Optimism regarding the fiscal cliff continues to boost sentiment across Europe, EUR/USD moves to highest level since April and Dax touching 2012 highs
German IFO data marginally beats expectations
Nikkei 225 closes above 10,000 for the first time March'12 on the back of a weaker JPY heading into the BoJ rate decision in tomorrow's Asia-Pac session
RANsquawk European Morning Briefing Video: http://youtu.be/tCruRz9Uy2c
European equities opened in the green and are holding on to firm gains as sentiment is buoyed by hopes that the Republicans and Democrats are close to reaching an agreement on the fiscal cliff. All major bourses in Europe are trading higher with Financials outperforming other sectors in Europe, up 1.16%. Outperformance has also been observed in the peripheral bond yield spreads with the GR/GE 10 tighter by 65bps and SP/GE and IT/GE both tighter by 5bps confirming the risk-on mood in Europe.
In the FX markets, GBP/USD broke through 1.6300 early in the European session, leading into the BoE’s minutes where the voting for further asset purchases and keeping rates unchanged came in as expected. No movement was observed in short-sterling and gilts following the announcement with GBP/USD continuing to trade around the highs of the day. Elsewhere, EUR/USD moved to its highest level since April as USD weakness was observed across the board.
In terms of data releases, the German IFO business climate data came in marginally higher than expectations with the IFO adding that they do not expect further ECB interest rate cuts and says rate cuts will not help Germany.
Looking ahead, US Housing Starts and Building Permits are due to be released at 1330GMT/0730CST and weekly DoE inventories are due at 1530GMT/0930CST.
Asian equities continued in the same vein as US equity markets with the outperformer once again being the Nikkei 225 which closed above the 10,000 mark for the first time since March 2012, with daily gains of 2.4%.
The newly elected Japanese government is to drop Japan's existing fiscal reform plan and will not keep JPY 71trl spending cap for FY 2013.
EU & UK Headlines
German IFO data beat expectations at 102.4 vs. Exp 102.0 however IFO Current Assessment was lower than expectations at 107.1 vs. Exp. 108.00 which capped any initial move to the upside in Dax future.
Today, the ECB announced change in eligibility of debt instruments issued or guaranteed to the Greek government.
In the UK, the BoE MPC minutes showed that all 9 of the members of the MPC decided to keep the interest rate unchanged at 0.50% with 1 dissenter, Miles, wanting to increase the UK's asset purchase facility by GBP 25bln. This was expected so no move was observed across asset classes.
Fitch have said the Eurozone crisis and risks from the US fiscal cliff dominate sovereign outlook. Fitch's report says a US recovery is not expected to gain traction until the latter part of next year. Regarding the fiscal cliff, Fitch says it has the potential to tip the US into an avoidable recession however expects a compromise to be reached and anticipates fiscal tightening of 1.5%, which is short of the 5% implied by the fiscal cliff.
European equities are trading in positive territory as markets are buoyed by recent fiscal cliff developments. All the major bourses in Europe are trading higher, while Technology and Financials sector are the two best performing in Europe, both seeing gains of over 1%.
In terms of individual stocks, UBS has today agreed to pay a fine of CHF 1.4bln to settle libor probes. The co. sees a net loss of CHF 2-2.5bln in Q4 from the fines however still sees Adj. pre-tax for the full-year at CHF 2.5-3bln.
The Athens Stock Exchange in Greece is registering firm gains today after S&P lifted the Greek sovereign credit rating out of selective default, allowing Greece to use their own debt as collateral at the ECB once more. As such, the banks in Greece have gained throughout the morning, allowing the Greek financial sector to head through the midpoint of the session higher by 7.5%.
USD-weakness has been observed across the board with USD-index trading down 0.38% at 79.054 which has seen strength in both EUR/USD, which moved to its highest level since April today and GBP/USD which broke through the 1.6300 handle. On top of USD weakness, GBP/USD headed north amid market talk of good size GBP demand from a US bank.
Talk of real money buying EUR/JPY saw the cross break the 112.00 handle where stops were driven out above the mark ahead of the BoJ rate announcement overnight tonight, with newly-elected PM Abe likely to stamp his authority.
WTI crude futures have traded higher in Europe this morning and sentiment continues to be buoyed by fiscal cliff talks. USD-weakness has been observed across the board, further adding to the upside momentum in WTI. As a reminder, WTI January'13 crude futures expire at 1930GMT/1330CST today. DoE inventories data is also due today with a drawdown expected in today's headline figure. Precious metals trade range-bound throughout the overnight session after gold saw a solid loss in yesterday's session.
- UST December futures expiry (1801GMT/1201CST)
- WTI Crude January'13 futures expiry (1930GMT/1330CST)
19 Dec 2012 - 14:04 - Forex Economic Commentary - Source: RANsquawk
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