Forex Blog - European Market Update: Risk aversion intensifies as UK Manufacturing and Industrial Production print 12th sucessive monthly declines
European Market Update: Risk aversion
intensifies as UK Manufacturing and Industrial Production print 12th sucessive
- In equities: Equity
markets opened a higher note boosted by strength in aerospace and defense
contractors following comments from the US DoD on Monday. Opening gains were
paired within Â˝ hour of trading as continental bourses touched negative
territory on the back of weight in the tier 1 financial names. Equity markets
accelerated their moves to the downside as UK Manufacturing and Industrial
Production, despite beating expectations both registered their 12th consecutive
monthly declines. Added to this, slight downward revision in Euro-zoneQ4 GDP further exacerbated the
risk averse sentiment amongst investors.
Rio Tinto [RIO.UK] is to slow the building of its Yarwun alumina refinery, to
cut 100 jobs (less than 1% of workforce). The Yarwun plant is now expected to
be completed in H2 of 2012. The miner will cut bauxite output at Weipa to 15M tons
from 19.4M y/y and plans to cut about 570 jobs at Gladstone
(less than 1% of workforce). Rio noted that approx 70%
of the aluminum industry is operating at a loss. || Thales [HO.FR] is
reportedly to sign $533M contract in Saudi
Arabia today - unconfirmed report. Deal to
be signed with Saudi Binladin group for work on Saudi North South Railway. The
two companies have been chosen to build signaling and security systems for the
main 1,800-kilometer section of the $2.8B railroad, they said. || Air France
[AF.FR] reported its March load factor at 75.5% v 81% y/y, March passenger
traffic -9.4% y/y and March Cargo volumes -19.2%. || For Hypo Real Estate
[HRX.GE], German state nationalization may take place as early as Thursday
-Handelsblatt. Article mentions price target of â‚¬1.26/share in state plan
stating the Gov to seek support in AGM to bring stake to 95% in troubled
lender. || UK
media broadcaster ITV [ITV.UK] is reportedly considering a ÂŁ500M rights issue
following AGM -Times. Article notes that firm feels that it can raise the funds
without support from BSkyB. Firm currently has approx ÂŁ730M in debts and may
face liquidity concerns if it does not raise capital. First debt repayments on
ÂŁ335M facility is not set until March of 2011. || For the Royal Bank of Scotland
[RBS.UK], HM Treasury to own 70.3% of enlarged ordinary share capital; Only
0.7% of new placement was accepted by private holders. Bank received bids for
118.7M shares from private (non-gov sources), this figure represents about 0.7%
of total new share placement. UK Treasury to subscribe to remaining shares in 3
for 7 placement (16.79B new shares; approx 42% of existing float). Total stake
held by UK to
rise to 70.3%, this was widely expected. || Russian UK listed oil firm Sibir
Energy [SBE.UK] provided a trading update: Commences High Court proceedings
against two former directors; CEO Henry Cameron dismissed, effective
immediately. Group stated the proceedings are against former directors, Chalva
Tchigirinski and Henry Cameron, Gradison Consultants Inc (a company owned by Mr
Tchigirinski) and Derbent Management Limited. Mr Cameron has, as a result of
his conduct, been dismissed by the Company with immediate effect. || Vallourec
[VK.FR] proposed a final FY08 div of â‚¬6/shr v â‚¬7/shr prior (â‚¬5/share estimate).
|| For Party Gaming [PRTY.UK], its CEO made comments regarding settlement of on
going legal issue with US state of NY. Settling of US legal issues will allow
firm to raise cash and make acquisitions in the US
market. States that group is not currently in purchase talks. Have received
favorable responses to concepts of fundraising plans. Firm has accepted
statement of facts regarding its business activity prior to enactment of UIGEA,
agreeing to pay $105M. || D. Logistics [LOI.GE] reported its FY08 Net at â‚¬11.5M
v â‚¬9Me, EBITA â‚¬14.6M v â‚¬14.4Me, and Rev â‚¬336.8M v â‚¬340Me. Logistics proposed
its FY Div at â‚¬0.07/shr whilst guiding FY09 EBITA above â‚¬10M, Rev above â‚¬305M v
â‚¬334.5Me. The firm noted that its FY09 outlook is subject to uncertainty. ||
Cewe Color [CWC.GE] provided some FY09 guidance, putting rev at â‚¬425-429M v
â‚¬418Me, CAPEX at â‚¬22M (1/3 of 2008 figure). The firm will propose a final
dividend of â‚¬1/share v â‚¬1.20/share y/y and sees profit levels rising post 2010
due to the positive effects of restructuring operations. || For Finmeccanica
[FNC.IT], US Defense Sec Gates disclosed (US Monday trading session) details of
Pentagon budget proposals, LMT's Presidential Helicopter program to be ended,
F-22 program to be halted at 187 jets. ||
- The ECB's Stark made some typically hawkish comments early in the session,
representing the first cracks in the political consensus emerging after the
G-20 meeting last week in London.
Stark stated that in his view the IMF's new drawing rights represent â€śpure cash
creationâ€ť and â€śhelicopter moneyâ€ť, noting that prior to the decision to expand
SDR's there had been no examination of any need for extra global liquidity.
- Speaking in the Diet after the BoJ left rates on hold at 0.10%, the Bank of
Japan's Shirakawa noted that he did not believe Japan
would enter a deflationary spiral, and that the BoJ shared the Government's
view that the Japanese economy was likely to face severe conditions for the
foreseeable future. He added that did not see any reason to remove the cap on
purchases of JGB, citing the possibility of higher yields
- In fixed income, in another weak auction the UK sold ÂŁ3B in 10y Gilts with a
bid-to-cover of 1.82 times lower than the previous 2.07 times, and a larger
than average yield tail of 3.3bps . Auction results sent Gilt futures into
session lows of 120.55. US
Treasuries have benefited from risk aversion throughout the European morning ,
with T Note and Long Bond futures firmly in positive territory and a slightly
flatter cash yield curve on better buying of the 10y Note. Some significant
European names announced plans to tap debt markets with Zurich
planning 3 and 6.5y Euro denominated bonds and Finmeccanica planning a 10y
offering in Sterling. Having
successfully sold the largest supra national offering earlier this year the
World Bank's IFC unit revealed plans to sell a USD 5y bond , in benchmark size.
- In currencies, risk aversion has translated into broad based USD and JPY
strength. After firming up in against the greenback in Asian hours the CHF has
notably suffered, with USD/CHF up almost a big figure at 1.1460. GBP/USD moved
sharply lower in response to the weak Gilt auction, finding support at session
lows of 1.4605
- (BE) Belgian March
Unemployment Rate: No expectations v 7.2% prior
- 10:00 (MX) Mexican March CPI M/M: 0.50% expected v 0.22% prior; Y/Y: 5.96%
expected v 6.20% prior; Core M/M: 0.50% expected v 0.49% prior
- 10:00 (EU) ECB's
- (US) $6B 10y TIPS Auction
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