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Wednesday January 6, 2010 - 11:10:54 GMT
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European Market Update: Japan PM accepts letter of resignation from Fin Min Fujii; Greece downplays the need for bailout or assistance

Wednesday, January 06, 2010 5:55:48 AM

 European Market Update: Japan PM accepts letter of resignation from Fin Min Fujii; Greece downplays the need for bailout or assistance


- (ID) Indonesia Dec Consumer Confidence: 108.7 v 111.0 prior
- (BR) Brazil Dec FIPE CPI 0.2% v 0.2%e
- (HU) Hungary Nov Unemployment Rate: 10.5% v 10.6%e
- (IR) Ireland Dec NCB Services PMI: 48.3v 46.8 prior
- (SP) Spain Dec Services PMI: 45.0 v 46.1 prior
- (IT) Italy Dec PMI Services: 53.9 v 49.8 prior; highest since Oct 2007
- (FR) France Dec PMI Services: 58.7 v 60.1e
- (GE) Germany Dec PMI Services: 52.7 v 53.1e
- (EU) Euro-Zone Dec PMI Services: 53.6 v 53.7e; PMI Composite: 54.2 v 54.2e
- (IC) Iceland Nov Final Trade Balance (ISK): 6.2B v 6.0B prior
- (UK) Dec PMI Services: 56.8 v 56.8e
- (EU) Euro-Zone Nov PPI M/M: 0.1% v 0.2%e; Y/Y: -4.4% v -4.5%e
- (EU) Euro-Zone Oct Industrial Orders M/M: -2.2% v -1.0%e; Y/Y: -14.5% v -11.0%e
- (BR) Brazil Nov Industrial Production M/M: -0.2% v 1.0%e; Y/Y: 5.1% v 5.5%e; First positive YoY reading since Oct 2008

- Equities: European equity markets printed a positive open but quickly fell into negative territory. A mixed close in
Asia was driven on the positive side by US auto sale figures and the financial sector. Equities have been driven lower in Europe by retail names as another UK flagship department store, Marks & Spencer [MKS.UK], reported LFL sales over the holiday period. M&S posted y/y growth but missed expectations and traded down from the open. Other sectors that traded lower through the morning included Energy, Financials and Industrials. German banking group Deutsche Bank [DBK.GE] led the decline in Frankfurt and hotel/services firm Accor [AC.FR] in Paris. As oil eased off its multi-day upward trend, the broader energy sector rotated lower in sympathy. European markets looked to build a bottom at -0.4-0.5% past 5:00EST. Despite weather issues in Europe, trading volumes have remained high across the board with the FTSE and DAX specifically outperforming.

-In individual equities: Marks & Spencer [MKS.UK]: Provides Q3 trading statement: 13 week UK LFL Sales +0.8%. || Prudential [PRU.UK]: Announces new JV with UOB; to pay £192M for Life Assurance unit. || Sodexo [SW.FR]: Reports Q1 Rev €3.74B v €3.8Be; Confirms 2010 targets. || KBC [KBC.BE]: Listing of Stake in Czech unit seen floating by April 2010 -WSJ. ||

- Speakers: ECB's Stark commented in a press interview that the EU will not save
Greece and noted that Greek deficit was too high. He added that EU membership did not allow member nations to ask for a bailout and could not assume other EU states would rescue Greece. He did concede that the Euro-zone economic outlook had improved, reiterated that the outlook remained uncertain. Lastly he reiterated that current ECB interest rates are appropriate at 1.0%*** China's PBoC reiterates to maintain an appropriately loose monetary policy and noted that it would push forward with "multi-polarization" of international financial system. The PboC reiterated the view that it would maintain "basically stable" Yuan at "reasonable levels" and noted that it would explore ways of using FX to support companies' expansion overseas. The central bank noted that credit growth had played a critical role in 2009 in bringing economic turnaround but did concede to pay close attention to property market, strictly implement credit policies related to property. It reaffirmed commitment to curb lending in industry sectors with overcapacity yet still prevent credit and systemic financial risks. To promote Yuan trade settlement in Hong Kong and Macau. Other key points noted that the PBoC would seek to increasethe role of domestic consumption in Chinese economy (rebalancing) and stabilize prices and effectively manage inflationary expectations. Last ly it noted that it would try to stabilize operation of stock market ***Greece Fin Min Papaconstaninou responded to ECB's Stark press interview and stressed that Greece did not need a bailout nor outside aid in its fiscal situation. The finance minister reiterated his pledged that 2010 will see a 4% drop in its deficit levels from the 12.7% in 2009 and that the country was doing what was needed to cut the deficit. He forecasted 2010 borrowing requirements at €54B and would look at all instruments and options to fund deficits. He did note that Greece had lots of interest from overseas investors. Lastly he stated that ECB' member Stark did not need to make the comment regarding Greece in newspaper interview and that the ministry would explain its programs and procedures to the EU later today andreassure markets in regards to its budget*** UK 2009 new car registrations seen above 1.92M, likely below 2008 levels - SMMT

- Currencies: The Euro was offered ahead of the European morning following a newspaper interview with ECB member Stark, who commented that Greece would not be bailed out. The pair moved from 1.4350 to test 1.4280 before stabilizing ahead of the equity open. As the European session wore on the EUR/USD managed to recoup all of its losses attributed to the Stark comment as Greece resorted to 'damage control' and again reassured the markets that it has the ability to meet its funding requirements and place measures to reduce the deficit to GDP ratio. Also, as the Euro moved below the 1.43 handle, dealers were noting that the 200-day moving avg in pair was seen as a pivot support and currently stands at 1.4241 level. This moving average was last tested back in late Dec when the EUR/USD pair was trading at 1.4200 (Dec low in pair was 1.4215 on Dec 22nd). The 200-day mvg avg last breeched back in early May 2008 at the 1.3460 level. Vague chatter of 'official' names taking advantages of the weakness in the pair were also cited as a stabilizing factor in the session.

- The JPY was broadly weaker against the major pairs. Dealers were citing a few factors for the soft tone in the yen currency against the majors. First the article in the UK Telegraph on the Japanese sovereign situation (See our "In the papers section below). Also the growing speculations that health reason would have the Japanese PM finally accept the resignation of Fin Min Fujii. As the NY morning approach, the PM did concede to the wishes and formally accepted the Fin Min's letter of resignation. Deputy PM Kan will now move into the position of Finance minister. FX dealers noting that Fujii was viewed as the architect of the firm JPY policy since the government took over power last year. The JPY is also weaker on the political fallout of the pending acceptance of the official in the short tenure of the new Gov't. USD/JPY tested above 92.40 on the formal acceptance of resignation.

-The market focus to gauge the employment situation in the
US to see if Non-farm payroll could register a positive number for the first time since Dec 2007. Dealers note a fading bias in holding dollar carry-related trades as the Fed might move towards an earlier exit strategy than previous anticipated.

- Fixed Income: Debt markets are awash with cash as trading books are reopened for the new year, helping 2010 issuance in both the UK and Germany get off to a good start and putting sovereign debt related fears to rest , at least for the time being. The
UK's £4B 5 year Gilt auction was covered a well above average 2.68 times while Germany's 10y Bund was reopened at 3.38% and covered 1.6 times. PIMCO's assertion that the UK stood an 80% chance of losing its AAA status garnered attention, as did a similarly opinion piece report from the Telegraph's Ambrose Evans Prtichard which foretold "a muddle of sovereign failures in 2010", including in Japan, the euro-zone and UK. But ultimately neither had any market impact. Greek debt was back in focus after the ECB's Stark rejected the notion of any Euro-zone bailout for the beleaguered nation. Greek 10s are 3bps wider at Bunds+229bps.

- In the papers: UK Telegraph's Ambrose Evans-Pritchard commented that the global bear rally will deflate as
Japan leads world in sovereign bond crisis. The article noted The contraction of M3 money in the US and Europe over the last six months will slowly puncture economic recovery as 2010 unfolds, with the time-honored lag of a year or so. Ben Bernanke will be caught off guard, just as he was in mid-2008 when the Fed drove straight through a red warning light with talk of imminent rate rises - the final error that triggered the implosion of Lehman, AIG, and the Western banking system. be reminded too that the West's fiscal blitz - while vital to halt a self-feeding crash last year - has merely shifted the debt burden onto sovereign shoulders, where it may do more harm in the end if handled with the sort of insouciance now on display in Britain. Article noted that great bear rally of 2009 runs into the greater Chinese Wall of excess global capacity. The surplus regions (China, Japan, Germania, Gulf ) have not increased demand enough to compensate for belt-tightening in the deficit bloc (Anglo-sphere, Club Med, East Europe), and fiscal adrenalin is already fading in Europe. The vast East-West imbalances that caused the credit crisis are no better a year later, and perhaps worse. Household debt as a share of GDP sits near record levels in two-fifths of the world economy.

-Geo/political: -Geo/Political: Iranian themes continue to dominate waves in the geo/political realm as the NYT looks at the countries development of a massive underground based system to hide and protect its developing nuclear program. This commentary has followed statements from
China's UN ambassador who reiterated the Russian position and killed any immediate possibility of new sanction against the regime. In macro flows, 2009 data has shown that China has overtaken export rival as the world's largest merchandise exporter at $957B in goods over the first 10-month period of the year (despite a 20.4% y/y reduction). In political news, two key US Senators appear to be on the way out. ND (D) Sen Dorgan has confirmed his intention to not run in this November's election and multiple sources have speculated that CT (D) Sen Dodd will make a similar announcement at a schedule press conference today. On a similar thread, the term of Japanese Fin Min Fujii came to a close as long term speculation regarding health and age came to a close as PM Hatoyama accepted his resignation, naming Naoto Kan.

- US employment picture moving towards the front burner over the next few sessions. The ADP report will be seen as a gauge to determine if Friday's payroll report could register its first positive reading since Dec 2007
- Chinese govt think tank (CASS) has called for a tighter monetary policy and a one-off 10% appreciation in the Yuan currency versus US Dollar. But PBoC reiterates a steady Yuan policy
- Japan PM accepts resignation of Finance Minister Fujii for health reasons
- Greece and ECB's Stark trade barbs on the Greek fiscal situation and funding requirement
- Euro-Zone Service PMI register mixed readings and misses a majority of analyst expectations
- FOMC minutes later today and BOE rate decision on Thursday

***Looking Ahead:
- 7:00 (US) MBA Mortgage Applications w/e Jan 1st: v -10.7% last release (Data was not released last week due to holiday)
- 7:30 (US) Dec Challenger Job Cuts Y/Y: No est v -72.3% prior; No est v 50.4K prior
- 8:15 (US) Dec ADP Employment Change: -75Ke v -169K prior
- 10:00 (US) Dec ISM Non-Manufacturing Composite: 50.5e v 48.7 prior
- 10:30 (US) DoE weekly inventories: Crude: -500Ke; Gasoline: +500Ke; Distillate: -2Me; Capacity Utilization: 80.8%e
- 14:00 (US) FOMC minutes from Dec 16th policy meeting


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