President Obama proposes a tax rate threshold for those earning of over USD 400,000
UK CPI data prints in-line with expectations
Volumes remain light heading into the Christmas period
RANsquawk European Morning Briefing Video: http://youtu.be/woHdJFb__5k
The European session has seen risk-on moves across the board due to optimism over fiscal cliff talks. Late yesterday, President Obama was said to have increased his proposed tax rate threshold to USD 400,000 showing that he is willing to meet in the middle with the Republican Party. Major European bourses are holding onto minor gains after opening marginally higher following these comments on the fiscal cliff, however volumes remain light as participants are winding down for the Christmas period with the majority of key data releases out of the way. In terms of sector breakdown, Basic Materials (+0.72%) is the best performing sector in Europe as two of Europe’s largest miners, Glencore and Rio Tinto were upgraded this morning by RBC and BNP respectively.
In the FX markets, EUR/USD moved to its highest level since May at 1.3183 as USD weakness has been observed across the board due to optimism on the fiscal cliff talks. In the lead up to UK inflation data, GBP/USD moved to fresh session highs at 1.6228, with the headline CPI figure printing in-line with expectations at 2.7%. Market talk of an Asian sovereign name on the offer at 1.6230 also capped any further upwards move in the pair.
Looking ahead, volumes are expected to remain thin as there remains a lack of tier-1 data out of Europe and the US.
Newly elected Japanese PM, Shinzo Abe has met with Shirikawa, the governor of the BoJ ahead of Thursday's rate decision. Abe has said he asked to consider asked the BoJ to consider entering a policy accord with the government to set an inflation target at 2.0%. The final decision on setting the target is expected in January although some BoJ officials are wary of an immediate 2.0% inflation target. The Nikkei 225 once again closed the session up around 1.0% following Abe's election victory.
China had their Q4 growth forecast raised to 7.8% from 7.6% by Goldman Sachs overnight and in other news in China, an economist with the National Development and Reform Commission says the country has room to cut the reserve requirement ratio in 2013 as sterilisation pressure subsides noticeably.
EU & UK Headlines
UK CPI, PPI and RPI inflation data was released earlier this morning with the headline CPI figure coming in -in-line with expectations at 2.7% vs. Exp. 2.7%. There was no reaction seen following the data as the figures were in-line and volumes remain light. The Office for National Statistics says largest upward contributors to CPI were from food and housing and the biggest downward pressures were from transport and furniture.
The German economy ministry have said they are considering cutting their 2013 growth forecast from 1% following on from the Bundesbank who slashed their 2013 growth forecast to 0.4% from 1.6% earlier this month.
Overnight it was reported President Obama proposed a tax rate threshold of USD 400,000 after Boehner proposed an increase in the rate of taxation for those earnings above USD 1mln over the weekend. Initial White House demands were for tax increases on those earning over USD 250,000 so it shows progression appears to be being made on negotiations.
European equities opened higher today and all major European bourses are holding on to gains. The Basic Materials sector (+0.70%) is outperforming other sectors in Europe, in part due to a couple of large UK miners, Glencore and Rio Tinto being upgraded by banks this morning.
In terms of individual stocks, Wacker Chemie are one of the highest performers in Europe as German Chancellor Merkel says German 2012 renewable energy share is to rise 23%, further adding to support in the Basic Materials sector.
EUR/USD moved to the pair's highest level since May this year early in the European session as USD weakness has been evident following renewed optimism on fiscal cliff negotiations. EUR/USD currently trades in close proximity to two touted option expiries at 1.3150 and 1.3200 for today's 1000am (1500GMT) NY cut. Currently trades at 1.3178 (+14 pips) at 1251GMT.
GBP/USD moved higher in the run-up to UK CPI data at 0930GMT/0330CST although met a headwind before 1.6230 as UK CPI printed in-line with expectations. Market talk of an Asian sovereign with large offers around 1.6230 also capped any further momentum to the upside.
The 84.00 level has exerted magnetism in USD/JPY, with the pair trading around the level, in a tight-range throughout the session. USD/JPY currently trades near 2 touted option expiries at 83.75 and 84.00 for today's 1000am (1500GMT) NY cut. At 1243GMT trades 83.86 (-2 pips).
WTI crude futures moved higher in Europe this morning as sentiment has been lifted on hopes that fiscal cliff talks are progressing however have traded sideways since the European open, in light volumes. Earlier today the Saudi oil minister said that oil markets are well supplied and demand for oil is good, suggesting oil prices should just be left alone.
In geopolitical news, the Iranian nuclear chief has said the country will not stop higher grade uranium enrichment due to external demands after western powers said they want Iran to halt enrichment claiming the country aims to develop atomic bombs.
Print 13:03, 18 Dec 2012 - Economic commentary - Source: RANsquawk
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