SNB reaffirms the EUR/CHF floor at 1.2000, but says the bank is ready to take any further measures if necessary.
ECB's Hansson has said the ECB governing board must debate the issue of negative deposit rates.
Geopolitical tensions rise in the Middle East and North Africa as Yemeni protesters storm the US Embassy in retaliation for the posting of an anti-Muslim video and the US send two warships to offshore Libya after a US Ambassador was killed in the country yesterday.
Market focus looks ahead to the FOMC rate decision due at 1730BST/1130CDT.
RANsquawk European Morning Briefing Video: http://youtu.be/HlYpS5pAAF8
Now that the German high court ruling is out of the way and the Dutch elections results produced no real surprises the European equity markets are essentially flat with position squaring evident ahead of the keenly awaited FOMC rate announcement and accompanying press conference. Bund futures have followed a similar trend having ticked higher through the morning with some modest re-widening of the Spanish and Italian 10yr government bond yield spreads, wider by 9bps and 5bps respectively, also in Euribor will did see a decent bid after comments from ECB member Hansson who said the ECB council must now start debating a negative deposit rate. Today's supply from Italy and Ireland had little impact on the general sentiment, that's in spite of the fact that demand for debt issued by the Italian Treasury was less than impressive to say the least. Also of note, Catalan President Mas said that Spain should debate staying in the euro, which unsettled the market somewhat.
Meanwhile in the FX market the USD is broadly unchanged as participants are wary of getting there toes wet ahead of what is expected to be the most interesting Fed decision in some time and elsewhere the SNB reiterated the 1.2000 floor in EUR/CHF to the disappointment of some but did say they remain ready to take measures at any time.
Overnight it was reported that the US Navy have stepped up their security presence in Libya by ordering two warships to the country's coast, according to US officials. This is after the US ambassador to Libya and three American members of his staff were killed in the attack on the US consulate in the eastern city of Benghazi by protesters earlier in the week. Today, there were more reports of demonstrations in the region, however supplies remain unaffected.
The Japanese government are to downgrade their economic assessment in September's report that is to be submitted to the Cabinet on Friday, according to Japanese press. (Nikkei) This would mark the second consecutive assessment downgrade for the country.
Fed watcher Hilsenrath has previewed today's FOMC decision with "Four Things to Watch at Fed Meeting". (WSJ)
Hilsenrath lists the 'four things to watch' as:
- QE Strategy - How the Fed will structure such a program.
- What to do with Operation Twist - Possible suspension or a modification of the program.
- Communication - How the Fed describes its impetus for action, and its criteria for action in the future.
- Whether to lower another rate - The Fed could move to lower the Interest on Excess Reserves (IOER), although officials are reluctant to do so due to the disruption to short-term lending markets.
Federal Reserve officials begin their two-day policy meeting today after weeks of anticipation about what they will do to get a slow-moving economic going. Officials have strongly hinted that they will act by launching a new bond-buying program, providing new assurances that interest rates will remain low for even longer than previously planned, or some combination of the two.
Overall foreclosure activity was 0.8% higher in August from July, however lower by more than 15% from August last year, according to RealtyTrac analysis. (Newswires)
EU & UK Headlines
ECB's Hansson has said the ECB must debate the topic of negative deposit rates. This follows comments seen earlier in the session by ECB member Demetriades, who has said the ECB may not be ready for negative deposit rates. (Newswires) Of note, these members come from the Estonian and Cypriot members of the ECB, and so may not carry as much weight as similar comments from the influential members, such as German, French and Spanish representatives.
On banking supervision, ECB's Nowotny has said he welcomes the ECB's role as a bank supervisor, but adds that the central bank needs more resources to do the job properly. (Newswires)
The SNB held their 3-month Libor target rate unchanged at 0.00%, alongside expectations. The bank held the EUR/CHF floor at 1.2000, reiterating that the bank remains committed to buying unlimited currencies. However, the bank did say that they are prepared to take further measures at any time, aiding speculation that the bank could protect CHF strength further. (Newswires)
The Italian Treasury sold EUR 6.5bln over three lines earlier today, with the yield on the on-the-run 2015 BTP line at 2.75%, markedly lower than the previous 4.65% yield. (Newswires)
Core European bourses have trended lower throughout the European morning, in a reversal of the gains seen yesterday following the German Constitutional Court hearing yesterday wherein they allowed the ratification of the ESM. Risk-off sentiment is evident in the outperformance of the defensive healthcare stocks and financials trading in the red. The moves lower have been put down to position taking ahead of the key FOMC rate decision due later today.
In individual stocks news, the proposed merger between EADS and BAE Systems continues to take focus, as investors become concerned over the regulatory barriers and numerous complications that could emerge from the vast state holdings in both companies. As such, both company's shares have sold off some the sharp gains seen yesterday with EADS lower by 8.7%, and BAE Systems lower by 6.8%. Finmeccanica, the third partner in the aerospace Eurofighter project, are also trading lower in a sector-related move by 4.1%.
EUR/USD came off earlier highs, driven lower by touted selling by an Asian central bank, as well as profit taking related flows by leveraged accounts. GBP/USD is trading little changed and in close proximity to the 1.6100 level, with bids said to be placed at 1.6100/05 and offers are noted at 1.6125. USD/JPY trended lower throughout the session and tripped stops at 77.65/60, however failed to wipe out touted KO barrier at 77.50 level.
WTI crude futures trade higher heading into the NYMEX pit open as geopolitical tensions in both North Africa and the Middle East raise speculation over the strained relationships between the US and these regions. The US Navy have increased their presence in Libya, moving two warships to offshore Libya after the death of a US Ambassador yesterday. Instability continues in the Middle Eastern area, with Yemeni protesters storming the US Embassy in retaliation for an anti-Muslim video of US origin that has garnered focus. The news has not had a significant impact on the energy complex as yet, but should the tensions escalate, it could well take effect. The next key risk event for the energy complex comes with the EIA Natural Gas Storage Change numbers, followed by the FOMC rate decision due later in the US session. Gold spot prices are seen slightly higher on the session as investors continue to look ahead to possible easing measures later today at the FOMC rate decision.
Last price taken at: 1233BST
Brent Crude October futures expiry (1930BST/1330CDT)
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