivalent)
- (UK) BOE Extended Collateral Term Repo (ECTR) lending facility
- (ES) Spain Apr Trade Balance: No est v -€3.3B prior
- 6:00 (PL) Poland to sell PLN2.0B in 4.75% Apr 2017 Bonds (Prior yield 5.047%)
- 6:00 (RU) Russia to sell Up to RUB39.0B in OFZ Bonds; Guidance seen between 8.35-8.45%
- 6:30 (GR) Greece New Democracy leader Samaras to meet Pasok chief Venizelos
- 7:00 (US) MBA Mortgage Applications w/e Jun 15th: No est v 18.0% prior
- 8:00 (NO) Norway Central Bank (Norges) Interest Rate Decision: Expected to leave the Deposit Rates unchanged at 1.50%
- 8:00 (PL) Poland May Core Inflation M/M: 0.3%e v 0.5% prior; Y/Y: 2.7%e v 2.7% prior
- 8:00 (PL) Poland May Sold Industrial Output M/M: +2.9%e v -7.5% prior; Y/Y: 2.5%e - 8:00 (PL) Poland May Producer Prices M/M: 0.5%e v 0.6% prior; Y/Y: 5.0%e v 4.3% prior
- 10:30 (US) Weekly DOE US Crude Oil Inventories
- 12:30 (US) FOMC Rate Decision: Expected to leave interest rates unchanged at 0.25%
- 12:30 (DE) German Chancellor Merkel meets Netherlands PM Rutte
- 14:00 (US) FOMC to release projections for US economy and Fed Funds Rate
- 14:15 (US) Fed Chairman Bernanke holds post rate decision press conference
- (DE) German Chancellor Merkel meets opposition party to discuss fiscal pact
Copyright (c) 2012 Trade The News, Inc.
Above listed TradeTheNews.com market updates are delayed 5 minutes. To sample the live audio broadcasts, real-time headlines and research on demand in real time, please go to http://www.tradethenews.com/ for your no-obligation FREE trial.
Above listed TradeTheNews.com market updates are delayed 5 minutes. To sample the live audio broadcasts, real-time headlines and research on demand in real time, please go to http://www.tradethenews.com/ for your no-obligation FREE trial.
View All Market Commentary
*Disclaimer: The information in the Market Commentaries was obtained from sources believed to be reliable, but we do not guarantee its accuracy. Neither the information nor any opinion expressed therein constitutes a solicitation of the purchase or sale of any futures or options contracts.
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