European Market Update: UK Retail sales disappoint; Markets cautious ahead of potential China and India exit strategy implementation
Friday, January 22, 2010
European Market Update: UK Retail sales disappoint; Markets cautious ahead of potential China and India exit strategy implementation
*** ECONOMIC DATA *** - (GR) Greece Nov Current Account: -â‚¬2.8B v -â‚¬2.5B prior - (FR) France Jan Business Confidence: 92 v 90e; Production Outlook: -4 v -10e; Own-Company Production: -9 v -6e - (TT) Taiwan Dec Unemployment Rate SA: 5.8% v 6.0%e - (AS) Austria Nov Industrial Production M/M: -1.3% v 1.1% prior; Y/Y: -4.7% v -8.0% prior - (IC) Iceland Dec Wage Index M/M: 0.3% v 1.5% prior; Y/Y: 3.6% v 4.0% prior - (UK) Dec Retail Sales M/M: 0.3% v 1.1%e; Y/Y: 2.1% v 3.0%e - (EU) Euro-Zone Nov Industrial New Orders M/M: 1.6% v 0.5%e; Y/Y: -1.5% v -7.1%e - (BR) Jan IBGE CPI ipca-15 M/M: 0.5% v 0.5%e
*** SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM *** - Equities: European equity markets opened on a heavy theme following losses in Asia and the America's that extended over a two day period. The financial sector has been in the highlight after yesterday's initiatives launched by US Pres Obama regarding prop trading, private equity and overall size of banks. Trading in the larger financials with exposure to sales/trading, exchange and over the counter securities have taken the brunt of the decline. In early themes, continued concerns emanating from China regarding potential tightening have continued to punish miners and heavy industrial names. Outside of financials, names that rotated lower included Lufthansa [LHA.GE] following analyst actions and commentary that the firm had yet to put together a full 2010 outlook. Sector rotation from Goldman led to a downgrade of Daimler [DAI.GE] with those shares moved lower. Equity winners included Ericsson [ERICB.SW] whose mobile handset JV with Sony [SNE] provided signs of recovery with units shipped and ASP both increasing q/q. Aftermarket US earnings including American Express [AXP] and Google [GOOG] have carried sector themes into Europe. Expected earnings from industrial and lending name GE [GE] in the NY morning are being eyed anxiously.
-In individual equities: Sony Ericsson [SNE/ERIC] Sony Ericsson Reports Q4 Net loss -â‚¬167M v -â‚¬187M y/y, Sales â‚¬1.75B v â‚¬2.91B y/y. || Tullow [TLW.UK]: Government of Uganda said it favored Eni's rival proposal - London Times. || Air France [AF.FR]: Seeking to reduce regional carrier costs by 20% over 2-year period -Les Echos. ||
- Speakers: ECB's Constancio commented that the Euro area faced a period of slow growth and that structural competitiveness was its main issue. He believed that Portugal would match Euro-area growth average in future. Portugal had done enough for 2010 and that it might not need spending cuts **ECB's Gonzalex-Paramo commented that the recent economic recent recovery might make reforms seem less urgent ***Former Japan Fin Min Yosano commented that Japanese debt was approaching toward uncontrollable levels and added that long-term interest rates are to rise as a result*** BOJ's Shirakawa commented that it was important for Japan to move away from deflation. He noted that the central bank would maintain an accommodative policy stance and noted the importance that economy returned to growth with price stability. Need to narrow output gap and create demand. Lastly he noted the BOJ would review its long-term economic forecasts later this month (issued back in October) *** Greece Debt Agency PDMA commented that it planed to issue minimum of â‚¬3B in syndicated bonds in near future with 5 - 10yr maturity *** China State Information Centre (SIC) commented that any China interest rate increase depended on the amount of hot money inflows and on effectiveness of current policy tools ***China Banking Regulator CBRC noted that its Shanghai unit informed small banks not to give loans that were rejected by larger banks to control risks from property loans***Russian Fin Min Kudrin commented that Russia might move to sell oil denominated in ruble currency over the course of time
- Currencies: The USD was softer against the major and commodity related pairs as some of the initial risk aversion over President's Obama call for restrictions on the size and trading activities of financial institutions. It seems that loopholes in the proposal were already being considered. The EUR/USD tested 1.4160 during the European morning, up around 60 pips from its opening level in Asia. The JPY moved off its best level as it benefited from risk aversion flows during the early part of the Asian session. Former Japan Fin Min Yosano noted that the Japanese debt situation was approaching uncontrollable levels and that long-term interest rates were to rise as a result.
- Fixed Income: Government bonds remain bid with risk aversion en vogue, as Bund and Gilt markets get their first chance to react to the Volcker rule - having been officially unveiled yesterday after the European close. It's a steepening story in Europe with short dated issues outperforming on both the continent and in the UK. Greece provided further details on upcoming issuance, confirming plans to issue a minimum of â‚¬3B in bonds with 5 - 10yr maturity via syndicate next week. 10y spreads are working their way back to the 300bps area as we go to press.
- Geo-Political: Chinese authorities have responded to US Sec of State Hillary Clinton's comments regarding censorship by stating the issue could pose threats to overall Sino-US relations. Yesterday Clinton asked for a full investigation into a series of internet attacks against US firm Google that escalated into a freedom of speech issue with the internet giant threatening a pullout from china. Indian authorities have issued a wide-scoping terror alert to domestic airline and airports on intelligence that terror groups are planning imminent hijacking attempts. Airports have been stepped up to high alert on the threat that comes following US Sec Def Gates' visit earlier in the week. Russian authorities have continued hard-line responses to speculation that the US is in the process of deploying Patriot Missile THAAD systems in Poland. Foreign Min Lavrov denied claims that Russia would be expanding the size of its Baltic surface fleet as a response, but questioned the logic of the US operations viewing the exercise as a move by Poland to build its Russian defenses. Lavrov stated that both the US and Russia were not in a place to cooperate on joining ABM technology as of yet. Reminder: Pres Obama halted an ABM program in the Czech Rep and Poland in Sept 2008.
-Energy: Russia Fin Min KudrinRussia might move to sell oil denominated in ruble currency over the course of time. Russian Dep Fin Min commented that it was considering changing from oil export tax to production tax regime *** Gazprom [GAZP.RU] might sign a final gas supply pact with China in mid-2011. Chinese press noted that under the plan Russia would begin supply fuel to China in 2015.
Sovereign Ratings: Fitch revised Russia outlook to Stable from negative and affirmed the country's sovereign "BBB" ratings. Outlook was aided by rebound in energy prices and lower inflation outlook. A lower budget deficit and lower banking sector risk were also factors cited
***Notes: - Asian stocks broadly lower; European and US futures are steady as banks seems to have a plan around the Obama restrictions - Dealers feel that Geitner's days are numbered after Obama selects the Volcker route - UK retail sales below expectations but dated Euro-zone Industrial orders exceed analyst views. -China Foreign Ministry: "Resolutely opposes" US accusations regarding the internet online freedom. Sec Clinton speech was 'Harmful' To Sino-US relationship
***Looking Ahead: - (PD) Poland Dec Budget Level (PLN): No est v -498.2M prior; Budget Level YTD: No est v -24.4B prior - 7:00 ECB's Gonzalez-Paramo to speak - 8:30 (CA) Canada Nov Retail Sales M/M: -0.2%e v 0.8% prior; Less Autos M/M: 0.5%e v 0.2% prior - 9:00 (BE) Belgium Jan Business Confidence SA -7.2%e v -7.9% prior - 10:00 (MX) Mexico Dec Preliminary Trade Balance: -$644.5me v -$195.2M prior - 10:00 (MX) Mexico Dec Unemployment Rate: 5.1%e v 5.3% prior - 10:00 (IC) Iceland to sell notes - 14:00 (AR) Argentina Dec Trade Balance: $1.2Be v $1.3B prior - 14:00 (AR) Argentina Dec Industrial Production M/M: No est v 1.1% prior; Y/Y: No est v 4.0% prior - (CO) Colombia Nov Trade Balance: $181.4Me v $133.9M prior
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