European Market Update: German Zew survey likely reflected concerns over Greece's fiscal situation; BOE views rise in inflation as temporary
Tuesday, February 16, 2010
European Market Update: German Zew survey likely reflected concerns over Greece's fiscal situation; BOE views rise in inflation as temporary
*** ECONOMIC DATA *** - (EU) Euro-Zone 25 Jan New Car Registrations: 12.9% v 16.4% prior - (TU) Turkey Jan Consumer Confidence: 79.2 v 79.0e - (SW) Sweden Q4 Industry Capacity: 79.5% v 78.2% prior; Total Number of Employees Y/Y: -2.3% v -2.8% prior - (UK) Jan CPI M/M: -0.2% v -0.1%e; Y/Y: 3.5% v 3.5%e; Core CPI Y/Y: 3.1% v 3.2%e - (UK) Jan RPI M/M: 0.0% v 0.0%e; Y/Y: 3.7% v 3.8%e; RPI Ex Mortgages Y/Y: 4.6% v 4.6%e; Retail Price Index: 217.9 v 218.0e - (UK) Dec DCLG House Prices Y/Y: 2.9% v 1.2%e - (GE) Germany Feb ZEW Economic Sentiment: 45.1 v 41.0e; Current Situation: -54.8 v -53.0e - (EU) Euro-Zone Feb ZEW Economic Sentiment: 40.2 v 41.5e - (UK) BOE Inflation letter: Underlying inflation pressures 'to the downside'; Recent spike in inflation seen as a temporary deviation. - (IS) Israel Feb Inflation Forecast: 2.2% v 2.5% prior
*** SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM *** - Equities: Equity markets in Europe opened on a bullish footing based on solid results out of UK banking group Barclays [BARC.UK]. Barclays, being the first tier 1 UK financial firm to report FY09 earnings set a high expectation hurdle. FY09 net at Barclays beat estimates and the group maintained its view that provision levels are expected to come down in 2010. Despite the high concentration level of earnings in its ibank unit, analysts and traders were pleased, shares traded as high at +9.5%. This sentiment broke a mixed view that came out of Asian session that still lacks direction in the absence of Chinese bourses. Continental and UK banks all traded higher on the Barclays driven sentiment. January new car registration in the Eurozone shook off some concerns on auto sales levels with solid figures. Auto groups Renault [RNO.FR], Peugeot [UG.FR] and Fiat [F.IT] were lifted by this data. Shares of MAN Ag [MAN.GE], following yesterday's earnings received a number of positive broker notes, leading to outperformance. Not all earnings and corporate flows were positive, disappointing numbers from L'Oreal [OR.FR] and Intercontinental Hotels [IHG.UK] led to selling pressure. Trading volumes have been mixed, continental bourses are below moving averages following the US holiday on Monday, while the FTSE is outperforming on turnover in the financials.
- Individual equities: Barclays [BARC.UK]: Reports FY09 Net Â£9.4B v Â£8.36Be, Rev Â£30.99B v Â£31Be. || Intercontinental hotels [IHG.UK]: Reports FY Op profit,$363M v $354Me, Rev $1.54B v $1.5Be. || L'Oreal [OR.FR]: Reports FY09 Net â‚¬2B v â‚¬1.9Be, Rev â‚¬17.5B v â‚¬17.7Be. || Mobile conf in Madrid
- Speakers: ***EU's Juncker stated that Greece might need more measures if risks materialize but saw no need for help from the IMF. He added that the Euro-Zone had the resources to help Greece and did not see the need to enlarge the Greek plan to other countries. *** ECB: Loan availability for small, medium firms (SMEs) decreased in H2 of 2009 . ECB noted that SMEs access to credit worsened in H2 of 2009; saw tighter loan access in H1 2010 (77% of firms received loans in H2 v 79% in H1) ***German Zew Economists commented that they expected a slower recovery in Germany over the next half-year economic activity to move sideways with slight positive and negative variations. They noted that the survey did not show concerns for double-dip recession and the MoM decline in Economic Sentiment might reflect concerns over Greece's fiscal situation ***Germany ZEW's Franz stated that employment concerns and Euro deficit worries had not lessened and that the retail and auto sector prospects seemed poor. He also noted that the drop in economic sentiment might reflect Greece's fiscal concerns *** BOE Inflation letter noted that the underlying inflation pressures remained 'to the downside'; and that the recent spike in inflation was viewed as a temporary deviation. The letter noted that the BOE's MPC would do whatever it takes to bring inflation back to target. The BOE would even tighten interest rates if necessary if medium term inflation over 2.0%. Inflation likely to slow below 2.0% target in H2 2010as the UK economy had 'substantial margin of slack'. Chancellor Darling replied to letter: and reiterated that the pick up in inflation was seen as temporary and expressed support to the BOE determination in curbing inflationary pressures***
- Currencies: The dollar was softer in what traders deemed a 'relief rally' ahead of the EcoFin meeting in Brussels this session. The mid-March assessment of Greece likely to be the key event at this time. The EUR/USD tested its 200-hour moving at 1.3690 area, which corresponded to its hourly downtrend line from mid-January. Although European peripherals spreads widened to one-week highs, the currency price action seemed to ignore that development.
- Fixed Income: Ireland sold â‚¬1.5B in 4 and 10y government bonds with healthy cover ratios and right at the top of expectations in terms of size. Flows out of the periphery and into the core have German cash yields to trade virtually unchanged across the curve today despite strong equities. The dithering of European officials is testing the patience of many - the Greek 10y has added over 35bps to trade at Bunds+330bps for fresh two week high.. Gilts have been subject to some buying in the belly and long end after inflation was well above target but in line with expectations while USt's are a touch weaker, cash 10s are up 1bps and back above 3.70%.
- Geopolitical: Senator Evan Bayh (D) Indiana announced his intention to not run for reelection in November, stating that levels of partisanship in Washington continued to block problem solving. The action put further weight on both Senate and House Democrats that have seen a wave of negative opinion that culminated in a special election in MA brining Scott Brown (R) to the senate. Pundits have likened the upcoming 2010 elections to the 1994 interim elections.***Eurostar rail service continues to be suspended following a commuter train crash in Brussels, Belgium. The crash killed 18, injuring 150. All traffic in and out Brussels has been suspended. Eurostar is still running on its Paris-London route. ***US/British/Afghan forces have continued a 4 day surge in military operations. Closing the noose on Taliban stronghold of Marjah (pop 75K), fears of continued civilian deaths have risen following 12 deaths in a rocket attack on Saturday. US forces have encountered stiffening resistance in the region, with Murajah seen as a key recruiting and strategic hub for local Taliban forces. Operations are being compared to the 2004 Phantom Fury takedown of the Iraqi city of Fallujah, which had become home to insurgent operations. ***Iranian Foreign Min Manouchehr Mottaki responded to commentary from US Sec of State Clinton, stating that the US was moving towards military dictatorship and remained wrongheaded in regards to the Middle East. The response came as Clinton continued her trip in the region, moving to Saudi Arabia. Clinton had mentioned that the ever rising role of the Revolutionary Guards in Iranian politics and security operations.
***Notes: - Barclays results beat forecasts - Australia's Central Ban (RBA): Growth more closely tied to Asia. Further rate hikes likely but perhaps not at every meeting. - EU's Juncker: Greece has 30 days to show that the 2010 deficit to GDP ratio would be cut by 4% to 8.7% - Dealers noting that USD fixed-income maturities and coupons today
***Looking Ahead: - 8:00 (PD) Poland Jan Avg Gross Wages M/M: -10.0%e v 7.3% prior; Y/Y: 2.8%e v 6.5% prior - 8:00 (PD) Poland Jan Employment M/M: 0.2%e v -0.2% prior; Y/Y: -2.1%e v -1.8% prior - 8:30 (CA) Canada Dec Manufacturing Sales M/M: 1.8 v 0.1% prior - 9:00 (US) Feb Empire Manufacturing: 18.00e v 15.92 prior - 9:00 (US) Dec Net Long-term TIC: $35.4Be v $126.8B prior; Total Net TIC: $50.0B v $26.6B prior -12:00 (TU) Turkey Central Bank interest rate decision: No change expected in the Base Rate from the current 6.50% level -12:00 Fed's Hoenig speaks about US budget - 12:30 (MX) Mexico to sell 3-year bonds - 12:30 Fed's Lockhart - 12:45 Fed's Kocherlakota speaks about economic outlook - 13:00 (US) Feb NAHB Housing Market Index: 16e v 15 prior - 14:00 (CO) Colombia Dec Trade Balance: No est v $181.4M prior
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