Volumes remain light due to the Thanksgiving holiday in the US
German IFO beats expectations supporting EUR/USD and European equities in early trade
RANsquawk European Morning Briefing Video: http://youtu.be/1k5Dciei9uw
European equities opened higher this morning although pulled off the weekly highs after some touted profit-taking heading into the weekend and volumes remaining light due to the Thanksgiving holiday in the US. Spanish equities have underperformed other European bourses this morning after S&P lowered their ratings on a number of Spanish banks and reaffirmed a negative outlook. S&P cited the rapid deterioration of the Spanish economy and credit worthiness of public and private sector borrowers as the main risks facing the industry.
German IFO Business Climate data beat expectations at 101.4 vs. Exp. 99.5 which saw strength in EUR/USD moving 28 pips to the upside breaking the 1.29 handle in immediate reaction. Comments from the IFO initially appeared positive with them commenting that the German economy is holding up despite the economic crisis however further comments said GDP would weaken in Q4 compared to Q3.
Markets had appeared cautious heading into the data release as overnight, German Chancellor Merkel said that it looks unlikely for the EU to come to an agreement on the budget at the final talks today in Brussels, however this morning Merkel said it was not dramatic if no budget deal was finalised today.
Heading into the North American crossover, the session is expected to remain light due to Thanksgiving although Canadian CPI is due to be released at 1330GMT/0730CST. As a reminder there will be early closures in the US due to the public holiday.
Chinese Vice Premier Li Keqiang has said an economic overhaul must accelerate in order to keep growth, including improving state-owned enterprises and the taxation system.
The US has told Japan and South Korea it detected North Korean preparations to launch long-range ballistic missiles. North Korea would technically be prepared to fire missiles by the end of this month and reports suggested the three nations are stepping up alerts against the threat.
Overnight, the Chinese November flash business sentiment indicator came in at 53.57 (Prev. 51.86).
Market holiday overnight in Japan so no trade in JGB's or the Nikkei 225.
EU & UK Headlines
A source from the Greek finance ministry said international lenders are mulling a EUR 9bln return of ECB profits and up to EUR 8bln in interest rate cut on loans among measures to cut Greek debt. International lenders are also mulling cutting Greek debt by EUR 10bln via debt buyback and extending maturities which if approved by the Eurogroup meeting on Monday could be completed by year-end.
German IFO Business Climate for November beat expectations at 101.4 and saw the first rise in the measure for 8 months. Current Assessment and Expectations both beat expectations and the German IFO commented that the German economy is holding up despite the economic crisis however did warn that IQ4 GDP will be even weaker than it was in Q3 and could possibly slip into negative territory.
Late last night, German Chancellor Merkel said she doubts that the EU are to reach a budget deal at today's summit and most likely a second summit will be needed next year which dampened optimism and saw EUR/USD trade near session lows. This morning Merkel then said EU leaders will take time if second summit needed; not dramatic if no budget deal today.
European cash equities markets opened higher today following the losses seen last week although came off the highs as profit taking was observed heading into the weekend.
IBEX has underperformed other European cash equities this morning after S&P cut ratings on Spanish banks due to their economic risks. Three banks had their ratings cut and the other 12 were all kept at the same rating although the outlook remains negative for all. S&P said Spanish banks are facing higher credit risks as Spain's weakening economy, public sector cuts, austerity measures and high unemployment will likely hamper the creditworthiness of private and public sector borrowers.
In individual stocks news EDF shares are trading up over 4% as the Co. today announced they have decided to pay an interim cash dividend of EUR 0.57 per share to shareholders on 17th December. Elsewhere, Volkswagen said they are to invest EUR 50.2bln in auto operations over next 3 years and shares came under selling pressure shortly after, falling 0.59%.
EUR/USD is trading within a band created by the 50DMA at 1.2910 and the 200DMA at 1.2803 and moved higher today after positive IFO Business Climate data from Germany saw the pair break the 1.2900 handle in immediate reaction to the release.
USD/JPY has traded within a tight range and overnight there was some moderate strengthening in the JPY as the market was factoring in the latest comments from opposition leader Abe. LDP Abe said that he is not thinking of FX intervention to push JPY lower and that FX intervention is ineffective.
Weakness in GBP has seen following media reports this week saying Britain's AAA rating could be under threat after Moody's downgrade of France. Profit taking was touted in GBP/USD, leading to further weakness in GBP and hence upside in EUR/GBP.
WTI crude futures have ticked lower on the day after the truce between Israel and Hamas appears to be holding, despite reported isolated incidents of violence on the Israeli border. As a reminder the NYMEX floor trade and electronic trade will be halted early at 1830GMT/1230CST due to the Thanksgiving holiday in the US.
The IEA has said rising US oil output has no threat to OPEC and Saudi influence on prices.
**Note - US Thanksgiving Holiday Market Closes:
CME/CBOT Early Close (FX, Interest Rate, Commodities close at 1200CST/1800GMT)
NYMEX Early Close (1230CST/1830GMT)
NYSE Early Close (1300EST/1800GMT)
CME Globex - Equity, Interest Rate Products and FX Early Close (1815GMT/1215CST)
NYMEX Early close (Energy products close 1230CST/1830GMT)
NYSE LIFFE Regular Close
Eurex Regular Close
Print 13:00, 23 Nov 2012 - Economic commentary - Source: RANsquawk
RANsquawk provides audio news and commentary for over 15,000 professional traders and brokers worldwide. Services include: