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Thursday February 25, 2010 - 11:05:05 GMT
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European Market Update: Carry trade unwind weighs upon European currencies

Thursday, February 25, 2010 5:56:08 AM

 European Market Update: Carry trade unwind weighs upon European currencies


- (GE) Germany Dec Construction Orders SA M/M: +5.9%; Y/Y: +8.2%
- (GE) German Jan ILO Unemployment SA: 7.5% v 7.5% prior; Unemployed at 3.22M, down 10K m/m - Stats Office
- (FI) Finland Feb Business Confidence: -1.0 v -6.0 prior; Consumer Confidence: 15.9 v 14.5 prior
- (FR) France Feb Consumer Confidence: -33 v -28e
- (FR) France Jan Producer prices M/M: 0.7% v 0.3%e; Y/Y: 0.4% v 0.1%e
- (t) Taiwan Jan Industrial Production Y/Y: 69.7% v 76.8%e; Exports Orders Y/Y: 71.8% v 79.9%e
- (SP) Spain Jan Producer Prices M/M: 1.0% v 0.5%e; Y/Y: 0.9% v 0.8%e
- (SP) Spain Mortgages on Houses Y/Y: -1.3% v 1.8% prior; Mortgages Capital-loaned: -17.1% v -6.5% prior
- (SW) Sweden Feb Consumer Confidence: 13.0 v 9.0e; Economic tendency: 107.7 v 104.1e; Manufacturing Confidence: +3 v -2e
- (SZ) Swiss Q4 Employment Level: 3.96M v 3.96M prior; Y/Y: -0.1% v 0.2% prior
- (SW) Sweden Jan PPI M/M: 2.0% v 0.6%e; Y/Y: 0.3% v -1.1%e
- (SW) Sweden Jan Household Lending Y/Y: 9.2% v 9.3% prior
- (IT) Italy Feb Business Confidence: 84.0 v 83.6e
- (HK) Hong Kong Jan Trade Balance (HKD): -29.5B v -17.4Be; Exports Y/Y: 18.4% v 21.2%e; Imports Y/Y: 39.5% v 34.5%e
- (GE) Germany Feb Unemployment Change: 7K v 16Ke; Unemployment Rate: 8.2% v 8.2%e
- (EU) Euro-Zone Jan M3 Money Supply: 0.1% v 0.0%e; M3 three-month avg: -0.1% v -0.1%e v -0.1% prior
- (NO) Norway Feb Unemployment Rate: 3.2% v 3.2%e
- (SA) South Africa Jan PPI M/M: 1.3% v 0.6%e; Y/Y: 2.7% v 2.1%e
- (UK) Q4 Preliminary Total Business Investment Q/Q: -5.8% v 0.1%e; Y/Y: -24.1% v -18.5%e
- (EU) Euro-Zone Feb Final Business Climate: -0.98 v -1.05e; Consumer Confidence: -17 v -17e; Industrial Confidence: -13 v -13e; Economic Confidence: 95.9 v 96.4e; Services Confidence: +1 v -1e
- (PO) Portugal Feb Consumer Confidence: -34.4 v -32.3 prior; Economic Climate: -0.8 v -0.7 prior
- (BE) Belgium Feb CPI M/M: 0.4% v 0.5% prior; Y/Y: 0.7% v 0.6% prior

- Equities: European equity markets are responding to an earnings 'bonanza.' Fundamental and macro issues have been largely placed on the back burner as traders attempt to pick through today's deluge of equity reports. Clear winners after earning include RBS [RBS.UK] that wraps up year 1 of its 5 year restructuring policy, Centrica [CNA.UK], Credit Agricole [ACA.FR], France Telecom [FTE.FR] and German chemicals giant BASF [BASF.GE]. BASF's outlook on markets, and figures that were aided by the CIBA integration led to positive rotation in the European chemical sector. Clear losers after earnings included RWE [RWE.GE], Dexia [DEXB.BE], BATS [BAT.UK] and Solar World [SWV.GE]. Continued weakness in commodity and basic resource markets, for the second consecutive session, furthered growing signs of weakness in miners across the board. Equities opened offered, and looked ready to post further losses. Swiss consumer confidence and a flow of bullish conference calls snapped this sentiment with the DAX serving as a leading indicator when it took back the unchanged mark just after 4:00EST. Buying accelerated again ahead of 5:00EST with the FTSE and CAC following the DAX into green. Volumes in today's trading have been steep with 2x the daily trading in some earnings names (RBS) leading the way. European markets broke a 3-session loss streak in yesterday's trading and are looking to begin a new positive trend.

- In individual equities: RBS [RBS.UK]: Reports FY09 Net Loss £3.6B v Loss £4.5Be, Rev £31.7B v £27Be. || Allianz [ALV.GE]: Reports Q4 Net €1.09B v €1.2Be, Rev €25.5B v €23.1Be. || BASF [BAS.GE]: Reports Q4 EBIT €1.5B (ex items) v €1.2Be, Rev €13.17B v €13.2Be. || BAT [BATS.UK]: Reports FY Pretax £4.1B v £4.2Be, Rev £14.2B v £14Be. || Centrica [CNA.UK]: Reports FY09 Rev £21.96B v €21.4Be. || France Telecom [FTE.FR]: Reports Q4 EBITDA €3.67B v €3.7Be, Rev €11.54B v €12.7Be. || Credit Agricole [ACA.FR]: Reports Q4 Net profit €433M v €431Me, Rev €4.49B v €4.7Be. ||

- Speakers:
China Foreign Min spokesperson Qin Gang stated that China to invest in reserves carefully and seek liquidity. He called on reserve-currency nations to increase market confidence in their currencies (comment made in reference to recent US TIC data that showed China's holding of US Treasuries decline by over $34B *** China's PBoC reiterated the view that China faced more complicated economic environment in 2010 *** Russia Fin Min Kudrin stated that he saw Russian 2010 budget deficit below 7% of GDP *** BOE's King stated that governments willingness to bail out institutions removed discipline from system and added that cannot rely upon capital liquidity and resolution alone to fix system. He saw no reason why bank reform would hurt UK economic growth *** German Econ Min commented that the current economic upswing was not yet self-sustaining. The ministry reiterates view that no broad credit crunch is taking place but some sectors are facing problems. It forecasted that German GDP would not get back to 2008 levels until two to three years time. The Greece crisis might prompt more write-offs at banks

- Currencies: Continued unwinding of USD and JPY carry-related trades kept a heavy tone against the European currencies during the European morning. The unwinding picked up steam during the Asian session. The price action was consolidating ahead of the NY morning. The Euro continued to be weighed down by the peripheral situation simmering in
Europe. The Greek debt concerns continue to s mount following the recent downgrade threats from S&P and Moody's. The GBP was impacted by pending Gilt maturities and the related redemption flows that might result. The rational being that potentially between £2B to £3B will be repatriated over the next few sessions out of the total interest in excess of £8B of Gilt maturities as dealer suspect a quarter of the maturities said to be held overseas. The JPY continued to also benefit from the risk aversion flows as the pair hit 11-month highs against the GBP and Euro pairs. The EUR/JPY approached the psychological 120 level, which likely has some option related barriers. On a technical note the EUR/USD failed to take out the 1.3450 lows made earlier this month and said to encounter some 'good Asian sovereign bids' at that level. Current resistance seen at 1.3530 area ahead of the second leg of the Fed's Bernanke testimony to Congress.

- Fixed Income:
Greece is again dominating the headlines, with comments from ratings agencies and govermeent officials reigniting the risk aversion which has been so prevalent this month. The flight to quality dynamic is perhaps best exemplified by the short end of the German yield curve where year Schatz yields have flirted with all time lows around 0.95% throughout the session. Meanwhile Greek 10y yield spreads have moved back towards Bunds+350bps for the first time in over two weeks. In positive news, Italy sold €10B (top of the range ) in 2,10y BTPs and floaters.

- Geopolitical: New Ukrainian President Viktor Yanukovych has been inaugurated and presented his first speech to Parliament. The action comes 5-years after an 'orange' revolution overturned an election result that favored Yanukovych. Yanukovych's speech was broadly conciliatory in nature, seeking legislative cooperation and promises to work with the US, EU and Russia ***Turkish PM Erdogan has begun meetings with top military officials in an attempt to de-escalate a growing tension that follows Monday's arrests of former top military brass. The arrests were made in wake of coup allegations dating back to 2003. The TAF, who continues to see itself as the true guardian of secularism in Turkey have repeatedly warned of a growing serious situation.*** French air traffic control operators have begun a planned 5-day strike that continues travel woes in Europe as it follows a Lufthansa strike earlier in the week. An estimated 25% of flights out of CDG Paris have been cancelled due to the labor action.

- In the Papers: WSJ discusses some of the fears related to
Greece seem to be moving toward. The article noted that problems being faced by Spain include high unemployment, a housing market contraction, and high debt levels. WSJ noted that Spain's Euro-zone membership has left the country without the true means to heal its economy. According to Desmond Lachman of the American Enterprise Institute, Spain is the real test case for the euro because if Spain is in deep trouble, it will be difficult to hold the euro together. Spain has a $1.6T economy, which is nearly double those of Greece, Portugal and Ireland combined. According to BNP Paribas, if Spain requires an infusion to support its finances it would cost about $270B. BNP believes similar bailouts of Greece, Ireland or Portugal would cost between $41-68B. *** London Telegraph's Ambrose Evans-Pritchard wrote that Greece has hurt its chances of an EU bail-out by lashing out at Germany over its war-time atrocities. The article noted that Greece's Deputy PM Pangalos stated Germany had no right to reproach Greece for anything after it devastated the country under the Nazi occupation. Pangalos added that the Nazis took the Bank of Greece's gold and never gave it back. Telegraph notes that the insults have caused bitterness in Germany.

- The
Europe peripheral situation continues to unfold with rating agencies and press articles signaling more concerns
- Telegraph: Greek rescue in danger as deputy prime minister attacks Nazi Germany.
- WSJ: The Euros Next Battleground is
- Strong Aus capex and RBA watcher tipping a 25 bp hike at the March policy meeting
- China Commerce Ministry reiterates that CNY currency not main reason for global imbalances .

***Looking Ahead:
- 6:30 (EU) EU's Rehm press conference
- 7:00 (BR) Brazil Jan Unemployment Rate: 7.6%e v 6.8% prior
- 8:30 (BR) Brazil Jan Nominal Budget (BRL): No est v -13.9B prior; Primary Budget: 13.2B v 0.3B prior; Net Debt to GDP ratio: 41.8%e v 43.0% prior
- 8:30 (US) Jan Durable Goods orders: 1.4%e v 1.0% prior; Durables Ex Transportation: 1.0%e v 1.4% prior
- 8:30 (US) initial Jobless Claims: 460Ke v 473K prior; Continuing Claims: 4.570Me v 4.563M prior
- 8:35 Fed's Pianalto
- 9:00 (US) Fed's Bernanke monetary policy report to Senate
- 10:00 (US) Dec House Price Index M/M: 0.4%e v 0.75 prior; HPI Q4: No est v
- 10:00 (US) US Treasury Bllom and Millstein testify on TARP aid to GMAC
- 11:00 (EU) EU's Van Rompuy speech
- 13:00 (US) Treasury to sell 32B in 7-year notes
- 13:00 (UK) BOE's Miles speech
- 13:15 (US) Fed's Bullard speaks on US economic outlook
- 14:00 (US) Fed's Alvarez
- 14:00 (US) Treasury Feinberg
- 14:00 (AR) Argentina Jan Supermarket sales Y/Y: No est v 9.3% prior



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