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Wednesday April 23, 2008 - 11:55:57 GMT
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European Market Update: BOE Minutes Show 3-Way Split in April; Riksbank Holds Rate

  *** ECONOMIC DATA ***

· FR Mar Consumer Spending: M/M -1.7% v -0.2%e || Prior revised from 1.2% to 1.3% |||| Y/Y 1.2% v 2.8%e || Prior revised from 3.7% to 3.8%

· FR Apr Preliminary Manufacturing PMI: 51.5 v 51. 7e

· FR Apr Preliminary Services PMI: 54.0 v 56.8e

· SW Mar Unemployment Rate: 6.3% v 6.5%e

· SW Riksbank leaves rates unchanged at 4.25% as expected

· GE Apr Advanced Services PMI: 54.6 v 51. 5e

· GE Apr Advanced Manufacturing PMI: 53.6 v 54.8e

· EU Apr Advanced Services PMI: 51.8 v 51.4e

· EU Apr Advanced Manufacturing PMI: 50.8 v 51.6e

· EU Apr Advanced Composite PMI: 51.9 v 51. 5e

· IT Feb Retail Sales: M/M 0.3% v 0.0%e || Prior revised from 0. 2% to 0.3%e |||| Y/Y 2.7% v 0.6%e

· UK Mar BBA Loans for House Purchase: 35,417 v 43,870 prior || Prior revised from 43,870 to 43,147.

· UK BOE Minutes show vote of
6-2-1 for a 25bps cut at the April 10th meeting.

· EU Feb Industrial New Orders: M/M 0.6% v -0.4%e || Prior revised from 2.0% to 2.2% |||| Y/Y 9.9% v 5.7%e || Prior revised from 7.3% to 7.1%

· *** SPEAKERS/COMMENTS ***

· FR Jouyet: Euro is at a worrying level || Forex rates entering zones where closer cooperation is needed with US, Japan and China

· ECB's Liikanen: Fast CPI hurts companies and consumption

· Riksbank: Leaves its rate outlook unchanged from February || Forecasts 2008 GDP growth of 2.6%, up from the previous forecast of 2.4% || Forecasts 2009 GDP growth of 1.8%, down from the previous forecast of 2.0% || Forecasts 2008 CPI of 3.5%, up from the previous forecast of 3.4% || Sees considerable uncertainty to economic outlook || Sees signs of slacking in the Swedish economy || Sees a more sudden US downturn than previously expected

· BOE Minutes: BOE Majority: Needed to avoid excessive gain in spare capacity || BOE Majority: 'Some' see gain in downside vs upside CPI risks || BOE Hawks: Oil Prices, GBP pose further 'inflationary impetus'

· BOE Agents Report: UK labor costs growth well contained, || tighter credit continues to weigh on investments || Demand for UK exports remains strong

· GE DIHK Institute: The EUR/USD rate of 1.6000 is becoming worrisome, but no need to panic.

· IMF's Lipsky: Current ECB monetary policy appropriate || Expansive fiscal policy inappropriate in Germany

· GE German BGA Export Group: Does not have any pain threshold for Euro exchange rate || Sticking with export growth forecast

· *** FIXED INCOME/FX/COMMODITIES/ERRATUM ***

· In equity news overnight Germany's Infineon (IFX) reported a second-quarter net loss of €1.37B overnight, citing a €1.39B net loss from Qimonda. Infineon guided third- quarter EBIT down sequentially, and noted that a 10% EBIT margin in 2009 will be impossible if the dollar remains weak. Share traded higher in
Germany despite the headline news as the company confirmed its FY08 outlook. Saab [SAABB.SW] reported first-quarter sales of SEK4.98B, slightly below analysts' estimates of SEK5.1B, and guided FY08 organic sales growth of 5%. Swedish steel products producer SSAB Svenskt Stal [SSABA.SW] reported forst quarter revenue of SEK12.9B, well below analysts' estimates of SEK15.2B. Net income for the quarter was SEK1.48B, and fell below estimates of SEK1. 59B. Germany's IKB [IKB.GE] now expects to post a smaller operating loss than previously expected for FY08. The bank now sees a loss of €200M, down from its prior estimate for a loss of €800M. The lower than expected loss is due to a positive revaluation and capital injections of €1.05B. Volkswagen [VOW.GE] reported first-quarter net profit ahead of analyst estimates at €929M, while revenue was slightly below estimates. The company added that 2008 operating profits are seen above 2007 levels. The Industrial Distribution Group (IDGR) received overnight an offer of $12. 10/share from Luther King Capital. The offer compares to the $11.80/share offer received from Platinum Equity Advisors yesterday. Sirtris Pharmaceuticals announced overnight that it will be acquired by GlaxoSmithKline for $22.50/share in cash for a total value of $720M. The acquisition price represents an 83.9% premium to yesterday's closing price.

· Either the printers ran out of ink, or the rumor mill has run dry, but either way the newspapers were awfully quiet in terms of equity news and speculation overnight. The Wall Street Journal wrote that
Germany's market regulator said it has sufficient evidence of insider trading in the shares of IKB [IKB.GE]. The article notes that this is the first time investigations into potential wrongdoing stemming from the credit crisis have turned criminal in a major European market.

· In energy news overnight the Financial Times wrote overnight that ConocoPhilips (COP) and Abu Dhabi are close to a deal to partner in a $10B sour gas project Goldman Sachs said in a report overnight that oil market risks are skewed to the upside. Goldman added that the window for spring drop in oil is closing fast, and predicted that
US oil imports may rise on strong local prices. According to wire reports overnight Nigeria's Pengassan and Nupeng oil workers may strike. Dana Petroleum [DNX.UK] reported an oil discovery at the West Rinnes in block 210/24a in the North Sea.

· In fixed-income related news the Financial Times wrote reported overnight that private equity-owned companies are buying back their own debt at a discount. The Times wrote overnight that banks are attempting to sell £8B of unsyndicated loans related to the Alliance Boots buyout. The banks that are shopping the loans include Deutsche Bank, JP Morgan, Unicredit and RBS. The debt being marketed includes £5B of senior debt, an £800M credit revolver, a £1B loan against the firm's property assets, £400M against the company's receivables and a £1B junior ranking loan. The Telegraph wrote overnight that Goldman Sachs has advised clients to take out "short" positions on British 30-year Gilts before a rash of new issues by the Government floods the bond market. Goldman said it was concerned about the "heavy supply of longer-dated paper" likely to weigh on the price of British sovereign debt. The bank has closed its "short" positions on the pound after raking in bumper profits on the precipitous slide in sterling since the Northern Rock debacle. Goldman is reportedly offsetting its bet against Gilts with a “long” position on one-year money market rates (SONIA). The assumption is that the Government's plan will cut Sonia spreads from their current stratospheric levels. The article also notes that foreigners own £166bn of Gilts, making
Britain vulnerable to a sudden loss in confidence. Following comments from the Bank of England's Besley yesterday, the Telegraph wrote today that hopes that the Bank of England will slash interest rates have been undermined after a key policymaker hinted that the Bank's rescue plan for credit markets will free it up to use rates to fight inflation. The Financial Times wrote overnight that lenders yesterday told Alistair Darling that they could not throw an immediate lifeline to beleaguered mortgage holders by passing on cuts in the base rate - and warned that repossessions could rise in the coming months. Citing comments from an interview with John Dugan, who oversees about 1,700 national banks as comptroller of the currency, the Financial Times wrote overnight that US bank failures could rise above “historical norms” as a weakening economy puts pressure on badly underwritten loans, particularly in commercial real estate, according to a bank regulator According to the Asian Development Bank, growth in the East Asian bond market to slow. The ADB cited the US contraction and inflation are risks to Asian bonds.

· In currencies overnight the GBP firmed on the back of the publication of the BOE's April 10th policy minutes. The market was expecting a unanimous BOE decision, however the
6-2-1 split outcome contained concerns about the potential inflationary effects of low rates and firming commodity. The GBP/USD firmed to 1.9974 before retracing back to the 1.9930-area. The EUR/GBP was initially softer, but held the 0.80-area after testing 0.8035 in early European trading. The USD/SEK tested fresh 16-year lows following the Riksbank interest rate decision. The SEK strength attributed to higher inflationary comments from the central bank. The EUR/USD is consolidating below the 1.60-area as ECB members sought to clarify recent hawkish interest rate comments.

· On the data front overnight French consumer spending declined to -1.7% m/m in February, its lowest level since September of 2006. Preliminary French manufacturing and services PMI reading for April fell below estimates, while German readings were mixed, with the services reading blowing out estimates, and the manufacturing reading falling below estimates. Similarly, advanced PMI data was mixed in the Euro-Zone, with the manufacturing reading falling below expectations, and both the services and composite readings landing above expectations. As expected,
Sweden's Riksbank left rates unchanged at 4.25% following the surprise rate hike at February's meeting. In the accompanying statement Riksbank left its rate outlook unchanged from February. Riksbank raised its 2008 GDP growth forecast to 2.6% from 2.4%, and lowered its 2009 forecast to 1.8% from 2.0%. Riksbank also boosted its 2008 CPI forecast to 3.5% from 3.4%. Italian retail sales data for February beat out expectations overnight, with the Y/Y reading reaching its highest level since April of 2006 at 2.7%. Minutes from the Bank of England's April 10th policy-setting meeting showed a vote of 6-2-1 with, Besley and Sentence voting to keep rates unchanged, and Blanchflower voting for a 50bps rate cut. This was the first three-way split since May of 2006. Also in the UK overnight, March BBA loans for home purchase were released, and declined to their lowest level on record at 35,417 (Note that records began in March of 1993).

· Looking ahead, there are no economic numbers scheduled in the
US today, nor are there any Fed speakers scheduled. There will be some European data released during the morning. Norges Bank, the Norwegian central bank, is due out with its rate decision this morning, while Belgium is due to release its April business confidence indicator. Norges bank is expected to raise rates by 25bps to 5.50%. The Bank of England's Sentance is due to speak in London at 13:00 ET. Earnings will be in focus this morning. Earnings scheduled for release in the pre-market today include Amerisource Bergen (ABC), Boeing (BA), Biogen Idec (BIIB), Delta Air (DAL), EMC Corporation (EMC), Freeport Mcmoran (FCX), General Dynamics (GD), Genzyme (GENZ), Northwest Airlines (NWA), Philips Morris (PM), Schering Plough (SGP), United Parcel Services (UPS), and Wellpoint (WLP).

 

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