Forex Blog - European market Update: Euro-Zone Industrial production declines by record amount and bucks China's and India's trend in data series; USD sentiment recovers as Japan stands by its US Trea
European market Update: Euro-Zone
Industrial production declines by record amount and bucks China's and India's trend in data series; USD sentiment recovers as Japan stands by its US Treasury investment
*** ECONOMIC DATA ***
- (IN) India Apr Industrial Production Y/Y: 1.4% v -0.1%e
- (GE) German Wholesale Price Index M/M: 0.1% v 0.1%e; Y/Y: -8.9% v -9.0%e
- (FR) French Apr Current Account: -â‚¬3.1B v -â‚¬3.2B prior; Central Gov't
Balance: -â‚¬71.9B v -â‚¬ 43.7B prior
- (FR) French May CPI M/M: 0.2% v 0.2%e; Y/Y: -0.3% v -0.2%e
- (FR) French May CPI EU Harmonized M/M: 0.1% v 0.2%e; Y/Y: 0.3% v -0.2%e; CPI
Ex Tobacco Index: 118.18 v 118.14
- (HU) Hungarian Apr Final Industrial Output M/M: -5.1% v -5.1% prior; Y/Y:
-25.3% v -25.3% prior
- (HK) Q1 Industrial Production Y/Y: -10.2% v -10.6% prior; Producer Price Y/Y:
-1.4% v 3.9% prior
- (EU) Euro-zone Apr Industrial Production M/M: -1.9% v -0.4%e; Y/Y: -21.6% v
-19.8%e; Sharpest drop on record
- (IR) Irish Apr Industrial Production M/M: -5.4% v 3.0% prior; Y/Y: 3.1% v
- In equities: -In equities: Equity markets extended a two day streak of
down-side openings in Europe. Positive sentiment out of Asian equities,
including an 8-month high close on the Japanese Nikkei failed to initially
translate into Euro markets. The equity story of the morning remained focused
on a finalized agreement between Barclays [BARC.UK] and BlackRock [BLK]. Under
the terms BlackRock agreed to acquire Barclays Global Investors, including
iShares business for a 19.9% stake plus $6.6B in cash, which is an implied
value of $13.5B. The acquisition will give the new BlackRock Global Investors
AUM of over $2.7T (greater than the US Fed). On the open, shares of Barclays
traded -1.45% as the name paired some of its week long run-up gains. Equity
markets continued their indecisive nature with the FTSE100 turning positive by
3:30EST and the CAC and DAX coming off their lows. Equity leaders remained mixed,
most names trading higher on the back of analyst actions. In sector
performance, defensive healthcare names outperformed, comments out of
GlaxoSmithKline [GSK.UK] regarding emerging markets operations pushed the
sector. Markets trended above and below the unchanged mark in a tight range
through the 3:00EST and 4:00EST hr. Euro-zone industrial production at 5:00EST
broke a wave of positive economic data that had been seen out Europe,
the US and Asia
for some weeks. Coming in below expectations at -1.9% m/m, the disappointing
industrial number provided some equity weight. The DAX30, with its heavy
exposure to industrials and exporters continued its slide in negative territory
declining to -0.35%. The CAC and FTSE slowly trended lower and by had entered negative territory. Volumes
on equity bourses remained low with the FTSE -8%, the DAX -38% and the CAC
-In individual equities: GlaxoSmithkline [GSK.UK] CEO stated that the company
was planning to lower prices for many of its top medicines in emerging
markets.The plan to lower prices follows the company's successful pilot program
in the Philippines. The CEO of the company said a 60% cut in the local price of
the company's cervical cancer drug had increased sales eightfold. The WSJ
reported that company rejected Russian demands for a 15% cut in its HIV drugs.
|| Vedanta Resources [VED.UK] To launch $1B in convertible bonds (about 34% of
market cap). Bonds are expected to have a coupon of 4.50% to 5.50% payable
semi-annually in arrear and will be convertible into fully paid ordinary shares
of US$0.10 of the Company ("Ordinary Shares"). The conversion price
is expected to be set at a premium of between 35% to 45% to the volume weighted
average price of the Ordinary Shares on the London Stock Exchange between
launch and pricing. || 3i [III.UK] Announced pricing of Rump Placement at
277p/share. Received valid acceptances in respect of 523,362,379 New Ordinary
Shares, representing approximately 96.55 per cent of the total number of New
Ordinary Shares offered to Shareholders, pursuant to the 9 for 7 Rights Issue.
|| Allergy Therapeutics [AGY.UK] To raise up to Â£22.4M in share sale (approx
158% of current market cap). Azure Ventures has conditionally agreed to invest
Â£12.5M in the Company by way of a subscription for 104.2M New Ordinary Shares
at a price of 12p/shr (31% discount).|| Regal Petroleum[ RPT.UK] Announces
Proposed Placing to raise approximately $100M (approx 40% of market cap).
Details of the number of Placing Shares and the Placing Price will be announced
as soon as practicable after the close of the book-building process. || Axa
[CS.FR]: To cut 560 jobs in its UK
operations (less than 1% of workforce) - Les Echos. || BMW [BMW.GE] Reportedly
BMW brand cars added to Chinese Gov't procurement list - Chinese media.
Broadcast noted that China,
which spent CNY80B on government vehicles last year and to purchase locally
made BMW cars. The broadcast noted that Volkswagen AG's Audi cars currently
dominate government car fleets, with no specific numbers provided. ||
- Speakers: Asia Development Bank's President Kuroda commented that Asian
currencies might rise if Asia recovers before the US.
He noted that Governments should not devalue their currencies. China's
economic slowdown might have already bottomed out due to its stimulus measures.
Japan, US and
EU will likely rebound in H2 of 2010 and support Asian growth and that Asian
growth to accelerate next year on policies supporting its domestic demand.
However, he cautioned that Asia cannot rely on US
consumption for growth in longer-term. Kuroda commented that deflation was a
concern for both developed and Asian countries. ||| ECB's Liikanen commented in
a newspaper interview that 2009 would be a difficult year for global economy.
He cautioned that any recovery would be slower after such a steep economic
decline ||| BoE's Fisher commented that its Q2 GDP growth would likely be
negative and worse than that reported back for Q1. He stressed that one must
not be complacent over UK
economic outlook and would likely to see 'many bumps in road ahead'. Issues in
financial sector pose major risks to growth and that growth could be limited if
banks cannot lend. On the positive side, there were signs that UK
output contraction could be slowing and the BOE member expected to return to
positive growth over the next year or so. Inflation woul likely continue to
decline throughout 2009. Household savings increase might also hurt recovery
but the Sterling currency decline would help UK
economic rebalancing ||| German Fin Min commented that one should not weaken EU
Maastricht Stability Pact. The ministry saw 2009 Federal net borrowing in the
range of â‚¬50-60B. It forecasted 2010 gross Federal borrowing around â‚¬330B |||
- In Currencies: The USD rebounded from its lowest levels of the week against
its major European counterparts that was prompted by the comments from the
Fed's Lockhart during the NY afternoon on Thursday. Lockhart noted that the
dollar's role as a reserve currency might decline on a relative basis over time,
but USD will remain reserve currency for quite some time. The USD formed a base
during the Asian session aided by comments from Japan's
Fin Min Yosano, who commented that Japan's
faith in US Treasuries was 'unshakable'. The USD recovery continued in Europe
as the Euro-Zone April Industrial Production fall by more than expected and
suggesting that the region's contraction continued to point towards economic
weakness. EUR/USD entering the NY morning just under the 1.4030 level. G8 fin
min meet in Italy.
Dealers noting that it was already pre mentioned by both French and German
officials that currencies would not directly be a topic without central bankers
-In Fixed Income: Government bonds have put in a solid performance this morning
in Europe, emboldened by the Japanese Finance Minister's
"unshakeable" support for the USD and treasuries ahead of the G8
meeting in Italy, as well as yesterdays encouraging Long Bond auction. Yield
curves have flattened substantially in both Bunds and Treasuries whilst in the UK
a bull steepning bias still persists. The 10y Bund yield is about 8bps lower at
3.615%, the 10y Gilt yield is about 6bps lower at 3.965% whilts the yield on
the 10y note is lower by about 6bps to fall below 3.80%. ||| There was a
plethora of European sovereign announcements as Spain,
Austria and france
announced new issues for next week. Germany
saw its 2010 Federal gross borrowing at â‚¬330B while its upper house passed a
law to limit new government borrowing.
- Geopolitical: Israel's
PM Netanyahu may accept the notion of a Palestinian state based on
"certain conditions" - Washington Times ||| UN Security Council will
vote on North Korea
resolution on Friday. The 15-member body was to meet at 11:00 am (1500 GMT) for
a likely vote on a draft resolution already agreed by its five veto-wielding
permanent members -- Britain, China, France, Russia and the United States --
plus Japan and South Korea. The text calls on UN member states to slap biting
sanctions, including tougher inspections of cargo suspected of containing
banned items related to North Korea's
nuclear and ballistic missile activities, a tighter arms embargo with the
exception of light weapons and new financial restrictions. ||| According to the
US official, there are "fresh indications" that North Korea may be
preparing a nuclear test (its third such test) as satellite surveillance has
detected activity such as vehicles moving at several sites in North Korea. The US
official said he suspects that North Korea
is preparing for a number of missile tests.
*** NOTES ***
-Fed's Lockhart commented late Thursday that the Dollar's role as a reserve
currency may decline on a relative basis over time, but USD will remain reserve
currency for quite some time
-Japan Finance Min Yosano: Japan's trust in US Treasuries was
- China May IP +8.9% v 7.7%, as rumored earlier this week; India Industrial
Production Y/Y at 1.4% and above consensus expectations of -0.1%. Euro-Zone
Industrial Prod data bucks the trend and falls more than estimates. The EU
record contraction pointing to continued economic
- German Bundesrat (Upper House) passes bill to limit new government borrowing
- Looking Ahead:
- 7:30 (EU) ECB's Trichet to speak in Bulgaria
- 8:30 (US) May Import Price Index M/M: 1.4% expected v 1.6% prior, Y/Y: -17.5%
expected v -16.3% prior
- 10:00 (US) June Preliminary University of Michigan Confidence: 69.5 expected
v 68.7 prior
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