European bourses opened higher following easing of concerns over the fiscal situation in Greece, Spain and Portugal, led by the strength in the financial sector.

Further strength was observed in the FTSE 100 spreads following better than expected UK industrial and manufacturing production figures.

Later in the session, the FTSE 100 was supported further on the back comments from BOE’s King that UK’s inflation will undershoot the 2% target.

Moving into the North American open, European equities are trading in positive territory with financials and utilities the best performing sectors.

Dollar-denominated risk assets, including asset-backed securities and corporates, are no longer wanted at the State Administration of Foreign Exchange (SAFE), nor at China’s large commercial banks.

The Chinese government has ordered its reserve managers to divest itself of riskier securities and hold only Treasuries and US agency debt with an implicit or explicit government guarantee.

This already has been communicated to American securities dealers, according to market participants with direct knowledge of the events.

One of every five US home owners owed more on their mortgage than their home was worth in the fourth quarter, a trend that poses a serious threat to the US housing market’s recovery, real estate website Zillow.com said.

MBA Mortgage Applications (Feb 5) W/W -1.2% vs. Prev. 21.0% (BBG)

ABC Consumer Confidence (Feb 7) W/W -48 vs. Prev. -49 (BBG)

US banks have USD 176bln in exposure to Greece, Ireland, Portugal and Spain, with risks concentrated among the 10 largest US banks, according to Barclays Capital.

The total exposure to these nations, however, comprises only around 5% of the total foreign exposure of US banks.

The report also suggested US banks faced limited risk because much of the balance was collateralised.

Forex

The GBP gained strength across the board following better than expected industrial and manufacturing production figures from the UK.

However, following the release of the BOE quarterly inflation report that indicated inflation will undershoot the 2% target and comments from BoE’s King that it is far too soon to conclude the end of QE, GBP pared gains.

EUR gained briefly on comments that Germany is considering Greek aid beyond loan guarantee, however the move was short lived as a French source said that no agreement has been made on the aid package.

In other news, China should not allow any major CNY appreciation in the first half of the year and will not give in to foreign demands to let its currency rise. (China Securities Journal)

Finally, overnight the Australia Westpac Consumer Confidence (Feb) M/M -2.6% vs. Prev. 5.6% (BBG/RTRS).

Commodities

Heading into the North American open, WTI crude futures moved off lows and into positive territory, as fresh weakness in the USD index and reports of colder than usual temperatures in the US boosted prices for heating oils.

In oil related news:

• OPEC raises 2010 forecast for demand for its crude by 160,000bpd to 28.75mln bpd, mainly on lower OPEC NGL output. Trims 2010 world oil demand growth forecast to 810,000 bpd, prev. forecast 820,000 bpd. Says slow pace of world economic recovery in 2010 pressuring oil demand, US demand key uncertainty. OPEC met 53% of pledged oil supply curbs in January, down from 57% in Dec.
• Iraq oil minister said an explosion in the pipeline connecting oil fields in Kirkuk to the Doura refinery cut production at the facility by half; the Doura refinery has a capacity of 140,000 bpd.

In geopolitical news:

• Nigeria’s main militant group says monitoring developments after VP assumes presidential powers.
• Iran has no plans to sell reactor-grade uranium, according to Iran embassy ambassador to IAEA Salehi.

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