European Market Update - European Indices Led Lower by the Financials After RBS Announces Rights Issue
Â· *** ECONOMIC DATA ***
Â· SZ Mar Trade Balance: CHF1.25B v CHF700Me || Prior revised from CHF1.55B to
Â· IT Mar Trade Balance Non- EU: -â‚¬1.21B v -â‚¬1.33B prior || Prior revised from
-â‚¬1.33B to -â‚¬1. 31B
Â· *** SPEAKERS/COMMENTS ***
Â· SP Finance Minister: Sees inflation around 3% at the end of 2008 ||
Unemployment could reach 10%
Â· ECB's Noyer: We have a surge in inflation, but impossible to believe that it
will continue to grow at the present rate || Growth is holding up, not
threatened by inflation || Sees 2008 French growth at 1.5% to 2.0%
Â· ECB's Mersch: Inflation in the EU will likely remain above 3% through late
autumn || It is clear that the EU's inflation problem extends beyond factors
from outside the region || Doubted whether it could be argued that the ECB
policy lies in the restrictive area.
Â· ECB's Garganas: Inflation risks have increased in the short-term || Inflation
likely to fall sharply in 2009 || Interest rates decisions will depend on
inflation || Timely action will prevent second round effects || Reiterates view
that ECB is committed to achieving price stability || Sees further downside
risk to Euro-Zone growth || Recession in US is very possible, Impact on
Euro-Zone is still limited
Â· *** FIXED INCOME/FX/COMMODITIES/ERRATUM ***
Â· Taking a look at the equity- related news from overnight, in sector rotation
overnight Merrill Lynch raised its ratings for both the European basic resources
and European insurance sectors to overweight, cit its ratings on the European
media and European technology sectors to neutral, and cut its rating for the
European retail sector to underweight. The Royal Bank of Scotland [RBS.UK] officially announced overnight
its Â£12B rights issues. RBS increased its targeted capital ratios to 7.5%-8.5%
for Tier 1 capital and in excess of 6% for core Tier 1 capital. RBS noted that
the overall underlying performance of the group has remained satisfactory with
the exception of a slowdown in capital markets activity in global banking &
markets. RBS also noted that the 2007 dividend payout ratio of around 45%
remains sustainable over the medium-term Melrose [MRO.UK] agreed overnight to acquire
UK-based manufacturing group FKI [FKI.UK] in a cash and stock deal valued at
Â· In the newspapers overnight, according to the Wall Street Journal Tribune
(TRB) is closing in on an agreement to sell Newsday to News Corp (NWS) for
about $580M. Citing sources familiar with the matter the article said that both
parties have informally agreed on price, structure and
governance. In an interview with The Independent Teun Draaisma, Morgan
Stanley's chief European strategist, predicted the end of the FTSE's rally.
Draaisma said that the recent rally will be short-lived, noting that his
â€œall-important market timing indicators have given the warning that the rally
is over". Furthermore the group is forecasting a 16% decline in European
earnings in 2008.
Â· These headlines aren't very surprising anymore, but crude oil reached new
record highs during European trading, breaking through the $118-handle. In
energy news overnight Unicredit raised its 2008 average Brent crude price
forecast to $99/barrel overnight, and boosted its 2009 average price forecast
to $95/barrel. The IEA Chief said overnight that there is a possibility that
high oil price could tip world economy into recession. He added that high oil
prices may dampen oil demand. According to a union official, UK Refinery workers
will resume talks with Ineos on Tuesday. Recall that the 205K bpd refinery has
already begun shutting down ahead of the looming strike. OPEC's Secretary
General said overnight that OPEC plans to invest $160B through 2012 to boost
capacity. He added that the investment plan seen boosting capacity by 5M bpd.
Royal Dutch Shell (RDSA) confirmed overnight two additional attacks on one of
its oil pipelines. Shell said that no oil output was lost as a result of the
additional attacks. In line with the action of many airlines as of late Air France [AF.FR] raised some of their fuel
surcharges overnight. It is interesting to note that the airline said that it
will withdraw half of fuel surcharges if the price oil falls below $100/barrel.
The Wall Street Journal wrote about Saudi Arabia's oil production and the difficulties of
drilling at the Khurais oil field. According to the article the country's
Khurais complex is expected to add 1.2M bpd to oil markets, but in order to tap
the field Aramco plans to spend up to $15B. The article noted that after Khurais, Saudi Arabia will have only one known mega-field left
to fully develop, which is the Manifa field. According to the article, some are
skeptical of Saudi Arabia's ability to turn the Khurais field into
the 4th most productive oil field in the world.
Â· In new supply overnight Japan sold Â¥730.6B in 20-year bonds with an
average yield of 2. 169% and a bid-to-cover of 3.89x. The cover compares to the
3.03x seen at the previous auction. The Greek PDMA sold â‚¬1.92B in 3.8% March 2011 GGBs
with an average yield of 4.33%% and a bid-to-cover of 2.89x overnight. The
cover compares to the 3.11x seen at the previous auction. In fixed-income
related news, Germany's BdB banking association has reportedly
taken control of property lender Duesseldorfer Hypothekenbank after the lender
encountered financial problems related to the market crisis. BdB plans to sell
the lender, which has approximately â‚¬27B in total assets. The lender is
primarily focused on lending to government authorities and public-sector banks
but also conducted large-volume lending for commercial real estate. A
management board member from the lender was later quoted saying that the lender
does not have any liquidity issues, and is still making a profit. The Financial
Times wrote overnight that UK bankers agree the Bank of England's
mortgage plan will help to restore industry confidence. The Chairman of HSBC
[HSBA.UK] said that the plan will help to ease some of the current market
dislocations in the UK. The article noted that there is little
indication that the plan will revive mortgage or housing markets, and that
bankers believe that the plan is not likely to lead to a large reduction in
mortgage rates. The Independent wrote overnight that banks and building societies
will be urged at a crisis meeting with the Chancellor today to pass on cuts in
interest rates and to give greater flexibility to customers in trouble with the
mortgage repayments following the Bank of England's mortgage-swap bailout
Â· The Euro started the European session on a soft note aided by continued
concerns over problems in the financial market sector. The EUR/USD tested the
1.5830-area after Germany's BDB Banking Association stated that it
took over property lender Duesseldorfer Hypothekenbank. This was the second
''bailout'' of a German bank this month. Also contributing to the Euro's soft
opening tone was chatter of a large Japanese repatriation order due to Euro
bond maturities. The EUR/JPY tested the 163.30-level.
Â· The Euro was able to regain composure as commodities continue to firm across
the board and weigh upon USD sentiment. The CAD is holding steady at 1.0080
ahead of the Bank of Canada's monetary policy decision later today.
Â· Looking ahead, March home sales are due out in the US this morning along with the Richmond Fed
manufacturing index. Results from Monday's TAF auction are due out after the
open this morning. Ahead of the US data Canadian data will take center
stage as the Bank of Canada is due to announce its interest rate decision. The
BOC is widely expected to cut rates by 50bps to 3.00%, however, 33% of
economists in a recent survey predicted that the BOC will cut rates by 25bps in
lieu of 50bps. That decision is due at . In new supply today the treasury is scheduled
to sell 5-year inflation index notes at . On the earnings front US notables Countrywide Financial (CFC), EL
Du Pont De Nemours (DD), Jetblue Airway Corp (JBLU), Kimberly Clark (KMB),
Lockheed Martin (LMT), McDonlads (MCD), Smith International (SII), AT&T
(T), United Health Group (UNH), and Wyeth (WYE) among others are due out in the
US pre-market today.
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