European market Update: EU accepts Greece's stability plans (as expected); EU saw risks in Polands fiscal strategy
Wednesday, February 03, 2010
European market Update: EU accepts Greece's stability plans (as expected); EU saw risks in Polands fiscal strategy
*** ECONOMIC DATA *** - EU Commission accepts Greece austerity plan - (IR) Ireland Jan NCB Services PMI: 44.4 v 48.3 prior; lowest reading since July 2009 - (TU) Turkey Jan Consumer Prices M/M: 1.9% v 1.8%e; Y/Y: 8.2% v 8.1%e - (TU) Turkey Jan Producer Prices M/M: 0.6% v 0.9%e; Y/Y: 6.3% v 6.6%e - (SP) Spain Jan Services PMI: 48.8 v 45.0 prior; highest reading since Dec 2007 - (IT) Italy Jan Services PMI: 50.9 v 52.9e - (FR) France Jan Final Services PMI: 56.3 v 57.0e - (GE) Germany Jan Final Services PMI: v 51.2e - (EU) Euro-Zone Jan Final Services PMI:52.5 v 52.3e; PMI Composite: 53.7 v 53.6e - (SP) Spain Jan Consumer Confidence: 78.7 v 74.7 prior - (NO) Norway Nov AKU Unemployment Rate: 3.2% v 3.3%e - (UK) Jan PMI Services: 54.5 v 56.5e - (EU) Euro-Zone Dec Retail Sales M/M: 0.0% v 0.4%e; Y/Y: -1.6% v -2.4%e
*** SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM *** - In equities: European markets looked ready to shrug a global equity surge that flowed out of the US and was maintained through the Asian trading session. Health care names led the downward pressure in the pre-market. Earnings reports from Roche [ROG.SZ] missed net expectations for 2009, and despite reaffirming guidance expectations, shares traded offered throughout the session. Sector peer AstaZenica [AZN.UK] traded down on negative commentary from Morgan Stanley regarding expected data on Recentin. Markets rallied on data and commodity/energy prices past 4:00EST and have maintained their best levels into 5:30EST. Financials traded higher on a range of positive analysts comments, while energy related names shook off yesterday's losses as geo/political events moved crude higher. Individual outperformers included MAN Ag [MAN.GE] on renewed takeover chatter and solid earnings from truck manufacturer Scania [SCVB.SW]. Markets moved lower on commentary from Spain regarding 2010 and 2011 deficit projections, but snapped back on EU commentary on Greece. Trading volumes have relaxed from their pitched levels earlier in the week. With European markets trading in positive territory, markets are pushing towards a 4th consecutive session of positive gains.
In individual equities: Roche [ROG.SZ]: Reports FY09 Net CHF8.5B v CHF10Be, Rev CHF49.1B v CHF49.5Be. || Antofagasta [ANTO.UK]: Q4 Production Report; Copper production for 2009 reached 442,500 tonnes, ahead of the original forecast. ||
- Speakers: EU commission issued a report on Poland's budget deficit and noted that the Polish government should avoid new stimulus measures and saw risks in the country's fiscal strategy. Poland needed sizeable measures to correct deficit by 2012*** EU Commission accepted the Greek stability plan (as expected). The EU gave the country until end-2012 to get its deficit in line with Maastrict Stability Pact requirements Greece must be prepared to take extra fiscal steps and establish contingency reserve of 10% of current expenditure***Spain Government released 2010 and 2011 deficit forecasts. Gov't forecasted 2010 fiscal deficit to GDP ratio at 9.8% at 7.5% of GDP in 2011 and 5.3% in 2012*** Japan's Fin Min Kan commented that creating domestic demand was critical to overcoming deflation. He added that Japan's net debt conditions deteriorating rapidly *** German Savings Bank's Haasis commented that he believed that Germany would need around three state-owned banks rather than the seven that are in operation at this time *** Russia Econ Min says 2009 Trade surplus came in at $110.6B, down 35.5% y/y *** German Fin Min Schaeuble reiterated that Greece must correct its own mistakes. He commented that G20 members should take a delicate approach towards questions of global imbalances ***German Savings Bank's Haasis commented that he believed Germany would need around three state-owned banks rather than the seven that are in operation at this time . He added that commercial banks have returned to speculative investing and global liquidity might lead to the next bubble. Current stock prices were not based on fundamentals ***
- Currencies: The USD drifted lower throughout the European morning but off its worst levels. The weak dollar tone was aided by continued risk appetite and a general consensus that the EU Commission would accept the Greek austerity plan to reduce its budget deficit over the coming years. EU Commission president Barroso comments on Tuesday were interpreted that the Commission would endorse the Greek Stability Plan. The EU did formally accept the Greek plan and gave the country until end-2012 to fulfill its Maastruct Stability Pact reuirement. The EUR/USD tested one-week highs at 1.4020 before hitting some technical resistance. European budget matters continue to be a key focal point as the EU commented on Poland's fiscal plans and Spain released for deficit projections for the next two years. - GBP outperformed its European counterparts as overnight U.K. data were broadly positive, with Nationwide consumer confidence rising, while BRC shop price index rose. However a softer PMI Services reading saw the GBP retrace some of its earlier gains
- Fixed Income: In another vote of confidence for UK sovereign debt markets the DMO sold Â£3B in 8 yr Gilts with reasonable results. Germany sold â‚¬4.8B in the first tap of the current on the run 5y OBL's with weaker than average results - Short covering ahead of the EU commission ruling on Greec'e stability plan drove spreads narrower and with results now out an in line with expectations, 10y spreads are trading at +330bps. After some encouraging debt and deficit statistics Spain has narrowed 3bps to trade at +82bps *** A late boost to risk appetite has sent government bonds lower as we go to press, bunds +5bps on the day an d approaching 3.25%
-Geo/political: Iran has claimed the successful launch of an upgraded Block II version of its Kavoshgar 3 rocket. Iranian media claimed the multi-stage rocket carried a mouse, turtle and worms into low earth orbit. An earlier version of the rocket carried out Iran's first successful, domestically manufactured satellite launch in Feb, 2009. The military side-effects of such a weapon, with an expressly stated 'experimental capsule,' are immediately apparent. Reminder: Over the weekend, operations to upgrade US and regional ally missile defense systems received broad press coverage. Illinois Democrats have selected state Treasurer Alexi Giannoilias as the party's candidate to run for the states senate seat vacated by now Pres Obama. Giannoulias will be challenged by Republican candidate Mark Kirk, who is a 5-time House of Representatives member broadly seen as a moderate within the party. Russian and US diplomats have reached what they termed as a 'agreement in principle' on a new nuclear weapons treaty. The treaty would be the first such bi-lateral agreement on nuclear forces in nearly 20 years. Expectations for the new treaty are for reduced levels of deployable warhead counts along with reductions in the number of delivery systems (missiles/bombers) that each state will be allowed to have. Analysts have predicted new terms could cut deployed weapons to 1.5K form current 2.2K levels, with delivery systems cut further to 700 from current 1.6K.
- In the papers: According to the NIESR, the UK's tax and spending plans will not be enough for the government to keep the promises it has made to cut the national debt - London Independent. UK's Chancellor Darling disclosed in the past that he would seek to halve the budget deficit as a proportion of national income by the 2013-14 financial year. - According to NIESR, even if taxes are raised further and additional spending cuts are implemented, net borrowing would still be 6.8% of GDP in 2013-14, above the 5.5% that the Government must get in order to maintain its promise.
***Notes: - US - China tensions appear to simmer. - Market ponders what G7 will talk about in Canada and then wonders if it matters. - EU Commission accepts Greece's plan to reign in its deficit - Market chatter that Eurostat uncovered another â‚¬40 b in debt that was conveniently forgotten in previous disclosures. - Employment data to take center stage with ADP set for release todayt and highlighted by Friday's Non-Farm Payroll
***Looking Ahead: - 7:00 (US) MBA Mortgage Applications w/e Jan 29th: No est v -10.9% prior - 7:30 (US) Jan Challenger Job Cuts: No est v 45.1K prior; Y/Y: No est v -72.9% prior - 8:00 (NO) Norway Central Bank (Norges) Interest rate decision: No change expected in the Deposit rates from the current 1.75% level. - 8:15 (US) Jan ADP Employment Change: -30Ke v -84K prior - (US) Jan ISM Non-Manufacturing Composite: 51.0e v 50.1 prior - (US) DoE Crude Oil/Gasoline/Distillate Inventories - (MX) Mexico Jan IMEF Manufacturing Index: 53.0e v 52.6 prior; NoN-Manufacturing Index: 53.5e v 53.3 prior
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