Forex Blog - European Market Update: UK retail sales slump in May as rising unemployment curbs spending; Swiss National Bank calls previous intervention as 'successful' but will continue to counter Sw
Today 05:45am EST/09:45am GMT
European Market Update: UK retail sales slump in May as rising
unemployment curbs spending; Swiss National Bank calls previous
intervention as 'successful' but will continue to counter Swiss Franc
*** ECONOMIC DATA ***
(SZ) Swiss Central Bank (SNB) leaves 3-Month Libor Target Rate at
0.25%; as expected. To continue to counter CHF currency strength
especially against the Euro
- (SP) Spanish Q1 Labor Costs: 3.9% v 5.4% prior
- (NE) Netherlands May Unemployment Rate: 4.5% v 4.6%e
- (SW) Swedish May Unemployment Rate: 9.0% v 8.4%e
- (RU) Russian God & Forex Reserves w/e Jun 12th: $406.6B v $409.5B prior
- (IT) Italian Apr Total Trade Balance: -â‚¬277M v -â‚¬250.0Me; Trade Balance EU: -â‚¬221M v -â‚¬97.0M prior
- (UK) May Retail Sales M/M: -0.6% v 0.3%e; Y/Y: -1.6% v -0.4%e
- (UK) May Public Sector Net Borrowing: Â£19.9B v Â£19.3Be; Public Finances (PNSCR): Â£18.8B v Â£16.0Be
- (UK) May Preliminary M4 Money Supply M/M: 0.2% v 0.7%e; Y/Y: 16.6% v17.3%e
- (SA) South African Q1 Current Account Balance (ZAR) -163.7B v -135.3Be; Current Account to GDP ratio: -7.0% v -5.9%
- (UK) CBI Industrial Trends total Orders: -51 v -56 prior
In equities news overnight: European equity markets opened to a choppy
trade after mixed sessions in both the US and Asia. Europe's primary
exchanges opened positive but quickly dipped negative before re-testing
their highs all within the first 15min of trading. Equity and sector
news remains highly mixed with conflicting themes from World Bank
comments on Chinese GDP (positive) and exports (negative), BoE's King
statements on the UK economy (positive) and banking break ups
(negative) sending mixed signals. With the March inspired equity rally
coming to a prolonged stalemate, markets continue to seek direction and
contend with declining summer trade volumes. In sector movement,
Airlines led declines; Air France [AF.FR] announcing details on its
convertible bond offer and an on-going labor issues at BA [BAY.UK]
leading the move. Yesterday's bearish comments from K+S [SDF.GE] led to
continued weight in the chemical, fertilizer and potash sector.
Financials traded mixed, ING [INGA.NV] lead the upside following
analyst comments from Goldman with other Benelux names following the
movement. Miners and basic resource names recovered from their
multi-session downtrend backed by support for Xstrata [XTA.UK] out of
Citi. Equity markets trended lower ahead of the SNB rate decision. That
action, at 3:30EST meet expectation with the target being left
unchanged. Comments from the SNB that it will defend the CHF v the EUR
(also as widely expected) sent markets lower on equity and currency
risk aversion. Equity markets turned broadly negative following the SNB
release before being comforted by additional SNB member commentary at
4:00EST. This recovery was halted by expectations of UK data at
4:30EST. Equity markets turned sharply south ahead of UK data that
included retail sales number, M4 and public finance figures. Worse than
expected UK May retail sales numbers drove that sector [MKS.UK],
[HOME.UK] moving rapidly lower, dragging the FTSE100 to session lows.
Support from M4 and public finance data mixed the equity reaction and
markets bottomed. Comments from the German Economics Ministry at
4:50EST extended the equity recovery with the DAX pushing back towards
unchanged. This sentiment, regarding a bottoming in H2 , 2009 and a
modest positive outlook for exports carried into the 5:00EST hr. By
5:30EST, European bourses were trending higher with the DAX in slight
positive territory, the CAC flat and the FTSE in slight negative
territory. Volume levels have improved, albeit on a increasingly low
-In individual equities: Marston's [MARS.UK]
Announced fully underwritten 11 for 10 Rights Issue to raise gross
proceeds of approximately Â£176M (about 46% of market cap). || GKN
[GKN.UK] Announced 6 for 5 Rights Issue of up to 846.6M New Ordinary
Shares at 50p (119p last) to raise gross proceeds of approximately
Â£423M (about 50% of market cap). || Ashtead Group [AHT.UK] Reportd FY09
Pretax Â£87.4M v Â£89.1Me, Rev Â£1.07B v Â£1Be. Â£246M net cash inflow
generated in the year (compared to a Â£1M outflow in 2008. || Cadbury
[CBRY.UK] Provided interim statement: Reaffirmd FY09 guidance, trading
improved in April and May. || Air France [AF.FR] Launches â‚¬575-661M
April 2015 convertible bond offering. || Kloeckner & Co [KCO.GE]
CEO noted that steel market as have hit a bottom; possible recovery in
H2 2009 -Handelsblatt. || Pfleiderer PFD4.GE: Expectsed Q2 profit to
decline 'significantly'; Might not be able to fulfill credit agreement.
|| Heidelbergcement [HEI.GE] Confirmd reaching agreement on refinancing
â‚¬8.7B in loan facilities. Credit agreement runs until Dec 2011. ||
Metro Ag [MEO.GE] Reportedly to sell â‚¬300M in 2 yr bonds (2.5% of
market cap). || EAD's [EAD.FR] Signed MOU with Wizz Air for 50 A320
models, potentially worth $3.8B. || Compari [CPR.IT] Placed $250M in
bonds through private placement (approx 11% of market cap). ||
Speakers: SNB's Roth noted that the EUR/CHF cross volatility has
diminished considerably and that the Swiss Franc currency gains have
'ceased'. He declared that currency intervention has been successful
but that deflationary risk has not disappeared completely. The global
economy to show "modest" recovery but the situation was normalizing and
remained vulnerable. Recent global indicators showed encouraging signs
and that the SNB would absorb liquidity as confidence returns to
market. ||| SNB's Hildebrand stated that he sees risk of a "deeper and
longer" recession not noted that the economy to gradually recover in
2010. Swiss and international financial system remain vulnerable and
that the SNB in direct contact with big banks ||| SNB's Jordan
commented that the central bank had no fixed FX threshold, becomes
active when necessary
- SNB is not pursuing a "beggar thy
neighbor" policy (in line with previous SNB statements on
protectionism) ||| ||| China's Minmetals comented that it saw Chinese
demand for commodities flat over the next 2 years but demand increasing
long term. The company noted that the recent rise in commodity prices
might be unsustainable || Former PBOC Governor Dai Xianglong says there
is room for China to increase its US Treasuries investment if the
dollar is stable - China Finance magazine ||| Indian Fin Sec: commented
that its economy continues along path of improvement ||| Industry group
Confindustria cuts Italy's 2009 GDP view to -4.9% from -3.5% prior and
tweaked its 2010 GDP view to +0.7% from +0.8% prior. The think tank
also revised its 2009 debt/GDP ratio to 114.7% from 112.5 and the
deficit/GDP ratio to 4.9% from 4.6% prior view. || BoE nominee Posen
commented that US economy was recovering but the ride would be 'bumpy'
and added that the shape of the recovery likely to be "W" shaped.
In Currencies: The session was initially deemed to find any fresh
impetus to spur any directional bias but that quickly changed following
comments from the Swiss National Bank (SNB) and the UK retail sales
data. Swiis central bank chief Roth commented that EUR/CHF cross
volatility had diminished considerably and that CHF currency gains have
'ceased' helped the cross to move towards the 1.5000, which has not
been violated since the initial March 12th intervention. Thus declaring
the currency intervention as successful had dealers ponder whether the
1.500 mark was the 'line in the sand' for any additional SNB
intervention. Dealers noting that the market had significant long
EUR/CHF positions heading into SNB monetary policy decision and
appeared to be plenty of option barriers below the 1.50 mark that
suddenly seem "vulnerable".
- The GBP dropped sharply across
the major pairs following the weaker UK retail sales data. Analyst
cited that rising unemployment as a factor for the first decline in
three months for the data series. The BOE did express concern in their
most recent minutes that risk of pronounced increase in domestic
savings rate could occur. GBP/USD quickly descended 150 pips from the
1.6370 level to probe the pivotal 1.62 neighborhood. EUR/GBP regained a
foothold back above 0.8600 while GBP/JPY slumped over 200 pips from its
opening levels seen in Asia to test 155.00.
- The EUR/USD was
holding above the 1.3930 level for the bulk of the European morning but
chatter of an option barrier at 1.4000 stymied its upward momentum.
Session high was 1.3991.
- Dealers noted that Australia May RBA
FX Transactions totaled A$1.43B, which was the largest FX market sale
since the RBA sold A$1.45B back in Feb 2004. TheRBA's noted in its most
recent minutes for June that the AUD's recent rise had reduced
- In Energy: Soc Gen Analyst commented that
the price of crude oil could decline to $50/barrel within two months on
weak global demand
- In Fixed Income Supply: Debt
markets shrugged off the worst reading on record in UK public finances
to focus on other data points and bid up Gilts this morning. And as
both the FTSE and Sterling slumped a rotation out of risk seems more
plausible than cross-market trades. In a rebuke to inflation hawks, UK
broad money undershot both analyst estimates and April readings in May,
appearing to show little to reaction to the increase to the BoE's
Quantitative easing program, which took place in the same month. Retail
Sales also posted its worst annual reading on record. The endgame was
higher Gilt prices and lower yields with the UK 10y notably testing
3.75% for the first time in two weeks. Continental Government Bond
markets have also put in a good performance today despite a flood of
supply. Spain sold â‚¬1.7B in 2037s, above its initial target range of
â‚¬750M - â‚¬1.25B, and France sold just over â‚¬8B in BTANs with strong
results. US Treasuries have under-performed on a cross markets basis
ahead of the 2,5,7y Note announcements., with the yield on the 10y Note
moving as high at 3.715% in overnight trade.
crisis: FT article that China has initiated a "Buy Chinese" policy in
its fiscal stimulus program, as stated in edict released by govt
departments. Stimulus funds are said to be used only for Chinese
products and services, as long as they are available in the country.
Beijing is also starting an investigation into local govt officials
supporting foreign suppliers
- Geopolitical: North Korea
could reportedly launch a missile towards Hawaii around July 4th to 8th
period the Japanese Yomiuri Shimbun newspaper reported. The article did
note that North Korea''s upgraded Taepodong-2 missile has a maximum
range that falls about 500 km short of Hawaii''s main islands
*** NOTES ***
- UK May retail sales unexpectedly declined for the first time in three months
- Swiss National bank seems satisfied that currency volatility was diminishing, but will remain alert
- China's Minmetals: China commodities demand to be flat for next 1 to 2 years.
Former PBOC Governor Dai Xianglong says there was room for China to
increase its US Treasuries investment if the USD remained stable
World Bank: raised China 2009 GDP forecast from 6.5% to 7.2%. It noted
that further fiscal stimulus was unnecessary. However, any rapid
broad-based recovery was unlikely.
- 7:00 (CA) Canadian Consumer Price Index M/M: 0.4%e v -0.1% prior, Y/Y: -0.2%e v 0.4% prior
- 7:00 (CA) Canadian CPI Core M/M: 0.1%e v 0.1% prior, Y/Y: 1.6%e v 1.8% prior
- 7:30 (BZ) Brazil COPOM Monetary Policy Meeting Minutes
- 8:30 (US) Initial Jobless Claims Jun w/e 13th: 604Ke v 601K prior; Continuing Claims Jun 6th: 6.84Me v 6.816M prior
- 9:00 (US) Treasury's Geithner testifies before Senate Banking committee
- 10:00 (US) May Leading Indicators: 1.0%e v 1.0% prior
- 10:00 (US) Jun Philadelphia Fed: -17.0e v -22.6 prior
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