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Japan to Support Eurozone Debt, ECB Buys Portuguese Debt Ahead of Auction

Markets are trading with a more buoyant tone Tuesday, helped as Japan signals it will be supporting European sovereign debt by purchasing bonds from the financial stability facility  in an effort to build confidence in the bailout fund.
Japan to Support Eurozone Debt, ECB Buys Portuguese Debt Ahead of Auction

Markets are trading with a more buoyant tone Tuesday, helped as Japan signals it will be supporting European sovereign debt by purchasing bonds from the financial stability facility  in an effort to build confidence in the bailout fund.

This comes on the back of a move from the ECB yesterday to shore up Portugal's failing debt ahead of its bond auctions on Wednesday, buying up 10-year paper as yields once again topped euro-era highs. Although officials have denied they are considering a bailout for the country, this action, combined with the move from Japan, which is seen by some as a signal of fear the Eurozone debt crisis may be spreading, has some suggesting the prospect is all but inevitable.

The economic calendar picks up a little today in terms of headline numbers, with the ICSC Goldman Store Sales data first up at 0745 EST, followed by the Redbook Average at 0855 EST, Wholesale Inventories at 1000 EST and capped by the ABC/Washington Post Consumer Confidence Index at 1700 EST.

US stock futures are pointing to a mildly positive open on Wall St as European bourses lead direction, with the banking and financial sector once again coming in to focus as further aspects of the Basel III banking reform package come to light. Banking regulators have effectively agreed to raise worldwide capital requirements whenever an individual country declares a credit bubble. Known as the ‘Countercyclical Capital Bubble’, this signals a change in the way national regulators cooperate with each other regarding banking reform and so called 'macroprudential' regulation.

Goldman Sachs, meanwhile, has been making efforts to address criticisms that it put its own interests ahead of its clients, by introducing a 39 step self improvement plan that should add layers of additional oversight. The move, seen as aggressive by Goldman executives, is the result of an eight month review by the company, and comes ahead of a US Senate Subcommittee report on the financial crisis, in which Goldman Sachs is expected to be heavily criticised.

In the FX market, the euro is managing to squeeze back some gains today as the Japanese move and bargain hunting help prices, although the single currency is still weaker against the greenback as stronger support is yet to come forward. The main mover so far today, however, is the Aussie dollar, which is down around 1.1% as damage to the country's economy and infrastructure from the severe floods continues to worsen.

Safe haven sovereign bonds are generally weaker today as the broader markets gain a little risk appetite, with the yield on the US 10-year up around 2 basis points at 3.31%. Eurozone peripheral debt, on the other hand, is making some mild gains today, helped by the ECB intervention yesterday and the supportive comments from Japan, although traders are watching for tomorrow's Portuguese auction as a litmus test to where the market currently stands.

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