Currencies: The USD reversed most of the Asian session gains made on interest rate differentials at the London open, as a Christmas rally in European equities got underway
Tuesday, December 22, 2009
European Market Update: No early Christmas presents as Greece suffers another downgrade, UK remains in recession, OPEC maintains status quo
*** ECONOMIC DATA *** - 2:00 (GE) German GfK Consumer Confidence: 3.3 v 3.5e - 2:15 (SZ) Swiss Nov Trade Balance: CHF2.14B v CHF2.44B prior - 2:45 (FR) French Nov Producer Prices M/M: 0.2% v 0.1%e, Y/Y: -4.5% v -4.7%e - 3:00 (TT) Taiwan Nov Unemployment Rate: 6.0%e v 6.0% prior - 3:15 (SW)Swedish Dec Consumer Confidence: 8.8 v 11.8e, Manuf Confidence: -9 v -8e - 3:30 (SW) Swedish Nov PPI M/M: 0.9%e v 0.4%e, Y/Y: -1.7%e v 0.3%e - 3:30 (DE) Danish Q3 GDP Q/Q: 0.6% v 0.1%e, Y/Y: -5.2%e v -5.6%e - 4:00 (IT) Italian Nov Hourly Wages M/M: 0.0% v 0.1%e v 0.2% prior, Y/Y: 3.2%e v 3.2% prior - 4:30 (UK) Q3 Final GDP Q/Q: -0.1%e v -0.3% prior, Y/Y: -4.9%e v -5.1% prior - 4:30 (UK) Q3 Current Account: -Â£8.2Be v -Â£11.4B prior - 5:00 (IT) Italian Nov Trade Balance (non EU) -â‚¬30.0M v â‚¬117.0M prior
-In equities: European markets have printed a strong morning session with solid gains in both the UK and France. Today's moves have taken place in an undeniably holiday volume environment with both the FTSE and CAC trading over 35% below averages. Despite the calendar date, news flow and economic data has been high. Asian trading ended markedly mixed with Japan closing well bid on Yen weakness and tech strength, while China sold off following PBoC commentary on inflation, reserves, and employment. Equity markets, driven by the FTSE have continued to rotate higher, shaking off final GDP figures out of the UK that confirmed the continuation of the recession. Sector leaders have been energy ahead of the expected OPEC no change quota comments, basic resources, industrials and tech. Transportation names continued to suffer as this past weekend's weather havoc further disrupted transportation. Eurostar service, coming off a four day closing, has resumed [GET.FR], while airports [FRA.GE], [FER.SP] slowly resume service. Financials have had a mixed session with UK OFT forgoing an investigation on overdraft charges, but macro concerns, highlighted by Moody's action on Greece demonstrated continued concern in the sector.
-In individual equities: Areva [CEI.FR]: T&D unit receives â‚¬200M order from Dubai Electricity and Water Authority. || Vinci [DG.FR]: Awarded Â£250M UK subway contract. || GDF [GSZ.FR]: Seeking to supply gas to China; guides 2009 China sales approximately â‚¬900M - La Tribune. || Hornbach [HBH3.GE]: Reports Q3 Net â‚¬7.9M -5% y/y , 9-month Rev â‚¬2.3B +4.4% y/y. || Intesa Sanpaolo [ISP.IT]: State Street to Acquire Securities Services Business in Italy and Luxembourg for â‚¬1.28B
- Currencies: The USD reversed most of the Asian session gains made on interest rate differentials at the London open, as a Christmas rally in European equities got underway. But weakness was capped by covering of short USD positions heading into year end, exaggerated by thin liquidity. AUD, CHF and JPY have moved back into negative territory against the greenback heading into the New York morning, while CAD has notably outperformed. EUR/USD wobbled slightly after Greece's downgrade at S&P but continued its ascent after the bond market rendered a positive verdict on Greek debt, with reports of middle eastern names buying the pair. Session highs thus far were reached at 1.4330 with next resistance eyed at 1.4370. GBP/USD intially traded higher at the London open, only to find the 1.61 handle insurmountable ahead of Q3 final GDP data and dip into negative territory after the release, with the 1.6000 handle just tested and held
- Fixed Income: US Treasury yields moved sharply higher during the Asian session as the Nikkei pushed out to fresh 3 month highs. Cash 10s tested the key 3.7250% level ( a 50% fib of the 2008 high and 2009 low yields) while 2s10s hit fresh all time steepening highs above 283bps and the 10y UST/JGB spread hit a 2009 high at 245bps. In an effort to close the gap Bunds were sold aggressively at the open, prompting the 10y Bund yield to rise over 6bps and reclaim the 3.25% mark, a level around which it has traded for the rest of the session. The Greek 10y yield moved above 6% for the first time since March in early European trade, only to somewhat counter-intuitively retreat from those levels following a one notch downgrade to A2 at Moody's. With Fitch and S&P at BBB+, the domestic market clearly knows it could have been worse and Moody's belief that the country is "unlikely to need EU support on liquidity; highly unlikely to confront short-term liquidity and refinancing problems" amounts to something of a vote of confidence for the beleaguered EU state. Spreads versus Bunds have tightened markedly, from recent highs posted at the open around 276bps to below 250bps in current trading. The yield on the benchmark 10 year Gilt hit multi month highs above 3.90% in the early going, but post GDP buying manged to keep yields in check. Futures even tested positive territory after the data and a better than expected UK current account reading ( including a multi year high in the savings rate) was also a plus for Gilt markets, although yields are still marginally higher across the curve as we go to press.
- Geo-Political:Today's 155th OPEC meeting in LuandaAngola has been the key geopolitical theme throughout the session. Speakers including Saudi, Angolan and OPEC General Sec have all reiterated their belief and expectation that output quotas will be held at current levels. OPEC has held its production at levels of 24.845M bpd through 2009 following two latter half 2008 cuts, including a Dec 18, 2008 record cut of 2.2M bpd. Other geo-political flows involved continued fallout from the 'results' of Copenhagen and continued concerns regarding Iranian nuclear operations.
- In the Papers:Macro news flows in global news papers has been dominated by commentary regarding the ongoing debt situation at Dubai World and the promise made yesterday to maintain interest payments until a standstill agreement is made. UK Office of Fair Trade decision to halt its investigation into overdraft charges has been looked at following a UK Supreme Court ruling that consumer protection laws could not be used prosecute cases. In other banking news, the WSJ has looked at cyber threats to corporations, most notably retailers and banks, following a summer 2009 assault on Citigroup's retail banking arm that led to millions in losses. UK GDP and OPEC output expectations have been other key flows in the Asia/Euro/NY morning period
- 8:00 (PD) Polish Nov Core Inflation M/M: 0.1%e v 0.2% prior, Y/Y: 2.9%e v 2.9% prior - 8:30 (US) Q3 Final GDP Q/Q (annualized): 2.8%e v 2.8% prior, Personal Consumption: 2.9%e v 2.9% prior - 8:30 (US) GDP Price Index: 0.5%e v 0.5% prior, Core PCE Q/Q: 1.3%e v 1.3% prior - 9:00 (BE) Belgian Dec Bus Confidence: -7.0e v -8.8 prior - 10:00(US) Dec Richmond Fed Manufacturing Index: 5e v 1 prior - 10:00(US) Oct House Price Index M/M: 0.25e v 0.0% prior
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