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European Market Update: European Markets Await Wednesday's Big Decision
Â· *** ECONOMIC DATA ***
Â· SZ Dec Trade Balance [chf]: 200M v 950Me || Prior revised from 1.89B to 1.81B
Â· SZ Dec UBS Consumption Indicator: 2.200 || Prior revised from 2.131 to 2.203
Â· FR Jan Consumer Confidence Indicator: - 34 v -30e || Prior revised from -29 to -30 (lowest since July 2006)
Â· FR Dec Housing Starts: -0.8% v 1.5%e
Â· FR Dec Housing Permits: -17.6% v -9.4% prior (lowest on record)
Â· IT Jan Business Confidence: 91.6 v 91.3e || Prior revised from 91.8 to 91.7
Â· SW Dec Retail Sales: M/M 1.2% v 0.9%e || Y/Y 4.0% v 4.0%e
Â· EU Nov Current Account: â‚¬700M || Prior revised from â‚¬1.3B to â‚¬3.1B
Â· EU Nov Current Account nsa: â‚¬1.0B || Prior revised from â‚¬2.0B to â‚¬3.9B
Â· *** SPEAKERS/COMMENTS ***
Â· EU Barroso: EU to publish lower 2008 growth forecasts
Â· GE VDMA: Sees 2008 German plant and machinery output +5% y/y
Â· GE VDMA: Lost orders to rivals due to the strong Euro
Â· IT Ref Think Tank: Cuts 2008 Italian GDP growth forecast to 0. 9% from 1.4%
Â· ECB Orphanides: Current US economic situation in the US is not affecting Europe much
Â· ECB Orphanides: Euro-Zone continues to grow at a satisfactory pace
Â· *** FIXED INCOME/FX/COMMODITIES/ERRATUM ***
Â· There has been a flattening tone across European government bonds overnight as the equity markets rebound from yesterday's lows. Looking ahead the focus remains upon the Fed's announcement this Friday. Fed Funds Futures are currently pricing in approximately an 80% chance that the Fed will cut rates by 50bps on Wednesday, currently providing some support for the equity markets. There is also focus surrounding the jobs number on Friday, however the FOMC decision seems to be taking precedence as a result of proximity. The schatz/bund spread is hovering around its lowest level in over a week. Supply is also playing a factor today as new issuance is expected from Greece, Italy, and the UK.
Â· In commodities spot gold is consolidating below the $930-handle as the dollar was slightly weaker in overnight trading. The recent rise in gold prices to record highs has been attributed to safe haven flows, and small supply constraints amongst other things Some of the supply constraints have eased after South Africa miners regained power. Elsewhere crude oil was mixed overnight, spending the early part of the European session in negative territory before breaking through to the other side. This week's OPEC meeting remains in focus as output levels and the possibility of an economic recession in the US will be amongst the most important topics discussed.
Â· European equities are trading in positive territory, rebounding from yesterday's lows with upside momentum underscored by optimism that the Federal Reserve will cut interest rates at Wednesday's meeting. On the equity front JP Morgan boosted its view on the European Industrials to Overweight, cut its view on the European Utilities to Underweight, and boosted its overall view on the European Equities to Overweight ahead of today's open. There are a number of big earnings in the US today, with Dow component 3M, and mortgage banker Countrywide Financial amongst the big names due out ahead of the US equity open today.
Â· The USD was mixed during the early European session as dealers focus on the outcome of Wednesday's FOMC decision. Dealers continue to see an 80% probability of another 50bps rate cut. The EUR/USD continues to consolidate in a 1.4750 to 1.4830 range. The JPY was a touch firmer in the session as chatter circulated that ECB aid to Spanish banks have matched effects seen by the BOE- Rock rescue. Dealers noting that risk aversion has subsided, but remains near the front burner. The commodity currencies remaining firm as gold consolidates near its all-time high levels. Silver just off its 27-year highs and oil holding above the $91 area aiding the CAD and AUD pairs.
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