Italian PM Monti tells head of state he intends to resign
Greece extends debt buyback to tomorrow, 11th December at 1200GMT
Chinese data prints mixed with Trade Balance weaker than expected yet Industrial Production and Retail Sales highest in 8 months
RANsquawk European Morning Briefing Video: http://youtu.be/d8fxDzXfwT0
Equity markets in Europe fell today as market participants reacted to press reports over the weekend which indicated that Italian PM Monti is to resign, but will seek to pass the Italian budget first. As a result, credit and peripheral EU bond markets remained underpressure right from the open, with Italian 10y bond yields up over 35bps and spread to German 10s wider by 30bps. Even the so-called Draghi-put failed to contain risk in the short-end, where 2y bond yield spreads are wider by 46bps and SP/GE 2s wider by 14bps. As to be expected, Italian stocks underperformed, with financials seen as the worst performing sector. Risk of contagion saw Euribor/OIS spread trade at its widest since mid-Sep and 3m cross-currency swap rate at 25.08bps below Euribor. Looking elsewhere, Greece extended debt buyback until mid-day tomorrow. This comes after it was reported that Greece received offers for debt buyback totalling EUR 26.5bln by Friday close, priced at 33.4%. Weekend press reports indicated that Greek banks are to increase their offer to total holdings if needed for Greece to meet the EUR 30bln target. The latest Chinese macro-economic data revealed that even though industrial production and retail sales growth hit eight-month highs in November, trade balance underpinned the view of slowing demand.
A vast amount of data was released from China over the weekend with Chinese Industrial Production and Chinese Retail Sales both printing at their highest levels in 8 months. Signs of a recovery in China are continuing although Chinese Trade Balance was lower than expected with the Exports component falling to 2.9% vs. Exp. 9.0% (Prev. 11.6%). This is obviously a key figure for China as the country relies heavily on exports and global demand for Chinese products appears to be falling.
Japanese GDP contracted for a second straight quarter in July-September at -3.5%, confirming the country is in a recession.
Japanese opposition LDP leader Shinzo Abe has ruled out forming a coalition government with the DPJ, headed by Prime Minister Yoshihiko Noda, after the Dec. 16 general election.
EU & UK Headlines
Italian PM Monti has told the Italian head of state he intends to resign after losing support in parliament during the confidence vote last Thursday. Before formally resigning, Monti wants to check with lawmakers to see if they are willing to approve the budget law.
The Greek debt buyback received only EUR 26.5bln of the EUR 30.0bln target, priced at 33.4% according to an Eurozone official. Greece has extended the buyback to December 11th at 1200GMT. Weekend press suggested Greek banks are likely to increase their offer if Greece failed to meet the EUR 30bln target.
Democratic co-chair of National Commission on Fiscal Responsibility and Reform, Erskine Bowles has said there's a 40% chance of a fiscal cliff deal before the year-end.
A trade-row between the EU and US could be on the horizon after Fed's Tarullo said wants tougher capital and liquidity rules for foreign banks operating in the US which would put them at a large disadvantage to American rivals. Key European banks with much to lose are Barclays and Deutsche Bank although banks from Canada and Japan are also said to be monitoring the situation and are unhappy with the proposals.
European equities opened in negative territory after Italian PM Monti said he is to resign after losing support in parliament. The Italian FTSE MIB is the worst performing bourse in Europe, nursing losses of over 3.2% in early trade as Italian equities have been affected by the news out of the Italian government. The Financials sector is the down over 1.3% in Europe this morning, led by Italian banks with Banca Monte Paschi, Intesa Sanpaolo and Banco Popolare shares all trading lower by over 6%.
A leader in Europe this morning is STMicroelectronics (+2.4%) who announced they plan to exit ST Ericsson to cut down on operating costs which they aim to average USD 600-650mln per quarter.
Weakness in the EUR has been observed today after the news of Italian PM Monti's resignation with EUR/USD moving to session lows of 1.2881. EUR/USD currently trades in close proximity to 1.2900, a touted option expiry at the 1000am NY cut (at 1217GMT trades 1.2905, -22 pips).
The lower EUR has taken its effect on EUR/GBP, allowing GBP/USD to trade in positive territory. Ahead of today's NY cut, any moves lower in GBP could bring the pair in close proximity to a touted option expiry at 1.6000.
Weaker-than-expected GDP data from Japan has seen strength in JPY with USD/JPY moving lower throughout the European session. The moves lower in the pair bring it close to an option expiry at 82.20 for today's NY cut.
WTI crude futures are trading higher on the day after upbeat Chinese data improved the outlook for oil growth. China's industrial production jumped to an eight-month high suggesting the Chinese recovery is continuing.
In geopolitical news, Egyptian president Mursi has annulled the controversial decree that gave him dictatorial powers yet says a referendum on a draft constitution will go ahead as planned on December 15th. Following the numerous protests, Mursi has given army officers power of arrest in the Egyptian capital. Elsewhere, North Korea have halted all preparation activities for its planned rocket launch without citing reasons, according to official North Korean media.
Deutsche Bank's chief oil strategist says oil demand is to climb 0.7% in 2013.
China's net crude imports rose to highest level in 6 months in November as the country processed more than 10mln bpd of oil for the first time.
Print 13:00, 10 Dec 2012 - Economic commentary - Source: RANsquawk
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