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EUROPEAN OPENING NEWS INCLUDING: According to the US NHC, tropical storm Greg has become a Category 1 hurricane

Last updated: 04:24 18 Aug 2011 EDT, First published: 03:24 18 Aug 2011 EDT

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ASIA

JGBs gained overnight as the JPY trading near a post-war high dimmed the earnings outlook for exporters and boosted demand for the relative safety of government debt. JGBs were trading at 142.56 (+0.27) at 0539BST. (Sources)

Goldman Sachs cut Japan’s FY 2012 real GDP growth forecast to 2.5% from its previous forecast of 2.7%, however raised country’s 2011 real GDP growth forecast to 0.4% from its previous forecast of 0.0%. (Sources) In other news, according to Yomiuri newspaper, Japan may elect a new Prime Minister this month. Senior members of the governing Democratic Party of Japan agreed to hold an in-house election to choose a new leader by August 30th, and a parliamentary election could be held on the same day.

Japan Merchandise Trade Exports (Jul) M/M -3.3% vs. Exp. -2.6% (Prev. -1.6%)

Japan Merchandise Trade Imports (Jul) M/M 9.9% vs. Exp. 11.0% (Prev. 9.8%) (RTRS)

Morgan Stanley cut Chinese 2012 GDP growth forecast to 8.7% from its previous forecast of 9.0%. (Sources) Meanwhile, S&P’s Beers expects China’s growth to slow from past trend. Elsewhere, according to a Chinese researcher, Wang Tianlong, China will likely not hike benchmark interest rates again this year as its shifts its focus to fiscal and structural reforms to improve economic performance.

China’s annual housing inflation quickened in July for the second straight month this year, according to official data, average new home prices rose 4.3% in July from a year earlier. (RTRS)

US

US Treasures finished in positive territory yesterday, advancing in the latter part of the session fuelled by speculation that the US economic recovery is stalling with investors rebalancing their portfolios away from equities. An S&P report downgrading the US growth forecast for the next 3 years allied with Eurozone’s indecision to warm to a Eurobond idea, with implementation of a financial transaction tax has continued to weigh on sentiment. Markets will turn their attention to today’s 2y, 5y and 7y Note Refunding Announcement allied with USD 12bln 5-year TIPS Auction. At the pit close, T-Notes settled at 130.11 , up 8+ ticks, Vol. 906k. Finally, DJIA closed up 0.04% at 11410.21, S&P 500 closed up 0.09% at 1193.88 and NASDAQ 100 closed down 0.47% at 2511.48. T-notes traded higher overnight on the back of weaker equities in Asia, at 0637BST, T-notes were trading up 3 ticks at 130.14+. 

S&P Beers said a negative US outlook means 1 in 3 chance of a sovereign rating cut, adding that regaining of AAA status is up to the political consensus on debt cut. (Sources) S&P sees just 1.9% growth in Q3 and 1.8% in Q4, to bring 2011 calendar year growth closer to 1.7%, instead of 2.4% it earlier expected. It also revised down growth expectations for 2012 and 2013.

President Obama is set to propose short-term measures to boost hiring and call on a congressional panel to deliver more than USD 1.5trl in savings by November 23rd, partly through increased tax revenues. Obama will propose a plan to jump start the US economy after September 5th Labour Day holiday. (RTRS)

EUROPE 

ECB’s Nowotny said there is more likely to be a period of low growth combined with low inflation than a phase of rising prices, adding that it is clear that economic conditions have deteriorated, however a double dip recession is unlikely. He further said that ECB’s bond buying programme is for corrective market imbalances, not permanent, adding that time is not ripe to decide on tools such as Eurobonds. Nowotny sees no reason why Italy would be prevented from taking part in expansion of Euro safety net. (RTRS)

Deutsche Bank CEO Ackermann says doesn't expect the ECB to raise rates this year and believes the Euro zone system has become more stable. Ackermann added a transaction tax is 'problematic' however shows commitment to defend the euro. (Sources)

The Greek Cabinet will meet on Thursday as Greece seeks to pick up the pace of its reform program ahead of a visit by Troika, evident from the firing on Wednesday of the general secretary at the Transport and Infrastructure Ministry. (ekathimerini)

According to the Austrian finance ministry, Austria opposes Finland’s deal with Greece on collateral for loans and will demand collateral as well if Eurozone countries approve Finland’s deal. It said that the collateral model has to be open to all the Eurozone countries. (Helsingin Sanomat)

US regulators are stepping up scrutiny of local operations for Europe’s largest banks on concerns that the region’s sovereign debt crisis may lead to funding problems. (WSJ) 

FX

According to the BoJ, senior finance ministry and BoJ officials met to exchange views on currency rates. Japan’s ministry of finance official, Nakao, said the government remains on alert over currency moves. (Kyodo News)

GEOPOLITICAL 

Syrian President Assad told UN Secretary-General Ban Ki-Moon that military and police operations against pro-democracy protesters had stopped, according to the UN. (RTRS)

COMMODITIES 

Oil fell overnight as ongoing concerns over Europe’s debt crisis and a firmer USD drew investors away from riskier assets and into the safe havens of Gold and the CHF. WTI crude futures were trading at USD 87.14, down USD 0.44, at 0647BST. (RTRS)

According to the US NHC, tropical storm Greg has become a Category 1 hurricane. (NHC)

According to the World Gold Council, Gold demand fell in the second quarter but is still expected to rise in the full year. Overall Gold demand fell 17% in the three months from April to June. (RTRS)

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