EU finance ministers reached a political agreement on banking supervision with oversight to be fully in place in 2014
SNB announces no new measures at their rate decision; quashing any expectations that the bank could move to protect against CHF strength
Eurogroup formally approves payment of Greek aid of EUR 49.1bln
Focus turns to Retail Sales report from the US alongside weekly jobs data at 1330GMT/0730CST
RANsquawk European Morning Briefing Video: http://youtu.be/UnWPMXcRaJM
European equities are trading in minor negative territory heading into the North American crossover after bond auctions from the Italian and Spanish treasuries have produced average results. On the surface, the Spanish auction appeared better than the previous with the bid-to-cover ratios being higher however due to the low issuance, this was expected. The Italian bid-to-covers were weaker than the previous auction in the 3-year and as such the IT/GE and SP/GE 10-year spreads have widened in the morning session.
During yesterday’s US session the FOMC announced they were to keep rates unchanged and increased their QE by USD 45bln. The announcement of thresholds for unemployment at 6.5% and inflation no higher than 2.5%, in-fitting with the Evans rule, saw speculation that the Fed could ease until these targets hit, although Bernanke clarified that the program could be adjusted at any time, and hitting the target may not mean purchases would be immediately halted.
Elsewhere, the SNB kept their 3-month target Libor rate unchanged at 0.00% and the EUR/CHF cap unchanged at 1.2000. There were outside chances that the SNB could take action in the wake of Credit Suisse and UBS charging some customers for short-term CHF accounts in recent weeks. Following the decision SNB’s Jordan later came out and said the SNB did not exclude any measures when asked about negative interest rates, however declined to comment on whether the SNB discussed negative interest rates.
EU’s Juncker also today confirmed Greece are to receive their next tranche of aid following the most recent Eurogroup meeting and the debt buyback. The total aid package will be EUR 49.1bln with EUR 34.4bln to be disbursed in December. This was widely expected and as such no reaction was seen across major European asset classes.
The Nikkei 225 was once again the outperformer of the Asia-Pacific stock markets, as the weaker JPY buoyed Japanese exporters, with all eyes looking ahead to this weekend's elections and the following rate decision from the Bank of Japan next week. The Nikkei 225 closed at 8-month highs, up 1.7% at the close. Chinese stocks saw a downward trend, as participants continue to book profits on the back of firm performance in Chinese equities over recent weeks.
According to a researcher at the Chinese Academy of Social Sciences, the PBOC should further ease monetary policy in order to boost economic growth. However, the commercial Bank of China have said the central bank are unlikely to conduct monetary easing in the face of rising property prices. (Economic Information Daily/Financial News)
EU & UK Headlines
Overnight, EU finance chiefs reached an agreement on ECB banking supervision. German finance minister Schaeuble said an agreement has been reached on EUR 30bln oversight threshold and sees the EU bank supervisor being set up by March 2014 with full ECB oversight in 2014.
The EU have confirmed that Greece are to receive their next tranche of aid with the total amount being EUR 49.1bln with the first instalment in December being of EUR 34.4bln. This was expected so no movement was seen across European asset classes following the announcement
The SNB kept their 3-month Libor target rate unchanged at 0.00% and their EUR/CHF cap unchanged at 1.2000 which was expected. Later in the session, SNB members were on the wires and when asked about negative interest rates, SNB's Jordan said the SNB does not exclude any measures however declined to say whether the SNB encouraged negative rates.
The large European bourses opened broadly unchanged and are currently trading in minor negative territory after sentiment has been dampened by disappointing bond auction results in Spain and Italy.
Despite the broader downward trend, Financials sector is still holding on to some modest gains as the EU finance ministers reached a compromise on a deal for the ECB banking regulation. This move appears to be the first step towards a banking union in Europe.
In individual stocks news, Deutsche Bank said Q4 2012 so far was characterized by a continued difficult macroeconomic environment with low volatility. Co. currently expects these specific items to have a significant negative impact on the bank's earnings in Q4 2012 and in reaction to the news, Co. shares moved over 1% lower. This also impacted the Dax future which moved to 7574.50 from 7586.50 over the next four minutes following the news.
EUR/USD trades lower on the day as markets digest several developments both sides of the pond. Firstly, weakness seen in the USD post-FOMC has been largely pared, with a 'buy the rumour, sell the fact' theme dominating asset classes, and the announcement of USD 45bln in additional treasury purchases meeting expectations. For the pair, offers at 1.3100 capped further upside in early trade, with this evident in today's high print at 1.3100. The pair has since pulled off this level as a combination of average peripheral bond auctions and USD strength, now in close proximity to a touted option expiry at 1.3080 for the 10am NY cut.
EUR/CHF has been in vogue this morning, with much focus over the SNB's 3-month libor target rate as market talk last week suggested a possible move into negative territory from 0.00% to -0.25%, however the central bank kept rates unchanged. This move saw strengthening in CHF, although some of the move pared following the comment from SNB's Jordan who said they do not exclude any measures when asked about negative interest rates.
USD/JPY touched a 9-month high overnight at 83.68 which was 7 pips shy of a touted option barrier. Profit taking was observed during the early part of the European session although, USD strength has now seen the pair further move higher in the latter part of European trade as risk appetite turns sour.
WTI crude futures are trading in negative territory, paring some of the large gains seen during yesterday's session. USD strength has been observed across the board adding to the move to the downside in WTI. As a reminder EIA natural gas storage change is due to be released at 1530GMT/0930CST.
The UK have reversed a ban on shale gas exploration immediately but will introduce tighter environmental controls following minor earthquakes caused by the fracking process.
In geopolitical news, there were unconfirmed reports of an explosion in Gaza with witnesses saying a large plume of smoke was seen from the Israeli side.
Print 13:01, 13 Dec 2012 - Economic commentary - Source: RANsquawk
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