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EUROPEAN OPENING NEWS INCLUDING: France's Sarkozy cut France’s 2012 GDP growth forecast to 1%

Last updated: 04:10 28 Oct 2011 EDT, First published: 03:10 28 Oct 2011 EDT

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ASIA

JGBs traded lower overnight weighed upon by strength in the Nikkei (+1.01%) together with growing signs of improvement in the US economy. JGBs were trading at 142.18 (-0.34) at 0528BST. (RANsquawk)

Japanese Jobless Rate (Sep) M/M 4.1% vs. Exp. 4.5% (Prev. 4.3%) 

Japanese National CPI (Sep) Y/Y 0.0% vs. Exp. 0.1% (Prev. 0.2%)

Japanese Industrial Production (Sep P) M/M -4.0% vs. Exp. -2.1% (Prev. 0.6%); Y/Y -4.0% vs. Exp. -2.3% (Prev. 0.4%) (RTRS) 

US

T-notes settled starkly lower yesterday, with risk appetite seen after US GDP showed the strongest growth in a year alongside the Euro-zone agreeing on the expansion of the EFSF and Greek haircuts, all of which boosted investor confidence and saw flows out of safe haven assets. CTA's were seen as sellers throughout yesterday’s session, with talk of rate lock unwinds and technical based selling adding to a high volume session. At the pit close, t-notes settled at 127.10, down 1 point and 8+ ticks. Finally, DJIA closed up 2.86% at 12208.22, S&P 500 up 3.43% at 1284.59 and NASDAQ up 3.32% at 2738.63. T-notes were trading at 127.19, up 9 ticks at 0632BST, as investors sought bargain hunting following yesterdays sell-off in fixed income markets. 

US Republicans proposed a USD 2.2tln deficit reduction plan heavy on spending cuts and light on tax increases. The Republican plan proposes cutting USD 500bln from the Medicare health insurance program for retirees, in part by raising premium. It would also cut USD 185bln from the Medicaid health plan for the poor and USD 100bln from other healthcare programs.  (RTRS)

Fed’s balance sheet stood at USD 2.829tln, on October 26th, down from USD 2.835tln a week earlier. Also, foreign central banks’ overall holdings of US marketable securities at the Fed fell USD 19.60bln in the week ended October 26th, to stand at USD 3.392tln. (RTRS) 

Yesterday’s USD 29bln 7y note auction drew a yield of 1.791% vs. exp. 1.752%, the b/c was 2.59 vs. avg. 2.85 (Prev. 3.02), indirect bidding was seen at 33.9% vs. avg. 42.02% (Prev. 41.72%) and the allotted at high figure was 59.51%, overall a disappointing auction. (RTRS)

EU

China is very likely to contribute to the EFSF but the scope of its involvement will depend on European leaders satisfying some key conditions, according to two senior advisers to the Chinese government. (FT-More) China could be willing to contribute between USD 50-100bln to the EFSF or a new fund set up under its auspices in collaboration with the IMF but any Chinese support would depend on contributions from other countries and Beijing must be given strong guarantees on the safety of its investment.

EFSF’s CEO Regling said he does not expect to reach a conclusive deal with Chinese leaders during a visit to Beijing but expects the surplus rich country will continue to buy bonds issued by the fund. He added that the bailout deal with Greece was an exceptional case and he saw no need to repeat it for other nations. Regling added that the EFSF may explore with the IMF setting up a SPV via which investment could be made to support Europe. (RTRS) 

FT writes: On almost every major issue, particularly the second EUR 130bln Greek bail-out and increasing the firepower of the Euro-zone’s EUR 440bln rescue fund, it could be days or weeks before the details that underpin the entire package are finally ironed out. (FT More) Malcolm Barr of JPMorgan wrote “There is plenty of room to doubt whether each of the key aspects of the package will deliver.”

According to the WSJ, top ECB officials have offered a sceptical appraisal of the latest plan to solve the debt crisis and officials suggest the ECB may be forced to maintain emergency measures. (WSJ)

France's Sarkozy cut France’s 2012 GDP growth forecast to 1% and said France will announce proposed budget cuts of EUR 6-8bln within the next 10 days. Sarkozy said France will wait for the Cannes G20 summit to announce austerity measures but ruled out a generalised VAT sales tax rise in France. He also confirmed budget deficit targets of 3% in 2013 and balanced in 2016, and acknowledged a credit crunch risk exists in France. (Sources)

ECB's Nowotny said there is a danger of less credit as banks recapitalise and this would pose a risk to the Euro-zone economy. (Sources)

FX

Japanese economy minister said BoJ easing was timely and wants BoJ to continue to support the economy via bold and appropriate policy. He added to take decisive steps included intervention on JPY rise as needed and feels strong sense of urgency over one-sided JPY rises. (RTRS) 

GEOPOLITICAL 

Defence chiefs in South Korea and the US agreed to pursue a joint operational plan to counter potential provocations by North Korea at their annual bilateral security meeting in Seoul. (Yonhap News) 

COMMODITIES

WTI crude futures traded lower overnight while optimism stemming from a deal to resolve the Eurozone’s debt crisis put prices on track for their biggest weekly gain since February. WTI crude futures were trading at USD 93.61, down USD 0.35, at 0628BST. (RTRS)

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