Market Update - 6 Sept 2012

 

• ECB speculation was the winner again last night with leaked reports ahead of tonight’s meeting. The crux of the leaked information being that the ECB would not set yield caps but would make sterilized purchases of Sovereign bonds. In my mind this is exactly what the Securities Market Program (SMP) was designed for, in which case the announcement tonight may be a bit of a non event and we are back to waiting for Spain to request aid while we watch their borrowing costs spike.

• USDMYR still stuck at 3.1150 and we are not expecting much movement with the pair, today’s tight range likely to be 3.0080-3.1230

• In Germany an auction of €5bln worth of 10yr paper, hitherto considered the safest of safe paper, proved to be a bit of a flop as the bid to cover ratio was only 1.1x (1.8x prior). The average yield was 1.42% (unchanged) and only €3.61bln was sold making it technically uncovered. This has only happened once this year and although it presents no threat to German financing it is symbolic of the uncertainty surrounding the European bond markets. German 10 yields rose 5bps to 1.48%

• The Euro rose 70 pips to 1.2602 last. Equities were up smalls in Europe, Euro Stoxx 50 up 0.22% with the UK and Italian indices lagging.

• In the US productivity rose and labour costs fell in what was an uncertain night on the markets. The trade bellwether FedEx fell 2% as it forecast its first decline in quarterly earnings in 3 years, stoking fears of continuing economic softness. Equities were mixed with the DOW up 0.09% and the S&P down 0.11%, defensive stocks outperformed.

• Treasuries were softer, yields rising 2.4bps to 1.596%. Commodities were mixed with oil stronger, copper and soft commodities weaker.

• Also in Europe the Services PMI figures showed further contraction in activity in the sector however the rate of contraction has visibly slowed now and in Italy the PMI actually rose to 44 from 43 last month; this isn’t the first positive data point from Italy of late. Retail sales in the region fell 0.2% from last month, as expected.

• The Bank of Canada left their headline rate unchanged at 1%, while Fitch reaffirmed their AAA rating on the country.

• Very interesting point in the FX markets: the Euro has finally managed to poke it’s head above the floor set by the SNB, I’ll hold my breath as to whether it can be sustained but this could well lead to the SNB starting to unwind holding of other currencies and see the Euro strengthen across the board.