Overnight News
Asia:
JGB’s rose on Monday drawing support from the recent strength in shorter maturities, but activity was slow with many investors staying on the sidelines before a slew of key economic data and a sale of 10 year bonds this week. At 0623 BST JBG’s were trading 137.83 (+0.17). In equities, the Nikkei fell 1% with battery maker GS Yuasa ending a recent surge after a brokerage downgrade and Daiwa Securities Group tumbling after announcing a USD 2.5bln share sale. (RTRS)
Japanese industrial output jumped 5.9% in May vs. exp. 7.0%, matching April’s biggest gain in half a century, as car and electronics production pulled out of a deep slump but the outlook remains murky with the effects of government stimulus expected to wear off. (RTRS)
PBOC’s Zhou said China Q2 economy looks better than Q1and that China can achieve 8% economic growth target. (BBG)
Global:
The USD received a boost in the late Asian session and into the European entrance after PBOC’s Zhou said that FX reserve policy is always quite stable-consistent, targeting safety and return with no sudden changes. The UAE Central Bank governor has also said this morning that it is difficult to think about a global reserve currency other than the USD. The latest comments have helped outweigh reports that China and Brazil are working on a currency arrangement to allow exporters and importers to settle deals in their local currencies bypassing the USD, with calls from Russia for the world to become less dependent on the USD largely ignored. (RTRS)
Bank for International Settlements (BIS) said today that there is a significant risk that stimulus leads only to a temporary growth pick-up and then long stagnation. (BBG)
US:
Obama adviser not ready to back a second stimulus (AP)
A senior White House adviser said Sunday the economic stimulus package has not yet "broken the back of the recession" but set aside calls for a second massive spending bill.
Senior White House official Romer upbeat on US economy (FT)
Romer said the US economy will feel a substantial boost from the Obama administrations emergency spending package over the next few months, though warned against tightening monetary and fiscal policy before recovery is well established.
Bonds
European Government Bonds:
Bund futures have traded into slight positive territory this morning, dragged higher by the strength in gilt futures. However, gains have been capped by improving economic data with EU business climate indicator for June coming in at its highest since January with economic confidence at its highest since November.
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EU Business Climate Indicator (Jun) M/M -2.97 vs. Exp. -3.00 (Prev. -3.17, Rev. to -3.11)
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Eurozone Economic Confidence (Jun) M/M 73.3 vs. Exp. 71.0 (Prev. 69.3, Rev. to 70.2). (BBG)
Noted speakers from the weekend included ECB’s Draghi who said policymakers should continue pushing to make financial markets more resilient as there were still signs of fragility, with ECB’s Quaden commenting that deflation is almost ruled out in Europe. (RTRS) EU's Almunia has also said that fiscal stimulus must continue to be applied and shouldn't rule out extra stimulus. (BBG)
| Maturity | 2 | 5 | 10 | 30 |
| Level | 1.339 | 2.47 | 3.368 | 4.233 |
| Change (bps) | 1.797 | -0.311 | -1.886 | -0.34 |
UK Gilts:
NYSE LIFFE gilt futures have out performed EGB’s ahead of the BoE’s 32nd reverse auction today. Price action has also been aided by various downbeat press articles including reports that UK public pension fund liabilities are spiralling way above those of the US and Canada, reaching the equivalent of 85% of GDP. Elsewhere, the latest UK mortgage approvals for the month of May came in M/M at 43.4K vs. Exp. 46.0K (Prev. 43.2K). Finally, heading into month-end worth noting the Sterling iBoxx Sovereign index is an exceptionally large +0.33yrs.
Other stories of note include an article from the Sunday Telegraph, which wrote ‘S&P warns that Britain’s national debt will quadruple to peaks only ever seen in the wake of WW2 unless the Government takes drastic steps to address the pensions and ageing crisis’. The warning comes a month after S&P put Britain’s debt on negative outlook.
| Maturity | 2 | 5 | 10 | 30 |
| Level | 1.156 | 2.76 | 3.628 | 4.352 |
| Change (bps) | 0.775 | -3.018 | -5.629 | -6.326 |
Equities
UK & European equities opened lower but have been on a gradual up tick led by a bounce in commodity prices.
The likes of Total and BP have led the gains in their respective indexes with WTI crude futures trading back towards the USD 70.00 handle buoyed by on-going unrest in the Niger Delta and a weakening USD. Telecom stocks have also performed well thus far after news that UK’s Vodafone maybe interested in bidding for Deutsche Telekom’s T-Mobile unit.
| Index | DAX | CAC | FTSE | EUROSTOXX |
| Level | 4824.68 | 3166.24 | 4259.09 | 2413.82 |
| Change(ticks) | 1.01 | 1.17 | 0.43 | 1.00 |
FX
| Currency | EURUSD | GBPUSD | USDJPY |
| Level | 1.4066 | 1.6565 | 95.35 |
| Change(pips) | 0.0010 | 0.0040 | 0.1650 |
Commodities
WTI crude oil futures moved higher today in the European session, as the USD index weakened on returning investor risk appetite and after a Nigerian rebel group attacked Shell’s oil platform.
Royal Dutch Shell said it shut its Estuary oil field in Nigeria’s southern delta region after militant attack. According to Bache Commodities the latest Nigerian attacks will take WTI up to USD 70.
According to Algerian oil minister, markets were oversupplied and oil demand continued to remain weak due to poor economic conditions in US and Europe. He also said that it’s very unlikely for OPEC to increase productions as oil stock levels still remained high.
| Commodity | WTI Nymex | OTC Spot Gold |
| Level | 69.89 | 941.6 |
| Change (USD) | 0.73 | 2.00 |
Looking ahead:
Economic releases
| CDT | BST | Prev. | |||
| 730 | 1330 | US | Chicago Fed Nat. Activity Index | M/M May | -2.06 |
| 930 | 1530 | US | Dallas Fed Manufacturing Activity | M/M Jun | -21.50% |
Speakers
| 830 | 1430 | US | Fed’s Rosengren |
Auctions
| 845 | 1445 | UK | BOE’s Reverse Auction GBP 3.5bln Mar. 2020 – Jun. 2032 |
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