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Friday December 18, 2009 - 10:54:38 GMT
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European Market Update: German IFO Business Sentiment at 17 month highs; Markets consolidated ahead of triple-witching expiration

Friday, December 18, 2009 5:49:19 AM

 European Market Update: German IFO Business Sentiment at 17 month highs; Markets consolidated ahead of triple-witching expiration


- (GR) Greece Oct Current Account: -€2.5B v -€1.6B prior
- (GE) German Q3 real wages Y/Y: 0.6%
- (GE) German Nov Producer Prices M/M: 0.1% v 0.2%e; Y/Y: -5.9% v -5.9%e
- (FR) French Business Confidence Indicator: 89 v 90e; Own-Company Production Outlook: -7 v 0e; Production Outlook Indicator: -11 v -7e
- (SP) Spain Oct Industrial Orders Y/Y: -15.6% v -18.8% prior; Service Sector Sales Y/Y: -9.8% v -10.6% prior
- (NV) Netherlands Dec Consumer Confidence: -11 v -12e
- (IT) Italian Oct Industrial Orders M/M: 0.3% v 0.5%e; Y/Y: -17.0% v -17.0%e
- (GE) German Dec IFO Business Climate: 94.7 v 94.5e; Current Assessment: 90.5 v 90.0e; Expectations: 99.1 v 99.0e
- (EU) Euro-Zone Oct Current Account: -€4.6B v -€5.0B prior
- (UK) Q3 Final Total Bus Investment Q/Q: -0.6% v -3.0%e; Y/Y: -19.9% v -21.7%e
- (UK) Nov Public Finances (PSNCR): £14.7B v £17.3Be; Public Sector Net Borrowing: £20.3B v £23.0Be
- (UK) M4 Money Supply M/M: 0.0% v 0.6%e; Y/Y: 9.2% v 10.0%e
- (UK) Nov Major Banks Mortgage Approvals: 63K v 64Ke
- (EU) Euro-zone Oct Trade Balance: €8.8B v €5.8Be; Trade Balance Seasonal Adj: €6.3B v €5.7Be
- (SZ) Swiss
KOF Dec Forecasts: Raises 2010 GDP view to 0.6% from 0.1% Sept view
- 6:00 (BR) Brazil Nov Unemployment Rate: 7.4%e v 7.5% prior

- Equities: European equity markets have traded on strong volume with high volatility following after-market NY earnings and ahead of option expiration. Ignoring a lower Asian close, equities opened bid but looked ready to give back gains. Financials acted as an initial drag as continued concern regarding capital and regulation linked to
Basel agreements persisted. This sentiment was successfully shook off following mixed data reads. Key data points that supported the equity rotation included German Dec IFO and UK public finances and lending reads. Trading off earnings in the NY after-market, Infineon [IFX.GE], SAP [SAP.GE] and Adidas [ADS.GE] amongst others moved higher. Goldman Sachs analyst calls in the integrated oil and gas sector sent BP [BP.UK] higher, and Total [FP.FR] and Repsol [REP.SP] lower. Other individual movers included RyanAir [RYA.UK] after it confirmed that it had walked away from talks with Boeing [BA] and EADS [EAD.FR] following the closing of an insider trading case. Into the 5:00EST hour, equities made a sharp break from a linear upward trend with the FTSE rapidly cracking through the +1% mark. Equity strength has been sector wide with every unit on the EuroStoxx50 trading higher, led by tech and health care (financials, while higher, were continued to lag).

-Individual stocks:
: RyanAir RYA.UK: To bring forward plan to cut growth and Capex; No plans to reopen talks with Boeing or others. || Hochschild [HOC.UK]: Increases stake in GRC to 27% from 23.9% for $16M. || EADs [EAD.FR]: EU Commission has cleared 17 current and former directors of insider trading charges. || Areva [CEI.FR]: T&D unit awarded $400M contract for operations in
Brazil. || Continental [CON.GE]: Schaeffler seen as disrupting refinancing operations -Handelsblatt. ||

- Speakers: India Finance Ministry Mid-year Economic review noted that the country was facing problems of rising prices and saw the need for fiscal consolidation in the medium-term. The report noted that the surge in capital inflows could fuel inflationary pressures and such inflows strengthened the INR currency and reduced the country's competitiveness. It cautioned that an early interest rate increase by the RBI could attract more capital inflows. Short term pressure on food prices to persist but was optimistic that the easing of Food imports might help check price rises. Thus the challenge ahead was to support India's economic recovery and keep prices down *** BOJ's Shirakawa stated that the central bank would not tolerate consumer prices at or below zero percent; and that the price change wording to make position clearer. The BOJ chief stated that it was not pledging to keep 0.1% policy rate until CPI increased and had no preset outlook on future policy. Price statement can anchor policy expectations and that there was some misunderstanding that BOJ tolerated deflation. The Price statement was not an indication of a policy shift . Understanding BOJ price view might lower yields and the BOJ needed to prevent deflationary spiral. BOJ to keep a very accommodative policy and price outlook has not changed *** German upper house (Bundesrat) passes tax cuts *** IFO's Nerb commented that Manufacturing industry helped to increase confidence in the IFO's latest survey. Exports to Asian region were bringing momentum. He added that the ECB should not raise interest rates in 2010 ***IFO's Abberger commented that the economic recovery to continue at moderate pace but that restrictive lending would not kill the recovery but would have an impact. He stated that the ECB should not raise interest rates until H2 2010. Lastly he noted that corporate insolvencies to be "the big issue in "2010" ***Greece Fin Ministry conceded that the country's current taxation system was part of fiscal problem. Tax revenue practices in
Greece seen as some of the weakest within the EU with VAT evasion cost around €6.6B in 2006 (latest stats) and that some 30% of VAT was avoided in Greece. The finance Ministry has yet to provide any details on how the Gov't would cut the 2010 deficit to 8.7% but noted that Stability program to incorporate privatizations***UK Dec Trends in Lending Report saw Home lending Nov Gross mortgage lending +£12B v £13.3B m/m with Nov mortgage approvals seen at highest levels in 2009. Business lending had UK lenders generally expected loan availability to the corporate sector to improve and the cost of borrowing to decline. Demand for loans was expected to remain subdued

- Currencies: The USD consolidated some of its recent found strength against the European pairs and was modestly softer in the session but traders did observe that its performance was less correlated to stock market direction in recent sessions. EUR/USD did find good bids in mid 1.4350 area and proceeded to probe the 1.4400 area aided by continued improving German IFO data. The CHF currency did experienced a brief flight to safety during the Asian session following the rumors of Pakistani coup. The cross was off its Asian lows of 1.4910 but the EUR/CHF has yet to regain a foothold above the 1.50 level (which has held as support from the initial SNB currency intervention from last March). Nonetheless the market remains keen of potential stealth SNB intervention as the NY morning approached.

- Dealers have commented that interest rate have been a factor in the recent dollar rally. The notable widening in U.S. yield spreads between both Europe and Japan have been a factor in the December dollar rally since the better US employment report back on Dec 4th

- The JPY was softer across the board after the BOJ vowed to combat deflation. USD/JPY holding above the 90 handle throughout the European morning while the European pairs were up over a big figure against the yen.

- Fixed Income: Gilts have performed strongly this morning as traders extinguished shorts in the wake of surprising better public finances figures. The November net borrowing and Public sector net cash requirement releases data did not demonstrate the type of fiscal strain markets have become accustomed to in recent times, and as a result the March Gilt contract is up over 50 ticks and the 10yr cash yield has fallen over 6bps to descend below the 3.80% mark for the first time post PBR. Financial sector concerns relating to the
Basel accords have also helped government bonds, and so has the ongoing turmoil in Greece. The Greek finance minister was wheeled out again to try and calm the markets' fears and again he failed to outline any real measures to curb the deficit other than a promise to crackdown on VAT avoidance. Greece is 7bps wider and just below recent highs of +260bps, while Spain has performed just as bad to test +70bps.

- Energy: Saudi Oil Min reiterated that oil price target of $75-80 was an overall goal at OPEC meeting. He reiterated that OPEC would not likely change output levels at this month's meeting ***OPEC President: To leave output quotas unchanged at Dec 22nd meeting ***WSJ reported that Brazil appeared to be close to overtaking Mexico and Venezuela as Latin America's biggest oil producer due to its political flexibility and natural resources. Petrobras, responsible for more than 95% of output, produced over 2M barrels a day in November***

- EUR/CHF cross below the 1.50 level for the first time since SNB initiated CHF intervention last March. Safe haven flows in
Asia benefitted the CHF on rumors of a coup in Pakistan (denied)
- Triple witching today.
- BoJ leaves interest rates unchanged at 0.10%; as expected; Vows not to allow deflation.
- China's Currency Regulator SAFE hires Pimco Manager Zhu

***Looking Ahead:
- (RU) Russian Nov Unemployment Rate: 7.8%e v 7.7% prior
- (RU) Russian Nov Retail Sales M/M: 0.7%e v 3.2% proior, Y/Y: -6.0%e v -8.5% prior
- 8:30(CA) Canadian Oct Wholesale Sales M/M: 0.5%e v 0.2% prior
- 9:00 (BE) Belgian Dec Consumer Confidence: No est v -10.0 prior
- (CO) Colombia central bank Interest rate decision: No change expected in the Overnight lending rate from the 3.50% level
- (CO) Colombia Oct Industrial Production: -3.6%e v -3.8% prior; Retail Sales: -3.9%e v -7.3% prior


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