European Market Update: China reiterated its pledge to maintain moderately loose monetary policy and maintain proactive fiscal policy; Session risk appetite wanes as no concrete news emerges on Greek
European Market Update: China reiterated its pledge to maintain moderately loose monetary policy and maintain proactive fiscal policy; Session risk appetite wanes as no concrete news emerges on Greek aid package
*** ECONOMIC DATA ***
- (JP) Japan Jan Convenience Store Sales Y/Y: -5.3% v -5.5% prior
- (SZ) Swiss Jan M3 Money Supply Y/Y: 5.6% v 6.6% prior
- (TT) Taiwan Jan Unemployment Rate Seasonally Adj: 5.7% v 5.7%e
- (NE) Netherlands Feb Consumer Confidence: -13 v -11e v
- (IC) Iceland Jan Wage Index M/M: 0.1% v 0.3% prior; Y/Y: 3.1% v 3.6% prior
- (IT) Italy Jan Trade balance Non-EU: -â‚¬3.2B v -â‚¬4.0B prior
- Equities: Despite a strong trading session in Asia, opening highs in Europe could not be sustained. Equities rolled over and turned negative within 60min of trading. The motivations behind this move has been mixed but has been broadly in line with the expected pare back of commodity and high yielding currencies as risk aversion crept back into the market. Equities that traded lower included Galxo [GSK.UK], following a NYT article on the safety of its Avandia medication along with Carrefour [CA.FR] and Axa [CS.FR], following analyst actions. Pilots at Lufthansa [LHA.GE] have followed through with their strike threat leading to travel chaos in Germany and those shares moving lower. Retail as a sector moved lower on general sentiment and cautious notes on H&M [HMB] and Zara [ITX.SP] from BNP. Weekend press speculation has been fierce with commentary regarding an expected EU approval for a T-mobile [DTE.GE] Orange [FTE.FR] UK JV, speculation that VTG [VTG.UK] may offer a special dividend if holders reject a Babcock [BAB.UK] bid, and speculation that Old Mutual [OML.UK] is shopping its US life insurance unit. In M&A flow, Schlumberger [SLB] and Smiths International [SII] announced a formal all stock agreement while market chatter has reignited ABB [ABBN.SZ] for Rockwell Automation [ROK] speculation. Into 5:30, equity markets remain choppy with moves above and below the unchanged line on lighter volume
- In individual equities: AB Foods [ABF.UK]: Reports Interim Statement: H1 profit to be higher y/y. || Hamerson [HMSO.UK]: Reports FY09 adj Pretax Â£130M v Â£150Me. || TNT [TNT.NV]: Reports Q4 Net â‚¬25M (unclear if comp to ests), Rev â‚¬2.95B v â‚¬2.9Be, to pay total dividend of â‚¬0.53/shr. ||
- Speakers: ECB's Provopoulos commented that the Greek govt would take additional measures if needed and expressed confidence that Greece would meet it austerity goals. The member stated that markets were overreacting to the crisis in the country and added that the ECB to continue its credit support ***German Finance Ministry Monthly Report noted that German Jan total tax revenues at â‚¬36.0B, down 7.8% y/y. The reported noted that economic recovery was prone to setbacks and sources of domestic growth unfolding slowly *** ECB's Honohan commented that reducing wages was vital to ensuring Ireland's recovery and reversing the rise in unemployment. He did note that achieving lower nominal wage rates was not easy but was essential***UK PM Brown reiterated his administrative plans to decrease deficit by half by 2014 and restore finances as economic recovery takes hold ***China reiterated its pledge to maintain moderately loose monetary policy and maintain activist fiscal policy in 2010. The comments follow the reopening of the Chinese markets after a week of holidays. The comments follow the Feb 12th reserve ratio hike by the PBoC to 16.50% from 16.00% ***
- Currencies: The European morning was prepared for rising risk appetite as weekend press raised speculation that a Greek aid package could be in the pipeline and worth up to â‚¬25B. Asian equities were firmer and energy and metals followed them higher. However, the euphoria waned as the hours rolled by and the USD and JPY maintained a firmer tone in the session. As the NY morning approached the EUR/USD was holding above the 1.36 handle after testing 1.3450 last week. Dealers did have plenty of time to analyst the situation in Europe as the news flow was light and data releases were sparse. Greece's financial distress could be exacerbated at the end of 2010 when the ECB is due to revert to old collateral rules that were loosened during the global recession. If Greek debt were no longer eligible as ECB collateral, the Greece Gov't would find it harder to find buyers for its bonds and yields would probably rise.
- Fixed Income: Gilts have underperformed after the latest UK polls showed Labour gaining ground on the opposition Conservatives. The Tory lead has been cut to just 8 points, with a 10 point margin generally believed to be the minimum needed to avoid a hung parliament. The 10y Gilt briefly traded 100bps cheap to the Bund in the session, the widest level in the Gilt-Bund spread spread since March 1997
- Geopolitical: On Saturday a brewing political crisis in the Netherlands led to the collapse of a 3-party coalition government. The key issue in bringing the gov down was troop deployments to Afghanistan. Current PM Blakenende (Christian Dem) failed to ward off a split led by Deputy PM Bos (Labor) over the deployment of soldiers in Afghanistan. Labor had run on a platform in 2006/7 that combat soldiers would come home by 2010 and the party has made moves to fulfill that goal. The Dutch Queen is expected to appoint a caretaker gov that while official, will have difficulty passing any new laws *** Coup leaders in Niger have promised a return to civil government with the crafting of a new constitution followed by democratic elections. A time frame for either operation was not given. Representatives from the ruling Junta met with Libyan leader Gaddafi in a search for international recognition. African government and political organization have remained cool/mute on the subject.
- In the papers: FT article noted that investor George Soros views on the EMU. Soros stated that for the Euro to be a fully fledged currency it would require both a central bank and a Treasury. He believes that when a financial system is in danger of collapsing only a Treasury can deal with problems of solvency. The 2008 financial crisis revealed the flaw in the euro's construction. And he recommends the establishment of a well-organized eurobond market.*** Der Spiegel reported over the weekend that he EU was set to provide approx â‚¬25B in assistance to Greece . The amount to be shared amongst the EU, determined by relative position in the ECB, and encompass various loans and guarantees. Germany's share in ECB stands at 20%*** WSJ commented on the use of swaps by some European governments . According to the article, some European government in the past used complex financial transactions to lower the sizes of their debts and deficits. The article commented on the previously disclosed derivatives transactions between Greece and Goldman Sachs. The article noted that between 1998 and 2003, Deutsche Bank entered into swap agreements on behalf of Portugal. In 1997, France arranged a transaction with France Telecom which resulted in a reduction in France's deficit. Additionally, in 1996 JP Morgan arranged an Italian currency swap which allowed Italy to receive large payments upfront and thus lower its deficit. Some critics believe that too little is known about countries' continued exposure to the derivative deals that are already out there.
- Greece's PM Papandreou: Country's borrowing needs are covered until mid-March
- China Gov't come back from vacation and reiterates its pledge to maintain a moderately loose monetary policy and a proactive fiscal policy in 2010
- 8:00 (HU) Hungary Central Bank interest rate decision: Consensus expectation is for a 25bps cut in the Base Rate to 5.75% from the 6.00% current level
- 8:30 (US) Jan Chicago National Activity Index: -0.19e v -0.61 prior
- 10:00 (MX) Mexico Q4 GDP Y/Y: -2.8%e v -6.2% prior
- 10:30 (US) Feb Dallas Fed Manufacturing Activity: 10.0%e v 8.3% prior
- 10:30 (IS) Israel Central Bank Interest Rate decision: No change expected in the Base Rate from the current 1.25% level
- 11:00 Fed's Yellen
- 15:00 (AR) Argentina Q4 Preliminary Unemployment Rate
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