European Market Update: UK Feb CPI Steady; Equities Stage Relief Rally Positive Dow Close
Â· *** ECONOMIC DATA ***
Â· SZ Q4 Industrial Production Y/Y: 9.1% v 7.9%e || Prior revised from 10.7% to
Â· IT Jan Total Trade Balance: -â‚¬4. 22B v -â‚¬3.41Be || Prior revised from -â‚¬1.97B
Â· IT Jan Trade Balance EU: â‚¬125M v â‚¬697.5Me || Prior revised from -â‚¬853M to -
Â· UK Feb CPI: M/M 0.7% v 0.8%e || Y/Y 2.5% v 2.5%e || Core Y/Y 1.2% v 1.4%e
Â· UK Feb RPI: M/M 0.8% v 0.8%e || Y/Y 4.1% v 4.2%e || Ex-Mortgage Y/Y 3.7% v
Â· UK Feb Retail Price Index: 211.4 v 211.4e
Â· CH PBOC Raises reserve ratio by 50bps to 15.5%
Â· *** SPEAKERS/COMMENTS ***
Â· ECB Stark: Commodity prices and second round effect among biggest risks to
price stability || Well prepared to prevent second round inflation effects ||
Nobody can say how long market correction will last || EUR has not gained so
much against other currencies || High inflation is ECB's main concern ||
Strauss-Kahn comments on ECB not helpful || Strong Euro is a cause of the weak
Â· ECB Bini Smaghi: EMU exports satisfactory despite strong Euro || Would be a
mistake for ECB to react like the Fed || Higher inflation expectations would
harm growth || Risk to EMU growth without a doubt on downside || Euro trade
weighted fx matters more than EUR/USD.
Â· About 3M UK home owners may face a sharp rise in their monthly mortgage
payments || According to a leading mortgage expert (John Charcol), the equivalent of 1/4 home
owners may face large increases in their monthly payments and these increases
could be as much as Â£300/month [Telegraph]
Â· *** FIXED INCOME/FX/COMMODITIES/ERRATUM ***
Â· European fixed income futures are trading lower in the session on the back of
a relief rally in the equities after the Dow managed to claw its way back for a
positive close yesterday. Futures came off of session lows following the
release of February CPI data in the UK which showed a stable Y/Y reading and a
0.2% decline in the core reading. There has been a slight correction across the
European yield curves today following aggressive steepening yesterday. The swap
spreads are slightly lower from yesterday, while the 3-month euribor curve has
retreated bottoming out around 3.45% today, up from the 3.40% late yesterday.
In new supply today to Greek PDMA sold â‚¬1.8B in 4.00% August 2013 bonds with an average yield of
4.06% and a bid-to-cover of 2. 19x. The cover compared to the 3.36x at the
previous auction which sold in the amount of â‚¬1.5B. For the remainder of the
session focus will fall upon the FOMC interest rate decision scheduled for today. Fed funds futures are currently
pricing in a 16% chance that the Fed will cut rates by 125bps at today's
meeting, however 100bps appears to be much more likely. While the FOMC decision
will be the main event, earnings from Goldman Sachs, and Lehman in the US
pre-market, Canadian CPI data for February at 7:00 ET, and February PPI data in
the states at 8:30 ET should all be penciled in.
Â· Minutes from the DMO's quarterly meeting with the Gilt Edged Market Makers (GEMMs) were released
overnight. GEMMs proposed a new 2 or 3 year gilt as a new short. GEMMS saw the
5.00% 2018 Gilt seen as obvious choice for medium term issue. GEMMs' merits
were mixed on reopening the 4.50% 2013 gilt two times in 2008. There was
general support for reopening the 4.5% 2042 gilt in Q1. A number of GEMMs were
ambivalent on the reopening of the 4.75% 2030 gilt in Q1. A number of GEMMs
called for the reopening of the 4.25% 2055 gilt. There were isolated calls for
the reopening of the 4.25% 2036 gilt. Some GEMMs showed support for a new 2050
maturity sometime later in 08/09. There was support for a 0.75% 2047 I/L gilt;
Some supported reopening the issue twice. Some urged the launch of a new
2032/33 I/L gilt in Q1. GEMMs split on 1.25% 2017 gilt and 1.875% 2022 I/L
gilt. There were also isolated calls for new 5-year or 2014 gilt.
Â· The European indices are trading higher in the session in a relief rally led
by the insurance and financial services sectors after the Dow made a positive
close yesterday. Share of Tui are lower today after reporting results. Shares
of German retailer Metro were also lower overnight after reporting results and
noting that there are no plans to split up the company. A spokesperson from UBS
said overnight that the bank did not have any material writedowns in Auction
Rate Certificates at the end of 2007. The bank noted that it had $5.9B in ARCs
at the end of 2007. Furthermore UBS said that ARC demand has declined since
Q407, and added that it has had a number of failed ARC auctions in Q108. BMW
made some positive comments overnight noting that it expects pretax profit to
rise in 2008, and sees less of an impact from Euro exchange rates in 2008 than
it experienced in 2007. UK applications software company Misys
agreed to merger is operations with US based medical information systems company Allscripts.
Looking ahead, earnings from Goldman Sachs and Lehman Brothers will be in focus
during the US pre-market. Goldman is expected to
report earnings of $2.58 on revenues of $7.47B, while Lehman is expected to
report earnings of $0.72 on revenues of $3.35B.
Â· In commodities front month crude oil futures followed a downward trend
throughout the earlier part of the session, but rebounded off of the unchanged
level. Crude futures are trading higher in the session but remain off of recent
all time highs by around $5. Elsewhere spot gold recently manage to break back
above the $1000-handle after profit taking brought it off of its all time highs
within the past few days.
Â· In currencies recent verbal intervention has helped to slow the USD recent
decline as it consolidates ahead of some key earnings reports by US financial
firms of Goldman Sachs and Lehman Brothers. FX dealers will focus on the
financial sector to gauge the continuing fallout of the sub-prime mortgage
sector. The GBP is off of its best levels as core CPI came in below
expectations. The Carry-related pairs staged a ''relief'' rally as European
markets stabilize from Monday's sell-off. EUR/JPY re-approaching the 154-level
after testing 152 on Monday. The EUR/CHF is currently climbing back towards the
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Mon 18 Dec
10:00 EZ- final HICP Tue 19 Dec
09:00 DE- IFO Survey
13:30 US- Housing Starts/Permits
13:30 US- Current Account Wed 20 Dec
15:00 US- Existing Homes Sales
15:30 US- EIA Crude Thu 21 Dec
03:00 JP- BOJ Decision
13:30 CA- CPI & Retail Sales
13:30 US Weely Jobless
13:30 US- GDP Fri 22 Dec
09:30 US- GB- GDP
13:30 US- core PCE Deflator & Presonal Income
15:00 US- New Homes Sales
15:00 US- final University of Michigan
17:00 US- early Closes Mon 25 Dec
00:00 Christmas Holidays
Potential Trading Opportunities
POTENTIAL PRICE RISK: Medium Mon--10:00 GMT-- EZ- final November HICP. flash data are rarely changed.
POTENTIAL PRICE RISK: HIGH- Medium Tue --09:00 GMT-- DE- IFO Survey. Key report but usually not a market-mover
POTENTIAL PRICE RISK: HIGH- Medium- Tue --13:30 GMT-- US- Housing Starts and Permits. Leading indicators of activity
POTENTIAL PRICE RISK: HIGH-Medium- Wed --15:00-- US- Existing Homes Sales. Top Housing statistic
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