Eurozone finance ministers and the IMF reach agreement on debt target for Greece
OECD cuts global forecast in their November economic outlook
RANsquawk European Morning Briefing Video: http://youtu.be/sAoXOuo8kT0
European equities opened higher and German bunds lower this morning as it was announced the EU and IMF had reached a decision on a new debt target for Greece, targeting a Greek debt-to-GDP ratio of no more than 124% by 2020. The Greek finance minister Stournaras also noted that Greece is to conduct a debt buyback via loan to begin now and end on December 13th. As a result, German Bunds trading lower, peripheral bond yield spreads are tighter in early trade. SP/GE 10s tighter by 5bps and in the short-end SP/GE 2s tighter by 8bps. Despite the positive news, Dec-Bund has come off the lows, and European equities off the highs, as there is concern over the debt buyback and still nothing has been formally agreed over the next disbursement of aid to Greece with no announcement to be made until after the debt buyback.
EUR/USD trades in close proximity to intraday 1.2950 option expiry. Shorter-dated implied vols remain better bid given the uncertainty surrounding the debt buyback.
The OECD cut their global forecast in their November Economic Outlook and said they see ECB cutting rates by 25bps in December with Fed and BoJ rates on hold. They also called for monetary easing in Europe, Japan, China and India although little reaction was seen in asset classes as focus remained on the Greek deal.
Looking ahead US Consumer Confidence is to be released at 1500GMT/0900CST as well as any comments out of the Eurozone regarding Greece. Fed governor Bernanke is also due to speak at 1330GMT/0730CST.
Overnight, Japan's opposition LDP leader Abe once again reiterated the BoJ must pursue bold monetary easing adding that the government and BoJ can discuss a new inflation target. Abe said BoJ must set 2% inflation target, its current goal of 1% is not enough.
Fed's Fisher said accommodative policies can't be left in place forever.
EU & UK Headlines
Eurozone finance ministers and the IMF have reached a deal on a new debt target for Greece targeting a Greek debt-to-GDP ratio of no more than 124% by 2020. German lawmakers plan to vote on Greek plan on November 29th.
- EU's Juncker: Eurozone agrees to lower interest on bilateral loans to Greece by 100bps.
- EU's Juncker: Eurozone agrees to defer interest payments of EFSF loans to Greece by 10 years.
- EU's Juncker: To extend maturities on all Greek loans by 15 years.
- EU's Juncker: Central banks are to forgo Greek bond profits.
- Greek Finance Minister: Greece are to conduct a debt buyback via a loan to begin now and to end by December 13th.
- Eurogroup: Formal aid disbursement to be decided on 13th December, depends on debt buyback results and national parliament approval.
PIMCO's Amey says sees a good chance UK will lose AAA rating and that the UK will probably do more QE.
Fitch has said Catalonia still needs to find funds to cover its domestic bank obligations even though the Spanish authorities have stated they are to extend the regional liquidity fund by EUR 5bln into 2013. Spanish T-Bill auction results were announced just after 0930GMT with yields remaining at a similar level to the previous time the auction was held.
UK preliminary GDP for Q3 came in at expectations at 1.0%.
European equities opened higher this morning after the EU and IMF agreed a deal on Greece's debt, targeting a Greek debt-to-GDP ratio of no more than 124% by 2020. European equities have since drifted lower, although still remain in positive territory on the day, as concerns remain over some of the details announced following yesterday's Eurogroup meeting.
Greek banks have seen large losses today as the Greek debt buyback is to commence from now until December 13th, with bonds being bought back at a discount. According to some analysts, the debt buyback should be around EUR 0.35 on the euro to achieve a reasonable level of debt relief and domestic accounts will likely be encouraged to accept lower price.
In individual stocks news, RBS have been raised to Buy vs. Neutral at UBS which has seen their shares trading up 4.00% in morning trade.
After the news on Greece broke overnight, strength was seen in EUR/USD, piercing the 1.3000 level, not seen since October 30th, but the initial EUR strength has been pared as general risk-averse tone has seen flows back towards safe-havens and currently trades at 1.2958 (-15 pips), in close proximity to intraday 1.2950 option expiry. Shorter-dated implied vols remain better bid given the uncertainty surrounding the debt buyback.
USD/JPY saw strength overnight, breaking through 82.00, as opposition leader Abe once again announced the BoJ must pursue bold monetary easing and raise the inflation target to 2% as the current goal of 1% is not enough.
GBP/USD pared overnight gains and is trading little changed on the day after downbeat comments from PIMCO's Amey, who said that there is a good chance UK will lose AAA rating and that the UK will probably do more QE. As a note, Moody's is to review UK's AAA rating in early 2013 after it digests the Autumn Statement from Chancellor Osborne, announced on December 5th.
WTI crude futures are trading flat on the day after initially seeing gains as Eurozone finance ministers and IMF reached an agreement on Greece's bailout deal. The gains were pared as markets noted the deal is not finalised and the next tranche of aid still won't be paid until December 13th at the earliest. As a reminder, API inventories have been rescheduled to tomorrow after the Thanksgiving holiday in the US last week.
In Geopolitical news North Korea could conduct a missile launch in 3 weeks, according to a satellite image firm. Earlier in the week there were reports that North Korea may fire a long-range ballistic missile. Elsewhere there have been large-scale protests in Egypt as residents react to President Morsi's decree.
- Gold December options expiry (1830GMT/1230CST)
- Silver December options expiry (1825GMT/1225CST)
- Heating Oil/RBOB/Nat Gas December options expiry (1930GMT/1330CST)
Print 13:03, 27 Nov 2012 - Market Analysis - Source: RANsquawk
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