EU says there have been no talks on using the EFSF/ESM for bond purchases at the G20 summit.
Greek socialist leader Venizelos says Greece has a government; says key issue now is to create a bailout renegotiation team.
Spanish 10-yr government bond yield holds below 7.00% for much of the European morning.
RANsquawk European Morning Briefing Video: http://youtu.be/g-5bttlBTa4
After opening modestly higher across the European equity futures, they have come off their highest levels after a morning's trade. The risk sentiment at the open was buoyed by overnight reports that European leaders are mulling the buying of Euroarea bonds to reduce borrowing costs for continental governments, using the EFSF/ESM funds. As the session progressed through the European morning, comments from the EU have garnered attention saying that there have been no discussions at the G20 about the use of the EFSF/ESM for bond purchases, pressing EUR/USD and lower, however Spanish 10-yr government yields have managed to break below the 7.00% mark for much of the session, trading at 6.92% at the Europe-North American crossover.
The release of the minutes of the BoE's June meeting provided a surprisingly dovish vote for further QE, with the governor King opting to expand asset purchases this month, although a slight majority voted against an extension; 5-4. With the minutes proving to be more dovish than expected, GBP/USD did significantly weaken for a very brief period, coinciding with a 30 tick spike in Gilt futures, however the moves were very rapidly pared to pre-announcement levels. The minutes have swayed more institutions to opt for further QE at their July meeting, with RBS now revising their forecasts.
The BoE's inaugural ECTR auction came and went with little focus, as the Bank allotted the full GBP 5bln, although a very brief 3-tick spike in Sep'12 short sterling futures was observed.
Looking ahead in the session, participants look forward to Bernanke and the FOMC releasing their latest rate decision and forecasts.
According to the BoJ minutes, a few members of the board said the bank must be ready to act if risks to the Japanese economy materialise as a result of events in Europe. (Newswires)
Japanese Merchandise Trade Balance Total (May) M/M -907.3bln vs. Exp. -544.4bln (Prev. -520.3bln, Rev. -522.0bln)
Japanese Adjusted Merchandise Trade Balance (May) M/M -657.2bln vs. Exp. -347.7bln (Prev. -480.2bln, Rev. -512.0bln) (Newswires)
US MBA Mortgage Applications (Jun 15) W/W -0.8% vs Prev. 18.0% (Newswires)
EU & UK Headlines
Several reports were released following the EU close yesterday which speculated on potential peripheral debt purchases via the EFSF/ESM. The pieces focused on the possibility of German Chancellor Merkel easing her opposition and bowing to pressure following the G20 meetings. However, a German government official was quoted by the major newswires as explicitly denying this idea. (RANsquawk/Guardian/Telegraph/FT-More/Newswires) The concept is to be discussed at a meeting between German Chancellor Merkel, Spanish PM Rajoy, French President Hollande and Italian PM Monti at a meeting in Rome this Friday, according to Hollande.
During session today, the EU have said there has been no discussion at the G20 about the use of ESM and EFSF for bond purchases. (Newswires)
The BoE voted 5-4 against expanding their APF target in June, with the BoE governor King voting to expand purchases by GBP 50bln, along with Posen and Miles, and Fisher voting for a GBP 25bln increase. (Newswires)
The minutes showed that most members judged further BoE stimulus was either warranted now or would be warranted. The MPC also discussed the merits of cutting rates, but saw no advantage of a cut over further QE. In the BoE Agents' summary of business conditions, the BoE concluded that non-QE policies are better suited to aiding bank funding, a direct pre-cursor to King's Mansion House speech.
Greek socialist leader Venizelos says Greece has a government, with cabinet make-up to be discussed by this evening. (Newswires)
Commentary regarding an extension of the Greek terms has been played down by the German finance ministry, saying that giving Greece more time is pure speculation, adding that the broad consensus in Europe is that Greece stick to the agreed conditions for aid. (Newswires)
Italian PM Monti has said press speculation over an Italian bailout are wrong, reiterating that his country is not seeking a bailout. (Newswires)
European equities are trading modestly higher in all bourses with the exception of the CAC-40, with modest risk sentiment noted from the open. Indices have carried across the tone from last night, amid reports of plans for European bond-buying using the EFSF and ESM tools. As such, financials are seen as the strongest sector of the day, currently higher by over 1%, as fears of spiralling government borrowing costs ease somewhat. The top gainers today in Europe consist primarily of peripheral financials, with Mediobanca, Banca Monte dei Paschi and Bankia making strong gains.
In other equities news, French carmakers including Peugeot and Renault are outperforming following news that the French government are considering introducing a tax on large luxury cars in order to slow the drop in demand for smaller models built within France, according to a study commissioned by elected officials of towns with auto plants. Peugeot shares are seen higher by over 4% at the midway point.
Despite being a US-listed stock, a forecast cut by Procter & Gamble has taken its toll on European listed sector-related stocks, with L'Oreal, Reckitt-Benckiser and Unilever taking heavy losses. As such, L'Oreal shares are one of the worst performers, currently trading lower by 2.5%, with Reckitt-Benckiser and Unilever both lower by around 1.5%.
GBP/USD saw a severe dip following the surprisingly dovish BoE minutes from their June meeting, with the pair hitting session lows 1.5655 in a move that was rapidly pared to pre-announcement levels. Since then, the pair has been on a modest upwards trajectory, with unconfirmed market talk of Asian names buying providing support comfortably through the 1.5700 level ahead of the US open. Should the pair see any downside, it may come into close proximity to a touted option expiry at the 1.5700 handle for the 10am (1500BST) NY cut.
EUR/USD is seen moving in line with European equities and has seen strength following the confirmation from the Greek PASOK leader Venizelos that a Greek government has been formed, pushing above the 1.2700 mark ahead of the US open. The pair now trades in positive territory, higher by around 25 pips, in close proximity to a touted 1.2700 option expiry for the 10am (1500BST) NY cut.
WTI and Brent crude futures are trading in modest negative territory after recovering from USD 1.00 losses in the early hours of the European session. The recovery coincides with upward movements in European equities. Energy traders now look ahead to DOE inventory data as the next flash point for price action, due at 1530BST/0930CDT.
Oil & Gas News:
Enbridge was forced to close down the Athabasca pipeline following a spill at the Elk Point oil pumping station in Alberta. In a statement the company confirmed an estimated 1400BBLs of oil were released on Monday, with the failure of a flange gasket in the pumping station believed to be the cause of the spill.
Japan's coal and LNG imports surged by as much as a fifth in May from a year ago to replace lost nuclear energy after reactors were idled.
Motiva faces deepening woes at its Texas refinery with sources saying that a new crude unit at the project may be shut for up to a year due to extensive corrosion, more than twice as long as initially expected.
The Bureau of Ocean Energy Management has said it received nearly 600 bids on 454 blocks in advance of the US' first lease sale in central Gulf of Mexico since the 2010 Macondo blowout and oil spill.
Mexico's state oil monopoly has awarded four contracts to drill mature oilfields in the second round of bidding to open up the country's nationalized oil industry to more private investment.
According to the former Algerian oil minister, OPEC's decision last week to maintain the crude production ceiling gives Saudi Arabia flexibility to cut output depending on demand.
China's stockpiles of crude for commercial use rose to their highest level in eight months in May as imports picked up, according to customs data.
EU's Ashton said that world powers and Iran have agreed a technical follow-up meeting in Istanbul on July 3 and world powers remain unified in seeking a diplomatic solution to the nuclear dispute with Iran.
Japan's parliament have passed a bill to provide USD 7.6bln of sovereign insurance to tanker owners that carry Iranian oil as it seeks to maintain supplies amid EU sanctions.
Last price taken at 1237BST
UST June futures expiry (1801BST/1201CDT)
WTI Crude July futures expiry (1930BST/1330CDT)
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