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EUROPEAN OPENING NEWS INCLUDING: Long end Japanese government bonds fell overnight

Last updated: 04:53 09 Sep 2010 EDT, First published: 03:53 09 Sep 2010 EDT

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ASIA

Long end Japanese government bonds fell overnight but their losses were limited as the JPY stayed near a 15-year peak against the USD and worries simmered about the outlook for Tokyo shares and the economy. However, later in the session, JGBs pared earlier losses and were trading at 141.88 (+0.10) at 0620 BST. (RTRS)

BOJ’s governor Shirakawa said the central bank must avoid giving markets the impression it is monetising debt or trying to directly influence long term interest rates. (RTRS)
He also said that he did not talk about currencies and monetary policy at a government meeting on Thursday aimed at discussing ways to achieve economic growth.

The Japanese government is contemplating compiling a supplementary budget for fiscal 2010 to address the surging JPY and boost the economy together with the year-end preparation of the budget for fiscal 2011 in order to avoid new bond issuance to finance the stimulus package, according to government sources. (Sources) In other news, big Japanese manufacturers expect conditions to worsen in the final three months of 2010 as they feel the pinch from slowing overseas growth and a strong JPY, despite a pick-up in optimism in the business environment in the July-September quarter, according to a government survey. (RTRS)

Japanese Consumer Confidence (Aug) M/M 42.5 vs. Prev. 43.4 (RTRS)

US


T-notes finished the session lower as risk appetite returned to the market as fears over the EU sovereign debt alleviated following a well received Portuguese debt auction. The closing stages saw prices move off lows but remain in negative territory post the latest note auction by the US Treasury. At the pit close T-notes finished down 12+ ticks at 124.14+. At 0614 BST UST's were trading up 6 ticks to 124.20 ahead of the NY Fed's second Treasury purchase of the week and after ECB's Stark said German banks may need more capital.

Fed's Beige Book shows that US economic growth continued but widespread signs that growth decelerated through end of August. (RTRS)
Fed's Beige book says 5 of 12 districts reported mixed conditions or deceleration in activity, while all 5 western districts reported growth at modest pace. Says consumer spending appeared to increase on balance despite consumers sticking to essential purchases and manufacturing activity pointed to further expansion but pace of growth eased in several areas. In addition, says home sales slowed further after an initial drop from end of tax credit, says construction slowed too and demand for commercial real estate remained weak but showed signs of stabilisation in some areas.

Fed's Fisher says decision to reinvest MBS should 'not necessarily' be viewed as reflecting an easing bias or signs that further easing imminent. (RTRS) Fed's Fisher says economy remains anaemic, sees growth of around 2% for H2 2010. Says not much more the central bank can do to stimulate the economy, barring another crisis situation and that deflation not a major concern, Y/Y inflation running at about a 1% rate.

San Fran. Fed official says economy is still making 'forward progress' and says odds of a double dip recession are very low. (Sources)
The Fed official says the economy still expanding, albeit at slow pace and specifies that some of the recent weakness is tied to temporary factors. Says 2010 GDP to rise 2.5%, up by 3.5-4% in 2011 and says unemployment likely to be above 8% into 2012. In addition, says inflation to stay subdued and sees low odds of deflation. Separately, Fed’s Kocherlakota said that sees GDP growth of 3% in 2011 and says inflation temporarily 'a little low' sees inflation at 1.5-2% in 2011.

US President Obama ruled out extending Bush-era tax cuts for wealthier Americans as he sought to draw a sharp distinction between his Democrats and Republicans in this election year. (RTRS/CNBC) 'This isn't to punish folks who are better off - it's because we can't afford the USD 700bln price tag,' said Obama. Obama also said that if the midterm election is referendum on the US economy then Democrats will not do well. Separately, US Treasury’s Geithner says thinks there is enough support in Congress to get Obama’s stimulus measures passed. 

Projected US economic growth for the rest of this year and next was revised down for a third month in a row by a panel of about 50 economists. (RTRS)
The latest Blue Chip Economic Indicators report said the weaker outlook for the second-half 2010 growth stemmed from lower expectations for consumer spending, business investment and private construction. For 2010, real GDP now is forecast to increase 2.7% on a Y/Y basis, 0.2% less than a month ago and 0.6% less than that predicted in June. The real GDP growth in 2011 is cut by 0.3% from a month ago to 2.5%.

USD 21bln 10y note auction received a b/c 3.21 vs. Avg. 2.89 (Prev. 3.04) and Indirects were 54.7% vs. Avg. 40.23% (Prev. 45.80%). The auction drew a yield of 2.670% vs. Exp. 2.685% with a total of 54.70% of issuance was allotted at the high. (RTRS)

US Consumer Credit (Jul) M/M (USD) -3.6bln vs. Exp. -4.7bln (Prev. -1.3bln, Rev. to -1.0bln) (RTRS)

EIA cuts US 2010 GDP growth forecast to 2.8% vs. prior 3.1% and 2011 GDP growth cut to 2.3% vs. 2.7%. (RTRS)

EUROPEAN


ECB steps up Eurozone bond buying. (FT)
The ECB has bought between EUR 100mln and EUR 300mln of Greek, Irish and Portuguese bonds so far this week, traders said on Wednesday, as worries over the health of some highly indebted Eurozone economies resurfaced.

ECB's Stark tells German lawmakers German banks are undercapitalised. (RTRS)
ECB’s Stark says the US is betting German banking system won't be able to stay in current form under Basel III and says advises privatisation of German savings banks, says Spain a role model. Says wonders whether IMF has exit strategy from economic support measures and fears slight inflation trend in the US due to Obama's stimulus programme.

ECB’s Weber reiterates expects new Basel III rules to be passed on Saturday/Sunday. (RTRS)
Weber says expects new regulation will not endanger economic growth and says expects new regulation will not endanger credit dynamics.

ECB’s Liikanen said the US economic outlook is uncertain, adding that a double dip scenario is not likely. He also said that the growth will slow, not slump, after stimulus ends. (Sources)

France's Lagarde says banks need to strengthen balance sheets. (La Tribune/RTRS)
Lagarde says Basel capital requirements must not choke growth and says France won't apply Basel rules unless US does. Separately to this, French economy ministry says to propose raising tax on telecom bundles to 19.6% and French budget minister said economy likely to beat official growth forecast in 2010, meet forecast in 2011.

French budget minister, Baroin, said France is targeting a 2011 budget deficit of less than EUR 100bln, compared with a predicted EUR 152bln this year. (Les Echos)

FX

US Treasury Secretary Geithner said China must let the CNY rise more quickly to show trading partners that it is following through on its promises. (Sources)

Australian Employment Change (Aug) M/M 30.9K vs. Exp. 25.0K (Prev. 23.5K, Rev. to 25.0K)
Australian Unemployment Rate (Aug) M/M 5.1% vs. Exp. 5.2% (Prev. 5.3%) (RTRS)
Australian employment surged in August as full time jobs were created at the fastest pace in two years, adding to the risk of renewed hikes in interest rates and lifting AUD/USD to a four-month peak.

Reserve Bank of Australia’s assistant governor, Debelle, said the mood in world financial markets remains fragile but there were signs risk appetite had improved enough to encourage a revival in the AUD carry trade. (RTRS)

GEOPOLITICAL

South Korea listed 126 Iranian companies and individuals for economic sanctions on Wednesday, including a major banking operation, despite Iran’s warnings that the penalties would endanger growing trade and energy ties. (Sources)

COMMODITIES

Oil pared gains overnight to stay below USD 75 a barrel as Chinese commodity markets tumbled on talk about a crackdown over illegal funds. Chinese commodity futures prices fell about 2% on Thursday as traders scrambled to identify the cause of a widespread sell-off. WTI crude futures were trading at USD 74.72, up USD 0.05, at 0620 BST. (RTRS)

US EIA raises forecast for 2010 world oil demand growth by 50,000 BPD, now sees 1.62mln BPD Y/Y increase. (RTRS)
The EIA cuts forecast for 2011 world oil demand growth by 100,000 BPD, now sees 1.41mln BPD Y/Y and says does not change forecast that China oil demand will grow 650,000 BPD in 2010, 2011 oil demand growth cut by 30,000 BPD. Also says US natgas consumption up 4% in 2010 (Prev. up 3.8%), flat in 2011.

US API Crude Oil Inventories W/W (Sep 3) -7308K vs. Prev. 4765K
US API Cushing Crude Inventory W/W (Sep 3) -40K vs. Prev. -503K
US API Distillate Inventory W/W (Sep 3) 1288K vs. Prev. -1860K
US API Gasoline Inventories W/W (Sep 3) 654K vs. Prev. -589K (RTRS)

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