European Market Update: Sovereign debt rating concerns demanding attention in session (Trade the News)
Tuesday, December 08, 2009
European Market Update: Sovereign debt rating concerns demanding attention in session
*** ECONOMIC DATA *** - (CH) China Nov passenger car sales +98.2% y/y at 1.03M units - (FI) Finland Q3 GDP Q/Q: +0.3% v -0.9%e; Y/Y: -9.1% v -8.8%e - (FR) Nov Bank of France Bus Sentiment: 9 v 95 prior - (FR) French Oct Central Govt Balance:- 134.8Bâ‚¬ v -â‚¬125.8B prior - (HU) Hungary Oct Prelim Industrial Output M/M: 1.8% v 3.7% prior, Y/Y: -10.8% v -12.2%e - (TU) Turkey Oct Industrial Production Y/Y:6.5% v -3.0%e - (CZ) Czech Oct Unemployment Rate: 8.6% v 8.6%e - (CZ) Czech Q3 Current Account (CZK): -779M v -1.1B prior - (UK) Nov Halifax House Prices M/M: 1.4% v 0.6%e; 3mths/Y: -1.6% v -1.5%e - (UK) Oct Industrial Production M/M: 0.0% v 0.5%e; Y/Y: -7.8% v -7.6%e - (UK) Oct Manufacturing Production M/M: 0.0% v 0.4%e; Y/Y: -7.8% v -7.2%e - (BR) Brazil Nov FGV Inflation: 0.1% v 0.2%e - (GE) German Oct Industrial Production M/M: % v 1.0%e; Y/Y: % v -10.2%e - (UK) CBI Industrial Trends Total Orders: v -45 prior
*** SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM *** - Equities: European equity markets shook off a negative start which had rolled out of Asian trading. The Japanese governmen's' further stimulus of $80.6B failed to stimulate equity markets nor match the expected domestic demand shortfall seen in 2009/10. Prior to the European open JP Morgan analysts cutting their call on Russian equity markets and European Telecom's added further weight to pre-market trading. Earnings releases from the largest UK grocer Tesco [TSCO.UK] with LFL sales below expectations weighed the FTSE100. Markets trended higher from their downside open and regained positive territory through the first forty minutes of trading. Sentiment in the uptrend has been driven by rotation into the tech sector with Infineon [IFX.GE], Alcatel [ALU.FR] and STMicro [STM.FR] top equity movers (expecting an aftermarket US comment from Texas Instruments [TXN]). After market NY guidance and market comments from FedEx [FDX] rallied European shippers with Deutsche Post [DPW.GE] and TNT [TNT.NV] posting strong figures. Into 5:30EST, European markets have attempted to hold on to positive gains on declining trading figures.
-Individual stocks: : Tesco [TSCO.UK]: Provides interim management statement: Reports Q3 UK LFL Sales ex Petrol, Adj +2.8% (range of analysts estimates from +2.7-3.4%e). || Xstrata [XTA.UK]: Confirms plans to close Kidd site in Canada. || ThyssenKrupp [TKA.GE]: Abu Dhabi MAR considering stake in submarine unit -Handelsblatt. || Air France [AF.FR]: Reports Nov Load Factor 78.0% v 77.8% y/y. || Lukoil [LKOH.RU]: Reports Q3 Net $2.1B v $2.2Be, Rev $21.9B v $22.4Be. ||
- Speakers: IMF raised its South Korean 2010 GDP forecasts 4.5% from 3.6% prior but noted the outlook had its uncertainties with slowdown in advanced economies being the biggest risk for Korea. IMF also raised 2009 GDP view to economy to grow 0.25% from prior view of contraction of 1.0% commenting that its economy had bounced back impressively.
- Korea should consider cautious withdrawal of monetary policy. Inflationary pressures will remain subdued. || Dubai Finance Chief commented that debt markets were willing to cooperate with Dubai World. He reiterated the view that international media had amplified the crisis in the region. Stressed that Dubai World had the assets and income needed to meet its obligations|| ECB's Trichet reiterated the view that the Euro-Zone economy was no longer in free fall but a bumpy road remained ahead. He stressed that it was important that Governments meet deadlines to bring debt back under control as the credibility of Euro-Zone depended on sound budgets. It was vital for euro zone governments to get debt levels back in order within the 2012 or 2013 deadlines. Trichet reiterated that it would gradually remove special measures. Bad assets were not the main concern relating to banks but they must strengthen balance sheets and hold profits. He cautioned that banks should not embark on large dividends and be careful on remunerations. Lastly he stressed that the ECB's mandate is price stability || China's State Administration of Foreign Exchange (SAFE)'s Yi Gang commented following the conclusions of the central government's annual economic planning meeting: Yi noted that China would expand its imports and maintain steady its export growth. China would continue with currency reform when opportunities permitted and continue to monitor cross border capital flows closely. He added that currency reform should help promote stable export growth, help increase imports and promote Balance of Payments (BOP) || Germany Econ Min Bruederle stated that 2010 GDP seen in a range between +1.2 %to +1.6% || Moody''s issued its annual Sovereign Credit Report on Poland and maintained its rating outlook at stable. The report noted that Poland''s "A2" government bond ratings were supported by high economic, institutional and government financial strength. Moody's expressed concerns surrounding steeply rising fiscal deficits and deteriorating government debt metrics in the aftermath of the economic crisis, as well as slowed economic growth potential. The fiscal situation has deteriorated significantly and debt ratios are now rising. "However, these concerns are partly alleviated by the favorable currency and maturity structure of the debt, supported by deep local capital markets that act as a natural buyer of government securities || China PBoC Vice Gov Zhu Min commented that China was experiencing a clear "V-shaped" economic recovery and reiterated that the 2009 GDP growth will be at least 8% || German VCI Chemical Industry provided an update for 2009 and 2010. It saw 2009 chemical sales -12.5% and chemical production -10% y/y. It forecasted 2010 chemical sales +6% y/y and production +5% y/y || World Meteorological Org stated that 2009 global temperature was 0.44 degrees above average of 14 degrees Celsius (57 degrees Fahrenheit) . it noted that t his decade was set to be the warmest on record though 2009 would not be the hottest year ||
- Currencies: Sovereign debt concerns seemed to be the motivator of the price action during the European session. The USD and GBP currencies were softer from there opening levels in Asia after Moody's commented that debt ratings on the U.S. and the U.K. might "test the Aaa boundaries" because their public finances are worsening in the wake of the global financial crisis. The Pound Sterling led the weakness as GBP/USD declined by over 100 pips tot test 1.6330 area ahead of the NY morning. The Dollar fared a bit better as it was slightly lower against other major pairs. EUR/USD was briefly below the 1.48 level as dealer chatter circulated of new binary option in place with the 1.4750 cited as the lower parameter. The recent lows in the pair was 1.4760 seen on Monday and remain intact throughout the session. The sovereign concerns were also evident inside the Euro-Zone as the spread between the 10-year Greek and German bonds widened to around 220bps (widest since April 2009).
- Some mild risk appetite was supported after comments from Dubai Finance Chief in which debt markets were willing to cooperate with Dubai World and reassured that the company had the assets and income needed to meet its obligations. Dubai Gov't reiterated that international media had amplified crisis in the region. Nonetheless Moody's announced downgrades of all six Dubai government-related issuers ||
- Fixed Income: Sovereign related concerns are brewing again in Europe with euro-zone peripheral spreads uniformly wider against the core. Greece is again leading the way after being placed on credit watch negative at S&P yesterday. The Greek 10yr yield spread hit fresh 7 month highs at 220bps above Bunds, roughly 30bps wider on the session. Almost simultaneously Moody's downgraded 6 Dubai Government related entities, the net result being a 30 tick jump in March Bunds where resistance was found at 123.25. The UK sold Â£3.75B in Sept 2019s in a relatively weak auction covered 1.81 times. US Treasury yields are lower across the curve with some steepening after dovish rhetoric yesterday from both Bernanke and Dudley. The 2y note yield has established a foothold back below 0.75% while the 10yr is sitting just above 3.40%
- Energy: IEA's Tanaka: Political commitment is need to Copenhagen Summit. IEA opposes the creation of a cartel of natural gas-producing nations, but said such a group could improve market statistics ||
-Credit Crisis: Russian Fin Min Kudrin stated that he would call for worldwide organization to regulate financial markets and would bring up the issue at the framework of the Group of 20 industrialized and developing nations. He also noted that Russia was weak link on global capital markets and felt the effect of this violability on its stock indexes, exchange rate and the country's balance of payments ||
***Notes: - Sovereign bond rating concerns simmer again -Japan's FY2009/10 Bond sales of Â¥53.5Tto exceed tax revenues of Â¥36.9T for the first time since 1945 - Moody's: debt ratings on the U.S. and the U.K. may "test the Aaa boundaries" because their public finances are worsening in the wake of the global financial crisis - Fedex [FDX] guides higher after the bell citing demand in Asia and Latin America
***Looking Ahead: - 7:30 (US)Nov NFIB Small Bus Optimism: No est v 89.1 prior - 7:45 (US) ICSC/UBSW Chain Store Sales No est v -0.1% prior - 8:15 (CA) Canadian Nov Housing Starts: 160.0Ke v 157.4K prior - 8:55 (US) Redbook Retail Sales: No est v +3.8% prior - 9:00 (CA) Bank of Canada Interest Rate Decision: No change expected in the Overnight Lending Rate from the 0.25% level - 10:00 (US) IBD/TIPP Economic Optimism: 48.8e v 47.9 prior - 10:00 (UK) Nov NIESR GDP estimate: No est v -0.4% prior - 13:00 (US) Treasury to sell $40B in 3 year notes
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