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Friday February 19, 2010 - 11:17:21 GMT
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European market Update: European price action quiet after Fed members downplay Discount rate hike; European PMI data mixed; Russia again lowers Refi rate

Friday, February 19, 2010 5:56:39 AM

 European market Update: European price action quiet after Fed members downplay Discount rate hike; European PMI data mixed; Russia again lowers Refi rate


- (RU) Russia Central Bank (CBR) lowers the Refi Rate by 25bps to 8.50% (11th cut in current cycle)
- (GE) Germany Producer Prices M/M: 0.8% v 0.3%e; Y/Y: -3.4% v -4.0%e
- (FR) France Feb Business Confidence: 91 v 93e; Production Outlook: -5 v -3e; Own-Company Production: -5 v -8e
- (HU) Hungary Dec Avg Gross Wages Y/Y: 0.0% v -2.3%e
- (FR) France Feb Preliminary PMI Manufacturing: 54.6v 55.3e; PMI Services: 54.7 v 56.4e
- (AS) Austria Dec Producer Prices Index M/M: 0.0% v 0.2% prior; Y/Y: -1.0% v -2.1% prior
- (GE) Germany Feb Advanced PMI Manufacturing: 57.1 v 53.8e; PMI Services: 51.7 v 52.4e
- (NE) Netherlands Dec Consumer Spending: -2.6% v -3.2% prior
- (EU) Euro-Zone Feb Advanced PMI Manufacturing: 54.1 v 52.7e; PMI Services: 52.0 v 52.5e; PMI Composite: 53.7 v 53.5e
- (GR) Greece Dec Current Account: -€3.2B v -€2.7Be
- (IT) Italy Dec Industrial Orders M/M: 4.7% v -0.5%e; Y/Y: 10.1% v -2.7%e
- (IT) Italy Dec Industrial Sales M/M: 1.9% v 1.5% prior; Y/Y: -2.5% v -8.9% prior
- (EU) Euro-Zone Dec Current Account: €1.9B v -€0.5B prior; Current Account NSA: €9.4B v -€0.6B prior
- (UK) Jan Retail Sales Ex Auto M/M: -1.2% v -0.5%e; Y/Y: 2.6% v 1.1%e

- Equities: Equities in Europe opened on a heavy tone following the downward rotation in Asia which followed a surprise US Federal Reserve banking discount rate hike after the US equity market close. Selling in Europe has also had home grown flavor has earnings broadly disappointed. Global cement manufacturer Lafarge [LG.FR] missed on both net and rev figures and guidance for improved volume levels in 2010 failed to placate investors. Shares of UK miner Anglo American [AAL.UK] also traded down following earnings reports. Anglo's figures were not fully disappointing, but the firm had the bad luck of reporting on down day in the sector as commodity prices and economic fears weighed. In contrast to this movement, earnings from Nestle [NESN.SZ] beat expectations and pushed the SMI into positive territory, a notable standout in European trading. Unlike Asian markets, equities in Europe refused to roll over and die, despite the Fed action, poor earnings and mixed UK data, equities recovered from their lows almost from the very start of trading. European bourses are on four session positive streak that sentiment is struggling to maintain. Trading volumes in the European morning are light, below moving averages.

In individual equities: AngloAmerican [AAL.UK]: Reports FY09 Op profit $5.0B v $4.9Be, EBITA $6.93B v $6.5Be, Rev $24.6B v $22.5Be. || Lafarge [LG.FR]: Reports preliminary Q4 Net loss €38M v €255Me, Sales €3.64B v €4.2Be; Sees demand for cement rising in 2010. || Nestle [NESN.SZ]: Reports FY09 Net €10.4B v CHF10.3Be, Rev CHF108B v CHF107Be; Organic growth +4.1% v 3.9%e. ||

- Speakers: IMF commented that developing countries should consider capital controls to reduce financial fragility but did caution that widespread use of capital controls could harm global economic recovery. The agency noted that capital controls were a legitimate part of emerging market tools and helped one respond to inflow surges. Again the IMF noted that an increase in the use of capital could increase global imbalances and suggested that multilateral capital controls could aid in managing spillover effects. ***India PM Economic Advisory Panel forecasted that the current fiscal year (FY10) GDP could exceed 7.2% as it was aided by stimulus measures. It cautioned that the RBI should move its stance to a neutral policy "quickly as possible" but did note that such RBI interest rate action depended on loan growth and inflation outlook. It forcasted FY11 GDP growth 8.2% with "upward bias" and saw FY12 growth at 9%. The panel duly noted that rising prices were an important domestic issue and that the danger of food inflation was spreading to commodities. It suggested the need early import plan to fight inflation and added that the government should release food stocks to cool off inflation. Sugar availability would be 16M this season and called for urgent steps to import white sugar. It saw India with a possible sugar deficit between 3 to 5M tons. Low farm productivity and inadequate infrastructure were major constraints to economic growth. A good winter crop would help cool farm prices. On fiscal matters, the panel stated that India needed to initiate steps to curb budget deficits and initiate fiscal consolidation in FY11. Panel did note that large deficits in FY10 did have a counter-cyclical impact, it is necessary to initiate measures towards fiscal consolidation in the forthcoming budget. India could reduce FY11 budget deficit by 1.5% without hurting economic growth through reductions in expenditures and subsidies. Current account deficit might hit $30B or 2.2% of GDP in FY10; C/A deficit seen slightly above 2% in both FY11 and FY12 *** Moody's reviews "Aaa" ratings for Greece's structured finance and covered bond transactions. Company placed all but one of the top Aaa ratings on Greek asset-backed securities, mortgage-backed notes and collateralized loan obligations on review for possible downgrade. *** S&P lowered "AAA" rated Greek structured finance deals*** German Govt Spokesperson: stated that a diplomatic solution on Iran seened as only viable option and ruled out military solution *** Finland Fin Ministry proposed a supplementary budget in 2010 to add €59M in spending ***

- Currencies: The USD consolidated its post NY session gains throughoutthe European morning following the surprise move by the Fed to raise the discount rate by 25bps. Numerous Fed speakers during the Asian session reiterated the view that the Fed move was NOT a policy signal change. The greenback was mixed against the major pairs as European PMI data handed the markets a mixed bag of readings, but the greenback was holding above the prior chart points that are being labeled as 'technically significant' ahead of the NY morning. The EUR/USD maintained a hold below last week pivot of 1.3530 while the USD/CHF remains above its 100-week moving average of 1.0832. The UK retail sales data was mixed with traders debated the effect of weather and VAT reversal on the MoM reading. The upward revisions in the back month helped GBP off its worst levels.

- Fixed Income: European markets have reacted to the Fed's discount rate hike in a more subdued manner than was the case in Asia. Government bond yields are higher but there has been no real change to the shape of Gilt or Bund curves in terms of 2s10s with selling of maturities equal measures. 10s30s is a different story as steepening unwinds in Europe tracked overnight moves in UST's. Gilts have noticeably underperformed other markets after weak UK retail sales data .Euro-zone peripheral debt is enjoying some time out of the spotlight, Greece is -5bps at +321bps. Short dated UST's remain offered although yields are off the highs posted in Asia. The 2 y note is up 2.5bps on yesterdays close at 0.94% as we go to press

- Geopolitical: A political crisis in the Netherlands now looks capable of toppling the current Christian Democrat government. Ahead of local elections set for March 3, 2010, minority party leaders, led by Deputy Prime Min Wouter Bos have begun pushing hard on earlier campaign promises to bring Dutch combat soldiers home from Afghanistan. Prime Min Balkenende, more right leaning, had made a stand on the issue, making it a campaign theme that forces must fight a necessary conflict in Afghanistan. The Netherlands currently has approx 1.4K combat troops in Afghanistan, the force, though small, has been an active contributor seeking high profile/high violence roles. The withdrawal of the force would come as the US and UK seek to ramp up deployments, and the divide between the war making capabilities of the US and NATO continues to expand. **** While still a fluid situation, it would appear that mutinous forces in the North Central African state of Niger have successfully overthrown the prior government. The coup leader, Col Karimou stated that the Supreme Council for the Restoration of Democracy had suspended the constitution and court system to ease political tension. The action follows a 6-7 month period of tension between former Pres Tandja and opposition forces. Niger is rich in uranium resources, with Areva holding a near monopoly in the trade. The French company requested that its local workers remain at home until the situation stabilized.

- Fed downplays Discount rate hike. Move designed to encourage financial institutions to rely more on money markets rather than Fed for short term liquidity
- Russia Central Bank (CBR) lowers refi rate by 25bps to 8.50% (11th rate cut since Apr 2009)
- European PMI data mixed. French PMI weak overall; German and Euro-Zone mixed

***Looking Ahead:
- 7:30 ECB's Gonzalez-Paramo
- 8:00 Fed's Dudley at PR Economic Conf
- 8:30 (US) Jan Consumer price Index M/M: 0.3%e v 0.1% prior; CPI Ex Food&Energy M/M: 0.1%e v 0.1% prior
- 8:30 (CA) Canada Dec Retail Sales M/M: 0.5%e v -0.3% prior; Retail Sales ex Autos M/M: 0.3%e v 0.0% prior
- 9:00 (BE) Belgium Feb Consumer Confidence: No est v -15.0 prior
- 9:00 (IC) Iceland to sell Treasury Notes
- 10:00 (US) Q4 Mortgage Delinquencies: No est v 9.64% prior
- 10:00 (MX) Mexico Central Bank Interest Rate Decision: Expected to maintain the Overnight Lending rate at the current 4.50% level
-12:00 Fed's Pianalto
-14:00 (AR) Argentina Jan Industrial Production M/M: No est v 6.2% prior; Y/Y: No est v 10.4% prior



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