EUROPEAN OPENING NEWS INCLUDING: The hole in Greece’s public …

by Shelton on August 25th, 2012

filed under Finances

Asia

The resumption of 14-day reverse repurchase operations last week suggest that the Peoples Bank of China has no intention of cutting the Reserve Requirement Ratio in the short term as a way to increase liquidity in the money supply. (China Financial News) This follows a series of reports last week that suggested the Chinese central bank could be delaying a Reserve Requirement Ratio in favour of other liquidity-boosting measures.

JGBs trade in minor negative territory at 143.54 (-5 ticks) in a quiet overnight session as investors eye the upcoming 5- and 20-yr issuance from Japan later in the week before taking positions. Last price taken at 0555BST. (RANsquawk)

Europe

The ECB is considering setting yield limits on the debt of each country and will intervene to buy the securities should the cap be breached according to reports. (Der Spiegel/EFE) Elsewhere, Spanish Economy Minister de Guindos said the ECB should commit to massive, open ended bond buys in order to be effective and before Spain asks for help refinancing itself.

The Spanish region of Murcia may request up to EUR 700mln in loans from the Spanish central government to fund its deficit and redeem bonds according to local government officials. (ABC/Europa Press/El Pais) Government funding, however, will not be ready before September, and conditions applied to regions requesting aid to face bond redemptions and finance deficits are still to be defined according to budget ministry officials. Elsewhere, the Spanish government may have to tighten its austerity measures further to guarantee the attainment of its 2012 deficit target of 6.3% of GDP, if tax revenue does not pick up.

ECBs Asmussen has said a Greek exit from the single currency would be manageable although he would prefer it if the country remained within the Eurozone. (Frankfurter Rundschau) Asmussen added that the ECBs planned new bond-buying program is superior to its predecessor, and the governing council are to work on the details at the next meeting.

The hole in Greeces public finances may now be as large as EUR 14bln, EUR 2.5bln more than the Greek government previously estimated, due to failure to generate money from privatizations, according to preliminary drafts of the Troika report. (Der Spiegel/Newswires) However, EUs Juncker said Greece will not leave the Eurozone unless the country totally refuses to fulfil any of its reform targets. Juncker is set to meet Greek PM Samaras in Athens on Wednesday amid speculation the Greek PM will try to gain more time to implement austerity cuts promised in return for the bailouts.

France is to stick to its plans to cut their deficit to 3% of GDP next year, despite increasing anxiety among the ruling socialist party concerning the savings of more than EUR 30bln that are needed to hit the target, according to the French finance minister. (FT-More)

The German finance ministry have said indicators suggest the German economy is likely to slow due to weakening demand is the Euroarea, according to their monthly report. (Newswires)

FX

China should further reform the mechanism for setting the CNY exchange rate to make it more transparent and market-driven. (Xinhua) This follows similar reports at the tail-end of last week with reports suggesting that the USD/CNY band should be widened.

EUR/USD and the EUR related crosses traded in a range bound patter overnight, technical resistance levels for the major pair seen at the 55DMA at 1.2392, followed by 1.2400. Supports are seen at the 21DMA at 1.2287 and then at 1.2250, which is also an intraday option expiry level. GBP/USD traded in minor negative territory overnight, weighed on by the release of less than impressive Rightmove housing data. The pair has rebounded off lows and is seen flat as we head towards the EU open. (RANsquawk/IFR)

Geopolitical

Iraq is helping Iran skirt international sanctions by smuggling oil and letting Tehran secretly move large amounts of cash through bank auctions, according to reports. (NYTimes)

The US and South Korea have begun an annual joint exercise to test their defences against North Korea, in a drill that North Korea have denounced as a rehearsal for war. (AFP)

Commodities

WTI crude futures are seen in positive territory at the start of the week, aided by a pick up in US consumer confidence seen at the end of last week, currently trade USD 96.23, up USD 0.22, last price taken at 0612BST. (RANsquawk)

US

T-notes finished the day in minor positive territory, giving back the majority of the gains in the final two hours of the session. Fixed income markets were led by German Bund futures in early trade as Bunds tripped buy stops and led a bid from CTAs at the CBOT pit open. Fixed income desks noted light flows and short-covering into the weekend, with the lack of liquidity a result of peak holiday season. At the pit close, t-notes settled at 132.16, up 4+ ticks. Finally the DJIA finished up 0.19% at 13275.20, the Samp;P 500 finished up 0.19% at 1418.16 and the Nasdaq 100 finished up 0.44% at 2780.30. USTs traded flat at the start of the week on thin volume and little news, currently trade 132.17, up 1 tick, last price taken at 0615BST. (RANsquawk)

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