News Headline Summary

DAILY US OPENING NEWS: G7 reaffirmed commitment to market determined exchange rates and added that it will not target exchange rates...

G7 reaffirmed commitment to market determined exchange rates and added that it will not target exchange rates.

US Treasury's Brainard said that the US supports Japan's efforts to reinvigorate growth and end deflation. SNB's Jordan also defended actions by the BoJ and said that global central banks aren't in currency war

The South Korean Defence Ministry confirmed the Democratic People's Republic of Korea conducted a nuclear test overnight, which prompted the South Korean military to raise their alert status.

RANsquawk European Morning Briefing Video: http://youtu.be/DDA4P3tiJ8U

Market Re-Cap

Heading into the North American open, equities in Europe are trading close to their best levels of the session, after the G7 this morning made no explicit objections to aggressive JPY depreciation that took place this year. In addition to that, SNB's Jordan also defended actions by the BoJ and said that global central banks aren't in currency war, while US Treasury's Brainard said that the US supports Japan's efforts to reinvigorate growth and end deflation. As a result, USD/JPY traded at its highest level since May 2010, however gains this morning have been capped by a barrier at 94.50.

Financials are seen as the best performing sector, with Barclays up just over 4%, after the company said it will cut 3,700 jobs as it continues to streamline its operations. The bank also reported a GBP 246mln pre-tax profit for 2012, down from GBP 5.88bln a year earlier, after absorbing GBP 4.58bln credit accounting charge related to its debt.

Going forward, market participants will get to digest the release of the latest JOLTS jobs opening, monthly budget statement and the weekly API report. Also, the US Treasury will sell USD 32bln in 3y notes.

Asian Headlines

US Treasury's Brainard said G7 is "very committed" to market-determined and floating exchange rates except in rare circumstances and US supports Japan's efforts to reinvigorate growth and end deflation.

EU & UK Headlines

G7 reaffirmed commitment to market determined exchange rates and added that it will not target exchange rates. Yesterday, it was reported that the G-7 were in discussions on a statement on currencies before the commencement of the G-20 and that the G-7 may repeat backing for market-set currencies.

This morning, the ONS said that inflation in the UK has remained unchanged for the fourth month in a row at 2.7%. The official body also noted that price rises for alcoholic drinks in the post-Christmas period kept inflation high, while the drop in air fares that occurred during December was also reversed. The release comes a day ahead of the BoE’s latest Quarterly Inflation Report, where it is widely expected that growth projections will be trimmed yet again.

Spanish T-bill auction results: sold EUR 5.57bln vs. Exp. EUR 5.5bln, while the Italian Treasury sold EUR 8.5bln in 12-month T-bills b/c 1.38 vs. Prev. 1.79, yield 1.094% vs. prev. 0.864%, highest yield since Dec 2012. However given the offsetting redemptions, no immediate reaction was observed in the short-end of the curve. Of note, the Italian Treasury is also scheduled to auction off EUR 7bln of BTPs (equivalent to around 43k Mar-Bund contracts) and EUR 1.5bln CCTeu later on this week.

ECB alloted EUR 128.7bln in 7 day and also alloted EUR 7.8bln in 28 day main refinancing operation. As a result, when combining EUR 5bln of excess liquidity removed due to LTRO repayments last week, there will be a further EUR 3.3bln withdrawal.

US Headlines

The annual state of the union speech by Obama, which will be closely monitored as the presidential blueprint for his goals for the year, is expected to push again for the ambitious progressive plans Obama outlined in his second inaugural address just three weeks ago. The president's priorities also include easing back on spending cuts and addressing climate change.

Equities

Equities in Europe are trading close to their best levels of the session, after the G7 this morning made no explicit objections to aggressive JPY depreciation that took place this year. Financials are seen as the best performing sector, with Barclays up just over 4%, after the company said it will cut 3,700 jobs as it continues to streamline its operations. The bank also reported a GBP 246mln pre-tax profit for 2012, down from GBP 5.88bln a year earlier, after absorbing GBP 4.58bln credit accounting charge related to its debt.

Fitch said that German banks may limit trading rather than split. Analysts noted that some of the banks that qualify for a potential split under draft legislation agreed by the German government last week may choose to stop restricted activities rather than incur the costs of separation.

L'Oreal (+3.9%) reported FY operating profit EUR 3.70bln vs. Exp. EUR 3.69bln. Full year net EUR 2.87bln vs. Prev. EUR 2.44bln. Co. plans to pay dividend of EUR 2.30 per share, up 15%. CEO says Co. is well prepared to outperform the market.

For a full rundown of EU equity news, please refer to European Equity Opening News report located in research section. Complete rundown of US equity news will be available on the website at 1400GMT (0800CST)

FX

The G7 this morning made no explicit objections to aggressive JPY depreciation that took place this year. In addition to that, SNB's Jordan also defended actions by the BoJ and said that global central banks aren't in currency war, while US Treasury's Brainard said that the US supports Japan's efforts to reinvigorate growth and end deflation. As a result, USD/JPY traded at its highest level since May 2010, however gains this morning have been capped by a barrier at 94.50. Nevertheless, 1-month implied vols were better bid this morning, 18-month highs. Elsewhere, EUR/CHF was supported by comments from SNB's Jordan who noted that the central bank is ready to take additional measures, adding that CHF cap remains key policy. GBP underperformed yet again, as market participants pre-positioned ahead of the release of the latest Quarterly Inflation Report from the BoE on Wednesday, where it is widely expected that growth projections will be trimmed yet again. The pair was also weighed down by a firmer EUR, while the shorter-dated EUR/GBP implied vols rose to highest level since early June-2012.

Commodities

WTI crude futures trade in negative territory coming off the highest levels for a week with downside pressure evident on the back of poor weather in the US stoking demand concerns. Brent crude futures trade in minor negative territory weighed on by investor caution with regard to the euro zone economy. Looking ahead in the session, weekly API Inventories are due at 2130GMT/1530CST.

A magnitude 4.9 artificial earthquake detected in North Korea. The South Korean Defence Ministry confirmed the Democratic People's Republic of Korea conducted a nuclear test. The South Korean military raised their alert after the North Korean test. North Korea notified US and China yesterday about the nuclear test. North Korea confirms nuclear test successful.

Iran is converting about 20% enriched uranium to fuel for Tehran research reactor according to an Iranian foreign ministry spokesman.

Complete rundown of energy news is available in research section of the website.

12 Feb 2013 - 07:58 - Fixed Income Bank Speaker - Source: RANsquawk

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