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US Morning Briefing

Fri, Nov 27 2009, 12:45 GMT
by RANsquawk Research Team

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Overnight News

Asia:

The five-year Japanese government bond yield hit its lowest in four years as Tokyo shares slid, and investors fretted that the JPY’s serge may add to deflationary pressure on the economy. JGBs were trading at 139.82 (+0.32) at 0623 GMT. Nikkei fell 3.2% to hit a 4-month closing low for a fifth straight week of losses, hurt after the JPY touched a 14-year high against the USD and debt problems surfaced in Dubai. Honda Motor Co and other exporters skidded on the stronger JPY, while Japan’s top bank Mitsubishi UFJ Financial Group slipped as banking shares were hurt by concerns about their exposure to Dubai’s debt. (RTRS)

Chinese trade minister said that there are still uncertain sings in the world economy despite some signs of recovery, adding that next year China will continue to practice flexible monetary and budgetary policies. (RTRS) In other news, China’s efforts to stimulate its economy may cause over-capacity, swamp world markets and lead to a surge in trade disputes, according to the European Union of Commerce in Beijing. (WSJ)

GLOBAL ****DUBAI UPDATE

The front page of all major newspapers is dominated by the Dubai story and is likely to remain the main theme today as US participants return to the market. Overnight UST's ticked sharply higher, Nikkei closed down over 3%, WTI fell as much as USD 5 and the USD index rose 1% at the high in risk adverse trade. However, as we head towards the US open prices have pared back some of the initial moves as numerous banks in the UK and European confirmed minimal exposure to Dubai and after reassuring comments from the Greek central bank in regards to the country’s debt and domestic bank funding.

In a wrap up for US traders, European equities (DAX:-3.25%; FTSE 100 -3.18%; CAC 40 -3.41%) slumped to their biggest one day drop since April yesterday as investor sentiment was hurt and traders' concerns grew regarding the unfolding Dubai debt crisis saga. The greenback (USD Index up 1% at its high) rallied following the sharp sell off overnight in Asia and financials were the worst performing sector due to worries surrounding banks' exposure to state-owned Dubai World, who on Wednesday requested a standstill on debt repayments. Furthermore, in other news the Greek-Bund spread continued to widen as bond and stock prices in Greece remained under pressure on worries that a further downgrade by ratings agencies’ could mean domestic banks will no longer be able to use Greek bonds as collateral for loans from the ECB.

However, Sheikh Ahmed bin Saeed al-Maktoum, chairman of the Supreme Fiscal Committee, said: “While the government understands the concerns of the market and the creditors, it had to intervene because of the need to take decisive action to address its particular debt -burden.” He said the government had acted in full knowledge of how markets would react. “We want to ensure resources are deployed ... to enhance the businesses of Dubai World Group, build on the restructuring ... and ensure long-term commercial success.” He said that further information would be given early next week. (FT)


Bonds

EUROPEAN GOVERNMENT BONDS

EGB’s opened on a positive note following the news of Dubai debt problems as investors run for the shelter of the safety of Government debts, however, moving into the North American open much of the gains were pared in the absence of any further negative economic news.

ECB's Nowotny said that the liquidity injected by non-standard measures will be drained "automatically" and he does not see inflation rising significantly in the next year. Nowotny mentioned that he sees positive growth rates globally in 2010 and expects Euro region growth weakest globally in 2010. He further said that ECB's exit will be easier than Fed exit and ECB will decide about the 12-month tender in December. (RTRS/ BBG) Also, ECB’s Weber said that the central bank and government support has hit its limit and exit strategies cannot be deferred into the never-never. (RTRS)

  • Eurozone Business Climate Indicator (Nov) M/M -1.56 vs. Exp. -1.65 (Prev. -1.78, Rev. to -1.79)

  • Eurozone Consumer Confidence (Nov) M/M -17 vs. Exp. -17 (Prev. -18)

  • Eurozone Economic Confidence (Nov) M/M 88.8 vs. Exp. 88.0 (Prev. 86.2, Rev. to 86.1)

  • Eurozone Industrial Confidence (Nov) M/M -19 vs. Exp. -19 (Prev. -21)

  • Eurozone Services Confidence (Nov) M/M -4 vs. Exp. -6 (Prev. -7) (BBG)

  • Italian BTP Tap Auction for EUR 2.625bln 4.25% 01-Mar-20, Bid/Cover 1.567 vs. Prev. 1.6 (BBG)

iBoxx Euro Sovereign month-end extension 0.03yrs. iBoxx Treasury index month-end extension by 0.11yrs.

Maturity251030Bund (Dec09)
Level1.2372.2583.1793.947123.41
Change (bps)-1.1570.3541.7221.191-0.13


Gilts:

Gilts followed the moves of EGB’s opening higher on the back of news from Dubai, however, paring gains into the North American open in the absence of further worsening of the situation.

BOE's Posen said that there is still a lot of work to do and the UK has a lot of slack, adding that BOE has started to see decent UK growth and UK confidence has improved in the past year. Posen also mentioned that UK’s economy has bottomed out. (BBG) Also, BOE's Bean said that performance of the economy in Q3 was a bit disappointing, however growth in Q4 would not surprise me and further strengthening after that is expected. Bean said that UK inflation is to spike by spring and the CPI may rise to 3% early next year. (RTRS/BBG)

In other news, Alistair Darling will downgrade the 2009 economic outlook when he presents his pre-budget report next month but still point to growth resuming at the turn of the year as he predicted in April. UK Treasury sources told Reuters that the unexpectedly rapid fall in output in the first quarter of the year meant that the economy would probably shrink by around 4.75%, instead of the 3.5% decline pencilled in at the time the budget was made. But Treasury sources are cautiously confident that growth will resume around the turn of the year. (RTRS)

Elsewhere, UK's Brown said that Dubai standstill is a setback for the global economy, but not on the scale of previous problems, adding that world financial system is stronger now and able to deal with problems that arise. (RTRS)

iBoxx Sterling index month-end extensions by +0.13yrs


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