- In equities: Equity markets opened convincingly to the downside following
bearish pre-market trading. In themes continuing through from yesterday, risk
aversion conversations have made a strong comeback. WSJ stories indicating the
potential risk in the European banking sector as compared to the US sector,
based on the lack of a comparable 'stress tests' and the failure of European
banks to raise capital to the extent seen in the US have added weight to Tier 1
financial names on all three exchanges. Disappointing earnings out of EAD's
[EAD.FR], Q-Cells [QCE.GE], Fraport [FRA.GE] and comments regarding debt
concerns out of VW [VOW.GE] added to the downside momentum in early equity
trading. Better than expected April BRC retail numbers provided lightness to
that sector, with Marks and Spencer [MKS.UK] trading higher, but gains remained
localized. Bourses dropped to the -1% level by 3:15EST before making a bounce.
Markets continued that upward movement with the CAC and DAX recovering all
their losses and turning positive by 3:40EST. In that move, banking and financial
names recovered, while automotive names in the CAC [UG.FR], [RNO.FR] followed
strength out of Fiat [F.IT] in Milan
and pushed higher. In the DAX, market chatter regarding Deutsche Telecom
[DTE.GE] and continued strength following earnings out of Deutsche Bourse
[DB1.GE] rallied that market. European bourses continued their enthusiasm
through the first half of 4:00EST, then being aided by better than expected
Industrial and Manufacturing data out of the UK
past 4:30EST sent markets to their then session highs. Enthusiasm showed some
waning past 4:45EST with a slow drift off those post UK
data highs. Results in line out of Australia
regarding its 2009 budget deficits and GDP forecasts provided little new
momentum to European equity markets with a gradually selling continuing through
the bourses. By the FTSE and
CAC had returned to effectively flat on the session with only the DAX holding
on to wider gains.
- In individual stocks: EAD's [EAD.FR] Reports Q1 Net â‚¬170.0M v â‚¬158.0Me, Rev
â‚¬8.5B v â‚¬9.5Be, Backlog â‚¬413B v â‚¬400B q/q, Expects Airbus to capture up to 300
new gross orders in 2009. Revised industrial plans to complete A400M program
could lead to substantial charges in H1 of 2009. || Babcock
Intl [BAB.UK] Reports FY09 Op Profit Â£147.3M v Â£137Me, Rev Â£1.9B v Â£1.9Be,
raises FY08 dividend 25% to 14.4p. Order book at Â£5.7B. Chairman: We anticipate
increasing pressure for improved efficiency in public-sector spend will further
increase the opportunities available to us. || VW [VOW.GE] Peich: Porsche group
must lower debt burden before integrating with VW. CEO: Expect combined group
to be world's largest automaker. VW-Porsche combination should not include 3rd
party investors. Porsche becoming brand of VW is only 1 option open to the
firm. See Fiat's moves to combine Chrysler and OPEL as 'unhealthy,' to fail
- Speakers: Australia's
Swan released the details to the 2009 budget with the deficit to be A$57.6B (in
line with press speculation). Swan saw GDP contracting by 0.5% in 2009-2010 period.
Unemployment seen at 8.25 and rising toward 8.5% by 2011 || S&P stated that
Australia's sovereign rating unaffected by budget details of higher deficit and
higher debt issuance.
- In Currencies: A degree of risk appetite resurfaced during the European
morning as traders seemed impressed by US banks' ability to raise capital
following the stress test results. Also contributing to the USD's and JPY's
soft tone were lingering concerns over the revised US
deficit projections issued by the US
budget office on Monday. Despite some optimistic economic growth outlook, the
Administration widened its deficit projections.
- Dealers noting that Fed's Bernanke talked up USD presumably to help funding
the massive budget deficits following the US
budget office revisions.
- GBP sentiment helped by its April RICS house price data. GBP/USD held the
1.5075 level for the second day in a row and probed back above the 1.52 handle
during the morning. The production data also provided some upward momentum for
the pound. GBP/USD tested the 1.5300 level and EUR/GBP cross dipped towards
0.8930 level during the morning.
- Both CAD and AUD related pairs were higher in the session aided by higer
energy prices and metals. NYMEX Jun crude futures tested $59.50 and Spot Gold rose
back towards the $920/oz area. The AUD did retrace from session highs following
the release of the 2009 budget details from Aussy Treasurer official Swan.
-In Fixed Income: With equities and commodities catching a bid, a weaker USD
and JPY, Government bonds have been offered in Europe
this morning, completing the risk appetite scenario. Dealers noted that the
belly bearishly leading the way in the session. The UK
sold Â£2.2B in 2030 Gilts with strong results, and the Netherlands
successfully sold â‚¬3.3B in 2012 DSL. For debt investors hungry for yield,
Australian Government Bond markets are set to re-apprear in a big way with
today's budget forecasting total issuance of A$60B in the upcoming fiscal year.
||U.K. government's latest gilt auction attractedsolid demand and the June
Gilts recovered from session lows as a result. The bid-to-cover ratio came in
at 2.24 times, up from 1.37 at the previous auction of this bond. June Gilts
near its best levels for the session at 119.00, but still off 11 ticks from
- In Energy: IEA's Tanaka reiterated his view that it was unlikely to again cut
demand forecast for crude further. Comments are in line with his April 25th
view. || Iran
first nuclear power plant to commence generating electricity by October
according to the Iranian press reports. Etemaad reports the plant in the
southern city of Bushehr will start
producing power by Oct. 23rd and cites Gholam Reza Aghazadeh, head of the Iran's
Atomic Energy Organization. Article noted that Iran
started test operations at the 1,000-megawatt plant in late February. Tests at
the Russian-built site were expected to last between four and seven months ||
*** NOTES ***
- China exports
decline by larger amount expected. India Mar Industrial production declines by
its largest amount in 16 years.
- Bank of America
raises funds by selling stake in China Construction Bank
- Reportedly EU to stress test European banking system by September and tests
reportedly not to test individual banks, but rather the systemic nature of
- Equity markets seem to be the main driver in the session with commodities and
currencies following their lead.
- Looking Ahead:
- 7:00 (SA) South African Mar Manufacturing Production: M/M: % v -0.6%e; Y/Y: %
- 8:20 (US) Fed's Lockhart to speak at conference in Atlanta
- 8:30 (CA) Canadian March International Merchandise Trade: C$0.5B expected v
- 8:30 (US) March Trade Balance (last -$26B)
- 8:30 (US) Fed;'s Rosengen to speak in Atlanta
- 8:30 (EU) ECB's Tumpell-Gugerell to speak in Brussels
- 10:00 (US) May IBD/TIPP Economic Optimism: 51.0 expected v 49.1 prior
- 11:00 (EU) ECB's Weber to speak in Munich
- 11:00 (US) NY Fed to repurchase T-Notes maturing between 05/31/2012 -
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