RANsquawk DAILY EUROPEAN OPENING NEWS – 14/05/12
ASIA
JGB prices remained slightly lower, dealers noted that many domestic real money accounts stayed reluctant to chase higher prices amid a lack of market moving data and events during Monday trade. Elsewhere, BoJ's Shirakawa warned that reckless bond buying could potentially disrupt financial markets. (RANsquawk)
The PBOC cut China's reserve requirement ratio (RRR) by 0.5% effective May 18th. The cut will drop the RRR for large institutions to 20% and to 16.5% for medium/small financial institutions. (Xinhua) The cut will release an estimated CNY 400 bln (USD 63.5bln) of capital into the market.
Fitch have warned that is will likely downgrade China in the next 12-18 months as the central government takes over bad debt from banks and struggling local governments. The agency has kept their Chinese 2012 GDP forecast unchanged at 8.0%. Fitch have also commented on Japan, saying that the country's lack of fiscal progress is disappointing, and the agency remains comfortable with their negative ratings outlook. Elsewhere, JP Morgan have cut their 2012 growth forecast for China to 8.0% from 8.2%, and expects two or three further RRR cuts this year. (Sources)
US
T-notes saw mixed trade on Friday, with moves lower following a beat on the headline US Michigan consumer confidence number, beating expectations to come in at a solid 77.8. However with political uncertainty still lingering in Europe, particularly in Greece, market participants were reluctant to remain short heading into the weekend, leading to a recovery in prices and grind higher since the data to finish today's trading session higher. T-notes settled at 133.02+, up
9+ ticks. Finally the DJIA finished at 12820.53, down 0.27%; the NDX finished at 2615.98, down 0.01%; and the SPX finished at 1353.38, down 0.34%. For the week, the DJIA finished down 1.67%; the SPX finished down 1.15%; and the NASDAQ Composite finished down 0.76%. T-notes were seen trading up 4 ticks at 133.06+ heading into the European session, following the failed agreements from the Greek leaders to form a coalition. Last price taken at 0635BST. (RANsquawk)
President Obama said the US can take "plenty of steps" to boost its economy, but Congress needs to act on the economic proposals and should expand the mortgage refinancing programmes. (Sources)
EU
EU's Juncker says Europe should reconsider its timetable for financial aid for Greece and renegotiate the contracts with the country. He sees no problem if the country gets one year or more to implement its consolidation program. (DPA-AFX) On a similar note, according to reports by Real News, the Troika is willing to make six important changes to the aid agreement, which could mean that Greece are given an extra year to cut its budget deficit. ECB's Weidmann says that Greek aid is tied to reforms and that the country risks losing the support if it doesn't persevere with savings measures. He also added that any modification in the statues of the ECB would be dangerous. (FAZ/Sueddeutsche Zeitung)
The first round of talks between Greek political party leaders chaired by the President on the formation of a coalition government ended without resolution on Sunday, but the dialogue continued into the evening. (Sources) The leader of Greece's Communist KKE party has called for the annulment of Greece's loan deal, ruling out the party's participation in a coalition government.
Moody's have commented that Greece's inconclusive elections have increased the risk that the country could default and exit the Eurozone. For Germany, the agency have said the country's macro-prudential regulation will be credit-positive for the sovereign credit rating. (Sources)
The German finance minister said that Greece would receive a further aid program from the EFSF if it exited the Euro. He added that he remains confident that the fiscal pact will be approved in the German parliament before the summer break. (Spiegel/Welt am Sonntag)
Greece's potential Euro exit is to cost states EUR 276bln. Meanwhile, ECB's Honohan says that a Greek Eurozone exit can technically be managed. Elsewhere, ECB's Coene said thatGreece's exit from the eurozone "would be possible," even if not in Europe's interest, and countries should have a democratic right to quit. (WirtschaftsWoche/Sources/FT-More) In related news, EU's Rehn says that Europe is more "resilient" to Greek Eurozone exit than 2 years ago. However, he added that he still believes that Greece can stay in the Eurozone.
Spain's central government is preparing to intervene in the finances of one of its autonomous regions, Asturias, as it grapples with the challenge of meeting this year's deficit reduction target. (FT-More)
EU's Juncker says the EIB's EUR 10bln capital increase would be a very substantial contribution to Europe's growth strategy. (RTL) EU's Rehn added that the European economy is in a shallow recession but that the crisis cannot be solved by piling new debt on old debt. (Sources)
British PM Cameron is considering pumping more than GBP 1bln of UK funds as a part of the capital injection into the EIB. (FT-More) A party aide commented that there is no formal proposal as yet, but the party is not ruling anything out.
German chancellor Merkel's centre-right CDU suffered a bruising defeat on Sunday night in the election of a new parliament in North Rhine-Westphalia. (FT-More) According to the predictions from the ARD, results show the SPD got 39%, the CDU plunged to 26% and the Greens remain stable at 12%. (at the last NRW elections: SPD: 34.6%, CDU: 34.5%, Greens: 12.1%). (Die Welt)
Britain is to drop some of its objections to the EU's flagship reforms to the banking sector, removing the main political obstacle to a deal on one of the most divisive regulation issues in Brussels. (FT-More) UK Chancellor Osborne is ready to back an agreement tomorrow on the basis that the final details will not stop the UK from implementing Basel III and pursuing its flagship banking reforms.
FX
The CFTC said the net EUR short position is now USD 23.4bln, an increase of 32% from the previous week, and the largest net EUR short position since February 2012; The net JPY short position USD 6.4bln, a decrease of 18%; with the net CHF short position USD 2.2bln, an increase of 13%; finally, the net USD long position is USD 20.5bln, an increase of 62%. (Sources)
The RBA has said inflation is to be subdued for the next two years, adding that GDP growth is to return to trend having been boosted by rate cuts. (Sources)
GEOPOLITICAL
China has denied it is increasing combat readiness in response to a tense territorial row with the Philippines in the South China Sea. (Sources)
COMMODITIES
WTI crude futures were trading down USD 0.39 at USD 95.74, trading at its lowest levels in almost five months as the European debt crisis continues to be the main theme. Last price taken at 0635BST. (RANsquawk)
The Saudi oil minister has said Brent Crude would be better around USD 100/BBL, adding that crude inventory should be a little higher. Al-Naimi has also said he aims to up the recovery in his country's oilfields to 70% from 50%. (Sources)
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*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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