- In equities news overnight: Equities continue to look set to print further gains. Following yesterdays 6th consecutive session of gains, markets in Europe opened to a modest, but positive start. Asian trading remained decidedly mixed as Japan moved higher in an attempt to make up for yesterday's lost rally (observance of Maritime Day holiday) while mainland China and Indian bourses traded lower. Indian equities were led lower on by shares of Tata Steel [TATA.IN] after its post market announcement and pricing of a $400-700M GDR offer. Earnings numbers in Europe continued their ramp up leading to next week's peak. Swedish banks continued to post better than expected earnings despite Baltic exposure with the region's largest bank Nordea [NDA.SW] also feeling strong enough to present mildly bullish forward looking guidance. The world's second largest truck maker Volvo [VOLVB.SW] provided expectedly reduced Q2 earnings on a y/y basis, but managed to post inline top end revenue figures. Pre-H1 comments out of UK grocer Morrison's, stating that cost cutting ops were ahead of schedule and FY EBIT will come in 40bps ahead of prior expectations sent the UK based grocer and broader mixed retail names higher on the open. Equities continued their light trend through the 3:00EST and 4:00EST hour as the session, much like yesterdays, was desperately light in economic data releases. In sector performance, basic resource/mining and financials continue to outperform their rivals along with particular strength in mixed autos, steel and airline names (BA [BA.UK] upgraded to buy from sell at Goldman Sachs). Trading volume remained light, potentially exaggerating any directional moves. The CAC and DAX both significantly underperformed their already depressed moving averages with only the FTSE outperforming (following high turnover in retail/grocer names).
-In individual equities: Volvo [VOLVB.SW] Reported Q2 Net loss SEK5.56B worse than the loss SEK3.8B expected. However, the revenues came in at SEK54.0B slightly above consensus of SEK52.2B.. Q2 Gross Margin 13.3% versus 15.7% q/q. Q2 Total truck deliveries 29.8K compared to 32.2K q/q. The truck market remained weak in its main markets in Europe, North America and Japan. || Nordea [NDA.SW] Reported Q2 Net â‚¬616M better than the â‚¬421M expected. Revenues were â‚¬2.36B above expectations of â‚¬2.1Be. Sees increased risk for somewhat higher loan loss ratio for the full year versus H1. || Svenska Handelsbanken [SHBA.SW] Reported Q2 Net SEK2.5B slight above expectations of SEK2.3B. , Revenues were in line at SEK8.22B. Net commission Income SEK1.86B above expectations SEK1.69Be. Q2 Loan losses SEK939M compared to SEK571M y/y. || Next [NXT.UK] Provided Trading Update as its 25 week LFL sales fel by 1.9%. it guided H2 LFL Sales in a range of -3.5 to - 6.5% y/y. || ThyssenKrupp [TKA.GE] Announced FY09 iron ore price contract with Vale, reducing fines price by 28%, iron-ore pellet price by 48%, lump ore by 44%. Thyssenhrupp saw lower ore prices as providing boost to earnings. || Morrison [MRW.UK] Provided Market Update:as it s forecasted its FY gross margin beating previous estimates by 40bps. Strong start to the year has been maintained through the second quarter. . || Elan [ELN.IR] Reported Q2 -$0.14 versus -$0.15 expected, R $280.9M v $261.7Me. || Faurecia [EO.FR] Reported H1 Net loss â‚¬365M worse than loss â‚¬187.3M expected, Rev â‚¬4.38B below the â‚¬4.52B forecasts. || Veolia [VIE.FR] Awarded long term tramway contract in Texas. Revenues could reach $1.5B. || Hermes [RMS.FR] Reported H1 Rev â‚¬874.9M above â‚¬844.8M estimates. Reports Q2 Rev â‚¬446.6M beat â‚¬413.4M expected. Trend seen in H1 is in line with group's target of steady sales for the full year at constant rates. Saw slight contraction in current operating income. || Continental [CON.GE] Could seek to pursue a â‚¬1B capital increase (21.7% of market cap) - FT Deutschland. According to the article, Continental's CEO is said to be preparing a proposal to give to the supervisory board at the end of this month. The article adds that it is doubtful major shareholder Schaeffler Group would go along because a rights offering would dilute its stake. Also, according to sources there are no concrete talks with investors in Kuwait. || Kuka AG [KU2.GE] Update: Reports Q2 Net loss â‚¬34M v loss â‚¬7.7Me, Rev â‚¬211M v â‚¬221Me. See Pretax loss for FY09 operations. Continuation of extraordinary charges have continued to weaken operating results. || Escada [ESC.GE] To sell 10.5M new shares in restructuring (50% of shares outstanding). Shareholders will be offered new shares for subscription at a ratio of 2-to-1 and at a subscription price of â‚¬2.78/shr. The subscription period starts on July 23 and ends Aug. 5. || Actelion [ATLN.SZ] Reports Q2 Net CHF116.2M v CHF97.6Me. H1 Net profit CHF218.4M v CHF223Me, Rev CHF855.2M v CHF824Me. Expects to exceed initial guidance. Sees total revenue and cash EBIT increasing between 16% and 19% for the full year (prior FY09 sales guidance of +12-15% y/y as given April 21st). ||
- Speakers: BoE's Bean commented that the BoE would likely to raise interest rate first as part of a Quantitative easing (QE) exit strategy. He noted that the central bank would likely sell assets only after an initial rate hike. Bean noted that the BOE would also withdraw stimulus if CPI outlook overshot its 2% target||UK DMO chief Stheeman stated that the UK would need more than one rating downgrade in order to curb the foreign buying of Gilts. He noted that there was continuing demand for UK government debt from investors
|| India Fin Min Mukherjee commented that the Indian Central Bank (RBI) currency policy targeted to reduce volatility and maintain adequate reserves || Indian Junior Fin Min Meena stated that Indian States could raise its deficit to 4% of GDP in FY10 from 3.5% level due to drop in revenue
- In Currencies: USD remains steady throughout the European morning but remained near recent lows. Some profit-taking cited for the USD sideways tone but sovereign accounts continue to show buying interest around the 1.4190 level seen as indication of reserve diversification. Bernanke himself pre-empted his own appearance with a column in the WSJ reiterating that policy will remain accommodative but offering four different exit strategy scenarios for when the time came.
- The GBP remained soft in session against its major pairs. Following UK public finance data the GBP/USD was off 100 pips from its opening level in Asia at 1.6420 and at 0.8660 versus the Euro. UK data highlighted the worsening tax receipts as the recession continues to wreak fiscal havoc. The UK budget deficit is pushed to record highs.
- In Energy/commodities: China's power generation increased 3% and consumption rose 4.3% in the first half of July|| Dragon Oil [DGO.UK] Provided trading statement: H1 avg daily output at 42.8K BOPD, up 11% y/y. Entitlement barrels in 1H 2009 at approximately 65% of the gross field production compared to 54% in 1H 2008. || Norway Q2 Oil output at 1.86M bpd v 2.04M bpd y/y, Gas output 23.64B scm v 23.21B scm y/y
- In Fixed Income Supply: The UK sold Â£4B in 4% 2016 Gilts with results that , whilst hardly spectacular, were encouraging following startling public finances figures and clumsy comments out of the Debt Management Office. The DMO's Stheeman noted early in the session that it would take two sovereign ratings downgrades of UK debt before the threat of a buyers strike amongst foreign Gilt investors could become real. This was followed by the highest June deficit on record for the UK at Â£13B, with the country's debt to GDP ratio reaching its highest level since the mid 1970's. Gilts nonetheless attempted to repeat the heroics of the England cricket team yesterday , holding on to positive territory and even outperforming Bunds and Treasuries for most of the session. Strongly worded comments on an exit strategy from QE from the BoE's Bean appeared to be the straw that broke the camels back, sending Sept Gilts into session lows (116.67 at the time of writing), and seeing UK yields mover higher across the curve with the short end under the most pressure leading to bear flattening. Bean noted that a rate hike would take place before sales of Gilts, and the issue of exit strategies remains in focus with Fed Chairman Bernanke's testimony before the House rapidly approaching. The yield on the 10y Bund is 1bps higher at 3.428% whilst the 10y Note is 2bps higher at 3.626%.
*** NOTES ***
- California lawmakers say they have reached a deal to close the state's $26B budget deficit.
- Bernanke writes Op Ed article: Exit strategy closely tied to balance sheet, eliminating large bank reserves. Conditions not likely to warrant tighter policy for extended period.
-Japanese Parliament is dissolved for August 30 election, as expected
- Notable Earnings ahead of NY equity open including Blackrock [BLK], Peabody Energy [BTU, Continental Airlines [CAL], Caterpillar [CAT], Dupont [DD], Quest Diagnostics [DGX], Freeport Macmoran [FCX], Coca Cola [KO], Lockhee martin [LMT], Merck [MRK], Schering Plough [SGP], State Street bank [SST]. Unitedhealth [UNH], United Technologies [UTX]
- 8:00 (PD) Polish Jun Net Core Inflation M/M: No estimate v 0.3% prior, Y/Y: 2.7%e v 2.80% prior
- 8:30 (US) Chicago Fed Nat Activity Index -1.3e v -2.3 prior
- 9:00 (CA) Bank of Canada Rate Decision: Expected to leave interest rrate unchanged at 0.25%
- 10:00 (US) Fed Chairman Bernanke's semi annual monetary policy testimony before House Financial Services Committee
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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
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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
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