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Wednesday January 13, 2010 - 11:02:15 GMT
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European Market Update: Recent Chinese reserve hike being blamed for global, price movements

Wednesday, January 13, 2010 5:55:34 AM

 European Market Update: Recent Chinese reserve hike being blamed for global, price movements


- (TH) Thailand Central Bank maintained its benchmark rate at 1.25%; as expected
- (FR) France Nov Current Account: -€3.8B v -€4.2B prior
- (FR) France Dec Consumer Price Index M/M: 0.3% v 0.2%e; Y/Y: 0.9% v 0.8%e
- (FR) France Dec CPI EU Harmonized M/M: 0.3% v 0.2%e; Y/Y: 1.0% v 0.9%e; CPI Ex Tobacco Index: 118.60 v 118.52e
- (CZ) Czech Nov Retail Sales Y/Y: -4.9% v -1.0%e
- (GE) Germany GDP Annual: -5.0% v -4.8%e; Budget to GDP: -3.2% v -3.5%e
- (NE) Netherland Nov Industrial Production M/M: 0.4% v 0.6%e; Y/Y: -2.0% v -2.8%e; Industrial sales Y/Y: -2.5% v -17.25 prior
- (NE) Nov Trade Balance: €3.1B v €3.9B prior
- (IC) Iceland Q4 Unemployment rate: 6.7% v 6.0% prior
- (IT) Italy Nov Industrial Production M/M: 0.2% v 1.0%e; Y/Y: -7.9% v -10.2%e; Industrial Prod NSA Y/Y: -5.2% v -7.0%e
- (UK) Nov Industrial Production M/M: 0.4% v 0.3%e; Y/Y: -6.0% v -6.1%e
- (UK) Nov Manufacturing Production M/M: 0.0% v 0.2%e; Y/Y: -5.4% v -5.1%e

- Equities: European markets opened on session lows following a drubbing of an Asian session. East Asian names followed
China lower as reverberations from yesterdays reserve requirement raise out of China permeated. Bearish sentiment on the open was further by what added up to a profit warning from French banking group Societe Generale [GLE.FR]. SocGen stated that Q4 would be impaired by continued risk related asset charges over €1B, while the firm would be net profitable, its new target of 'slightly positive' is below consensus figures. Declines in SocGen were not sector systemic, and while Euro banks moved lower, fears of a large rotation were avoided. Energy names, specifically large cap integrated oil firms have traded lower throughout the session. Total [FP.FR] continues to deal with strike expectations and guidance speculation in the wider sector has been heard. European markets have shaken off their worst levels with all three exchanges at times trading positive. The DAX has outperformed as Infineon [IFX.GE] received further positive broker commentary from Goldman and K+S [SDF.GE], along with the fertilizer market, took a lift from JPMorgan statements. Volumes in the session across Europe remain high.

-In individual equities: SocGen [GLE.FR]: Expects 'slightly positive' in Q4 Net income (consensus estimate €850M). || Lonza [LONN.SZ]: To close facilities in
China; Will take charge of CHF140M; to cut costs to face a challenging economic environment. || Barry Callebaut [BARN.SZ]: Reports Q1 Sales Rev CHF1.45B v CHF1.5Be (+7.2% y/y); Global chocolate market to remain flat y/y. || Freenet [FNTN.GE]: Telco Holdings sells 10.1% stake, 12.9M shares to be sold in bookbuilding (10% of shares outstanding). || SIG [SHI.UK]: Provides Trading Statement; FY09 Net Sales £2.7B v £2.7Be, -10.1% y/y; LFL -11.5%. || Hannover Re [HNR1.GE]: Improves 2009 group guidance targets; Guides EPS €5.75 (flat v prior guidance), Dividend greater than or equal to €2.00/share. ||

- Speakers: IMF's Strauss-Kahn commented that the 2010 global recovery would be sluggish but did not see a double-dip recession taking form. He was concerned about a jobless recovery in many locations. The IMF chief advocated for a higher value for
China's Yuan currency (CNY)***Greece Fin Min Papaconstantinou commented in a german press interview that the country was on right track to solve its fiscal problems. He reiterated view that Greece does not need a bailout. EU Commission aiding in identifying problems and that it has no more skeletons in the closet' *** German Stats Office commented on the labor situation. It noted that the strong job market was mainly a result of government support and that it had seen a large drop in labor productivity ***

- Currencies: The GBP was firmer against the majors with dealers attributing the strength to press comments from BOE's Sentence. The central banker commented that the BOE had done enough to stimulate the
UK economy and prompted a string of GBP short-covering. The BoE's member hinted towards a potential move to a neutral bias as its recovery gets underway. GBP/USD tested 1.6260 before consolidating while EUR/GBP approached the lower end of the 0.89 handle. - Risk-related currencies entered the European session on a defensive mode following the PBoC's reserve rate hike on Monday. However, The AUD and CAD pairs managed to recover from earlier lows and trade marginally higher against the dollar.

- Fixed Income: Gilts futures were lower and underperforming Bunds slightly ahead of a sale of 40-year gilts and after hawkish comments attributed to BOE member Sentance in an newspaper interview. European peripherals continue to simmer as spread widen against the 10-year Bunds. There was a plethora of European supply throughout the session. The
UK sold £2.25B 4.25% 2049 Gilts; Avg yield 4.345%%; Bid-to-cover 1.81x. Germany sold €4.95B 5-year BOBL at 2.45% avg yield; bid-to-cover at 1.5x v 1.7x prior and will announce results to sell an additional €2.0B I/L bonds later this morning.

- Commodities: India 2009 Gold imports 343 tons v 420 tons y/y according to a Bombay Trade Assoc. It noted that the Dec gold imports came in at 34 tons v 3 ton y/y

- Geo-Political: Geo/political: A magnitude 7.0 earthquake has rocked the poorest country in the Western Hemisphere. Striking just outside
Haiti's capital city of Port-au-Prince, initial death tolls are seen in the 1000's range but are expected to rise. The Presidential Palace and UN headquarters were destroyed in the quake that sparked initial fears that a majority of the political leadership in the country were casualties. In a state lacking extensive electricity, water and transportation infrastructure, the ability of aid to arrive quickly will be deteriorated, exaggerating a growing humanitarian crisis. US based search giant Google has threatened to pull out of China after what it termed a persistent and organized attack against human rights activist's accounts. Google has also criticized Chinese policy of extensive internet censorship. Sec of State Clinton has stepped into the argument asking for clarification in the hacking case. Security forces loyal to the central government in Yemen have claimed the killing of an al-qaeda 'king-pin' in Shabwa province. The Yemeni al-aqieda offshoot has claimed responsibility for the failed Delta/KLM Christmas Day bombing. The attack followed a large Saudi incursion yesterday that claimed to kill over 40 rebels. The US Federal Reserve has stepped into an escalating sovereign concern in Argentina by freezing $1.7M in Central Bank accounts. The action followed a ruling form a US District Judge in relation to a creditor case from the 2002 default, but has highlighted the continued spat between Argentina's President and Central Bank. The US State Dept has responded to claims of responsibility in yesterday's terror attack by the Iranian government with an unequivocal denial.

-,BOE's Sentence: Central Bank has done enough to stimulate the economy
- China's PBoC increase in reserve requirement being blamed for all moves in commodities and equities
- Google [GOOG] might close china site and offices following hacking
- Soc Gen [GLE.FR] Expects 'slightly positive' in Q4 Net income (consensus estimate €850M)

***Looking Ahead:
- 7:00 (US) MBA Mortgage Applications w/e jan 8th: No est v 0.5% prior
- 10:00 (UK) Dec NIESR GDP estimate: No expectations v 0.2% prior
- 10:30 (US) Weekly DOE inventories
- 14:00 (US) Dec Monthly Budget Statement: -$92.0Be v -$51.8B prior
- 14:00 (US) Fed Beige Book



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