European Market Update: Risk appetite firms on potential policy measures by the ECB to limit contagion from the Greek crisis
Tuesday, February 09, 2010
European Market Update: Risk appetite firms on potential policy measures by the ECB to limit contagion from the Greek crisis
*** ECONOMIC DATA *** - (GE) Germany Trade Balance: â‚¬13.5B v â‚¬15.0Be; Current Account: â‚¬20.6B v â‚¬19.1Be; Exports M/M: 3.0% v -0.1%e; Imports M/M: 4.5% v 3.0%e - (GE) Germany Jan Final CPI M/M: -0.6% v -0.6%e; Y/Y: 0.8% v 0.8%e - (GE) Germany Jan Final CPI EU Harmonized M/M: -0.6% v -0.7%e; Y/Y: 0.8% v 0.7%e - (FI) Finland Dec Preliminary Trade Balance: -â‚¬50M v â‚¬250Me - (HU) Hungary Dec Preliminary Trade Balance: â‚¬375M v â‚¬271Me - (CZ) Czech Jan CPI M/M: 1.2% v 1.5%e; Y/Y: 0.7% v 1.0%e - (UK) Dec Visible Trade Balance: -Â£7.3B v -Â£6.7Be; Total Trade Balance: -Â£3.3B v -Â£2.8Be; Trade Balance Non-EU: -Â£3.6B v -Â£3.1Be - (SA) South Africa Q4 Unemployment: 24.3% v 24.5% prior - (GR) Greece Jan Consumer Price Index Y/Y: 2.4% v 2.7%e - (GR) Greece Dec Industrial Production Y/Y: -7.6% v -6.1% prior - (RU) Russia Jan Budget Level YTD (RUB): 66.1B v -2.3T prior
*** SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM *** - In equities: European markets rotated off their strong gains on Monday's session (which snapped a 3-consecutive negative trend) on an initially soft footing. Declines in the US, with the DOW closing below 10,000 and a mixed session in Asia, that saw heavy trading in financials, set the macro background. Premarket corporate reports were dominated by UBS [UBSN.SZ] which broke a trend of 4-conecutive net losses with a positive Q1 net figure that beat expectations. Headline figures quickly gave way to focus on continued bleeding in the banks Wealth Management house that saw further sizeable q/q declines in both North America and Europe. UBS opened sharply lower but served as a broad indicator of market sentiment as shares led a gradual recovery in financials that rallied markets. UBS nearly broke the unchanged mark at 4:30EST, but fell off its best levels in a trend that was mirrored by equity markets. Disappointed UK trade data served as an immediate catalyst to this pare-back. Into 5:30ESt, European equity markets are off their best levels on in-line trading volumes.
In individual equities: UBS [UBSN.SZ]: Reports Q4 Net adj CHF1.4B v CHF653Me, Rev CHF6.09B v CHF6.9Be.|| BskyB [BSY.UK]: Confirms placing of 404k ITV shares at 48.5p/shr for aggregate proceeds of Â£196M. || Heidelberger [HDD.GE]: Reports Q3 EBIT loss â‚¬13M v loss â‚¬41Me, Rev â‚¬578M v â‚¬538Me. ||
- Speakers: Greece Labor Minister commented that the Gov't is considering raising average real retirement age to 63 from 61 by 2015. He added that the pension system would face funding problems by 2015 if no measures taken ***Poland Finance Ministry issued its new convergence plan to reduce deficit to under 3% by 2012. The plan noted that Public debt would not exceed 55% of GDP between 2010-2012 period under Polish accounting rules. The 2011 Debt-to-GDP would hit 56.3% under EU rules. The plan decided against setting a new target for adopting the euro. The government originally wanted to replace the zloty with the European Union's single currency in 2012 ***Ireland Honohan stated that current Irish budgetary adjustments seemed to be at correct levels *** EU's Barroso commented that there was further action required by Greece and the EU had the ability to monitor the situation. He noted that all EU states were aware of the challenge and the need to reinforce economic coordination within the EMU. The Maastrict Stability Pact needs to be properly implemented. The Greek situation would be tougher without the Euro currency but the media treatment of the situation amplifies the difficulties. ***Goldman Sachs Chief Economist O'Neill: Sees China's PBoC raising interest rate between one to three times in 2010 with the first hike coming at any time now.
- Currencies: The USD and JPY currencies were softer in the European session amid speculation that the ECB would hold an emergency meeting to discuss measures to head off contagion in the Greek debt crisis. Speculation mounted after ECB's Trichet left a meeting with the RBA a day early, which helped market sentiment. UK press taking note of recent CFTC Commitment of Traders report to surmise that traders and hedge funds have amassed the largest ever short positions against the Euro on the ssuspicions that the Greek crisis could give way to a full-blown attack on the euro. Nonetheless the EUR/USD remains to overtake the 1.3740 level, which was a prior upside acceleration point in May 2009 and the recent hourly high in the aftermath of the US Nonfarm payroll report last Friday. Some dealers note that the problem for Europe is that if Greece received special treatment then what precedent this would be for other peripherals and their adherence to the Maastrict growth and stability pact .
- Fixed Income: The Trichet story and implications for a bailout have led to a decline in both cash yield spreads against the core and outright CDS protection for Europe's more fiscally challenged nations. The Greek 10y has shed 10bps to trade at Bunds +350bps while 5yr CDS has fallen by about the same amount to trade at +412bps. Portugal is the next best performer with 10 year yields at Bunds +151bps and 5 year CDS at 235bps, both lower by about 9bps. The DMO sold Â£2B in 24 year Gilts with robust results (bid-to-cover above 2x, yield tail 0.3bps), especially in light of the significant duration drop and the recent exit of the BoE from the market.
-Geo/political:Iran has wasted no time in carrying out plans to accelerate its higher enrichment level program. The operation, which Iran claims is for exclusive use in its medical reactor program is a fresh rebuff of increasingly wide spread, and consensus calls, for tighter sanctions. Iranian state media has reported that the enrichment process began early on Tuesday at its Natranz facility. Iran stands ready to celebrate the 31st anniversary of the Islamic revolution on Feb 11. The date is now seen as a broad showdown behind the hard-line gov and any domestic opposition. Clear labeling of the opposition as foreign agents, in addition to the recent execution of several demonstrators, has eliminated any room for negotiation on the issue. *** US Defense Secretary Gates has express concern on an official level to French officials regarding the planned sale of multiple amphibious assault ships of the Mistral class to Russia. The vessels, capable of landing armored vehicles and launching helicopters are valued at $750M/unit. NATO members in the Baltic's have posed significant questions regarding the sale due to their relationship and proximity to Russia proper and Kaliningrad. *** As expected, current Ukrainian PM Tymoshenko will seek to contest last Sunday second round Presidential results. Supporters will seek recounts of some stations and contest the results of others. So far, all actions that have been called for have been in the political/legal realm, not major demonstrations or street protests. Reminder: On Sunday Feb 7, with 84% of Ukraine's election votes counted by Central Election Commission, Yanukovich leads Tymoshenko 48.5% to 45.9%
- In the papers: Article in German press (Der Spiegal ) entitled "How Goldman Sachs Helped Greece to Mask its True Debt. Article stated that Goldman Sachs helped the Greek government to mask the true extent of its deficit with the help of a derivatives deal that legally circumvented the EU Maastricht deficit rules. At some point the so-called cross currency swaps will mature, and swell the country's already bloated deficit. Greece's debt managers agreed a huge deal with the savvy bankers of US investment bank Goldman Sachs at the start of 2002. The deal involved so-called cross-currency swaps in which government debt issued in dollars and yen was swapped for euro debt for a certain period -- to be exchanged back into the original currencies at a later date. Article pointed out that Such transactions are part of normal government refinancing. But in the Greek case the US bankers devised a special kind of swap with fictional exchange rates. That enabled Greece to receive a far higher sum than the actual euro market value of 10 billion dollars or yen. In that way Goldman Sachs secretly arranged additional credit of up to $1 billion for the Greeks. At some point Greece will have to pay up for its swap transactions, and that will impact its deficit. The bond maturities range between 10 and 15 years.
***Notes: - UBS reports first quarterly profit in over a year; clients have removed a net CHF228.1B over the 21 months through December - ECB's Trichet left a meeting with the RBA a day early, which helped fuel that the EU will find a solution to the peripheral debt situation and aiding overall market sentiment - Greece Fin Min: "The worst possible signal which we could send out is one calling for outside help " - Greece labor Min: Seeks to raise retirement age from 61 to 63 by 2015 - Fed's Bullard comments deemed fairly hawkish comments. Sees discount rate rising soon and rates rising in steps.
***Looking Ahead: - 7:30 (US) Jan NFIB Small Business Optimism: No est v 88.0 prior - 7:45 (US) ICSC Chain Store Sales: No est v 0.1% prior - 8:55 (US) Redbook Retail Sales: No est v 0.8% prior - 10:00 (US) Dec Wholesale Inventories: 0.5%e v 1.5% prior - 10:00 (US) Feb IBD/TIPP Economic Optimism: No est v 48.8 prior - 10:00 (MX) Mexico Consumer Prices M/M: 1.0%e v 0.4% prior; Y/Y: 4.4%e v 3.6% prior; CPI Core M/M: 0.6%e v 0.5% prior - 12:30 (UA) Ukraine to sell 2-year and 3-year bonds - 12:30 (MX) Mexico to sell MXN2.5B in 5-year FRN and MXN2.5B in 30-year bonds - 13:00 (US) To sell $40B in 3-year notes - 16:30 (US) API Crude Oil/Gasoline/Distillate Inventories
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