Forex Blog - European market Update: Risk Aversion returns as the 'health' of the global economy is again questioned
European market Update:
Risk Aversion returns as the 'health' of the global economy is again questioned
*** ECONOMIC DATA ***
- (GE) German March Import Price Index: -0.4% v -0.1%e; Y/Y: -7.1% v -6.5%e
- (GE) German May GFK Consumer Confidence Survey: 2.5 v 2.3e
- (CZ) Czech Apr Consumer & Business Confidence: -9.9 v -14.1 prior
- (IT) Italian Consumer Confidence: 104.9 v 99.8e; highest reading since Dec
- (SW) Swedish Trade Balance: SEK8.1B v SEK9.5B prior
- (TT) Taiwan Mar Leading Indicator M/M: 1.5% v -0.5% prior; Coincident M/M:
0.7% v -3.6% prior
- (PD) Polish March Retail Sales M/M: 11.8% v
11.5%e, Y/Y:-0.8% v -0.8%e
- (PD) Polish March Unemployment Rate: 11.2% v
- (HK) Hong Kong March Trade Balance (HKD): -18.2B v -19.7Be; Exports Y/Y:
-21.1% v -18.7%e; Imports Y/Y: -22.7% v -19.5%e
- (UK) March BBA Loans for House Purchase:
26.1K v 28.0K prior; off 25% y/y
- (UK) BOE Quarterly APF Report: Purchases
Ã‚Â£15.1B as of Mar 26th; Might take some time to observe full effects of
Quantitative Easing (QE) purchases
***SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM ***
- Equities: European equity markets opened sharply to the downside as indicated
by heavy pre-market weight. Exchanges opened low and quickly accelerated to
losses of over 1% across the board. Continuing the trend out of Asia, fears, or willingness to use the outbreak
of 'Swine Flu' as a reason to sell risk led to heavy selling in the airlines,
travel, hospitality and hotel sector. Leading movers to the downside on the
FTSE100, CAC40 and DAX30 has been dominated by national flag carriers (BAY.UK,
LHA.GE, and AF.FR) with British Airways trading as lows as 11% in early
crosses. The sole outperforming sector in Europe was the broader pharma sector being led
by Tamiflu maker, Roche (ROG.SZ) which traded as high at 6% to the pos side
before paring those gains. Consistently dismal numbers out of European
automaker Scania (SCVB.SW) just after the Euro open pushed that sector and its
related suppliers to their session lows as the indexes continued their decline.
markets had hit their collective lows and began a ninety minute rise off their
lows. The FTSE100 recovered the best, trading as high as -50% by 5:00EST.
Travel and Airlines remained on their lows but industrial and financials moved
off their lows, while still trading broadly negative. Despite continued easing
in the 3-month LIBOR, markets sharply paired their upward trend past 5:00EST
following weak auction results out of Italy and further German leaks regarding the
establishment of a 2-part bad bank model.
- In individual stocks: Aviva [AV.UK] Reports Q1 Worldwide sales Ã‚Â£10.3 (+5%
y/y), IGD solvency surplus Ã¢â€šÂ¬2.5B, Q1 Net funded inflows of Ã‚Â£1.9B. ||Merck
[MRK.GE] Reports Q1 Net Ã¢â€šÂ¬56.7M v Ã¢â€šÂ¬186.8Me, Op profit Ã¢â€šÂ¬198M v Ã¢â€šÂ¬217Me,
Rev Ã¢â€šÂ¬1.9B v Ã¢â€šÂ¬1.82Be, expects FY09 sales to flat to +5% y/y (implies Ã¢â€šÂ¬7.56-9.94B
v Ã¢â€šÂ¬7.6Be) Core ROS +15% to 210% y/y. States: That while Merck's
Pharmaceuticals business sector remains strong, the economic slowdown is having
a considerable negative impact on the Chemicals business sector. || Siemens
[SIE.GE] Firm is set to lower profit guidance on back of deeper than expected
global slowdown -FT. Article notes that firm seeking to lower previous guidance
of Ã¢â€šÂ¬8-8.5B target (Ã¢â€šÂ¬6B current analyst estimate). || Fortis [FORB.BE]
Holder Ping An to reportedly vote against combination with BNP Paribas; wants
return to original operating structure. Notes that any break up of company
could destroy shareholder value. ||
- Speakers: ECB's Noyer commented over the weekend that "Big problems'
exist in IMF estimates for banking losses. Noted that recent stress tests on
French banks build confidence. || ECB's Liikanen commented that there were
signs of global economic stabilization (from low levels). He was cautious on
any economic rebound for 2010, saying sluggish growth was likely due to
continued deleveraging. Falling trade and Industrial Production coupled with
rising unemployment having an adverse effect on global economy. He did note
that International discussions in recent weeks have been 'encouraging' || France's Fin Min Lagarde reiterates that gov't
did not share IMF's pessimism on global growth outlook. Governments are
cautiously optimistic that the global economy has stopped worsening and entered
a phase of stabilization. However, she stated that French Mar jobless rose
around 60K to 70K || ECB, SNB's noted that their 1-week currency swap
operations would continue until at least the end of July || BOE: Might take
some time to observe full effects of Quantitative Easing (QE) purchases ||
Reportedly German Gov't reaches preliminary agreement on 2 bad bank models
- In Currencies: Risk aversion set in as the fragile global economic growth
scenario could be adversely impacted by any flu pandemic. The swine flu that
originated in Mexico last week has spread to other continents
by early Monday. World Bank estimated back in 2008 that any potential flu
pandemic could cost $3T and result in a nearly 5% drop in world gross domestic
product. The World Bank has estimated that more than 70M people could die
worldwide in a severe pandemic. The USD and JPY were the main benefactors on
the risk aversion theme as equities and energy sold off in the session. EUR/USD
hovered around the 1.3150 area for the majority of the session, down from the
1.3250 close seen in NY last Friday. EUR/JPY cross probing below the 127
handle, off over 80 pips from the Tokyo open. USD/JPY testing the 96.50
neighborhood, off 20 pips from its Asian opening levels. The EUR/CHF
cross-tested its lowest level of 1.5039 since the SNB intervened in the pair
back on Mar 12th. CAD and AUD were softer as NYMEX June Crude futures fell by
over $2.50/barrel to probe below the $49
- Fixed income: Government Bonds futures higher in session on Safe-Haven plays
amid flu concerns. Dealers noting that no major economic data on the agenda for
Monday and look towards equity market price actionto provide near-term
- In Energy: EU's Solana: Reiterates view that Iran's nuclear program is a grave concern.
Expected Iran reply in coming days on nuclear issue.
Comments that President Obama's approach to Iran as a "window of opportunity"
*** NOTES ***
- Risk aversion and the potential impact of a global flu pandemic are the topic
of conversation this morning. Oil was off almost $3/barrel on economic impact.
- Last week most government officials noted that the global economy was
"getting worse more slowly" thus signs of stabilization. The Mexican
flu situation (and the era of globalization) just reiterates how fragile any
recovery would be. Thus risk aversion back on the front burner, as one believes
it is premature to start pricing in an immediate economic recovery
- Various ECB members continue to talk rate cut in May and mull other
non-standard measures. The question is where does the ECB see the floor on
- Dealers noting that liquidity would be an issue as week winds on ahead of
with May Day holidays in UK and Europe; coupled with the start of the Japanese
- Looking Ahead: US Corp earnings continue to roll out. Enterprise [EPD]; Corning [GLW]; Humana [HUM]; Qualcomm [QCOM];
and Verizon [VZ] expected before the NY equity open today
- (CL) Chile Central bank minutes
- 10:30 (US) Dallas Fed Manufacturing Activity: -46.0%
expected v -49.0% prior
- 10:30 (IS) Israeli Base Rate Announcement: No change expected, current Base
Rate is 0.50%
- 13:00 (US) Treasury's $40B 2y Note Auction
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Mon 18 Dec
10:00 EZ- final HICP Tue 19 Dec
09:00 DE- IFO Survey
13:30 US- Housing Starts/Permits
13:30 US- Current Account Wed 20 Dec
15:00 US- Existing Homes Sales
15:30 US- EIA Crude Thu 21 Dec
03:00 JP- BOJ Decision
13:30 CA- CPI & Retail Sales
13:30 US Weely Jobless
13:30 US- GDP Fri 22 Dec
09:30 US- GB- GDP
13:30 US- core PCE Deflator & Presonal Income
15:00 US- New Homes Sales
15:00 US- final University of Michigan
17:00 US- early Closes Mon 25 Dec
00:00 Christmas Holidays
Potential Trading Opportunities
POTENTIAL PRICE RISK: Medium Mon--10:00 GMT-- EZ- final November HICP. flash data are rarely changed.
POTENTIAL PRICE RISK: HIGH- Medium Tue --09:00 GMT-- DE- IFO Survey. Key report but usually not a market-mover
POTENTIAL PRICE RISK: HIGH- Medium- Tue --13:30 GMT-- US- Housing Starts and Permits. Leading indicators of activity
POTENTIAL PRICE RISK: HIGH-Medium- Wed --15:00-- US- Existing Homes Sales. Top Housing statistic
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