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US Morning Briefing

Thu, Nov 19 2009, 13:05 GMT
by RANsquawk Research Team

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Overnight News

Asia:

Japan’s 10-year bond yields were near the lowest level in a month after a sale of 20-year securities drew the highest demand since August. JGBs were trading at 139.25 (-0.05) at 0610 GMT. Nikkei fell 1.3% to a four-month closing low, with the nation’s biggest bank Mitsubishi UFJ Financial Group sliding after announcing a massive fundraising. MUFG fell 3.7% after saying it would raise USD 11bln to meet stricter capital rules. (RTRS)

Japan finance minister Fujii said that Japan’s economy is starting to recover but remains unstable. He added that OECD is cautious on Japan’s Q4 GDP as wages and bonuses are likely to be weak. (RTRS) In other news, Japan’s government, facing sliding tax revenues, may issue JPY 52trl in new bonds in the current fiscal year to March 2010, up 18% from its current estimate. (Mainichi)

GLOBAL

Credit rating agency Moody's Investors Service said on Wednesday it placed under review for possible downgrade some USD 450bln of banks' hybrid and subordinated debt, to account differently for the impact of government support for financial institutions and investors. (RTRS)

US:

Fed’s Plosser said that central banks should not respond to wild swings in food and energy prices with monetary policy unless expectations of inflation become unhinged. Plosser further said that US has turned a corner on the economy and is in a recovery, adding that as economy strengthens, will have to look very hard at reversing course on rates. Plosser said that he doesn’t see any reason to be concerned about prices relevant to asset bubbles. (RTRS) Also, Fed's Fisher said that falling USD is not necessarily inflationary. (RTRS)

In other news, For the first time in the credit crisis, the government may have run into a problem that is too tough to bail out: commercial real estate. Smaller banks weren’t stress-tested in the same way as larger banks, and thus are less likely to have raised enough equity to deal with commercial real estate. (Heard on the Street, WSJ)

Analyst Meredith Whitney said today that banks are grossly overvalued and that the Fed is unlikely to extend the purchase of mortgage securities. Whitney also noted that credit card losses are continuing on pace. (BBG)

Bonds

EUROPEAN GOVERNMENT BONDS

Bund futures were under pressure in early trade ahead of a large amount of supply from Spain and France. However, once the issuance had been cleared and with weakness persisting in the equity market, bund futures have moved into minor positive territory.

Main points from the OECD economic outlook reports were: (BBG/RTRS)

  • Sees 2009 GDP in OECD area at -3.5%, +1.9% in 2010, +2.5% in 2011

  • Sees 2009 world GDP at -1.7%, +3.4% in 2010, +3.7% in 2011.

  • Sees 2009 Euroarea GDP -4.0%, +0.9% in 2010, +1.7% in 2011.

  • Sees 2009 US GDP at -2.5%, +2.5% in 2010, +2.8% in 2011.

  • Assumes Fed and ECB rates on hold until close to end 2010.

  • BOE Interest rates normalisation will probably need to start in 2011.

  • Assumes BOJ keeps interest rate at 0.1% through 2011.

  • Raises China 2010 GDP growth forecast to 10.2% vs. Prev. 9.3%; sees 9.3% in 2011.

EIB (European Investment Bank) vice president said that some countries in Eastern Europe will still see a contraction in 2010. (RTRS) In other news, German government economic adviser Bofinger sees a risk of doubledip recession in late 2010 or early 2011. (RTRS) Elsewhere, the Bundesbank said that cyclical world economic recovery to continue and inflation outlook remains favourable. (Sources)

  • Spanish Bond Tap Auction for EUR 3.3bln 4.8% 31-Jan-24, Bid/Cover 1.84 vs. Prev. 1.4 (BBG)

  • French BTAN Tap Auction for EUR 1.881bln 1.5% 12-Sep-11, Bid/Cover 2.969 vs. Prev. 2.4

  • French BTAN Tap Auction for EUR 1.30bln 3% 12-Jul-14, Bid/Cover 3.423 vs. Prev. 1.9 (BBG)

Maturity251030Bund (Dec09)
Level1.3072.3623.2853.966122.25
Change (bps)-0.2460.116-0.0360.2260.01


Gilts:

NYSE LIFFE gilt futures came under pressure this morning after public finance figures came in much higher than consensus allied to a positive retail sales report. However, as US players entered the market equities came under renewed pressure resulting in gilt futures paring back a majority of the mornings sell-off.

  • UK Retail Sales (Oct) M/M 0.4% vs. Exp. 0.5% (Prev. 0.0%, Rev. to 0.4%)

  • UK Retail Sales (Oct) Y/Y 3.4% vs. Exp. 2.9% (Prev. 2.4%, Rev. to 2.9%) (BBG)

  • UK Public Finances (PSNCR) (Oct) M/M 5.9bln vs. Exp. 4.0bln (Prev. 19.4bln, Rev. to 19.3bln)

  • UK Public Sector Net Borrowing (Oct) M/M 11.4bln vs. Exp. 7.0bln (Prev. 14.8bln, Rev. to 14.9bln) (BBG)

  • UK M4 Money Supply (Oct P) M/M 1.8% vs. Exp. 1.0% (Prev. 0.8%, Rev. to 0.9%)

  • UK M4 Money Supply (Oct P) Y/Y 11.0% vs. Exp. 9.9% (Prev. 11.6%) (BBG)

  • UK Major Banks Mortgage Approvals (Oct) M/M 61K vs. Prev. 56K (BBG)

  • UK Index-Linked Mini Tender for GBP 450mln 1.125% 2037, Bid/Cover 1.85 (BBG)

BOE's Fisher said that crisis measures will eventually wind down, however BOE’s balance sheet may not return to pre-crisis mark and BOE can only provide temporary support to banks. BOE's Fisher said that all options open for QE at February meeting and mix of rate hikes and asset sales most likely strategy. (BBG)

Britain’s banks are in a worse state than those anywhere else in the developed world and show no signs of recovery, according to the world’s largest credit-checking company Experian. (Telegraph)


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