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Forex Blog - European market Update: Euro-Zone Retail Sales data disappoints, but PMI series continues to rebound; Risk aversion and appetite themes continue to rotate

Today 05:59am EST/09:59am GMT

European market Update: Euro-Zone Retail Sales data disappoints, but PMI series continues to rebound; Risk aversion and appetite themes continue to rotate


- (SP) Spain Mar Industrial Output NSA Y/Y: -14.0% v -23.9% prior, WDA: -24.7% v -19.7%e

- (IT) Italian Apr PMI Services: 42.0 v 40.9e

- (FR) French Apr Final PMI Services: 46.5 v 46.2e

- (GE) German Apr Final PMI Services: 43.8 v 43.5e

- (EU) Euro-Zone PMI Services: 43.8 v 46.3e; PMI Composite: 41.1 v 40.5e

- (UK) Halifax House Prices M/M: -1.7% v -1.0%e; Y/Y: -17.7% v -17.5%e

- (UK) Apr PMI Services: 48.7 v 46.3e

- (EU) Euro-zone Retail Sales M/M: -0.6% v 0.1%e; Y/Y: -4.2% v -2.6%e


- In equities: Global equity and futures markets took a beating at 21:30EST when news leaked that US based Bank of America [BAC] may need to raise up to $35B in capital to fill balance sheet wholes as a result of US Treasury stress test results. The European pre-market saw a flurry of corporate news with large cap firms including BNP Paribas [BNP.FR], Total [FP.FR], Lafarge [LG.FR], BMW [BMW.GE], Deutsche Post [DPW.GE] and Munich Re [MUV2.GE] (amongst others) providing Q1 results. Analyst beating net and rev numbers at BNP Paribas shook some negative sentiment out of the financial sector and bullish comments from the CEO of Deutsche Post regarding a recovery in mail volumes add mixed sentiment to premarket trading. European equity futures opened to the downside but quickly paired losses on the back of solid Q1 earnings. At the open of equity trading, the CAC, DAX and FTSE100 all opened slightly to the downside on mixed trading. The CAC40, based on strength in BNP and Alcatel-Lucent [ALU.FR] (following an upgrade at Goldman) moved into positive territory just past the open with the FTSE100 dipping above and below that mark through the first hour of operations. As expected, Bank of America in Frankfurt trading [NCB.GE] moved significantly to the downside on the open, trading in a range of approx -15%. At 4:00EST, Euro zone PMI numbers ahead of expectation and positive comments out the Halifax regarding UK home price rallied European markets. The DAX30 moved out of negative territory and the CAC40 accelerated its lighter tone, surpassing the FTSE100 as the leading mover to the positive side. UK listed stocks paired gains in the 4:00EST hour as their continental rivals continued to push forward, the CAC40 trading on volume 35% higher than average following the large volume of Q1 earnings releases. Markets largely ignored below expectation Euro-zone retail figures that set new record lows, and a strong German bid to cover on its Bobl supply pushed equity markets to new session highs +50% to +1% across the board. As the New York market developed, markets again turned mixed as another wave of corporate earnings out of the US are expected to dictate US premarket sentiment along with the US April Challenger job cuts which is expected at 7:30EST

- In Individual Stocks: In individual stocks: Bank of America[ BAC] Reportedly may need to raise up to $34B (49% of market cap). Follow Up as of 11:29 PM EST: NYT reports that Bank of America needs $33.9B. Follow Up as of 11:42 PM EST: WSJ reports that Bank of America needs $35B, US government stress test found large gaps in the firm's capital level. || BNP Paribas [BNP.FR] Reports Q1 Net 1.65B v €1.3Be. Rev €9.48B v €7.5Be, Q1 AUM €510B (+1.3% q/q), Q1 Net asset inflows +€13.4B, Q1 Tier 1 ratio 8.8% v 7.8% q/q, Q1 Doubtful loans and commitments €19.2B v €16.4B q/q, Q1 Allowance for loan losses €16.2B v €15.0B q/q. The outlook for the global banking sector remains uncertain, in spite of a recent rebound in markets. || Lafarge [LG.FR] Reports Q1 Net Loss €17M v Loss €18Me, Rev €3.6B v €3.6Be, states it is difficult to make forecasts due to high economic uncertainty. The economic slowdown and worse weather conditions negatively impacted volumes and margins. Q1 Cement sales -9% y/y, Q1 Aggregates & concrete sales -11% y/y, Q1 Gypsium sales -12% y/y. || BMW Group [BMW.GE] Reports Q1 Net loss €152M v loss €180Me, EBIT loss €55M v loss €275Me, Rev €11.5B v €10.8Be. Cannot provide reliable FY09 outlook; reiterates FY09 sales will not match last year's levels. Reduced automobiles division working capital by €1.08B in Q1. Aims to maintain, build market share in premium segment this year. Group liquidity stood at €10B at end of Q1. || Deutsche Post World [DPW.GE] Reports Q1 Net profit €944M v €219Me, Rev €11.5B v €11.8Be. Revenue in the MAIL Division -4.5% y/y, Revenue in the EXPRESS Division -25.9% y/y, Europe Rev -16.9% y/y, Asia-Pacific Rev rev -6.7% y/y. || Munich RE [MUV2.GE] Reports Q1 Net Profit €420M v €399Me, Rev €10.3B v €10.1Be, Increases premium forecast for 2009, continues to refrain from share buyback. Sees further improvement in prices, terms and conditions in reinsurance. || Ahold [AH.NV] Reports Q1 Rev €8.7B v €8.6Be. Remains well positioned to meet customer needs and to respond to competition in the current turbulent economic environment. ||

- Speakers: ECB source reportedly stated that the ECB had no consensus on non-standard tools at this week's policy meeting. The 'source' commented that the majority of ECB members viewed the 1.0% as the floor in its refi rate. There was no consensus among central bank members on purchasing either government bonds or corporate paper in its non-standard tools. It was most likely that the ECB would extend refinancing to banks || SNB's Jordan commented that it was too early of any final assessment on unconventional tools but early signs are positive. SNB to act decisively if necessary on Swiss Franc || China's PBoC reiterated the view that its economy would see fast and stable growth and the central bank stated it would ensure ample liquidity remained available to support growth . The PBoC cautioned that the foundation for recovery was not yet firm but Q1 GDP did improved over Q4. It would maintain the "Moderately Loose" monetary policy and sought continued exchange rate flexibility. It saw currency depreciation risk for many key currencies, including USD || Norway PM commented that low interest rates were keeping the NOK currency weak but that it did keep investment costs down || EU Business group stated that it saw the ECB cutting interest rates by 25bps at this week's policy meeting (in line with analyst consensus views)

|| Thailand Fin Min stated that the Thai Gov't approved the THB 800B borrowing plan to finance its fiscal stimulus plan

- In Currencies: The session began with another bout of risk aversion following the report that Bank of America [BAC] needed another $35B in capital. However, the BNP.FR results soothed over the initial fears. EUR/USD was holding below former hourly support of 1.3330 as the NY morning approaches but off its worst level of 1.3250. GBP continued to be helped by improving UK data. GBP/USD was back above the 1.51 mark after UK PMI services data. JPY sawn most of its late Asian gains erode as the European morning progressed. EUR/JPY tested below the 130 level before recovering back above 131.

-In Fixed Income: Ahead of the Treasury's $22B 10y note refunding and reverse auction from both the BOE and NY Fed, supply has been well received in Europe. Germany sold €4.9B in 5y OBLs, with the bid-to cover of 1.6 times above the previous 1.3 and the Bundesbank retaining 18% of the total offering, slightly below the previous auction. The UK sold £3.5B in 10y Gilts in a robust auction, covered 2.5 times and with a yield tail of just 0.2bps. Some high profile corporate issuance was priced with Volkswagen and Sanofi Aventis selling €3B worth of bonds each, and Renault selling €750M in an offering reportedly 8 times oversubscribed. Three month Euribor fixed at a new low of 1.33%, whilst € swap spreads have narrowed by almost 2bps to sit below 45bps, their lowest levels since Oct 2007 || Austria Debt Agency raises 2009 total issuance to €28B-€33B from prior range of €24B- €30B

- In Energy: Saudi Aramco stated that $60-70/bbl in oil was needed for marginal producers. Saudi Arabian oil output was 8M bpd, with no immediate expectations of production cut. To meet end of June target for raising Arabian oil capacity to 12.5M bpd.

*** NOTES ***

- Dealers thinking back about Fed's Bernanke comments on Tuesday about the warning growth outlook could be hampered if credit markets relapsed. Thus BAC now needs $35B above the earlier speculation of a $10B.

- PBOC: Growth expected to be 7%-8% 2009 & 2010. Sees FX depreciation risk for key currencies, including USD

- Fed's Yellen: Recent rise in Treasury yields reflects optimistic news on economy but does not see a "V" shape recovery

- The slew of PMI data continues to show improvement. European PMI came above estimates. Russia services PMI hit 6 month highs

- Looking Ahead: More Corporate earnings: The first of a series of US emplyment data. April ADP private jobs estimate early Wed. Forecast of -635K v -742K prior month|| BOE and ECB policy decisions Thursday. Focus on ECB policy and non-standard moves.

- 7:00 (US) MBA Mortgage Applications w/e May 1st: No expectations v -18.1% prior

- 7:30 (US) Apr Challenger Job Cuts Y/Y: No expectations v 180.7% prior

- 8:00 (NO) Norwegian Deposit Rates: 50bps cut to 1.50% expected, current deposit rate is 2.00%

- 8:30 (CA) Canadian Building Permits M/M: 2.3% expected v -15.9% prior

- 9:30 (US) Fed's Stern, FDIC's Bair testify before Senate Banking committee

- 10:00 (CA) Canadian Apr Ivey Purchasing Managers Index: 40.8 expected v 43.2 prior

- 10:00 (UK) BoE to buyback £3B 2015 - 2019 Gilts

- 11:00 (US) NY Fed to buyback Treasuries maturing between 03/31/2011 - 04/30/2012

- 1:00 (US) Treasury to sell $22B in 10y Notes


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