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US OPENING NEWS INCLUDING:Markets have been subdued so far in the European session as market participants await the US non-farms payrolls report for September

Last updated: 09:08 07 Oct 2011 EDT, First published: 08:08 07 Oct 2011 EDT

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EU Commission says there is a window of opportunity to present bank recapitalisation proposals in the coming days.

Moody's downgrades 12 UK institutions, with RBS downgraded two notches to A2 from Aa3.

Germany and France are at odds over whether the EFSF should have limits on government bond purchases according to German press reports.

German Chancellor Merkel says the Netherlands and Germany agree that the EFSF should only be used to recapitalise banks if a country can't cope on its own.

An IMF official says Greece talks are not yet concluded and some important issues remain to be discussed.

RANsquawk European Morning Briefing Video: https://www.youtube.com/watch?v=NTJ8UiSN3HA 

Market Re-Cap

Markets have been subdued so far in the European session as market participants await the US non-farms payrolls report for September.  Equity markets have trended slightly lower in thin trading with UK banks underperforming due to Moody’s downgrading twelve UK financial institutions pre-market, and taking similar ratings actions on nine Portuguese banks.  Financial stocks in general however did not react to news that the EU commission will release a proposal in the coming days on bank recapitalisation as markets may be waiting for the Sunday meeting between Sarkozy and Merkel in which recapitalisation will be the main topic.  Elsewhere, GBP has been the stand-out currency despite the UK banking downgrades with market talk of a UK clearer supporting GBP/USD.  The EUR/USD pair has traded largely sideways with a large option expiry touted at 1.3400 for the NY cut which has held the pair within a tight range.  In regard to fixed income markets there has been movement in the 10-year government bond yield spreads with the Italian spread widening compared to its peers following news that Italian bank borrowing from the ECB increased by EUR 20bln for the month of September.  

Looking forward, the session is dominated by the non-farms payrolls data and its impact on the US unemployment rate, with the US consumer credit data to follow later in the session.  There may be possible comments from Fed’s Fisher and Lockhart before the next round of purchases from Operation Twist. 

Asian Headlines

Japanese BoJ Target Rate (Oct 7) M/M 0.0-0.10% vs. Exp.0.0- 0.10% (Prev. 0.0-0.1%) (RTRS)

BoJ's Governor Shirakawa says focus is needed on the downside risks for the Japanese economy and the sharp JPY rise has had a big impact on Japan's economy. (RTRS)

EU and UK Headlines:

EU Commission says there is a window of opportunity to present bank recapitalisation proposals in the coming days. (RTRS)

Germany and France are at odds over whether the EFSF should have limits on government bond purchases according to German press reports, with France pushing for more liberal limits against German rebuttals. (Handelsblatt)   

French president Sarkozy is to visit German Chancellor Merkel in Berlin on October 9th to discuss bank recapitalisation. (Sources)

An IMF official says Greece talks are not yet concluded and some important issues remain to be discussed. (RTRS)

German Chancellor Merkel says the Netherlands and Germany agree that the EFSF should only be used to recapitalise banks if a country can't cope on its own. (RTRS)Print 

Moody's downgrades 12 UK institutions, with RBS downgraded two notches to A2 from Aa3. (RTRS) 

EQUITIES 

Equity markets in Europe have been trending slightly lower amid thin trading ahead of non-farm payrolls.  UK banks have underperformed; particularly RBS and Lloyd’s following Moody’s downgrading 12 UK financial institutions pre-market.  Similar actions were taken by Moody’s on 9 Portuguese banks, however the European peripheral indices have generally traded slightly higher than core Europe. Investors will have one eye on the Sunday meeting between Sarkozy and Merkel regarding bank recapitalisations with the EU Commission also releasing its proposals on the matter in the coming days. 

FX

The forex markets have also been relatively quiet in the European session with GBP the outperforming currency.  GBP/USD has been supported by the UK inflation data this morning which was higher than expected across the board, despite the ratings actions taken on twelve UK financial institutions pre-market.  EUR/USD has been kept within its range by touted option expiries at 1.3400 and 1.3500 from the NY cut with the former reportedly being a very large size.  Elsewhere the AUD traded bid overnight following positive comments from an IMF staff report, while the JPY modestly strengthen following the BoJ keeping rates unchanged alongside higher than expected economic data.   

COMMMODITIES

WTI and Brent crude futures traded slightly lower during the European session ahead of the keenly followed non-farm payroll number from the US.  

Oil & Gas News:

SocGen reiterates forecast that Brent may fall below USD 100 per barrel. The company said in a report that oil prices are likely to fall further because businesses and consumers have lost confidence, crimping demand for fuel. They also added that crude demand in the US may fall by 330,000 BPD for the rest of the year.

Iran OPEC governor said most OPEC members would agree to maintain the current output ceiling at next meeting according to Shana.

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