Heading into the North American open, equities are trading in minor negative territory, led lower by banks as markets look forward to the first LTRO repayment, as well as lingering concerns that losses from derivatives contracts by Monte Paschi (entered with Nomura) may undermine the lender’s earnings. Monte Paschi shares opened 8% lower and were halted by the exchange to prevent a further slide in share price. As a result, even though EUR/USD is trading higher and peripheral bond yield spread are tighter, Bunds are trading in minor positive territory. Of note, Spain’s Iberian neighbour Portugal opened books for its 2017 bond and books are said to be around EUR 8bln, with guidance at MS+400bps (down from original MS+410bps). EUR/USD has also benefited from the decision by the Portuguese Treasury to tap capital markets only a day after a successful placement by Spain yesterday.
Of note, the BoE Minutes from the most recent MPC meeting revealed that the Committee voted unanimously in favour of keeping the interest rate at 0.5%. However David Miles argued that an easing of monetary policy, in part by discouraging any further appreciation of sterling, could help the rebalancing process and avoid potentially lasting destruction of productive capacity. In other UK related commentary, the number of Britons claiming unemployment benefit posted a surprise fall in December to the lowest since mid-2011.
Looking elsewhere, even though USD/JPY has bounced off earlier lows, implied vols continue to trade heavy as option decay and re-positioning post the BoJ decision weighs on prices. So much so that R/R has slipped to Sep levels, but still favours bets on further JPY depreciation. However another attempt to consolidate above the 90.00 level is unlikely in the coming days unless the BoJ and the government steps up verbal intervention rhetoric. Going forward, market participants will get to digest interest rate decision by the Bank of Canada, as well as the latest economic outlook update by the IMF. Also, McDonalds, United Tech and Apple are set to report today.
Print 11:50, 23 Jan 2013 - Market Analysis - Source: RANsquawk
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