European Market Update: Markets pause as RBI rate hike effect is analyzed and implications of the historic US healthcare House vote
Monday, March 22, 2010
European Market Update: Markets pause as RBI rate hike effect is analyzed and implications of the historic US healthcare House vote
*** ECONOMIC DATA *** - (TT) Taiwan Feb Unemployment: .5.7% v 5.7%e - (SZ) Swiss Feb M3 Money Supply Y/Y: 6.1% v 6.1% prior - (AS) Jan Producer Price Index M/M: -0.2% v 0.0% prior; Y/Y: -1.3% v -1.0% prior - (DE) Denmark Mar Consumer Confidence:-1.0 v 2.0e - (HK) Hong Kong FEB CPI Composite Y/Y: 2.8% v 2.1%e - (HK) Hong Kong Q4 Balance of Payments (BOP): $230.6 v $106.6B prior; Current Account: $36.6B v $23.5B prior - (IC) Iceland Feb Wage Index M/M: 0.5% v 0.1% prior; Y/Y: 3.6% v 3.1% prior
*** SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM *** - Equities: European markets are responding to a global pull back in equities. Friday's surprise repo rate action from the Reserve Bank of India continues to hover over sentiment, adding to the downward rotation. Weekend macro news has seen a flow of political topics with election results in France, Iraq, and Russia proving troubling to the incumbent party, while in the US, the House of Reps has crossed a further hurdle to a tormenting/trying result in Health Care Reform. News flows from Asia included the opening of trial proceedings against 4 Rio Tinto [RIO.UK] employees in China and news that Japanese steel firms have agreed to tentative iron ore pricing contracts based on quarterly spot price action. Responding to this flow, minerals, miners and steel names have been on the back foot while drug manufacturers and medical service names have traded higher. Kabel Deutschland [KDA.GE] kicked off a busy two-week IPO schedule in Frankfurt, shares priced at â‚¬22.00/share (in the lower end of its range), but opened at â‚¬22.50; Cable & Wireless [CW.UK] launched the spinoff of Cable & Wireless Communications [CWW.UK] in London. M&A speculation and deals continued over the weekend with Shell [RDSA.UK] and Petro China [PTR] raising its offer and closing an agreement with Australian listed Arrow [AOE.AU]. Into 6:00EST, equities have been trending lower with the FTSE100 leading the rotation lower on light turnover levels.
- Individual equities: Wolseley [WOS.UK]: Reports H1 pre-tax loss Â£207M, op profit Â£167M v Â£251M y/y, Rev Â£6.33B v Â£6.3Be. || Kabel Deutschalnd [KD8.GE]: 35.4M shares for IPO placed at â‚¬22/shr; to begin listing on March 22. || Henkel [HEN.GE]: CFO: Targeting debt reduction of â‚¬300M in FY10 -Boersen Zeitung. ||
- Speakers: OECD's Bucher made a general comment that it would be a challenge to manage fiscal deficits in 2011. He noted that it was China's decision whether to revalue the Yuan currency and its long term growth *** China PBoC stated that new problems and uncertainties were constantly emerging in the financial sector in the wake of the global credit crunch. It noted that it would step up efforts to prevent systemic risks and strive for a prudent regulatory framework and keep a close eye on global financial and economic changes***German Ministry of Finance (MOF) commented that the German economy started the new year cautiously. It noted that Feb tax revenues down 2.8% y/y while Federal tax receipts were down 10.6% y/y. It noted that the German economic recovery remained prone to setbacks. It noted that exports were on upward trend and that industrial output would strengthen over the course of 2010. It also commented that the job market remained robust *** Poland Central Banker Zielinska-Glebowcka reiterated the recent consensus among her peers that there was no reason to raise interest rates at this time and believed that Polish Rate panel was evenly split with regards to the timing of a rate hike. She saw the rate panel maintaining neutral bias to the monetary policy meeting in March. The Zloty currency appreciation might be temporary but did not expect it to depreciate *** China's State Administration of Foreign Exchange (SAFE) stated that it saw growing net currency inflows and reiterated the view to strengthen illegal Forex supervision *** HKMA noted in its half-year monetary and Stability report that the Hong Kong economy faced risk from rising asset prices. The report noted that HK dollar fund flows direction would likely to be uncertain this year with flows into and out of the currency are likely to be dominated by equity-related flows *** Italy Foreign Min Frattini: Compromise is necessary over the Greece situation before Thursday EU summit ***SNB's Quarterly Update stated that the economic recovery continued in Q1 but it remained cautious over the next 6months on it outlook as the recovery remained fragile. ***Philippines Central Bank Gov Tetangco commented that he saw upside risks to inflation but was unlikely to raise interest rates during first half of this year . He added that the central bank would not likely make aggressive rate hikes if it does act later this year. Guided 2010 inflation to 4.4% and saw it peaking at 5.1% by mid-2010 period***World Steel Association: Feb global steel output at 108M tons v 109M tons m/m (+24.2% y/y)
- Currencies: The week began on a subdued note as the major pairs maintained familiar ranges. European leaders sent out conflicting signals at the weekend over aid to Greece ahead of Thursday EU Summit which sent the Euro initially softer against the majors. EUR/USD tested the 1.3500 level before lulling into a quiet 30 pip range for most of the morning. The risk appetite sentiment also subdued in the wake of the RBI inter-meeting rate hike on Friday and the historic passage of the US healthcare bill in the house. The GBP briefly tested above 1.50 but continues to remain vulnerable ahead of the budget release set for Wednesday.
- Geo/political: The United States House of Representatives passed an amended version of the Senate Health Care Bill in a 220-211, purely party line vote. The Senate will vote on amended efforts (possibly by Tuesday) before sending the bill to Pres Obama for signing. *** France has held its second round regional election with expected results: Socialist coalition 54%, UMP 35%. The vote will be the last nationwide test before Sarkozy is up for re-election in 2012. Socialists won majorities in 21 of 22 regional French assemblies. Pundits have looked on the vote as referendum on the Sarkozy presidency and point to the extraordinarily low turnout as a reflection of popular discontent with all parties. *** Iraq PM Nuri Maliki has endorsed calls for voter recount in parliamentary elections. Voter totals with 95% of ballot counted, put Maliki's main challenger, Mr Allawi's led Iaqiya Alliance holding a small 11K vote lead (from total of approx 12M). In a regional break down, Maliki is seen taking 7 of 18 territories, 5 for Allawi's. The election commission has set Friday as a new final release date, after reviewing the largest concerns and fraud allegations. ||
***Notes/Observations: -The 16-nation euro zone is divided over whether and how best to provide financial help to Greece - US House passes Health care reform - Dubai World asks for 8 more years to pay back $22B - Markets assess impact of India's inter-meeting rate hike from Fridaythe question is who is next???
***Looking Ahead: - 8:00 Fed's Bullard on CNBC - 8:30 (US) Feb Chicago Fed National Activity Index: No est v 0.02 prior - 9:00 (PD) Poland Feb Core Inflation M/M: 0.1%e v Jan; Y/Y: 2.2% v Jan - 9:30 (BR) Brazil Feb Current Account: No est v -$3.8B prior - 11:00 (MX) Mexico Jan Retail Sales: 2.5%e v 1.6% prior - 11:00 (EU) Euro Zone Mar Advanced Consumer Confidence: -17e v -17 prior -11:30 (EU) ECB's Trichet - 11:30 (UK) BOE Gov King - 12:45 (EU) ECB's Gonzalez-Paramo in Washington DC - 15:45 (US) Fed's Lochhart on economic outlook - 16:30 (US) US Tsy Sec Geithner
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