- Equity markets in Europe opened mixed but rapidly turned to the downside
through the first 15min of trade. Positive sentiment out of Asia seemed to be
ignored with focus instead remaining on negative comments out of World Bank
Chief Economist Lin, who cut 2009's global GDP outlook and increasing the 2009
expected Euro Zone contraction to -4.5% from a previous -4.2%. Comments from
the ECB's Nowotny just past 3:00EST accelerated equity weight, with bearish
comments on the future of rate levels and further cautionary statements on
current signs of stabilization. This negative sentiment had a strong downward
effect on industrial and export names across Europe with
steel and automotive names trading lower. Friday's statements out of Lufthansa
[LHA.GE] regarding further cost cuts and continued funding concerns from BA
[BAY.UK] over the weekend out of the UK
press dragged airline names lower. Banks and financial names moved to the
downside on the back of Nowotny and Lin's commentary regarding future growth
and persistent concerns regarding the health of the global economy. Mining and
basic resource names continued to provide M&A activity as weekend
confirmation from Anglo American [AAL.UK] that it had been approached by
Xstrata [XTA.UK] for a potential $34.6B 'merger of equals' made those names
buck the equity trend and trade higher. Equity markets trended lower through
the 3:00ESt hour stabilizing ahead of the German IFO June release at 4:00EST.
That number, came in ahead of expectation at 85.9, this figure provided a brief
blip to equity trading before the downward trend resumed. Significantly, within
10 min of the IFO number, German industrial and export names were trading at
lower levels than before the figure. This negative sentiment continued into the
5:00EST hr as equity bourses printed new session lows, the CAC led the
downtrend at -1.50%, the DAX -1.3% and FTSE -1.25%. Volumes remained solid in
the session with average trading levels broadly matched in the European
morning. As the NY morning opened, equities continued to trend lower as hard
and soft commodities moved sharply south even as the USD surrendered some it
risk aversion gains.
- In individual equities, Xstrata/Anglo-American [AAL.UK] confirmed that it has
received a preliminary approach from Xstrata. Talks are in preliminary stages
and may not lead to a final deal, although any bid could be valued at as much
as $34.6B according to the UK Times. Stake holder Glencore is aware of bid and
supports operation. AAL is valuing the bid against continued operations. Segro
made an offer for Brixton [BXTN.UK] at 1.750 share of Segro for each
outstanding Brixton Share. Segro's offer would be accompanied by a further
issue of new SEGRO shares in order to raise an additional Â£250M in cash. Yell
Group [YELL.UK] may be required to revise its financial covenants to avoid
breaching the agreements, according to the FT.Hammerson [HMSO.UK] CEO Richards
said the UK
commercial-property slowdown may be close to a bottom for the best properties
and also stated that rents are falling more slowly. Headded that only 1.4% of
the company's rental income is not being paid due to tenant insolvencies. RBS
[RBS.UK] may sell Asian banking assets in multiple unit sales, according to the
Times. Assets were acquired from Abn Amro following acquisition in 2007/08. The
decision to sell units rather than regional operations come after talks to sell
in block have reportedly stalled. Ireland
plans to raise an additional â‚¬4B in funding for Allied Irish Bank [ALBK.IR].
The fresh capital will come from the IrishState national reserve fund that is
currently valued at approx â‚¬20B. Air France
[AF.FR] guided 2010 operating loss near â‚¬129M v loss â‚¬309.9Me (unclear if comp)
on back of financial crisis, according to La Tribune. The article did not cite
specific sources. S&P lowered ratings on Renault [RNO.FR] by two notches,
to BB from BBB- (now junk status). Daimler is considering a potential stake in
Porsche [PAH3.GE]; the company's spokesperson has called such reports
looks set to turn down a request by Porsche for a state loan of â‚¬1.75B,
according to the FT. A Lufthansa [LHA.GE] executive said that the airline needs
to cut costs further in order to achieve positive operating results; oil price
hurting forecasts. The executive noted that low volumes and prices have
continued in Q2. Falling revenue due to lower volumes and prices continued
across the sector in the second quarter of this year. SAP [SAP.GE] is holding
preliminary level talks for acquisition of up to â‚¬1.5B, according to Welt am
Sonntag. Siemens [SIE.GE] expects around $21B in new orders from global
stimulus programs in the next three fiscal years. Green technologies are
expected to account for 40% or about $8B of this total. Renewable Energy
[REC.NO] sees 2009 module prices off 30% y/y, with wafer unit seeing requests
from long term customers for contract alterations. Maersk's [MAERSKB.DE] CEO
said the company will shift investments away from container ships and toward
oil shipping and port facilities.
- In speakers: ECB's Nowotny commented that the central bank would likely keep
interest rates steady into 2010 and purchase a small quota of covered bonds
itself and hold them to maturity. He did not any need to expand the covered
bond program for the time being. IMF's Blanchard stated that the global crisis
has not ended but growth was possible by the end of 2009. He stated that the US
recovery needed a net increase in export growth and this would require a USD
adjustment. Swedish central bank, the Riksbank, noted that Swedish companies
are seeing signs of economic stabilization and remain cautiously optimistic on
the economy. The bank noted that Swedish companies saw lower wages and prices
going forward. The IFO's Nerb stated that the downward economic trend in Germany
has come to an end but that the current situation remains a concern. The IFO's
Abberger stated that he would not describe latest rise in economic data as the
"turning point." Abberger also said the rise in the IFO has been
driven by better business expectations, but current situation index remained
bad. The OECD's Gurria commented that the group's next economic forecast would
not be worse than the prior forecast, and that inflation was not his greatest concern.
The OECD reiterated that major economies would contract throughout 2009 and the
issue of unemployment will linger. Gurria noted that not every country could
afford a stimulus program and that both China
and US must do their part.
- In currencies: the dollar maintained its broad 1.3800 to 1.400 range against
the euro as the trading week commenced but held a steady tone during the
European morning. EUR/USD was trading around the 1.3840 area and lower by some
85 pips from its opening levels in Tokyo.
Euro was weaker against other major pairs as it hit fresh 6-month lows against
the GBP at 0.8400 and back below the 133 handle against the JPY. Looking ahead
Goldman Sachs strategist noted that Central bank events were 'sources of
uncertainty' for currency direction. Goldman believes that equity and oilprice
directopm might be USD drivers in coming week. Fed meeting and ECB funding
might be Euro negative while reserve currency talk might be 'fat tail risk' for
USD. Goldman remained 'comfortable' with long EUR/USD trade.
- In energy & commodities: OPEC's president commented that oil prices were
satisfactory for both consumers and producers. Platts analysis showed that China's
May oil demand had risen by 6% to 33.2M tons, second consecutive monthly rise
and fastest rate of growth since August. The World Bank's forecast of a deeper
global economic recession this year kept commodity prices subdued in the
session. NYMEX Aug crude was down over $1.40 to test below the 68.60/barrel
area on continued cautious growth comments by numerous government and central
bank officials. Spot gold weighed down by pre-fix selling pressures as dealers
were keenly aware of sell stops building below the $910/oz area. Copper and
aluminum dropped the most in a week in London.
- In fixed income supply: US Treasuries have outperformed Bunds and Gilts on a
cross markets basis this morning with yield curves on both sides of the
Altantic undergoing some bull flattening. US 2-yrs and 10-yrs have moved back
below 255bps, while they are back below 250bps in the UK.
Order books are open on France's
new 30-yr OAT to be sold via syndicate with the roll on the existing 30-yr
indicated between 2 and 5bps. Dovish comments from the ECB's Nowotny gave a
boost to the short end of the German yield curve, a move which reversed itself
as the morning wore on. Traders also paid note to his comments that 12 month
refi operations were generating "substantial interest" amongst banks,
further reinforcing belief amongst many that
borrowing costs are unlikely to be any cheaper going forward. Six month Euribor
fixed at a new record low of 1.43%.
- Credit crisis: the WSJ's "Currency Trading" section wrote that the
impact from the Fed statement this week might be limited, as optimism was being
replaced by reality of economic malaise and stresses that clearer signs of Q3
economic recovery are still needed. Article noted that critical factors in
decision are whether the Fed will commit to keeping low rates through 2009 in
response to market estimates of tightening, and if the $300B QE amount would be
increased China Premier Wen stated that the Chinese economy was now recovering
firmly but that the PBoC Moderately loose monetary policy would continued to be
applied. Wen noted that it planned to implement a thorough 10-sector stimulus
- 8:00 (EU) ECB's Trichet speaks in Madrid
- 8:00 (HU) Hungarian Base Rate Announcement: No change expected, current Base
Rate is 9.50%
- 8:00 (PD) Polish May Net Core Inflation M/M:
0.3%e v 0.4% prior, Y/Y: 2.7%e v 2.6% prior
- 8:30 (CA) Canadian Apr International Securities Transactions: C$5.500Be v
- 10:30 (IS) Israeli Base Rate Announcement: 0.50%e v 0.50% prior
- 11:00 (US) Fed Coupon purchase (targeting Dec 2013 - April 2016's)
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