Forex Special
- Articles in WSJ and Telegraph suggest that Fed may go for another round of monetary easing
- Generally strong manufacturing PMI from Eurozone strengthened risk-appetite
- There was market talk of a potential Chinese reserve requirement rate hike tomorrow
Overnight News
ASIA
At 0611 BST JGB's were trading down 8 ticks at 141.90 predominately weighed by strength in the Nikkei but pared loses after a solid cover ratio in a domestic 10-yr debt sale. Nikkei rose 1.3%, helped by broad buying on easing worries about the global economic recovery after strong European bank results helped to send Wall Street to a 10-week closing high. But concerns about future improvement in the global economy and the JPY’s strength limited gains, according to market players. (RANsquawk)
In other news, Chinese banks extended new local currency loans of an estimated CNY 700bln in July. The estimate was made after sources said China’s four biggest state-owned banks, including ICBC, lent a combined CNY 243bln last month. The combined new loans in China’s 21 leading commercial banks were USD 370bln in July, according to unidentified industry data. (Shanghai Securities News/Caixin Online)
Elsewhere, there was market talk of a Chinese Reserve Requirement Rate hike tomorrow. (RANsquawk)
US
According to the Wall Street Journal, Fed mulls symbolic shift. Whether to use cash the Fed receives when its mortgage-bond holdings mature to buy new mortgage or Treasury bonds, instead of allowing its portfolio to shrink gradually, as it is expected to do in the months ahead. Any change—only four months after the Fed ended its massive bond-buying program—would signal deepening concern about the economic outlook. If the Fed's forecast deteriorates significantly, it could also be a precursor to bigger efforts to pump money into the economy. (WSJ)
In other news, Fed’s Bullard said that the Fed must have a plan in place to deal with the threat of a new economic downturn, and must be ready to confront deflation. (RTRS) Also, the Federal Reserve will start the deflation fight next week, and is set to kick start a new phase of monetary easing, according to Nomura’s chief global economist, Paul Sheard. (Telegraph)
Elsewhere, US Treasury Secretary Geithner said the US economic recovery remains intact as areas of the private sector strengthen, aided by government actions taken over the past two years. Geithner promised not to swamp Wall Street in red tape and vowed to move quickly to put in place new rules for the financial marketplace to dispel uncertainty. In return, he urged big banks to step up and make loans more readily available to businesses. (Sources/RTRS)
Also in the news, Senate Democrats decided Monday afternoon to pull a scheduled vote on legislation that would have provided USD 26bln in emergency aid to state and local governments, after it emerged that the plan would have added nearly USD 5bln to the federal budget deficit. (Sources)
Bonds
EUROPEAN GOVERNMENT BONDS
Bund futures traded higher throughout the session amid risk-averse trade and strength in US Treasuries emerging from articles in Wall Street Journal and Telegraph that Fed may go for another round of monetary easing, as well as further hawkish comments from Fed’s Bullard. European peripheral 10-year bond yield spreads have generally widened. Moving into the North American open, prices are trading in positive territory.
- PMI Construction (Jul) M/M 54.1 vs. Exp 58.0 (Prev. 58.4)
- Conventional Tap auction for GBP 3.75bln, bid/cover 1.99, yield tail: 0.7 basis points. (RTRS)
- Kuwait’s oil minister said that Kuwait is satisfied with oil prices between USD 75 and USD 85 a barrel. He added that he does not expect OPEC to lower production quotas.
- Russian President Medvedev has said that Belarus has promised to recognize Abkazia and South Ossetia, the breakaway Georgian regions, as independent states.
- Lebanese and Israeli soldiers have exchanged rocket and gunfire along the border between the two countries.
| Maturity | 2 | 5 | 10 | 30 | Bund (Sep10) |
| Level | 0.764 | 1.650 | 2.668 | 3.376 | 128.54 |
| Change (bps) | -1.947 | -3.143 | -2.828 | -1.901 | 0.2 |
GILTS
NYSE LIFFE Gilt futures traded in tandem with Bunds amid risk-averse trade. Moving into the North American open, prices have maintained strength and trading in positive territory.
In other news, the UK prime minister and his deputy have written to cabinet colleagues to remind them that reducing the deficit is the "most urgent issue facing Britain". But David Cameron and Nick Clegg also say any proposals to promote economic growth will be treated favourably in the departmental spending review. (BBC)
Elsewhere, Fitch said UK currently has a problem of inflation and not that of deflation. (Sources)
| Maturity | 2 | 5 | 10 | 30 | Gilt (Sep10) |
| Level | 0.762 | 2.052 | 3.314 | 4.250 | 121.58 |
| Change (bps) | -2.037 | -2.935 | -3.224 | -3.037 | 0.28 |
EQUITIES
European equities traded in negative territory for most of the European session amid risk-averse trade emerging from possibility of further monetary easing from the US Fed, as well as market talk of potential Chinese reserve requirement rate hike tomorrow. However, as the session progressed the DAX and CAC ventured into positive territory led by BMW following a strong quarterly earnings. Moving into the North American open, equities have come off their worst levels with Health Care and Consumer Goods as best performing sectors.
| Index | DAX | CAC | FTSE | EUROSTOXX | SMI |
| Level | 6307.22 | 3745.12 | 5387.25 | 2819.94 | 6345.87 |
| Change (ticks) | 15.09 | -6.91 | -9.86 | -2.23 | 24.23 |
FX
The USD index traded lower for the entire European session amid concerns over further monetary easing by the US Federal Reserve, as well as it trading below the 200 day moving average, which further exacerbated the downward move. This in turn provided strength to both EUR and GBP, with the EUR/USD touching a three-month high at 1.3259, and the GBP/USD reaching a six-month high at 1.5965.
In other news, USD/JPY touched an eight-month low following the Japanese finance minister declining to comment on any FX intervention. Also, the CHF lost strength across the board after much weaker Swiss CPI figures. Swiss CPI (Jun) M/M -0.7% vs. Exp. -0.5% (Prev -0.4%); Y/Y -0.4% vs. Exp. 0.7% (Prev -0.5%) (RTRS)
Elsewhere, Australia’s central bank kept its key cash rate steady, a move widely expected given inflation has moderated in the wake of six previous rate hikes. The RBA said this setting of monetary policy is appropriate, and interest rates are around average levels of past decade. It also said that inflation is likely to be close to target.
Reserve Bank of Australia Cash Target (Aug) M/M 4.50% vs. Exp. 4.50% (Prev. 4.50%) (RTRS/Sources)
| Currency | EURUSD | GBPUSD | USDJPY |
| Level | 1.3250 | 1.5955 | 85.90 |
| Change (pips) | 0.0071 | 0.0068 | -0.6000 |
COMMMODITIES
WTI Crude futures have traded higher during the European morning session, supported by a weakening USD Index.
Oil & Gas News:
- Geopolitical News:
| Commodity | WTI Nymex | OTC Spot Gold |
| Level | 81.82 | 1186.55 |
| Change (USD) | 0.48 | 3.70 |
LOOKING AHEAD
Economic Releases
| CDT | BST | EXP. | PREV. | ||
| 645 | 1245 | US | ICSC Chain Stores W/W (Aug 3) | 0.60% | |
| 645 | 1245 | US | ICSC Chain Stores Y/Y (Aug 3) | 3.80% | |
| 730 | 1330 | US | Personal Income M/M (Jun) | 0.20% | 0.40% |
| 730 | 1330 | US | Personal Spending M/M (Jun) | 0.10% | 0.20% |
| 730 | 1330 | US | PCE Deflator Y/Y (Jun) | 1.30% | 1.90% |
| 730 | 1330 | US | PCE Core M/M (Jun) | 0.10% | 0.20% |
| 730 | 1330 | US | PCE Core Y/Y (Jun) | 1.30% | 1.30% |
| 755 | 1355 | US | Redbook M/M (Aug 3) | -0.70% | |
| 755 | 1355 | US | Redbook Y/Y (Aug 3) | 2.70% | |
| 900 | 1500 | US | Factory Orders M/M (Jun) | 0.50% | -1.40% |
| 900 | 1500 | US | Pending Home Sales M/M (Jun) | 3.90% | -30.00% |
| 900 | 1500 | US | Pending Home Sales Y/Y (Jun) | -15.60% | |
| 900 | 1500 | US | Durable Goods Revision M/M (Jun) | -0.70% | |
| 900 | 1500 | US | Nondef cap ex-air Revision M/M (Jun) | 0.60% | |
| 930 | 1530 | UK | DMO Announcement on Gilt Size | ||
| 1530 | 2130 | US | API Crude Oil Inventories W/W (Jul 30) | 3084K | |
| 1530 | 2130 | US | API Gasoline Inventories W/W (Jul 30) | 877K | |
| 1530 | 2130 | US | API Distillate Inventory W/W (Jul 30) | 407K | |
| 1530 | 2130 | US | API Cushing Crude Inventory W/W (Jul 30) | 465K | |
| 1600 | 2200 | US | ABC Consumer Confidence W/W (Aug 1) | -48 | |
| 1600 | 2200 | US | Domestic Vehicle Sales Y/Y (Jul) | 8.90M | 8.57M |
| 1600 | 2200 | US | Total Vehicle Sales Y/Y (Jul) | 11.60M | 11.08M |
| N/A | N/A | UK | Halifax House Prices 3M/Y (Jul) | -0.30% | -0.60% |
| N/A | N/A | UK | Halifax House Prices M/M (Jul) | 4.60% | 6.30% |
| US Earnings: | Anadarko Petroleum, Electronic Arts, Marathon Oil, Mastercard |
- Prices taken at 1150BST
