- In equities: The word's in equities today were: mining, China and Rio Tinto.
Weeks of speculation regarding the outcome of a proposed 15% Chinalco stake in
Rio Tinto [RTP.UK] have finally been laid to rest (to be replaced by new
concerns regarding regulatory approval). During Asian/Australian trading hours,
Rio announced: It was walking away from the Chinalco
deal, Is to hold at $15.2B rights issue, Will enter a iron ore JV with BHP
Billiton [BHP.AU] and!!! Reported its Q1 results. A slew of statements from all
involved parties, governments and credit ratings have followed with the result
that both BHP and Rio opened +10% in London, dragging the entire sector higher.
Resulting currency unwinding issues involving the GBP,USD, AUD and CNY
continue, and concerns of political backlash between China
have been floated all in the wake of Rio's
announcements. Other key equity drivers included perpetual fears regarding the Baltic
states, specifically the declining fiscal situation of Latvia.
An explosive article in the UK Daily Telegraph speculating Swedish part
nationalization of exposed banks made the rounds, stressing not only Swedbank
[SWEDA.SW] and Swedish names, but other banking firms with heavy CEE exposure
including Raiffeisen [RIBH.AS]. Comments out of Goldman Sachs on the European
construction sector led to mixed trading as those names with emerging market
exposure moved higher (Lafarge [LG.FR]) while those with CEE and Scandinavian
exposure moved lower [SKAB.SW]. Markets traded in high volatility in first
trades, opening higher across the board, moving to +1.0% in initial trade. At
3:15EST, Swiss May CPI numbers for the y/y at -1% reported the lowest ever
recorded reading halting the continental equity enthusiasm. The DAX and CAC
moved sharply off their best levels while strength in the miners continued the
upward momentum within the FTSE. Equity markets continued in their range with
moderate volumes through the 4:00EST hour. UK
data at 4:30EST was taken in stride but continental markets made sharp downward
trends just before 5:00EST that corresponded with reported comments that the
IMF would not be requesting further stimulus from European central banks. Just
past 5:00EST, the German Bundesbank reiterated its view of a bleak -6.2%
contraction in the German economy in 2009. This joint news pushed the DAX to
the unchanged mark by 5:15EST. As of 5:30EST, the FTSE has maintained its
upward levels +1.00% despite ongoing political turmoil with two cabinet
ministers stepping down, while the CAC and DAX maintain a positive footing just
above the unchanged mark.
In individual equities: Rio Tinto [RIO.UK] Announced
$15.2B Rights Issue (about 21.4% of ADR's market cap) at 1,400p or
A$28.29/share. Rio Tinto to offer 21 new shares for 40 existing shares. Says
Chinalco deal will no longer be pursued, but Rio Tinto remains interested in
future collaboration with Chinalco. To enter JV with BHP. Reports Q1 profit
$1.6B (unaudited) v $2.9B y/y, Underlying profit $1.75B, Rev $9.5B v $13.2B
y/y. 2009 iron ore production guidance unchanged at 200M tons, expects 2009
share of mined copper output at 780K tons || Vallourec [VK.FR] CEO: Very little
visibility for 2009. Sees destocking coming to an end by 2010, expects sales
and profits to fall in coming quarters as inventories are still at low levels.
|| SAP [SAP.GE] CEO Apotheker: Group could spend up to â‚¬5B on future
acquisitions -Figaro. To continue model of mixed growth organic/acquisition).
Have approx â‚¬2.5B in cash on hand, can raise that much in capital markets. ||
Debenhams [DEB.UK] Stake holders CVC and TPG have entered into lockup following
open offer (lock up effective became effective after close, CVC used
opportunity to sell 51M shares). Placing raised expected Â£323M. Shares placed
at 80p (13% discount). Placees to acquire 161.6M new shares, 242.4M placed
(total of 404M, 45% of current shares outstanding). CVC sold 51M shares at
offer price, stake new approx 29M shares. CVC stake sale seen as surprise, were
not aware of later than expected lock-up price. CVC's cut follows Merrill
Lynch's exit form firm in 2007. || (UK)
Retailer John Lewis weekly sales ending May 30
+3.3% y/y. 17 week sales +0.4% y/y. || Dragon Oil [DGO.UK] Shareholder Emirates
National 'contemplating' buyout offer; Price would represent a marginal premium
from close price. In prelim talks over buyout, Emirates currently holds 54% stake.
|| Renewable Energy Corp
- Speakers: ECB's Trichet commented that the ECB would act to quickly absorb
liquidity when economic situation improves. He reiterated that any inflationary
threat would be met in a timely fashion . Trichet commented that the Refi
allotments were an "in-built" exit strategy and that banks would seek
less credit when tensions ease. He labeled the Euro currency an anchor of
stability. Reiterated that the 1.0% interest rate level ws 'appropriate' ||| IMF's
Lipsky commented that Major currencies were currently 'reasonably
well-balanced'. He noted that perhaps the worst of global economic and
financial crisis was behind at this time but that a bottom might have not been
hit just yet. He expressed hope for a return of economic growth in advanced
economies by H1 2010. he noted that the emerging markets have weathered the
economic and financial crisis relatively well. On Russia,
he stated that the Russian Ruble currency exchange rate not a problem for Russia's
economy in the short-term. He felt that the Ukraine
program would be successful if implemented fully. MF expected Latvia
currency peg to be kept but duly noted that Latvia
situation was difficult. He noted that China
might purchase $50B in IMF issued bonds |||Russian Economic Aide Dvorkovich
commented that the country has seen signs of economic improvement. He noted
there were no major signs of trouble in Russian corporate debt. He did confirm
that there were some corporate defaults occurring at this time. There were
major concerns about corporate debt last fall and conceded that not all Russian
banks will survive crisis. He expected 2009 GDP contraction to be below IMF
expected 6.5% level. -He commented that currency discussions were important and
that regional currencies have strengthened. Lastly If he noted that if Russian
2009 inflation fell below the 10% level, interest rates could be cut by further
100bps ||| Polish Central Banker commented that the economic crisis in Lativa
creates dangerous spillover ||| Spanish PM Zapatero stated that he expected to
see decline in jobless levels to continue into June reading ||| UK PM Office
confirms cabinet reshuffle details later today ||| EU's Almunia stated that
Central and Eastern Europe face funding challenges ahead and that the EU ws
doing everything in its power to help soften the crisis inside Central and
Eastern Europe (CEE). ||| Germany Bundesbank forecasted that 2009 GDP seen
contracting by 6.2% with 2010 growth projected to be flat. There are some signs
that economic slowdown has eased but big chance that it could encounter
setbacks.It noted that the recession usually last a long time and that the
recovery process will be slow. Ther are signs that the slowdown has eased but
prepared for setbacks. German unemployment to reach 10.5% next year. Bundesbank
noted that German annual CPI could be temporarily negative over the next few
months. German companies are postponing or cutting wages ||| ECB's Weber stated
that the economic outlook remained uncertain and that the current "Green
shoots" did not hide regulatory shortcomings. Weber stressed that
countries must use the current window of opportunity for enacting reforms
- In Currencies: the GBP continued its soft tone on political uncertainty
spreads in UK..
Earlier today cabinet member James Purnell's resigned and told Prime Minister
Brown to step down, the first government member to do so. UK Defense Min John
Hutton also resigned. Dealers noting that incoming results of yesterday's local
and European elections in the U.K.
will be a key focus as an expected bad result for Brown's labour party will
strengthen the odds of him stepping down. Dealers also cite some other facets
behind the soft GBP currency. The WSJ had an article regarding that HSBC Faces
Round Two of Subprime Punishment" and an FT opinion piece that the UK
has bigger problems that government expenses ie its fiscal position. GBP/USD
holding above the 1.6030 level, off some 60 pips from its opening level in Asia.
EUR/GBP back above the 0.88 handle and traded as high as 0.8868 before
retracing. The Swedish Kroner (SEK) currency maintained a soft tone following
the situation developing in Latvia.
There is press speculation that perhaps
preparing to part-nationalize banks exposed to Baltic states
as the economic situation intensifies. Also chatter that the IMF would present
an outline of potential steps/recommendations this weekend for Latvia,
and could include a devaluation of the LAT currency.
- The USD was steady for the most part ahead of the key US
employment data expected. IMF's Lipsky commented that the major currencies were
currently 'reasonably well-balanced'. Russian Pres Medvedev reiterated the call
for a new reserve currency, and added that it was time to reconsider the role
of gold played in international reserves. EUR/USD holding below the 1.4200 for
most of the session and dealers continue to note the role of key support at
1.4050 ahead of the US
-In Fixed Income: China's FX regulator SAFE commented that it was
"actively considering" purchasing $50B of IMF bonds ||| Government
Bonds are weaker this morning in Europe, with greater selling of short dated
issues leading to flatter yield curves in both Germany and the UK. In
treasuries, yields are higher across the curve as shorts get in ahead of non
farm payolls data. the yield on the 10y Note has inched higher by another 2
basis points to 3.73% Three month Euribor shot up by a basis point to 1.27%.
||| Dealers noting for all of GBP currency volatility over the last few
sessions, Gilts have been relatively stable and have actually been able to outperform
both Bunds and USTs
- I n Energy: IEA Tanaka: Reiterates that does not see much recovery in demand
*** NOTES ***
- Lots of comments regarding Eastern Europe in the session with the Latvia
situation highlighted and the impact on the Swedish banking system
- UK political scene a mess, PM Brown will announce a cabinet reshuffle at some
- China noted that it was interested in buying $50B in IMF bondsâ€¦.dealers
noting in exchange for what?
- US employment data will be the focus with continued 26-year highs expected
- Looking Ahead:
- 7:00 (CA) Canada May Unemployment Rate: 8.25 expected versus 8.0% prior; Net
Change in Employment: -36.5K expected versus +35.9K prior
- 8:30 (US) May Nonfarm payrolls: -520K expected versus -539K prior;
Manufacturing payrolls: -150K expected versus -149K prior
- 8:30 (US) May Unemployment Rate: 9.2% expected versus 8.9% prior
- 8:30 (US) May Average Hourly earnings M/M: 0.1% expected versus 0.1% prior;
Average Weekly Hours: 33.2 expected versus 33.2 prior
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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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