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European Market Update: European Equities Lower as Market Becomes More Pessimistic
Â· *** ECONOMIC DATA ***
Â· UK Dec RICS House Price Balance: -49.1% v -45. 0%e
Â· UK Dec Claimant Count Rate: 2.5% v 2.5%e
Â· UK Dec Jobless Claims Change: -6.4K v -5.0Ke || Prior revised from -11.1K to -10. 0K
Â· UK Nov Average Earnings inc. Bonus: 4.0% v 3.9%e
Â· UK Nov Average Earnings ex. Bonus: 3.6% v 3.6%e
Â· UK Nov ILO Unemployment Rate: 5.3% v 5.3%e
Â· GE Dec Final CPI: M/M 0.5% v 0.5%e || Y/Y 2.8% v 2.8%e
Â· GE Dec Final CPI Harmonized: M/M 0.7% v 0.7%e || 3.1% v 3.1%e
Â· FR Dec BOF Business Sentiment: 103 v 104e
Â· EU Dec CPI: M/M 0.4% v 0.4%e || Y/Y 3.1% v 3.1%e || Core Y/Y 1.9% v 1.9%e
Â· *** SPEAKERS/COMMENTS ***
Â· BOF: Cuts Q4 GDP growth forecast to 0.4% from 0.5% || Maintains 2007 estimate at 1. 9%
Â· ECB Stark: The Euro-Zone is a very dynamic economic environment
Â· GE DIW: Q1 GDP growth to slow to 0.4% q/q
Â· GE DIW: Sees no reason for economic pessimism
Â· *** FIXED INCOME/FX/COMMODITIES/ERRATUM ***
Â· As one might have expected the European indices opened lower across the board following a few earnings reports in the US, namely Intel, as well as poor trading during the Asian session. Looking ahead to today's US session, JP Morgan is scheduled to report fourth quarter earnings ahead of the US open. Market participants will be watching for writedowns and any other surprises. Also ahead of the equity open in the US today Wells Fargo is due to report its fourth quarter earnings.
Â· European fixed income futures are trading in positive territory today, but are off of their best levels. Germany sold â‚¬5.85B in 4. 00% 2-year schatz overnight with an average yield of 3.61% and a bid-to- cover of 1.205. The auction brought the amount outstanding for the issue up to â‚¬12.85B. The cover compared to 1.7x at the previous auction. Long-gilts are also trading higher in the session, and are in the middle end of their session range, initially gaining upside from the weaker than expected RICs house price balance released during the Asian session. The generally theme in fixed income has been a reallocation away from equity and into fixed income as the start of earnings season has yielded some weak results, poor guidance, additional writedowns, and dividend cuts, resulting in increased uncertainty around the US economic outlook. A general sense of uncertainty has prompted a rush to the safety of fixed income.
Â· On the commodity front crude oil is trading lower in the session and appears to be on its way back down to the $80s for the first time since late December. The IEA cut its first quarter world oil demand estimate by 100K bpd overnight, but maintained its 2008 world demand estimate unchanged at 87.8M bpd, reiterating that 2008 demand is seen growing by 2.3%. Spot gold is lower in the session, as are most of the precious metals, on the back of some upside Dollar momentum. Goldman Sachs forecasted the average gold price at $915/oz in 2008 overnight, and forecasted the average price in 2009 at $870/oz. Elsewhere copper is lower for the second consecutive day on the back of increasing fear about the possibility of a US recession.
Â· In currencies the carry related currencies remained the catalyst overnight. The JPY and CHF extended gains as lower equity markets continued the risk aversion theme. The USD was mixed due to the side effect of carry unwind. The USD was weaker against CHF and JPY, but firmer against EUR and GBP. Commodity related currencies were softer as global recession concerns hit industrial metals like copper and silver. USD/CAD at 1.0250, AUD/USD at 0.8770.
Â· Central bank speak was thin overnight. On the data front the Euro-Zone CPI was in line with analyst estimates, and didn't provoke any major reaction. Jobs and earnings data in the UK strayed slightly from estimates, but was also not significant enough to provoke any major reaction ahead of the December consumer prices due out in the US at 8:30 ET today.
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