European market Update: Global markets pause to assess the debt bomb
Monday, February 08, 2010
European market Update: Global markets pause to assess the debt bomb
*** ECONOMIC DATA *** - (SZ) Swiss Jan Unemployment Rate: 4.5% v 4.6%e; Unemployment Rate Seasonally adj: 4.1% v 4.3%e - (FR) France Business Sentiment: 104 v 102 prior - (TT) Taiwan Jan Total Trade Balance: $2.5B v $2.0Be; Total Exports Y/Y: 75.8% v 62.9%e Total Imports Y/Y: 114.5% v 100.8%e - (CZ) Czech Jan Unemployment Rate: 9.8% v 9.7%e - (CZ) Czech Dec Trade Balance (CZK): 2.8B v 3.5Be - (TU) Turkey Dec Industrial Production M/M: 0.7% v 0.3% prior; Y/Y: 8.3% v 5.8% prior; Ind Prod NSA Y/Y: 25.2% v 18.0%e - (SZ) Swiss Dec Retail Sales Y/Y: 4.7% v -0.1% prior - (NE) Netherlands Dec Industrial Production M/M: -2.2% v 0.3%e ; Y/Y: 0.9% v -2.1% prior; Industrial Sales Y/Y: 3.3% v -3.7% prior - (DE) Denmark Trade Balance X Shipping (DKK): 6.2B v 6.3B prior; Current Account: 6.0B v 8.6B prior - (EU) Euro-Zone Feb Sentix Investor Confidence: -8.2 v -2.7e - (SA) South Africa Jan SACCI Business Confidence: 81.2 v 83.5 prior - (CL) Chile Jan CPI M/M: 0.5% v 0.1%e; CPI Ex-perishables M/M: 0.6% v 0.0%e - (PO) Portugal Dec Trade Balance : -â‚¬1.7B v -â‚¬1.8B prior
*** SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM *** - In equities: Despite a continued retracement in Asian equity markets, European bourses started the week firmer. Positive European rotation was led by a bounce in financials that printed losses of approx 6% as a sector in the previous week's trading. Gains in commodity and energy prices mixed with strong earnings from a slew of UK and South African listed miners. Mining groups Xstrata XTA.UK], Randgold [RRS.UK], Harmony Gold [HAR.SA] and Anglo Platinum [AMS.SA] all provided encouraging statistics, and despite Anglo Platinum announcing a secondary offering, all traded higher. Other names that traded higher included ICAP [IAP.UK] following last week's losses and a number of German listed auto manufacturers. Shares of Dexia [DEXB.BE], after last Friday's formal announcement regarding the EU, rebounded to the tune of +6.5%. Markets remained choppy and paired off their best levels through 5:00EST. Risks of recovery and sovereign debts continue to be floated in the markets. Asian trading losses, with the Nikkei closing below 10,000 for the first time in 2010 continue to add mixed sentiment into the European trading session. Bourses in Europe are seeking to halt a three consecutive negative session slide.
In individual equities: Xstrata [XTA.UK]: Reports FY09 Pretax $3.97B (ex items) v $3.1Be, Rev $22.7B v $22Be, resumes final dividend payment of 8c/shr. || Randgold Resources [RRS.UK]: Reports Q4 Net $38.7 v Net $9.2M y/y, Rev $138.6M v $121Me; final dividend $0.17/shr, +30%. || International Power [IPR.UK]: GDF said to be considering another run at International Power - UK Independent. || Anglo Platinum [AMS.SA]: Reports FY09 REv ZAR36.9B v ZAR51.1B; Announces ZAR12.5B rights offer (8% of market cap). || Harmony Gold [HAR.SA]: Reports Q2 prelim Net ZAR118M v ZAR250Me; Rev ZAR2.9B v ZAR31Be. || Air France [AF.FR]: Reports Jan load factor 78.0% v 77.4% y/y. || Dexia [DEXB.BE]: CEO: FY10 will be more difficult year than FY09. ||
- Speakers: ECB's Nowotny commented in a press interview that he opposed a Euro-bond offering as a crisis instrument to help less solvent countries. However, he did concede that the idea of a joint Euro-bond issue would improve liquidity. He noted that Euro-Zone member must respect EU's fiscal rules and reiterated the view that Greece had to solve its fiscal situation. ***China Vice Commerce Min Zhong stated that China's currency (CNY) faced great pressure to appreciate. He reiterated Chinese Gov't and PBoC view that a stable Yuan was best for both China and the world He did not believe US and China would erupt into a trade war but conceded that tensions have escaladed. Says China has been the main victim of global protectionism and calls for anti protectionism sentiment. He saw tremendous pressure of protectionism***Russian Central Bank (CBR) stated that it saw no systemic risks with bank reserve ratios and that the bad loan ratios were slowly declining. The CBR also reiterated that it could continue with lowering interest rates and forecasted inflation falling to 7.0% level. *** SNB spokesperson stated that the central bank had no plans to sell any of its gold reserves, which currently stood 1040 tons of gold *** Bank of Israel's Gov Fisher commented that Israel's interest rate rise would depend on the country's inflation outlook. He noted that it was unlikely the key rate would be below 1.25% in a year's time. He saw inflation within middle of central bank's target in a year's time. Growth was reasonably well based in country as the economy improved significantly in Q4. The central bank saw positive impact on employment And now forecasted growth of 3% in first few quarters of 2010 *** Poland Fin Min Rostowski commented that he saw no reasons for the Polish Zloty currency to strengthen further***
- Currencies: The USD consolidated during the European morning following weekend comments from the European finance ministers to assure their G7 counterparts that the euro zone's debt crisis was under control. The EU stated that they would make sure that Greece sticks with its budget cutting plans. Dealers seen to note that key daily and weekly timeframes continue to suggest further downside potential in EUR/USD. A retracement to the 1.3740 level will be keenly watched . Technical factors will be duly noted as the week ahead appears to be slow on the data front ahead of the Chinese New Year. The CFTC Commitment of Traders report for week ending Feb 2 shows number of Euro short contracts at mult-year highs.
- Fixed Income: Gilts have stood out for their underperformance in the third day of trading following the discontinuation of BoE purchases, after last week's capitulation in equities served to keep yields in check. Comments from PIMCO's El Erian (Uk at most risk of losing AAA status) and a former IMF official ( UK should be seen in the same category as Greece and Spain) hardly helped the cause and the 10y Gilt is now trading 84bps cheap to the Bund, 7bps wider on the day, and the widest level since in that spread since Sept 2007. The German yield curve is a touch flatter with the 2y Schatz yield rising back above 1%. Peripheral markets have narrowed versus the core with Greece the best performer, -6bps at +342.
-Geo/political: With approx 84% of the second round voting in Ukraine's Presidential election counted, opposition leader V Yanukovich leads current PM Y Tymoshenko 48.5% to 45.9%. The figures, inside 3%, are within electoral error margin law and comments from Tymoshenko continue to point towards a protracted legal battle. Tymoshenko is unlikely to concede anytime soon and is likely to call into question validity or results, and the overall impartiality of monitors and vote counters in various regional sections.*** Taiwan's top trade negotiator Chiang Pin Kung attempted to water down any cross straight issues with the PRC, stating that last week's US arms sale would not affect relations. Chiang stated that since the sale was part of a previously negotiated agreement with the US, signed in 2006, relations visa-vi China remains unchanged. Taiwan continues to press towards a total free trade agreement with the mainland, Taiwan has stated that it is seeking the conclusion of such a treaty in 2010. *** Iranian President Mahmoud Ahmadinehjad ordered the creation of a higher level of enriched uranium (boosting levels by 20%). Iran has claimed the higher yielding product is needed to maintain operations at an ageing reactor used for medical purposes (the reactor is a US built atoms-for peace legacy facility). The IAEA, EU and US continue to fear that higher enriched uranium would be used a precursor to making nuclear bombs.
- In the papers: Many articles on the current debt situation in Europe. UK telegraph ran a story Euro under pressure as Greek crisis becomes a 'huge game of chicken'. Concern over the ability of Greece to tackle its deficit spread last week to Spain and Portugal, which have both been hit hard by a severe downturn in the property and construction industries. The prospect of a sovereign debt crisis has been since by investors as a real risk in 2010 because of the fragile global recovery and the huge debts carried by some countries. The cost to the investor of buying insurance against a default by Greece, Spain and Portugal jumped last week, as stock markets across Europe fell. It noted that the weekend G7 summit that members believe that Europe can handle the current situation. ECB's Trichet, president of the European Central Bank, stated that "We expect and we are confident that the Greek government will take all the decisions that will permit it to reach that goal."
- Sovereign Ratings: Moody's Issued its annual sovereign report on Latvia and noted that the country's outlook remained negative Latvian government's "Baa3" ratings with a negative outlook reflect the impact of the severe economic recession and uncertainties around Latvia's economic and financial outlook. The government's ratings also take into account demonstrated financial support from the EU, IMF and neighboring countries. Latvia's economy and government finances are now beginning to stabilize after being severely affected by the global financial crisis in 2009. The strengthening regional economy is supporting Latvian production and exports, while the sharp swing in the current account balance suggests that the country's 'internal devaluation' is working. There remains uncertainty around the timing of Latvia's recovery. The economy is forecast to contract around 2% in 2010 as the private sector continues to deleverage and the government tightens the budget. Credit growth is constrained as the banking sector copes with a surge in non-performing loans
***Notes: - Little comes out of G7 although official rhetoric insisted there would be a European solution to the problems and there would be no need for an IMF rescue. - Former Fed Greenspan: : US recovery to be slow trudging thing. Would get very concerned if stocks continue to fall. - Most papers take notice of deficit concerns overhanging everything. FT: Europe needs to show it has a crisis endgame. - Former IMF economist: UK should be in the same category as Greece and Spain.
***Looking Ahead: - (CL) Chile Jan Trade Balance: $1.7Be v $1.6B prior - (CA) Canada Jan Housing Starts: 179.0Ke v 174.5K prior
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