¬∑In sector rotation overnight Citigroup raised both the European insurance
sector and the European oil & gas sector to overweight. Citigroup also cut
the European personal and household goods sector to neutral, and cut the
European construction sector to underweight. Elsewhere Morgan Stanley raised
the European food producers to in-line. Finally, Lehman cut its price targets
for Spanish banks by an average of 6% citing recession risk. Citigroup
announced overnight that it will sell its German Retail Banking Operation to
Credit Mutuel for ‚ā¨4.9B in cash. The transaction is expected to result in an
estimated after-tax gain of $4B to Citi upon closing. After giving effect to
the proposed sale, Citi's Tier 1 capital ratio would have increased by
approximately 60bps Shinsei Bank confirms that it will purchase of GE's (GE)
Japanese Consumer finance unit for ¬•580B. Air Berlin [AB1.GE] and Thomas Cook [TCG.UK] agreed
to terminate deal for Air Berlin to acquire Cook's Condor due to higher
fuel costs. Thomas Cooke will continue negotiations with Air Berlin and plans to discuss alternative
¬∑In the newspapers, according to the Financial Times Citigroup (C) is close to
selling its German retail banking unit to Credit Mutual. The deal could be
worth ‚ā¨3B-‚ā¨5B. The Financial Times wrote overnight that the Federal Banking
Commission of Switzerland plans to raise the capital requirements for UBS
[UBSN.SZ] and Credit Suisse [CSGN.SZ]. Recall that there has been some
speculation about this over the past few weeks. The New York Times reported overnight
that that Anheuser-Busch (BUD) is actively seeking to enter into a friendly
deal with InBev [INB.BE]. InBev may be willing to raise its bid to as high as
$70/share v $65 prior, according to sources. According to La Tribune Dassault
Aviations [AM.FR] seeks to acquire Alcatel's [ALU.FR] stake in Thales [HO.FR].
¬∑In energy news, the Financial Times noted overnight that the US owners of
London's oil futures exchange believe that attempts by US regulators to close a
regulatory gap in the oversight of the UK's main energy futures market is
unlikely to impact oil prices. According to Iraqi news network Nahrainnet,
Israeli fighter jets may be using Iraq's airspace and US bases to prepare for
an attack on Iranian nuclear plants. The report cites anonymous sources in Iraq's Defense Ministry as saying that
Israeli jets have used air space in Jordan to land at US airbases in Iraq for the past month.
¬∑On the fixed income front the Telegraph reported overnight that some senior UK bankers are expected to lobby the BoE to
widen the terms of the special funding scheme. The bankers believe that the
facility has not done enough to restore confidence among banks. The facility
currently accepts triple-A rated securitized bonds backed by mortgages and
credit card debt. According to the Financial Times the House Builders
Association sees 12,000 or more job cuts by UK home builders over the next few months.
The Wall Street Journal wrote overnight that a trade group for European
money-market traders wants the BBA to increase the number of EU banks included
in the panel that submits quotes for dollar-Libor borrowing rates.
¬∑In the currencies press reports were getting the attention overnight.The USD
was off its recent lows after press reports surfaced that the Bush administration
was looking at a potential government takeover of Fannie Mae or Freddie Mac.
The EUR/USD was trading around 1.5785 and the USD/JPY around 107.15. Oil is
firmer as Iraqi news network Nahrainnet stated that, Israeli fighter jets may
be using Iraq's airspace and US bases to prepare for
an attack on Iranian nuclear plants. NYMEX Aug crude contract moved back above
the $144 handle. The soft tone in CHF has been attributed to reports that the
Federal Banking Commission of Switzerland plans to raise the capital
requirements for Swiss banks.
¬∑*** NOTES ***
¬∑All was quiet overnight due to a lack of central bank/European official
speakers, as well as a lack of exciting data. The European indices were firmer
at the open, buoyed by reports that the US government was studying the potential
takeover of Fannie Mae or Freddie Mac, but later declined on the back of a
sharp rise in oil prices following further developments/speculation on the
geopolitical situation between Iran and Israel. There have been some discussions
amongst the dealing desks overnight over whether or not a government takeover
of Fannie or Freddie would lead S&P to downgrade the rating on US sovereign debt. If a downgrade were to
occur foreign investors limited to making investments in triple A rated debt
would have to seek alternative investment plans, leading investors away from
the Dollar. At the same time dealers are questioning where exactly investors
would place their money considering that no one really has the capacity to
absorb the amount of investment that the US has. Although only time can tell it is
well worth thinking about.
¬∑Looking ahead, Canadian unemployment data is due out at this morning. Analysts are looking for
an unemployment rate of 6.1%, and a net change in employment of +8.0K. In the
states the trade balance, import price index, University of Michigan confidence, and monthly budget statement
are all scheduled throughout the day. On the earnings front Dow component
General Electric (GE) (2.0% of the Dow) is due to report ahead of the open;
consensus estimates are for earnings of $0.54 on revenue of $45. 31B.
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