Opening Comments
Aluminum Corp. of China, or Chinalco, has coupled with Alcoa to take a $14bln stake in Rio Tinto, which is likely to further hinder BHP Billiton’s hostile takeover of the company. The Hang Seng gained nearly 3% led higher by mining stocks, while the Nikkei dropped 0.7%. Y-o-Y Vehicle Sales in Japan came in at 3.7% vs. -7.1% prior. The yield on the Japanese 10yr JGB finished marginally lower at 1.414%. JPY is trading lower vs. all major currencies as strength in European equities has spurred some positions in the carry trade.
The DJ Eurostoxx is up 1.7%; the FTSE 100 is up 2%, and the DAX is up 1.9% thanks to today’s resurgence in M&A. January PMI Manufacturing came in higher than expected in both Germany and the Eurozone and is indicative of a European economic resilience. The yield German 10yr Bund is inching back towards 4% at 3.965%; most European fixed income markets are coming under selling pressure. The EUR is higher vs. most major currencies; EUR/USD is up 0.21%; EUR/JPY is up 0.4% and EUR/GBP is up 0.28%.
ECB Governing Council member Nicholas Garganas said the ECB would act “preemptively” if the Eurozone economy didn’t achieve its mid-term objectives, while also monitoring downside risks.The ECB is expected to leave rates unchanged at 4% next week.
January PMI Manufacturing in the UK came in lower than expected but held on to a reading above 50, which is considered a positive index reading though it is a 2yr low. Markets increased bets in favor of a 25bp BOE rate cut next week, while the yield on the 10yr Gilt grew to 4.51%.
Microsoft has put up $11.4bln — and is offering a 60% premium — in a hostile takeover attempt of Yahoo. The return of M&A news has given equity indices a boost ahead of today’s vital January Nonfarm Payrolls report, which is expected to come in at 70k vs. 18k prior. University of Michigan Consumer Confidence, ISM Manufacturing, Construction Spending, and Vehicle Sales are also scheduled for today.
Bonds are lower across the board and USD is mixed vs. most major currencies. Energies are lower across the board after OPEC decided to leave output unchanged a conference in Vienna overnight. Metals are currently well bid with Gold at 939.40.
CNBC is reporting 8 banks have formed a consortium to find solutions for the troubled bond insurers: RBS, Wachovia, Barclays, UBS, SocGen, BNP Paribas, Desdner, and Citigroup.