News Headline Summary

DAILY US OPENING NEWS: Quiet session in Europe with light volumes and a lack of tier-1 macroeconomic data...

Sources said House Speaker Boehner has proposed tax-rate increases in return for cuts in entitlement programs

Japan elects Shinzo Abe's LDP to power in the lower house

Volumes in Europe remain light heading into the North American crossover with focus remaining on the unresolved fiscal cliff

RANsquawk European Morning Briefing Video: http://youtu.be/-yMpA3888_Q

Market Re-Cap
Low volumes and a lack of tier-1 data out of Europe have led to a quiet morning session with the fiscal cliff continuing to remain in focus. European equities opened broadly unchanged and trade in minor negative territory as a lack of progress in the US on the fiscal cliff weighs on sentiment. All the major bourses in Europe are nursing losses in early trade with the Telecommunications sector (-1.85%) being the biggest lagger in Europe as Dutch company KPN cut their 2013 dividend estimate and announced they would not pay a 2012 dividend. Shares in the company plunged 15% at the open.

The SP/GE 10-year spread has widened this morning following comments from Spanish PM Rajoy over the weekend. Rajoy told union leaders that German Chancellor Merkel is opposed to a sovereign bailout for Spain because she isn’t willing to submit the proposal to German parliament. The Spanish 10-year yield currently trades near session highs at 5.435%.

In the FX markets, USD/JPY opened over 70 pips higher on Sunday evening as Japan elected the LDP to power with a super-majority. LDP leader Abe is pro-easing so JPY weakness was observed however the move has been almost completely retraced, moving back below the 84.00 handle to trade 83.67 last (+14 pips).

Looking ahead, there is a lack of tier-1 macroeconomic from the US and volumes are expected to remain light as the fiscal cliff situation remains unresolved.

Asian Headlines
The main news out of Asia this weekend was the re-election of the LDP party to the Japanese lower house, headed by new PM Abe. The LDP, along with their coalition partner the New Komeito have won enough seats for a super-majority enabling the government to enact legislation even without approval by the Diet's upper house. The Nikkei 225 gained on the back of Abe's dominant victory, ending the session with gains of almost 1%.

In China, the country held their annual Central Economic Work Conference with the newly promoted leaders saying that China is to keep a prudent monetary policy and a proactive fiscal policy in 2013; these comments were expected from the new government.

EU & UK Headlines
Spanish PM Rajoy has said that German Chancellor Merkel is opposed to a Spanish bailout as she is unwilling to submit the proposal to the Bundestag quashing any chance of a the country receiving a bailout in the near future. Rajoy has often said that Spain will ask for a bailout when the country needs it but as yet the PM has not asked the European Union for state aid.

Eurozone Trade Balance for October printed lower than expectations at EUR 7.9bln vs. Exp. EUR 11.0bln. Markets were unreactive to the data as focus firmly remains on fiscal cliff negotiations.

US Headlines

After congress adjourned on Friday, sources said that House Speaker Boehner said that the Republicans have proposed a tax-rate increase, one that would hit income over USD 1mln, in return for President Obama agreeing to significant cuts in entitlement programs. Sources also said that Obama told Boehner he is flexible in his tax revenue targets.

According to the NABE survey, most economists see the US avoiding the fiscal cliff but see only moderate GDP growth in 2013.

Equities
European equities are trading in minor negative territory despite opening broadly unchanged as apparent stalling fiscal cliff negotiations weigh on sentiment. The Telecommunications sector is the worst performing sector in Europe due to Dutch company KPN shares losing over 14% in morning trade after the company announced late on Friday that it is not to pay a dividend in 2012 and cut their 2013 outlook.

Aggreko is another firm nursing large losses, with Co. shares down almost 17% following a profit-warning and saying earnings will be slightly lower next year because of slowing demand in emerging markets.

FX
At Sunday night's open, USD/JPY opened over 70 pips higher than Friday's close on the back of the LDP's dominant election win at 84.37. New PM Abe is pro-easing and had pledged to weaken the JPY prior to the election. Throughout the European session, USD/JPY has retraced almost all the gains from the open as profit-taking is observed.

GBP/USD has trended higher throughout the European session with market talk that Middle Eastern demand has lifted the pair above the 1.6200 handle. The pair currently trades close to a touted option expiry at 1.6200 at the 1000am NY cut, trades 1.6212 (+11 pips) at 1232GMT.

EUR/USD has traded range-bound in Europe with a large touted option expiry at 1.3150 for the 1000am NY cut. The EUR has been resilient to the weaker than expected trade balance in Eurozone and lacks firm direction given little news flow to drive price action.

Commodities
WTI crude futures are trading in minor negative territory with low volumes as markets await an outcome to the fiscal cliff situation in the US. There were no surprises out of the Chinese central economic work conference with the government saying they are to keep a prudent monetary policy and proactive fiscal policy and nothing new regarding the accelerated urbanisation of underdeveloped regions in the country.

In geopolitical news, a senior Iranian commander has said the country will stage a military drill in the Strait of Hormuz by the end of March 20th, the end of the Iranian year.

**Note:
- Dollar Index December futures expiry (1516GMT/0916CST)

17 Dec 2012 - 15:01 - Forex Bank Speaker - Source: RANsquawk

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