Market Recap

Risk on assets supported by yesterday’s speech by Bernanke, who said that highly accommodative policy needed for the foreseeable future and that current unemployment of 7.6%, if anything, overstates health of US labour market.
ECB’s Weidmann said that the ECB has not tied itself to the mast with forward guidance, which does not rule out rate hikes when inflationary pressures emerge.
The BoJ kept their monetary policy unchanged and retained plan for JPY 60-70trl annual rise in monetary base.

Market Re-Cap

Stocks in Europe have gapped higher in reaction to yesterday’s risk supportive speech by Bernanke, who said that highly accommodative policy needed for the foreseeable future and that current unemployment of 7.6%, if anything, overstates health of US labour market. In turn, the governor’s attempt to downplay QE tapering expectations meant that in spite of the broad based risk on sentiment, the government bond yield curve on both sides of the bond flattened. However, having traded sharply lower overnight, the 1y/1y EONIA fwd rate turned positive as the Euribor curve steepened following hawkish comments from ECB’s Weidmann, who said that the ECB has not tied itself to the mast with forward guidance, which does not rule out rate hikes when inflationary pressures emerge. Looking elsewhere, after opening below the 50 and the 100DMA lines, the USD index is trading higher by around 0.4% as market participants were seen taking advantage of the sharp rally staged by EUR/USD and GBP/USD overnight to re-establish long USD positions, with analysts noting demand from HF and leveraged money accounts.

Of note, overnight in Asia, the BoJ kept their monetary policy unchanged and retained plan for JPY 60-70trl annual rise in monetary base. While the Shanghai Composite index settled with gains of over 3% on the back of speculation that China may soften its stance on monetary policy after Premier Li has said the nation’s economic growth and employment must stay above a certain floor.

Going forward, market participants will get to digest the release of the latest weekly jobs data, import price index, as well as the weekly EIA nat. gas storage change.

Asian Headlines

The BoJ kept their monetary policy unchanged and retained plan for JPY 60-70trl annual rise in monetary base. Said decision on monetary base target was unanimous and will make policy adjustments as needed.

The Shanghai Composite index settled with gains of over 3% on the back of speculation that China may soften its stance on monetary policy after Premier Li has said the nation’s economic growth and employment must stay above a certain floor.

In addition it was reported in the China Securities Journal that recent China securities regulatory commission statements signal financing policies for property companies may be relaxed in the future, citing a unidentified person on a front page story. In turn, this has lifted the real-estate sector in the Shanghai Composite index overnight.

EU & UK Headlines

ECB’s Weidmann says ECB has not tied itself to the mast with forward guidance, which does not rule out rate hikes when inflationary pressures emerge. Forward guidance is not a change of strategy, just an effort to make monetary policy stance easier to understand.

Separately, ECB’s Coeure said that he expects rates to remain low for extended period of time.

The Italian Treasury sold EUR 6.345bln vs. Exp. EUR 6.5bln, close to the upper end of the targeted range, despite market talk ahead of the event that demand was somewhat lacklustre. Even though taps benefited from decent yield pickup on both 5/16 and 9/44 lines, IT/GE 10s spread remained wider by around 10bps, while both Italian, Spanish, as well as Portuguese equity indices under performed their core counterparts.

Of note, PO/GE 10y spread also widened by c. 10bps as market participants continued to fret over the political instability in Portugal where it was reported citing the President Silva as saying that risk of country requesting new bailout package is considerable. The President declined to comment on when or if a cabinet reshuffle would take place.

UK DMO sold GBP 2.5bln 3.25% 2044, b/c 1.65 (Prev. 2.0) and yield tail of 0.4bps (Prev. 0.2bps)

UBS cuts Eurozone 2013 GDP to -0.7% from -0.4% and ups 2014 GDP forecast to +0.8% from +0.7%.

UBS raises 2013 UK GDP forecast to 1.1% from 1.0% and raises 2014 GDP forecast to 1.8% from 1.2%.

US Headlines

Fed’s Bernanke said plan for asset purchases close to what the markets expected and current unemployment of 7.6%, if anything, overstates health of US labour market.

Said highly accommodative policy needed for the foreseeable future and clarifying QE timeline may have averted confusion. He added that the Fed not on target on employment mandate and inflation and jobs signal more Fed stimulus needed.

Equities

Greece to lift short-selling ban on bank shares ahead of end-July expiration date, according to securities regulator sources.

After opening below the 50 and the 100DMA lines, the USD index is trading higher by around 0.4% as market participants were seen taking advantage of the sharp rally staged by EUR/USD and GBP/USD overnight to re-establish long USD positions, with analysts noting demand from HF and leveraged money accounts. Also, USD/JPY fell below the 50DMA line at 99.47 after the BOJ kept their monetary policy unchanged and retained plan for JPY 60-70trl annual rise in monetary base. Next technical support level is seen at the 100DMA line at 97.74.

Commodities

After rallying almost 4% overnight after comments from Bernanke yesterday lead to aggressive short squeeze in the market, where the lack of liquidity in the leasing market has pushed gold forward rates into negative territory, spot gold prices now seen up just 2.5%. Over the past several sessions, the 6 Month Gold Forward Offered Rate (GOFO) has joined the complex into sub-zero territory after the 1 and 3 Month GOFO rates slid into negative territory for the first time since 2008 and 1999 respectively earlier this week.

IEA said in its first monthly report with forecasts for 2014 that world oil consumption will climb by 1.2mbpd next year, up from 930,000bpd in 2013. Supplies from outside the OPEC will jump by 1.3mbpd amid booming output in North America, shrinking the need for crude from OPEC.

Nigeria oil minister Madueke said oil output capacity to rise to 2.5-2.6mbpd in the next 12 months and 4mbpd by 2020.

ANZ forecasts gold prices at about USD 1,300/oz at year end. Says further downside for gold exists in short-term.