Key news
- US equities rally to close near 3% up on optimism stemming from progress in framing the solution to the European debt worries and record-high Thanksgiving holiday sales figures over the weekend.
- Warnings from OECD on Europe contagion and Moody‟s on all European sovereign debt ratings being under threat somewhat dampened the positive market sentiment, however.
- US President Obama hosted a White House US-EU summit with European Commis-sion President Jose Barroso and European Council President Herman van Rompuy, focusing on launching potential bilateral trade talks to boost growth.
Markets Overnight
American equity indices broke a streak of seven consecutive days of losses, extending the broad based gains witnessed in the preceding European session. While the S&P index registered near 3% gains, commodities – led by copper - were heavily bid with largest gains in over a month. Robust retail sales over the Thanksgiving holiday weekend in the US and optimism stemming from progress in framing the solution to the European debt worries fuelled gains, although this optimism waned somewhat towards the end of the American session. In overnight trading, Asian stocks have extended their Monday gains, with the MSCI Asia Pacific index rising over 1%.
Moody‟s statement yesterday that “rapid escalation” of the eurozone debt crisis threat-ened the sovereign rating of all of the region‟s nations as well as OECD‟s warning of Europe contagion and downward revision of its global growth outlook cast some shadows over the positive sentiment, however. Overnight, Moody‟s has followed these warnings with a statement that it is considering lowering debt ratings for 87 banks in 15 European countries, where limited financial flexibility and reduced support for lenders put added pressure on banks.
In other news, US President hosted a summit at the White House with EU Commission and Council Presidents, announcing a joint working group to explore new areas of eco-nomic cooperation.
US Treasury yields were little changed as bonds pared losses from the earlier part of the US session later in the evening with once again initial optimism somewhat moderat-ing towards the end of the session.
In FX markets, despite the bid tone throughout yesterday‟s trading, EUR/USD failed to clear the 1.34 resistance and has since retreated back towards the 1.3350-70 area, having briefly visited the sub-1.33 zone in overnight trading. In the emerging currency universe, Hungarian forint was the clear outperformer as the Central European currency edged over 2% against the greenback from Friday‟s closing levels - ahead of today‟s rate decision by the Hungarian central bank - followed closely by gains in the commodity-rich currencies Brazilian real and Australian dollar.
Global Daily
Focus today
: Focus in the UK will be on the Chancellor‟s Autumn Statement to the House of Commons and the Office for Budget Responsibility‟s updated economic and fiscal forecasts. Most of the stuff is already known. It is clear that economic growth will be a lot weaker than previously anticipated and that it will be harder to reduce the public deficit, as we pointed out in early September. Focus today will be on the auctions in Italy, which will be an important test of the appetite for Italian bonds. Up to EUR8bn will be auctioned. Tonight‟s Eurogroup meeting tonight will also be worth keeping an eye on as details on EFSF will be on the agenda. In the US consumer confidence is due for release at 16:00. A small rebound is expected on the back of better equity markets going into November.
Fixed income markets: Italian bonds were supported in yesterday‟s trading session ahead of today‟s BTP auctions. Italian BTPs worth roughly EUR7bn are estimated to be tapped at varying maturities („14, ‟20, ‟22), which will take Italy to 95% of the 2011 estimate. Although the auction might look weak, failure is not an option in the current environment, where market movements continue to be large and correlations across many asset classes have changed recently. Keep an eye on the developments in money market fixings as they tend to increase in most countries. For instance, the 3M Euribor fixing rate has risen for nine days in a row now, marking the increased tensions in money markets, and underpinning why shorter dated EUR swap rates probably will not drop much before the ECB delivers more rate cuts.
FX markets: The euro got some support yesterday as risk appetite returned to the market on hopes that European policy makers are moving closer towards fiscal integration, which might stop the debt crisis evolving further. However, we continue to argue that the sup-port to the euro will be short-lived and the warning from Moody's about a downgrade of European bank debt is still just the latest example of the many problems for the eurozone. We also argue that the latest move higher in EUR/USD is primarily due to very stretched positioning. The so-called CFTC data that were released last night showed that specula-tors last week held the largest short euro position in 17 months. Hence, the market was basically caught on the wrong foot yesterday. However, we believe the short-covering has more or less come to an end now. We also see support for commodity currencies like AUD and CAD. We are more bullish here given that we believe commodities can contin-ue to rally on Asian growth.
Scandi Daily
Sweden
: Third quarter GDP data will be released today and there are prospects of a rela-tively positive development. Based on recent trade balance data, net exports are expected to have given an important contribution to growth and to some extent also business in-vestments. Retail sales data however, suggest some softness in consumer spending. Danske Bank is looking for growth at 0.4% quarter on quarter and 3.6% year on year.
In Norway the credit indicator will be released. We look for a growth rate of 6.8% y/y, which should underline that the Norwegian economy is still doing fairly well despite the global headwinds.