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Daily US Opening News And Market Re-Cap: May 21


From RanSquawk

  • G8 leaders backed a ‘strong and cohesive’ Euro-zone including Greece and committed to boosting growth and demand.
  • Fed’s Lockhart says QE3 cannot be taken off the table.
  • German govt. spokesman says position on Eurobonds has not changed and Germany are still opposed.
  • German and French finance ministers will hold a news conference at 1530BST, according to the German finance minister.

Market Re-Cap

At the beginning of the week, European equities are seen modestly higher in the major indices with underperformance noted in the peripheral markets. Markets have sought some solace in the G8 summit over the weekend, with leaders agreeing that the optimal scenario would be Greece remaining within the European Monetary Union, and have furtively agreed that further measures may be necessary to return Europe to growth. The disagreements, however, continue to rollover as leaders fail to commit to a specific growth strategy.

The tentative risk sentiment is reflected in the fixed income markets, with the German Bund remaining in negative territory for much of the session and 10yr government bond yield spread between the periphery and the German benchmark tighter on the session. Touted bids by domestic accounts helped support BTPs (Italian paper), especially in the short end of the curve, where the spread between the German equivalent is trading tighter by around 3bps.

From Tokyo, comments from Fed’s Lockhart have drawn attention, who commented that with the downside risks emerging from the Eurozone, it would be unwise to take QE3 off the table.

Looking ahead in the session, there is little in the way of US data to distract participants away from the European continent, so focus will remain over the Eurozone and any developments regarding Greek membership or growth strategies for the monetary union.

Global Headlines

- G8 leaders backed a ‘strong and cohesive’ Euro-zone including Greece and committed to boosting growth and demand, alongside measures to fix debt-laden fiscal balance sheets, although it is reported that leaders had different ideas on strategies to fight the economic crisis. (Sources)

- French President Hollande said he will make proposals for Eurobonds at an upcoming informal EU summit on May 23rd as part of his ideas to stimulate growth and help ailing Euro-zone economies. (Telegraph)

- German Chancellor Merkel maintained her stance of fiscal austerity, stating that curbing public deficits and boosting economic growth are both needed and ‘should not be played off against each other’, she also added that G8 leaders did not discuss any proposed measures to boost growth in detail. (Sources)

-Another proposal could include empowering the Eurozone’s EUR 500bln rescue fund directly to recapitalize faltering European banks and mutually issued Eurozone bonds. (FT)

Asian Headlines

Chinese Premier Wen has vowed to make growth a bigger priority after the economy showed signs of weakness, although Wen said that authorities would maintain ‘proactive’ fiscal policy and ‘prudent’ monetary policy. (Xinhua)

US Headlines

The US jobs market will strengthen significantly next year, with monthly jobs growth expected to average 200,000, according to NABE survey. The report forecasts unemployment at 7.5% by the end of 2013. (Sources)

EU and UK Headlines

- The latest Greek poll showed the Syriza party in the lead with 21.7%, the New Democracy party had 20.2% and the Pasok party had just 11.7% of support. (Metro) Syriza party leader Tsipras said the party’s opposition to the terms of Greece’s financial-aid program does not mean the country would have to abandon the EUR if his party forms a government after the June 17th elections. The leader added that if elected, he would seek talks with the Troika on new terms for the country to stay in the currency. (Sources)

- The EU Commission, ECB and in-house experts are working on Greek Euro exit scenarios, and assessing the impact of such an event on the Euro-zone firewall and Euro-area banks, according to a source. The source added that the firewall should be increased if Greece does exit the Euro-zone. (Sources)

- Greece’s central bank denied a national newspaper report that the institution was planning to impose capital controls on withdrawals and to restrict the movement of capital abroad. (Sources)

- Spain re-stated its 2011 budget deficit, noting it was 8.9% of GDP vs. 8.5% initially stated because of a change in regional budgets, where three Spanish regions revealed deeper than expected 2011 budget deficits, according to budget plan documents. (Sources)

- LCH.Clearnet increased margins on Spanish bonds by 10%, for 1.25-30y bonds, and the changes will be reflected in the margin calls on May 25th 2012. (Sources)

-The EU will this week send inspectors to ascertain the exact figure of Spain’s public deficit for 2011, according to unnamed sources. (La Vanguardia)

EQUITIES

European stock markets inched up on Monday after G8 leaders backed a ‘strong and cohesive’ Euro-zone including Greece and committed to boosting growth and demand. However the price action was somewhat choppy, after comments from German government spokesman, who noted that position on Eurobonds has not changed and Germany are still opposed, raised questions as to whether French President’s attempt to push for Eurobonds at an upcoming informal EU summit on May 23rd will succeed.

Spanish banks underperformed its peers, with Santander (-2.2%) and BBVA (-1.9%), as market participants reacted to Friday’s margin hike by the LCH Clearnet, as well as various press reports which questioned the health of the domestic banking system:

- The Bank of Spain noted that Spanish banking sector holds EUR 147.19bln of ‘doubtful’ loans as of the end of March 2012, 32.7% higher than a year ago. (Expansion)

- Spain is seeking an ECB liquidity injection for its banks according to a report. (Sources)

Comments by Chinese Premier Wen, who vowed to make growth a bigger priority amid signs of weakening demand supported basic materials and industrials sectors. On that note, LME Copper advanced today on the back of a weaker USD, as well as technical buying.

FX

EUR/USD was been trading in a tight range for the majority of the European morning session and sitting around a touted option expiry seen at 1.2780 for the 1000am NY cut (1500BST). GBP/USD has also observed some range-bound trading in European morning trade, following the lack of market moving events/news flow.

COMMODITIES

Both WTI and Brent crude futures are seen higher ahead of the NYMEX pit open, with the G8 Summit over the weekend providing upbeat commentary about support to the Eurozone growth including Greece.

Oil & Gas News:

  • At the G8 Summit, leaders have hinted that there may be some movement on a decision to release strategic oil reserves to help bring down fuel costs.
  • EPP and Enbridge made the first shipments of oil through the 150,000bpd Seaway pipeline from Cushing OK to Houston area refineries, with the surplus at Cushing now expected to decline in a move that could see the WTI discount to Brent crude continue to narrow.
  • Saudi Arabia raised crude production by 0.7% to a near 31-year high at 9.92mbpd in March to become the world’s largest producer for the first time in 6-years, exports rose 3% in response to the cut in Iranian shipments according JODI.
  • Iran has discovered a reported 10bln barrel crude deposit; equal to 7% of Iran’s known reserves in the first oil discovery in Caspian Sea waters for over 100 years according to Fars news.
  • Iraq's autonomous Kurdistan region expects to start exporting its oil along a new pipeline to the Turkish border by August 2013.
  • Libya’s crude output has risen to almost 1.6mbpd according to NOC chairman Berruien.
  • China's April crude oil imports from Iran fell 23.7% from a year earlier to 388,034bpd due to pricing disputes over term contracts, customs data showed on Monday, with Beijing boosting shipments elsewhere to help fill the gap. April imports are still up 53.2% or 134,732bpd from 253,302bpd in March after Iran and Beijing resolved disputes over annual contracts.

Geopolitical News:

  • The head of the UN nuclear watchdog agency made an unscheduled visit to Iran on Sunday, spurring speculation that Tehran may have finally agreed to let inspectors visit secret sites and interview top nuclear officials. At the G8 summit, however, G8 leaders vowed to maintain pressure on Iran, but they acknowledged that US sanctions and an EU embargo in the coming months risked disrupting global oil supplies further.
  • Iran is dedicated to annihilating Israel, the Islamic regime’s military chief of staff declared Sunday.
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