European Market Update: UK moves out of recession faster than expected
Friday, February 26, 2010
European Market Update: UK moves out of recession faster than expected
*** ECONOMIC DATA *** - (SP) Spain Dec Total Housing Permits M/M: 11.5% v -2.4% prior; Y/Y:-44.3% v -31.8% prior - (FI) Finland Jan Preliminary Retail Sales Volume Y/Y: -1.5% v 1.3% prior - (UK) Feb Nationwide House Prices M/M: -1.0% v 0.4%e; Y/Y: 9.2% v 11.0%e; First monthly decline since April 2009 - (TH) Thailand Jan Current Account: $2.0B v $1.2Be; Overall Trade balance: $5.0B v $2.5B prior; Total Trade Balance: $591M v -$122M prior - (TH) Thailand Jan Manufacturing Production Y/Y: 28.6% v 36.0%e: Total capacity Utilization: 68.0% v 70.4% prior - (TH) Thailand Jan Business Sentiment: 50.4 v 50.4 prior - (HU) Hungary Jan Unemployment Rate: 10.8% v 10.6%e - (TU) Turkey Jan Trade Balance: -$3.6B v -$5.1Be - (SP) Spain Feb Preliminary CPI EU harmonized Y/Y: 0.9% v 1.1%e - (SP) Spain Dec Current Account: -â‚¬2.6B v -â‚¬4.7b prior - (TT) Taiwan Jan Leading Index M/M: 1.9% v 0.8% prior; Coincident Index: -0.2% v 2.0% prior - (SW) Sweden Jan Retail sales M/M: 1.7% v 0.8%e; Y/Y: 5.1% v 3.9%e - (SW) Sweden Jan Trade Balance (SEK):7.5B v 8.0Be - (DE) Denmark Q4 Preliminary GDP Q/Q: 0.2% v 0.2%e; Y/Y: -3.4% v -2.8%e - (HK) Hong Kong Jan Gov't monthly Budget (HKD): 49.1B v 37.7B prior - (GE) German Feb CPI - Saxony M/M: 0.2% v -0.6% prior, Y/Y: 0.4% v 0.7% prior - (GE) German Feb CPI - Hesse M/M: 0.2% v -0.6% prior, Y/Y: 0.1% v 0.5% prior - (IC) Iceland Jan Final Trade Balance (ISK): 6.5B v 10.0B prior - (NO) Q4 Manufacturing Wage Index Q/Q: 0.8% v 0.2% prior - (AS) Austria Jan Consumer Prices M/M: -0.3% v 0.2% prior; Y/Y: 1.2% v 1.0% prior - (HK) Hong Kong Jan M3 Money Supply: 9.4% v 10.5% prior - (UK) Q4 Preliminary GDP Q/Q: 0.3% v 0.2%e; Y/Y: -3.3% v -3.1%e - (UK) Q4 Preliminary Private Consumption: 0.4% v 0.3%e; Government Spending: 1.2% v 0.2%e; Gross Fixed Capital Formation: -3.1% v 0.2%e; Exports: 3.7% v 3.4; Imports: 4.1% v 4.6%e - (UK) Dec Index of Services Q/Q: 0.5% v 0.1% prior - (GE) German Feb CPI - Brandenburg M/M: 0.2% v -0.6% prior, Y/Y: 0.2% v 0.6% prior - (GE) German Feb CPI - North Rhine- Westphalia: 0.2% v -0.7% prior, Y/Y: 0.4% v 0.8% prior - (EU) Euro-Zone Jan CPI M/M: -0.8% v -0.8%e; Y/Y: 1.0% v 1.0%e; CPI Core Y/Y: 0.9% v 1.0%e - (IT) Italy Jan PPI M/M: 0.6% v 0.4%e; Y/Y: -0.3% v -0.4%e - (SZ) Swiss KOF Leading Indicator: 1.87 v 1.80e
*** SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM *** - Equities: Strong Asian economic data, emanating from Japan and Korea, mixed with supportive spending/deficit priorities from India to set a positive tone for the European session. Earnings flow was mixed, but taking support from Asia, and bouncing of yesterday's losses, European markets have been broadly positive. Earnings misses came from Lloyds Banking Group [LLOY.UK], that provided similar provisioning commentary to that seen from RBS [RBS.UK] but posted a pretax loss that was below analysts' targets. Bayer [BAYN.GE] missed on its Net figure and detailed FY10 guidance did not meet the bar set by consensus figures. Strong earnings were seen from Telefonica [TEF.SP] that re-affirmed its long term dividend target and from Serco [SRP.UK] that made positive commentary regarding future order outlook. Trading has taken 'in stride' a slew of European data that included CPI, GDP and unemployment reads across Europe. Financials in particular have remained strong, shaking off any lingering or continued threats on the sovereign issue. In M&A activity, Rolls Royce [RR.UK] has tendered an offer for ODIM and market chatter has speculated that Aegon [AGN.NV] may be in play. Trading volumes are mixed with the CAC and DAX under average with the FTSE printing well ahead.
In individual equities: Lloyds [LLOY.UK]: Reports FY Pretax Loss Â£6.3B v Loss Â£6.1Be; Rev Â£23.9B v Â£22.8Be. ||Bayer [BAYN.GE]: Reports Q4 Net â‚¬153M v â‚¬361Me, Rev â‚¬7.87B v â‚¬7.9Be. || Erste [EBS.AS]: Reports Q4 Net â‚¬183.3M v 198Me. || Telefonica [TEF.SP]: Reports Q4 Net â‚¬2.44B v â‚¬2.2Be, Rev â‚¬14.98B v â‚¬14.6Be. ||
- Speakers: India Fin Min Mukherjee presented the FY11 budget and sought means to reach double digit GDP growth. He noted that the main challenge was to revert to a 9% growth in GDP. India needs to move towards strengthening domestic macroeconomic environment, and must review stimulus and move towards fiscal consolidation. To reduce public debt and to report detailed roadmap in six months. Confident of starting direct tax code in April 2011 (FY12). The government targeted FY11 budget deficit to GDP at 5.5% compared to 6.9% in FY10. FY11 Gross borrowing at INR4.57T and Net borrowing at INR3.45T *** Polish Central Bank raised 2010 and 2011 inflation forecasts and stated that it saw its GDP growth "below potential" to 2013. The bank raised its 2010 GDP to 3.1% from 1.8% prior (Note: Current Gov't view is 3.0%). It forecasted that 2012 inflation would be at the at upper end of central bank's target range of 1.5% to 3.5%. it also noted that the Zloty currency would be weaker through 2012 on narrower rate spread and budget ***Greece PM commented that the WWII reparations issue has not yet been settled, will not raise issue at this time ***UK Treasury Spokesman: Welcomes the upward revision to GDP, but recent developments in EU show risks to recovery remain **China Think Tank stated that China has to keep buying gold over a long period and any price fall will present a good buying opportunity. Additionally detailed timing should be decided by the price curve. The tink tand stated that it had no idea if China would buy the 191 tons of gold being offered for sale by the IMF
- Currencies: Month end flows favored some USD and JPY selling against the European pairs. Dealers noted that perhaps passive equity rebalancing favored Euro currency buying. Higher risk appetite stemming from better Japanese data earlier was also a contributing factor. The USD was softer on continued chatter regarding potential Chinese gold purchases. A Chinese think tank commented that China must continue to buy gold and should add to its inventory on any price dip in the metal. EUR/USD higher by 80 pips from the Asian open with the pair holding above the 1.36 area. The GBP was mixed as the UK GDP data was mixed and government spending likely aiding the better QoQ reading. - China was also discussed on the currency end. Continued chatter circulated of a possible reterm revaluation of Yuan currency. Dealers noted that talks swirled that the Chinese Govt was conducting a series of stress tests of a currency appreciation on its labor intensive industries. Also talk that theChinese Govt might be preparing to raise capital adequacy ratios.
- Fixed Income: Government bonds weaker with yield curves undergoing bear steepening in both UK and Germany - Gilts underperforming after UK GDP *** Orders on Belgium 5 year USD bond are said to be in excess of $1B. - Nestle announces plans to issue 4 USD bonds, guidance at 7bps below swaps
- Geopolitical: While NATO and Afghan forces have appeared to make progress in Helmaland offensives, Taliban militants graphically displayed their continuing power by striking at the heart of Kabul. In a now familiar bombing/gun battle tactic in which militants fight to the death, luxury hotels and foreigner popular centers of the capital city were hit. Initial casualties are seen at 17 deaths with at least 32 wounded *** The Iraqi Min of Defense has moved to allow 20K former army officers who served under Saddam Hussein reinstatement. The action is a direct challenge to previous anti-Baathist actions taken since the 2003 US led invasion and is seen as a challenge to current PM al-Maliki who has broadly pushed such actions. Iraq is bracing for annual elections scheduled for the first week of March that will be only the second such election since the overthrow of Saddam.
- Energy:Russia has been reported as setting new oil export tax levels at $253.60/ton, down from the current $270.70/ton level. The new tax regime is to become effective as of March 1, 2010. Russia continues to tinker with idea of altering export taxes in favor of a more beefed up extraction tax, while pushing for additional usage of exchange mechanisms for pricing international contracts.
***Notes: - UK GDP QoQ data beats forecasts on government spending - US GDP revsision highlight of morning data - Japan retail sales and Industrial Production data beats expectations - China gold purchase rumors and Yuan currency revaluation rumors continue to circulate - WSJ : Heavyweight funds launch career trade bets against the euro
***Looking Ahead: - 7:00 (SA) South Africa Jan Trade Balance (ZAR): -2.5Be v 3.7B prior - 7:00 (SA) South Africa Jan Budget: No est v 6.3B prior - 7:00 (CL) Chile Jan Industrial Production Y/Y: 3.0%e v -0.3% prior; Industrial Sales Y/Y: 0.9%e v -1.8% prior - 7:00 (CL) Chile Jan Unemployment Rate: 8.6%e v 8.6% prior - 7:00 (CL) Chile Jan Copper Production: No est v 502K prior - 7:30 (CL) Chile Central Bank minutes - 8:30 (CA) Canada Q4 Current Account: -$8.5Be v -$13.1B prior - 8:30 (US) Q4 GDP Q/Q Annualized: 5.7%e v 5.7% prior; Personal Consumption: 2.0%e v 2.0% prior - 8;30 (US) Q4 GDP price Index: 0.6%e v 0.6% prior; Core PCE Q/Q: 1.4%e v 1.4% prior - 8:30 Fed's Hoenig - 9:00 Treasury Allison testifies on Commercial real Estate - 9:30 Fed's Duke testifies on lending at House panel - 9:45 (US) Feb Chicago Purchasing manager: 59.7e v 61.5 prior - 9:55 (US) Feb Final University of Michigan Confidence: 73.9e v 73.7 prior - 10:00 (US) Jan Existing Home Sales: 5.50Me v 5.45M prior - 10:00 (US) Feb NAPM Milwaukee: No est v 56.0 prior -10:45 Fed's Dudley and Kocherlakota at NY policy forum - 11:00 (CO) Colombia Jan Unemployment Rate: 13.5%e v 12.3% prior - 11:30 Treasury Kruegar at Brookings Institute - 12:00 Fed's Feinberg - 13:30 Fed's Tarullo - 14:00 (AR) Argentina Jan Construction Activity Y/Y: No est v 4.25 prior - (GE) Germany Feb Preliminary CPI M/M: 0.5%e v -0.6% prior; Y/Y: 0.7%e v 0.8% prior - (GE) Germany Feb Preliminary CPI EU Harmonized M/M: 0.5%e v -0.6% prior; Y/Y: 0.6%e v 0.8% prior - (BE) Belgium Budget balance YTD: No est -7.8B prior - (PE) Peru Q4 GDP Y/Y: 3.6%e v -0.6% prior
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