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Forex Blog - European Market Update: Asian, European earnings help sooth risk appetite; UK house price data rises for the third straight month

Today 05:57am EST/09:57am GMT

European Market Update: Asian, European earnings help sooth risk appetite; UK house price data rises for the third straight month



- (UK) July Nationwide House Prices M/M: 1.3% v 0.2%e; Y/Y: -6.2% v -7.6%e

- (SP) Spain Preliminary July CPI EU Harmonized Y/Y: -1.4% v -1.4%e

- (HU) Hungary May Final Trade Balance: €478.9M v €479.8M prior

- (SW) Sweden July Consumer Confidence: -3.7 v -7.0e; Economic tendency: 87.1 v 80.3e; Manufacturing Confidence: -20.0 v -29.0e

- (DE) Danish Jun Unemployment Rate: 3.8 v 3.5% prior

- (GE) German July Unemployment Change: -6K v 43Ke; Unemployment Rate: 8.3% v 8.4%e; Data better due to one-off effects

- (NO) Norway Jul Unemployment Rate: 3.0% v 3.0%e

- (IT) Italy Jun Hourly Wages M/M: 0.1% v 0.1%e; Y/Y: 2.8% v 2.8%e

- (SW) Sweden May Wages - Non-Manual Workers Y/Y: 2.4% v 2.3% prior

- (SP) Spain May Total Housing Permits M/M: -4.5 v -6.8% prior; Y/Y: -51.8 -63.5% prior

- (RU) Russian Gold & Forex Reserves w/e Jul 24th: $402.4B v $398.1B prior

- (EU) Euro-Zone July Business Climate Indicator: -2.71 v -2.83e; Consumer Confidence: -23 v -24e; Economic Confidence: 76.0 v 75.0e; Industrial Confidence: -30 v -30e; Services Confidence: -18 v -19e

- (IT) Italy May Large Company Employer Index: -1.4% v -1.3% prior

- (BE) Belgium Jul CPI M/M: -0.1% v -0.2%; Y/Y: -1.7% v -1.1%

- (SA) South African Jun PPI M/M: 1.5% v 2.2%e; Y/Y: -4.1% v -3.3%e


- In equities news overnight: Earnings, earnings, earnings and more earnings. Today's trading session has been dominated by a heavy flow in large cap and influential industry leading firms. This Q2/H1 data shook off the downward pressure coming out of yesterday's negative NY close and the continuation of heavy sentiment in mainland Chinese equity trading (based on continued profit taking, end of month operations and fears of Chinese intervention to slow hot money flows). Today's earnings have included VW [VOW.GE], EDF [EDF.FR], Alcatel Lucent [ALU.FR], Renault [RNO.FR], BASF [BAS.GE], Continental [CON.GE], MAN Ag [MAN.GE], Siemens [SIE.GE], BAE Systems [BA.UK], BT [BT.UK], Centrica [CNA.UK], Rolls Royce [RR.UK] and Royal Dutch Shell. Despite mixed earnings reports, equities opened to a positive note and after shaking off confusing German July unemployment data (on the back of new accounting principles), markets continued to trend higher. The German DAX has been the continued lager, being weighed down by disappointing numbers and comments from BASF and MAN AG. In overall sector performance, utilities have outperformed with healthcare names underperforming.

-In individual equities: BAS [BAS.GE] Reports Q2 EBIT €1.10B v €964.6Me, Rev €12.5B v €12.5Be. BASF expects a significant decline in sales and earnings in 2009. "We are therefore unlikely to achieve our goal of earning our cost of capital in 2009". In the Chemicals segment, BASF posted a drop in sales of 41% due to lower volumes and prices. Sales in the Plastics segment fell by 30% due to weak demand from almost all customer industries. In the Performance Products segment, sales increased by 17% as a result of the acquisition of Ciba. || Siemens [SIE.GE] Reports Q3 Net €1.26B v €955Me, Rev €18.35B v €18.74Be; Confirms FY09 main sector guidance. Order intake €17.2B v €23.7B y/y. Order backlog €84.3B. Book-to-bill ratio 0.94. Industry Sector Rev €8.13B v €9.32B y/y. Guides 'main sector guidance' above 2008 levels (€6.6B) v €6.1Be. Reminder: On June 10 -Reiterates FY09 guidance targets, see total group profits exceeding €6.6B v €6.1Be. || Volkswagen [VOW.GE] Reports Q2 Net €283M v €238.6Me, R €27.2B v €28.5Be ; Reiterates that no reliable forecasts for 2009 can be made, H1 Net €494Mv €524Me, Rev €51.2B v €52.6Be. Group liquidity at €216M, CAPEX to sales ratio at 5.6%. Rising refinance costs to serve as drag on earnings. Volkswagen Group will be unable to escape the downward trend. Have been significantly affected by ongoing economic crisis. FY09 rev will be lower than in 2008 on back of volume declines. || Renault [RNO.FR] Reports H1 Net Loss €2.7B v Loss €2.5Be; Rev €16.0B v €16.0Be. H1 free cash flow seen at positive €848M. Increases 2009 market outlook to -12% y/y from -15% prior. Targets positive free cash flow and increase market share in 2009. Have cut vehicle stocks by €891M since the end of 2008. Reminder: On July 29 Peugeot -Expect European car market to decline 12% y/y v prior expectation of decline 20% y/y in 2009. || Alcatel Lucent [ALU.FR] Reports Q2 Net profit of €14.0M, its first in 11 quarters.Rev €3.90B v €3.80Be. Reaffirms FY09 guidance; Sees 2009 guidance at approx break even levels. CEO: "Looking forward, market conditions remain difficult and operators continue to be selective about their investments. We reiterate our view that our addressable market should be down between 8% and 12% at constant currency in 2009. As we look forward to the second half, we expect to achieve our target of an adjusted operating income around breakeven through further improvement in our margins and expense structure." || Continental [CON.GE] Reports Q2 Net loss €189.9M v loss €187Me, Rev €4.76B v €4.82Be. Expect to see a pickup in earning and sales levels in H2 v H1. See further restructuring costs in H2. || Sanofi-Aventis [SAN.SP] Sanofi-Aventis confirms acquisition of Merck's 50% Interest in Merial in a deal valued at $4.0B in cash. Formed in 1997, Merial is a leading animal health company that is a 50/50 joint venture between Merck and sanofi-aventis. Following the close of the transaction, Sanofi-Aventis will own 100 percent of Merial. || BT [BT.UK] Reports Q1 Net £214M v £118me, Rev £5.24B v £5.03Be; Confirms FY09/10 outlook. Cash flow improvement of £612m compared with the prior year, including a tax repayment of £210m. || Centrica [CNA.UK] Reports H1 Pretax £936M v £985Me, Rev £11.7b v £11.5Be. The economic environment is showing little sign of rapid improvement. Strong
UK downstream performance from British Gas; improved residential retail price competitiveness and energy accounts now ahead for the year to date. Direct Energy impacted by low commodity prices and one-off charge downstream. Upstream results lower due to weak wholesale commodity price environment. Outlook: Low commodity prices continue to shift profit* from the upstream to the downstream. || Rolls Royce [RR.UK] Reports H1 Pretax £2.5B v £406Me, Rev £5.14B v £4.6Be. Order book £57.5B. CEO: The global trading environment remains very difficult and we believe the recovery is likely to be slow. Our performance in the first half has enabled us to confirm our guidance for the full year and to increase the interim payment to shareholders. || British American Tobacco [BATS.UK] Reports H1 Net £1.45B v £1.37Be, Op Profit £2.1B v £2.08Be, Rev £6.78B v £6.57Be. On track to deliver another year of string earnings growth. Group volumes from subsidiaries were 349B cigarettes (+5% y/y). || EDF [EDF.FR] Reports H1 Net €2.9B v €2.8Be, Rev €34.9B v €35.9Be. Reaffirms FY09 Targets, net items to be flat y/y, moderate organic EBITA growth. || France Telecom [FTE.FR] Reports Q2 Net €256B v €2.37Be, EBITDA €4.52B v €4.7Be, Rev €12.8B v €13.8Be. Reports H1 EBITA €8.82B v €8.67Be, rev €25.46B v €25.56Be. Reaffirms FY09 target of €8.0B in cash flows. Most of the other geographic areas were affected by the deterioration in the economic environment, with the impact on revenues often amplified by the effect of regulatory decisions: revenues fell 6.1% in Poland, 4.8% in Spain and 2.6% in the United Kingdom. || Dassault [DSY.FR] Reports Q2 Net €25.6M v €43.5Me, Rev €310.9M v €306.4Me. Cost-savings initiative on track with €55M realized year-to-date. Net operating cash flow of €177M for First Half; Net cash position of €733M. Reconfirms 2009 constant currency financial objectives. Sees FY09 results at high end of previous guidance. Reminder: On April 30 - Guides Q2 Rev €295-310M v €333.1Me. Guides FY09 Rev €1.26-1.31B v €1.35Be, Op margin 24-26%. || Cap Gemini [CAP.FR] Reports H1 Net €78M v €161Me, Rev €4.4B v €4.3Be. Guides Group's revenues down 4% and 6% in H2, resulting in a contraction of 3% to 4% for FY09. Guides operating margin of around 7% of revenues. || Man AG [MAN.GE] Reports Q2 Op Profit €144M v €144Me, Rev €3.1B v €3.1Be. Backlog €2.3B flat q/q. Order backlog at diesel, turbo, and renk will continue to support US in 2009. Does not currently see any signs of the economic situation improving. Cutbacks in investment are now not only impacting the commercial vehicles business area but are also leading to a clear decline in order intake in the other areas. || Lufthansa [LHA.GE] Reports 1H Op profit €8M v €109Me, Rev €10.2B v €10.6Be. Notes considerable risks to profit targets including fuel costs and demand issues. Continues to target a FY09 positive operating profit. || Erste [EBS.AS] Reports Q2 Net €260M v €170.5Me, Net interest income €1.28B v €1.15B y/y. Q2 risk provisions €521.9M v €221M y/y. Q2 trading profits €199.3M v €102.1M y/y. Q2 commission income €443.6M v€510.3M y/y. Q2 ROE 11.6% v 11.4% q/q. Tier 1 ratio 8.4% v 7.8% q/q. Provide no specific guidance. CEO: Continues to believe that the group will remain profitable. ||

- Speakers: Japanese MOF Official commented that deflation a bigger concern than inflation in developed countries. The official reiterated view that
Japan's Forex reserves would not be managed like a sovereign wealth fund (SWF). The MOF noted that the G20 Summit forum likely becoming a permanent operation ||Polish Central Banker Filar: Polish Q2 GDP is positive; chance for Q3 growth as well. Filar noted that the central bank cannot totally rule out chance for another Polish interest rate cut || Thai Central Bank: Baht cuurency was competitive but ready to intervene to maintain currency stability and would not rule out further monetary easing || China Banking regulator: To tighten controls on working capital loans || HKMA's Yam: Global credit availability remains limited

- In Currencies: Upside earnings surprises from Honda and Nissan coupled with Alcatel-Lucent's first profit in 11 quarters have rekindled risk appetite. USD and JPY have already given back some of the gains achieved on Wednesday. Also aiding sentiment was a reiterated pledge from
China's central bank to "unswervingly continue to apply appropriate loose monetary policy" and Fed's latest beige book of anecdotal economic activity, that found that recessionary forces were moderating in the U.S., may also be contributory background factors to market sentiment. EUR/USD in the upper quarter portion of its session trading range but unable to pierce the 1.41 level. USD/JPY testing the 95 handle but unable to sustain momentum over the 95.30 area.

The GBP was firmer aided by the better house price data, which rose for its third straight month. GBP/USD hovering around the 1.65 area after opening in
Asia at 1.6355.

- In Energy/commodities: USO: Goldman Sachs reaffirms its $85 year-end WTI crude target; Says recent weakness is "temporary". Goldman analyst forecasted
US stabilization and China growth to drive oil higher || Royal Dutch [RDSA.UK] Reported Q2 Net $3.82B versus $2.4B expected, Rev $64.9B above the $56.2B consensus. || Neste Oil [NES1V.FH] Reported Q2 Net €88.0M better than the €46.0M estimate. , Rev €2.59Be above €2.41B estimate || Repsol [REP.SP] Reported Q2 adj Net €373M better than the €217.8M estimate, EBIT €428M v €418Me

- In Fixed Income Supply: Government bonds have been on the back foot this morning in Europe as equities rally following surprising earnings reports and currently only Gilts are in positive territory. Italy sold €10.2B in 2 and 10y BTP's and 7y floaters this morning and with shaky results in the Treasury's 2y and 5y Note auctions and $26B in 7s up for grabs later in the New York afternoon, the ease with which the market took down the Italian supply was speaks volumes. Credit Suisse announced it was planning a benchmark offering of 10y EUR denominated bonds.

*** NOTES ***

- String of better earnings in Japan and Europe helps risk appetite

- Japan raises assessment of industrial production

- China's PBoC reiterates pledge to keep accommodative policy

- UK Nationwide House prices rise for the third straight month

***Looking Ahead***

Highlights: US- Weekly Jobless, Weekly Natural Gas Inventories, US 7-yr Auction.

- 7:00 (BR) Brazil Jul FGV Inflation IGP-M M/M: -0.3% expected versus -0.1% prior; Y/Y: No estimate versus 1.5% prior

- 7:30 (BR) Brazil COPOM Monetary Policy Minutes

- 8:30 (CA) Canada Jun Industrial Product Price M/M: 0.1% expected versus -1.1% prior; Raw Materials Price Index M/M: 3.0% expected versus 2.2% prior

- 8:30 (US) Initial Jobless Claims: 570K expected versus 554K prior; Continuing Claims: 6.300M expected versus 6.225M prior

- 8:30 (CL) Chile Jun Copper production: No Estimate versus 454.5K tons

- 10:30 (US) EIA Natural Gas Inventories

- 13:00 (US) US to sell $28B in 7-year notes


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