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Forex Blog - European Market Update: ECB, Bundesbank and IFO note risk that banks could choke recovery

Today 05:59am EST/09:59am GMT

European Market Update: ECB, Bundesbank and IFO note risk that banks could choke recovery



- (JP) Japan Jul Small Business Confidence: 41.1v 38.0 prior

- (FR) Jun Producer Prices M/M: 0.6% v -0.1%e; Y/Y: -8.7% v-8.6%e

- (HU) Hungary Jun Unemployment Rate: 9.6% v 9.8%e

- (HU) Hungary Jun Producer Prices M/M: -0.1% v -2.0% prior; Y/Y: 6.6% v 6.8%e

- (SP) Spain Jun Retail Sales Y/Y: -3.0%v -7.8% prior; Retail Sales Adj Y/Y: -4.3% v-5.9%e;

- (GE) German July CPI - Saxony: M/M: 0.0% v 0.2% prior; Y/Y: -0.6% v 0.1% prior

- (IT) Italy July Business Confidence: 71.7v 70.0e; Retailers' Confidence: 98.9 v 98.5 prior; Services Survey: -13 v -11 prior

- (GE) German July CPI - Hesse: M/M: -0.2% v 0.4% prior; Y/Y: -0.9% v -0.3% prior

- (GE) German July CPI - Brandenburg: M/M: 0.0% v 0.3% prior; Y/Y: -0.6% v -0.1% prior

- ECB Q2 Lending Survey: Banks tightened 2Q credit rules less sharply compared to 1Q

- (GE) German July CPI - North Rhine West: M/M: -0.2% v 0.3% prior; Y/Y: -0.7% v 0.1% prior

- (UK) Jun Net Consumer Credit: £0.1B v £0.3Be; Net Lending: £0.3B v £0.6Be

- (UK) Jun Mortgage Approvals: 47.6K v 47.0Ke

- (UK) Jun Final M4 Money Supply M/M: -0.2% v -0.2% prior; Y/Y: 13.8% v 14.2% prior

- (IC) Iceland July CPI M/M: 0.2% v 1.4% prior; Y/Y: 11.3% v 12.2% prior

- (SA) South Africa Jun CPI (all items) M/M: 0.4% v 0.6%e; Y/Y: 6.9% v 7.2%e

- (GE) German July CPI - Baden Weurttemberg: M/M: -0.1% 0.5% prior; Y/Y: -0.6% v 0.1% prior

- (MA) Malaysia Central bank interest rate decision: Expected to hold its overnight rate at 2.0%

- (GE) German July CPI - Bavaria: M/M: 0.0% v 0.4% prior; Y/Y: -0.2% v 0.1% prior


- European equity markets opened today's session on rocky footing. A last minute downward surge seen just before the close of trading in mainland China followed swirling speculation that Chinese authorities may seek to intervene to cool off rapidly overheating equity markets (and presumably avoid the 4,500pt slide seen 2007-08 on the Shanghai Comp), pushing European and US equity futures lower. Today also saw the massively oversubscribed A share placement of China Construction Bank (H listing 3311.HK) which printed 4B shares in furious trading. On top of this equity sentiment, European corporate earnings moved into top gear, with quarterly results from the likes of ArcelorMittal [MT.NV], Peugeot [UG.FR], Bayer [BAY.GE], SAP [SAP.GE], Banco Santandar [SAN.SP], Sanofi-aventis [SAN.FR], Bayer [BAY.GE] and BG [BG.UK]. While some large names such as BG and ArcelorMittal missed expectations and have traded to the downside, the overall earnings sentiment has continued to be better than the low analyst expectations. This sentiment, in addition to the positive push seen following yesterday's negative close figures rallied equity markets. Equities moved higher on this motivation and a recovery in
Asia with European markets broadly moving through the unchanged mark and into positive territory by 3:30EST. Equities continued their climb through 3:00EST and 4:00EST as data sets and German state CPI's failed to rock the boat. Sector movement is dominated by earnings results with utility and financial names outperforming. On the back of interest in earnings related names, volumes on the CAC and DAX are coming in well ahead of their moving averages with only the FTSE underperforming and coming in slightly light.

- In individual equities: ArcelorMittal [MT.NV] Reports Q2 Net loss $792M v loss $309.3Me, Rev $15.2B v $14.9Be. Guides Q3 EBITDA between $1.4-$1.8B v $1.9Be. Shipments of 17.0M tons (+6% q/q). CEO: The first six months of the year have been some of the most challenging the steel industry has ever experienced. Operating in such a difficult environment. SAP [SAP.GE] Reports Q2 Net €473M v €430.6Me,, R €2.56B v €2.63Be. Guides FY09 Rev -6% to -4% y/y (implies €8.10-8.27B v €11.2Be) Op margin 25.5-27.0% v 24.5-25.5% prior. Q2 Op Margin 27.7% Vs 24.4% y/y. CEO: While the operating environment remains difficult, we are beginning to have improved visibility into the second half of the year. Sanofi-aventis [SAN.FR] Reports Q2 Net €2.27B v €2.06Be, Rev €7.44B v €7.22Be. Guides FY09 Net +10% y/y v +7% prior guidance. Seeks to achieve at least the same level of sales in 2013 compared to 2008 before any significant external growth opportunities. Banco Santander [SAN.SP] Reports H1 Net €4.5B v €4.3Be, Net Interest Income £12.7B + 18.1% y/y. Bad loans ratio 2.82% v 2.49% q/q. Core Capital 7.5% v 7.3% q/q. Tier 1 Capital Ratio: 9.4%, BIS Basel II 13.8%. Bayer [BAY.GE] Reports Q2 Net €532M v €511.5Me, Rev €8.01B v €7.93Be. Guides FY09 Rev €31.0-32.0B v €31.51Be (Prior view was €32.0B). Guides FY09 CAPEX1.4B. Peugeot [UG.FR] Reports H1 Net loss €962M v loss €1.01Be, Rev €23.5B v €23.93Be. Expect European car market to recover towards the end of 2010. Expect European car market to decline 12% y/y v prior expectation of decline 20% y/y in 2009. Guides 2009 Op loss at €1-2B. BG [BG.UK] Reports Q2 Net (ex items) £507M v £501Me, Rev £2.32B v £3.08Be. Exploration & Production volumes increased 7% year-on-year. Interim dividend of 5.62 pence per share (+20% y/y). Cadbury [CBRY.UK] Reports H1 Adj Pretax £262M v £260Me, Rev £2.88B v £2.75Be. - Reaffirms FY09 Rev at lower end of +4-6% v (implying £5.62-5.72B v £5.95Be). Easy Jet [EZJ.UK] Provides interim statement: Reports Q3 Rev £721M (+12% y/y). Revenue per seat increased by 10.9% y/y. STM Microelectronics [STM.FR] Reports Q2 -$0.36 v -$0.32e, R$1.99B v $1.84Be. Guides Q3 Rev $2.07-2.27B v $2.02Be. Q2 gross margin 31% (+/- 2 percentage points) v 26.1% q/q. Morphosys [MOR.GE] Reports H1 Net profit €5.0M v €4.5Me, Rev €37.9M v €37.7Me. Reaffirms financial guidance for 2009. Guides FY09 Operating profit of €8M-11M v €13.0Me, Rev €80-85M v €82.1Me. Infineon [IFX.GE] Reports Q3 Net loss €23M v Loss €47Me, Rev €845M v €830Me. Guides Q4 group revenues to grow sequemntially above Q3 (implying above €845M v €886Me) , company anticipates the revenue increase to be driven in particular by the segments ATV and IMM. Guides FY09 depreciation and amortization to exceed the previous forecast level of €500M. InBev [ABI.BE] CVC Capital has bid $2.3B for various European operations owned by the company - WSJ. The article adds that other companies remain interested in the assets and the auction is continuing. Monday was the deadline for initial bids. Akaza Nobel [AKZA.NV] Reports Q2 Net €155M v €123.9Me, Rev €3.67B v €3.58Be. CEO: In March, we saw early indications that markets may be stabilizing and we have seen that trend continue into the second quarter. However, this gradual stabilization is at significantly lower levels than 2008. With the exception of some emerging markets, we see little significant recovery of growth. Due to the continuing economic uncertainty, forward visibility still remains limited. Randstad [RAND.NV] Reports Q2 Net €11.6M v €33Me, Rev €2.99B v €3.04Be. Remains to early to declare that recovery has begun. States that many operations in its professional units are continuing to shrink. Both US and EU markets for staffing have shown some signs of stabilization. Nestle [NESN.SZ] To commence further CHF10B share buyback following H1 earnings as part of original CHF25B repurchase plan. Announces the completion of CHF15B in share buybacks. Both programs part of targeted CHF25B buyback operation. Luxottica [LUX.IT] Reports Q2 Net €115.7M v €113Me, Rev €1.4B v €1.4Be. Seeing improvements in
Europe, with North America stable.

- Speakers: German Bundesbank stated that German banks tighten credit mildly in Q2 ECB quarterly lending report noted that banks tightened 2Q credit rules less sharply compared to 1Q. This was the eighth straight quarter that banks tightened their lending standards, but the degree of tightening slowed significantly|| German IFO stated that bank lending grew more restrictive in July across the economy. German IFO: Bank lending more restrictive in July, restrictive lending seen across the economy. Germany's DIW lowered its 2009 GDP view for Germany to -6.4% from -4.9% prior and 2010 GDP lowered to +0.5% from +1.0% prior. Iut saw slightly negative growth rate in Q2 with positive growth rates in the second half of 2009. German economic recovery will be very modest SNB Jordan commented that he saw signs of economic stabilization overseas which might mean
Switzerland has seen its bottom. The CHF currency intervention has been effective to date and would perform more intervention if needed. SNB in position strength versus market and does not have to neutralize extension of monetary base Ukraine PM stated that she expected a $3.3B loan from IMF this week|| Turkish Central Banker Yilmaz noted that its economic recovery would be slow and gradual. The central bank lowered its view on inflation with end-2009 period seen at 5.9%. He noted that core indicators point to slower inflation. Loans to companies are growing but that its jobless rate would remain high. Thus he foresees addition measured interest rate cuts. Lastly he stated that continuation of single digit interest rates is possible only with fiscal discipline

- In Currencies: Risk aversion hit the market ahead of the European market as
China equity markets slip deep into negative territory. Rumors circulated that two Chinese State banks might curb loan growth and month-end flow sent the Shanghi Composite down 7% from 3,3350 level to 3,175 before recovering. The EUR/USD tested 1.4111 before stabilizing in the mid-1.41 neighborhood. Commodities were also lower as oil tumbled over $1.50 to 65.50/barrel and metal following in suit. The AUD/USD dipped back below the 0.82 level while USD/CAD probed towards the 1.09 area. EUR/CHF tested the 1.5250 level after SNB's Jordan noted that currency interventions have been effective so far. The SNB member noted that it would continue to intervene to fight a rise in the CHF versus the EUR if necessary. The JPY was softer against the major pairs but continue to stay within its weekly range thus far. USD/JPY holding below the 95.00 level.

- In Energy/commodities: IEA analyst: Evidence suggests oil prices reached a floor at $50- $60/bbl and doubts that OPEC would enact large output cuts at its Sept meeting Japan July 25 crude stocks 16.3M kiloliters v 16.2M prior; Gasoline 2.1M kiloliters v 2.2M prior Nippon Oil [5001.JP] Reported Q1 Net ¥28.5B versus ¥17.0B estimates, Rev ¥1.24T compared to estimates ¥2.27T. Guided FY2010 Net profit ¥76B (had seen ¥80B), Op Profit ¥159B (had seen ¥176B), ¥5.76T (had seen ¥5.53T)

- In Fixed Income Supply: Gilt markets were unmoved following a substandard auction this morning. The sale of £5B 2014's was covered a below average 1.97 times, with an above average yield tail of 1.4bps, and with UK debt underperforming on a cross markets basis throughout the session some indigestion was already priced in. Treasuries have managed to remain in positive territory across the curve ahead of the Treasury's 5y Note auction, whilst September Bunds are hovering around the unchanged mark at the time of writing. European Perhiperal government bond markets firmed up following Moody's affirmation of Spain's Aaa rating, with the Spanish 10y improving by some 3bps following the announcement and 10 BTP's firmer by about 2bps versus Bunds, despite a deluge of supply this week

*** NOTES ***

- China's PBOC's Zhou: Uncertainty remains on economic growth; inflation expectations can be managed by the Fed

- New Zealand Business Outlook +18.7% versus +5.5% in June.

- ECB's Papademos: No reason to withdraw liquidity in immediate future. Will be easy when time is right. Will be announce well in advance. Rate hikes could but need not coincide with withdrawal of liquidity

- Japan Retail Sales -3.0% y/y versus -2.5% estimate; 10th consecutive monthly decline

- Chatter focused on China in early European trading. Tariffs being introduced, lending to slow, money velocity slowing, and commodity stockpiles are around sufficient levels

- ECB notes some improvement in Q2 lending but expects further declines in Q3; German Bundesbank and German IFO saw same outlook; Conclusion: warns of risk that banks could choke recovery

***Looking Ahead***

- (PD) Polish Central Bank interest rate decision: Consensus expectation is for the base Rate to remain at the 3.50% level

- (PD) Polish Jun Retail Sales M/M: No estimate versus -1.1% prior; Y/Y: No estimate versus -2.3% prior

- 7:00 (US) MBA Mortgage Applications: No estimate versus 2.8% prior

- 8:30 (US) Jun Durable Goods Orders: -0.6% expected versus 1.8% prior; Durables Ex Transportation: 0.0% expected versus 1.1% prior

- 9:00 (BE) Belgium Q2 Preliminary GDP Q/Q: No estimate versus -1.7% prior; Y/Y: No estimate versus -3.1% prior

- 9:30 (BR) Brazil Jun Nominal Budget Balance (BRL): No estimate versus -11.5B prior; Primary Budget: 4.1B expected versus 1.1B prior; Net debt to GDP ratio: 42.9% expected versus 42.55 prior

- (GE) German July Consumer Price Index: M/M: 0.2% versus 0.4% prior; Y/Y: -0.3% versus 0.1% prior

- (GE) German July CPI EU-Harmonized: M/M: 0.2% versus 0.4% prior; Y/Y: -0.4% versus 0.0% prior

- 14:00 (US) Fed Beige Book


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