Bank of Japan made an open-ended commitment to buy assets to achieve a higher 2% inflation target as soon as possible, although didn't put a timeframe on when the target will be met.
German ZEW survey beats expectations and is at its highest level since May 2010, lifting sentiment in Europe after equity markets came under selling pressure following press reports in Germany that BaFin asked two banks to simulate a split according to the Liikanen model, furthermore there were unsubstantiated rumours that ECB's Weidmann had resigned but this was swiftly denied by the Bundesbank.
Spanish 10y benchmark syndication sees unprecedented demand with EUR 24bln on the order book.
RANsquawk European Morning Briefing Video: http://youtu.be/hpnl8ABIaxA
European equity markets opened broadly unchanged this morning although moved sharply lower during the early part of the session. The move lower attributed to comments in Boersen Zeitung who said that BaFin has asked two banks to simulate a split according to the Liikanen model, which is a split of the retail and investment banking divisions. One of the banks asked to simulate the split was Deutsche Bank which led to selling pressure in the Dax future, triggering stops through 7700, added to this was market talk that ECB’s Weidmann had resigned although the Bundesbank later quashed the rumours, calling them “utter garbage”. A risk-off tone was observed across European asset classes following this move in the Dax with other European equity futures following suit and Bund futures touching session highs. However, the move was short-lived as the German ZEW survey results were released at 1000GMT with the headline economic sentiment figure printing at its highest level since May 2012 at 31.5 vs. Exp. 12.0, which combined with favourable from Spain on their 10 year issuance lifted sentiment in Europe. Source comments said the Spanish treasury booked over EUR 17bln with guidance down from MS +375bps to MS +365bps.
Overnight, the Bank of Japan announced they were to make open-ended asset purchases to achieve a 2% inflation target as soon as possible, without putting a specific date on the timeframe. They also kept their key overnight rate unchanged at 0% - 0.1%. The BoJ announced the asset purchase programme can only begin in 2014 once the current programme is finished and is likely to be maintained thereafter. As a result, the spot rate (USD/JPY) traded heavy and this disappointment of imminent aggressive action was also reflected in options market where implied vols crept lower.
The UK’s gilt auction was well received this morning with bid to cover ratio coming in higher than the previous issuance and the yield tail was smaller. The immediate reaction to the auction was muted despite the strong demand as the line was expected to be well received given the relative cheapness on z-spread basis.
Looking ahead, US existing home sales and Richmond Fed manufacturing data is due to be released at 1500GMT/0900CST today. After-market, Google are to release their earnings with the headline EPS expected at USD 10.55. Elsewhere it was announced yesterday that House Republicans are to unveil legislation that will suspend the debt ceiling until May 19th which should pave the way for a vote as soon as Wednesday.
The Bank of Japan made an open-ended commitment to buy assets to achieve a higher 2% inflation target as soon as possible, although didn't put a timeframe on when the target will be met. The BoJ also kept their overnight rate unchanged at 0.0%-0.1% as expected. The asset purchases cannot begin until the current asset buying programme finishes at the end of 2013.
In China, The Bank of Communication said that China may cut their reserve requirement ratio early this year and expects China 2013 economy growth to be about 8.5%.
EU & UK Headlines
Equity markets came under selling pressure in Europe attributed to comments in German press where BaFin asked two banks to simulate a split according to the Liikanen model, with Deutsche Bank one of the banks speculated to be asked. If undertaken, formally splitting investment bank operations from retail operations would present a tremendous deleveraging in global markets according to analysts.
German ZEW survey (Economic Sentiment) was at its highest level since May 2010, printing at 31.5 vs. Exp. 12.0 which helped lift sentiment in Europe.
Source comments said Spain fixed final spread on 10-year Euro benchmark bond at MS +365bps and booked over EUR 17bln. This guidance is down from initial guidance of MS+375bps. Following these reports, SP/GE 10s spread tightened to their tightest levels of the session.
The UK's gilt auction was well received with the bid to cover ratio coming in higher than the previous however strong demand was expected on the line given the relative cheapness on z-spread basis.
EU's Juncker says that he doesn't think EUR is dangerously high, denying reports last week that claimed he thought EUR was dangerously high.
Ireland's finance minister Noonan said Ireland could apply for ECB's OMT programme to ease return to market.
Yesterday, it was announced House Republicans are to unveil legislation that will suspend the debt ceiling in the US until May 19th, with this expected to pave the way for a vote in the house as soon as Wednesday.
European equities opened broadly unchanged although came under selling pressure in Europe in early trade as an article in German press suggested German financial watchdog BaFin has asked two German banks, Deutsche Bank and regional bank Landesbank Baden-Wuertemburg, to simulate a split of their Retail and Investment banking activities according to the Liikanen model. The Dax future tripped stops through 7700 which added further downside to European equities and risk-off moves were observed with other European bourses following suit. Financials (-0.42%) is still one of the worst performing sectors in Europe following the news.
European equities still primarily trade in the red although have retraced some of the losses as sentiment was lifted by today's better than expected ZEW survey results.
Overnight, the Bank of Japan pledged an open-ended commitment to buy assets, but kept the key overnight rate at 0% to 0.1%, to achieve 2% inflation target as soon as possible, although no specific timeline has been set to reach the target. The BoJ will increase their current asset buying programme by JPY 10trl in 2014 and the BoJ's open-ended purchases are to start from January 2014. As a result, the spot rate (USD/JPY) trended lower throughout the session, which was also reflected in implied vols in options market. Of note, intraday vanilla option expiries seen at 88.50, 88.75, 88.80, 89.00, 90.00.
Heading into the North American open, EUR/USD is trading with modest gains, underpinned by better than expected macro data from Germany, as well as favourable 10y guidance from the Spanish Treasury (books of almost EUR 24bln). Intraday option strikes are seen at 1.3275, 1.3300, 1.3350, 1.3400.
WTI crude futures are trading flat today with trade directed by risk sentiment in Europe, initially nursing losses echoing European equities, before paring some of the losses.
As a reminder today sees the February 2013 WTI Crude Future expiry at the pit close. Additionally, the weekly API crude oil inventories have been delayed by one day due to the Martin Luther King Jr market holiday on Monday.
- WTI Crude Futures expiry Feb13 (1930GMT/1330CST)
Print 13:11, 22 Jan 2013 - Market Analysis - Source: RANsquawk
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