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Forex Blog - European Market Update: Drop in Chinese exports highlight global recession concerns

Today 05:54am

European Market Update: Drop in Chinese exports highlight global recession concerns


- (CH) China Nov Trade balance: $40.0B v $32.4Be, highest on record; Exports: -2.2% v +14.8e; Imports -17.9% v +12.0%e

- (JP) Japan Iron & Steel Federation: Oct Steel orders Y/Y: -15%

- (GE) German Nov Wholesale Prices M/M: -3.3% v -1.2%e; Y/Y:-0.8 % v 1.3%

- (FR) French Oct Industrial Production M/M: -2.7% v -0.5%e; Y/Y: -7.2% v -4.0%

- (FR) French Oct Manufacturing Production M/M: -3.2% v -0.9%e; Y/Y: -8.4% v -4.5%e;

- (DE) Denmark Nov CPI M/M: -0.3% v -0.4%e; Y/Y: 2.7% v 2.6%e

- (DE) Denmark CPI - EU Harmonized M/M: -0.3% v -0.4%e; Y/Y: 2.8% v 2.6 %e

- (SW) Sweden Oct Industrial Production M/M: -1.6% v -0.4%e; Y/Y: -7.1% v -3.9%e

- (SW) Sweden Oct Industrial Orders M/M: -1.3% v -4.7% prior; Y/Y: -14.8% v -7.2% prior

- (NO) Norwegian Nov CPI Y/Y: % v 3.7%e; CPI Underlying M/M: -0.6% v 0.1%e; Y/Y: 3.2% v 3.7%e

- (NO) Norwegian Nov Producer Prices incl Oil M/M: -5.2% v -1.3% prior; Y/Y: 11.9% v 26.0% prior

- (SW) Swedish AMV Unemployment Rate: 3.5% v 3.5%e

- (IT) Italian Oct Industrial Production M/M: -1.2% v -1.0%e; Y/Y: -6.9% v -4.8%e; Y/Y wda: -6.7% v -5.0%e

- (SA) S. Africa Oct Retail Sales Y/Y: -2.3% v -5.5%e

- (SZ) Swiss Dec ZEW Survey Expectations: -76.2 v -88.5 prior

- (IT) Italian Q3 Final GDP Q/Q: -0.5% v -0.5%e; Y/Y: -0.9% v -0.9%e

- (IT) Italian Q3 Private Consumption: 0.1% v -0.2%e; Government Spending:0.1 % v 0.3%e; Total Investments: -1.9% v -1.1%e; Exports:-1.6 % v -1.0%e; Imports: -0.5% v -0.6%e;


- In equities: Rio Tinto [RIO.UK] RIO.AU] To reduce net debt by $10B by end of next year (net debt at end of Oct $38.9B); cutting 14K jobs worldwide(about 30% of workforce); reducing 2009 Capex from $9B to $4B. To defer and cancel some projects. The company. Targets divestment of significant assets and plans to cut operating costs by $2.5B/yr in 2010. The 2008 dividend to be maintained at 2007 level. It guided 2009 iron ore output & shipments at 200M tons and aluminum output being 5% less than capacity. It saw 2009 copper output at 830K metric tons. The CEO stated on the conference call that the short term outlook remained uncertain and that it would distribute job cuts across the globe || SKF [SKFB.SW] Announced it was cutting capacity and eliminating, 2.5K positions (5.5% of workforce). Cuts resulted from a weakening demand in commercial and industrial markets. It expected a charge of SEK470M from capacity and position cuts. The company guided Op profit of SEK1.61.7B compared to SEK1.58B estimates (ex items) and forecasted a volume drop of nearly 15% during that period. || Axel Springer [SPR.GE] to Take a15% stake in Stepstone with plan to purchase up to a 33% stake. It would purchase shares up to a maximum price of NOK7/share and added it did not plan to offer stepstone publicly || Carillion [CLLN.UK] Stated that earnings in 2009 would be 'materially enhanced' and added it continued to see strong performance || Wienerberger [WIE.AS] Extended its CFO Van Reit's contract until 2014 || Marstons [MARS.UK] Extended the maturity of its bank facility to August 2013. The amount of the facility would reduce from the current £400M to £295M in August 2010 || Clipper Windpower ]CWP.UK] Stated it it encountered no cancellation of orders but added tat some were being delayed. It had renegotiated terms of some client payments. Milestone payments originally scheduled for 2009 are being delayed. It added that for 2008its year end cash balance in range of $150-$200M versus $250M previous view. YTD installations have totaled 294 units and expected that number to rise over 200 by 2009 || Television Francaise [TFI.FR] CEO noted it was: "Impossible" to forecast higher revenue next year || Belvedere [BVD.FR] Reported H1 Net loss of €38.7M compared to a profit of €100K year-ago. Its 9 month revenues of €875.5M, up 22.1% y/y. The firm had experienced a marked slowdown in consumption. May be unable to reach its 2008 profit targets (had guided EBITDA €60M) || Daimler [DAI.GE] German Cartel Office stated that Daimler filed to acquire stake in Russian truck maker Kamaz (was rumored in Russian press back on Nov 20th) || Pearson [PSON.UK] Acquires Fronter, a European online learning company || RWI Think tank: Germany is in deep recession; sees 2009 GDP at -2.0%

- Speakers: BoJ Shirakawa stated that the central bank was closely monitoring impact of JPY on the economy; appreciation due to shift into JPY denominated assets from risk aversion. He noted that the MOF could issue an order for central bank to intervene in the FX market if the JPY continues to gain. Shirakawa noted that economic stagnation was mounting and that the weak economies of US and Europe were responsible for JPY appreciation

China's PBoC reiterated that it would maintain relatively loose monetary policy in 2009 to promote economic growth || ECB's Stark commented in a WSJ Editorial stated that the environment for conducting economic policies, in particular monetary and fiscal policies, has become extremely challenging . The unfavorable conditions in parts of the financial market are spilling over into the real economy. Neither Europe as a whole nor the euro area will escape the storm. In view of declining inflationary pressures, the ECB has reduced rates in 3 steps so far, most notably by an unprecedented 75 bps last week. The euro-area governments have provided support for the banking system and to date the envelope of funds for possible recapitalizations and guarantees amounts to some €2T (20% of euro-area GDP). || ECB's Bini Smaghi noted that Europe ran the risk of "falling behind the curve" in recapitalizing its banking system, and reiterated that governments should encourage capital injections in banks

|| PBoC issues statement on regional central bank meeting with BOJ and Korea; committed to cooperation and FX stability || China Gov't stated that More difficulties and downward pressures are seen in economy and would take steps on expanding domestic demand. Gov'f would cut taxes and increase spending to boost economy activity. It noted that it would maintain a flexible economic policy. the Gov't noted it would maintain an active fiscal policy, maintain moderately loose monetary policy, to keep CNY basically stable and sought to balance in international payments || BoJ Nishumura: Notes that credit turmoil is still expanding || Bank of Indonesia sees Q4 GDP in range of 5.5% to 5.6%; 2009 growth below 5.0% || China Official stated that he was not aware that China could seek to subsidize the costs of shipping corn and issue a 5M ton export quota for corn || Hungary Central Banker Simor stated that Hungary had stabilized economy in short-term. He sa no chance of a 300bps interest rate cut as any accelerated easing of policy would run the risk of devaluing the currency. Thus monetary policy scope remained limited|| Sedlabanki (Central Bank) postpones Iceland collateral requirement until Jan 28th

- In Currencies: The USD was firmer against the European pairs as the European morning wore on. The decline in Chinese exports spurring a bit of risk aversion and safe haven plays. EUR/USD at 1.2915, down 15 pips from its opening levels in Asia. BOJ Shirakawa warned that he was carefully watching forex moves that affect the economy. The threat of currency intervention helped the JPY weaken just ahead of the European morning. The comments on the currency indicate increasing concern on the impact on exporters from rising JPY. Recall that Sony [SNE} announced job cuts earlier this week. His concerns over the sluggish economy come in the wake of the news that Japanese manufacturers will be extending holidays at year end due to falling demand. The JPY was off its pre-European lows as the NY morning approached. USD/JPY at 92.60, EUR/JPY at 119.60 (bothe about 25 pips higher from Asia opening levels) and GBP/JPY at 136.95, higher by 75 pips. || Bank of America analyst noted that perhaps the phase of repatriation in USD may be coming to end. It saw the Euro trend upside potential against the Dollar and JPY pairs. || BNP Paribas analyst commented that EUR/USD could recover to the 1.32 area in the near term. He cited the firmer equity markets as one factor.

-In Fixed Income: EURIBOR Fixings for Wednesday Dec 10th saw the 3-month at 3.38% compared to 3.43% prior, its lowest level since Sept 2006 || Germany sold €5.74B of the 2.25% 2010 Schatz at an average yield of 2.23%. Despite the supply, and hawkish comments from ECB members Junker and Bini Smaghi , the short end of the European Yield curve rallied on equity weakness. Anticipation of further monetary policy easing in the Eurozone was reflected in the EONIA swap index, which is fully pricing in a 25bps cut in January . UST's are seeing selling and higher yields across the curve, whilst better buying of the 10y Gilt is leading to bull flattening in the UK.

- In Energy: Lukoil [LUKOY] Reportedly signed a MOU with Argentine Energy companies || Total [FP.FR] Nigerian Akpo oil field to start production in Q1 2009 and noted that the economic crisis would not delay project due to start in 2009. the CEO stated that the company's 2008 earnings would be "good" and saw oil prices resuming their rise in mid-long term || WSJ looks at the recent decline in oil related ETFs. According to the article, in addition to the sharp drop in oil prices ETFs are also being impacted by the fact that oil markets are in a state known as "contango", which is when longer-dated futures are more costly than the spot price. || FT article noted that the World Bank's chief economist forecasted that global oil demand would" collapse" in 2009 and commodities would not return to the highs they reached this past summer in the foreseeable future ||

*** NOTES ***

- Fed weighs debts sales of its own. The question is whether this is a sign that some market stabilization could be emerging or does it open up a bucket list of concerns like the could be fears of deflation or that the FED is not in control of interest rates? Yesterday nervous investors paid for the privilege of owning US government debt, pushing interest rates on three-month Treasury bills to negative levels for the first time in postwar history.

- China's Trade Surplus came in at a record $40.1B for November, but the increase came for all the wrong reasons and highlights the global recession fears. Both China's exports and imports declined for the month. This was the first drop in Chinese exports in seven years (India's exports experienced that as well recently). The rash of lower corporate earnings guidance, planned capacity cut and workforce reductions illustrate these recessionary concerns. Rio Tinto was the latest to slash its workforce.

Looking Ahead:

- 7:00 (US) MBA mortgage Applications w/e Dec 5th. There are no consensus expectations; the prior number was 112.1%

- 8:30 (CA) Canadian Q3 Labor Productivity: Q/Q Consensus expectations are 0.2%; The prior number was -0.2%

- 10:00 (US) Oct Wholesale Inventories: Consensus expectations are -0.2%; the prior number was -0.1%



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