European Market Update: UK inflation data surprisingly resilient
Tuesday, March 23, 2010
European Market Update: UK inflation data surprisingly resilient
*** ECONOMIC DATA *** - (SI) Singapore Feb CPI M/M: 0.4 v 0.6% prior; Y/Y: 1.0% v 1.0%e - (JP) Japan Feb Supermarket Sales: -2.4 v -4.9% prior - (FI) Finland Feb Unemployment Rate: 9.2% v 9.6%e - (JP) Japan Feb Convenience Store Sales Y/Y: -4.7% v -5.3% prior - (FR) France Mar Business Confidence: 94 v 92e; Production Outlook: -5 v -6e; Own-Company Outlook: +3 v -5e prior - (HU) Hungary Jan Retail Trade Y/Y:-5.6% v -7.8%e - (TT) Taiwan Industrial Production Y/Y: 35.2% v 37.8%e; Commercial Sales: 9.5% v 15.5%e - (SA) South Africa Q4 Current Account (ZAR): -71.4B v -102.7Be; C/A to GDP ratio:-2.8% v -3.8%e - (UK) Feb CPI M/M: 0.4% v 0.5%e; Y/Y: 3.0% v 3.1%e; CPI Core Y/Y: 2.9% v 3.1%e - (UK) Feb RPI M/M: 0.6% v 0.7%e; Y/Y: 3.7% v 3.8%e; RPI-Ex Mort Y/Y: 4.2% v 4.3%e - (UK) Feb BBA Loans for House Purchase: 35.3K v 36.5Ke - (UK) Mar Hometrack Housing Survey M/M: 0.3 v 0.3% prior; Y/Y: 1.3 v 0.4% prior
*** SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM *** - Equities: Equity markets in Europe have shaken off a flat close on Monday and a lackluster open to trading by moving higher into the NY morning. Mixed Asian sentiment muddled a positive roll over from NY with pre-market flows failing to set any strong direction. In M&A, Babcock [BAB.UK] confirmed an approved Â£1.32B bid for VT Group [VTG.UK]. Final earnings from Raiffeisen [RIBH.AS], Iliad [ILD.FR] and Conergy [CRG.GE] failed to set any decisive tone. Shares of Merck [MRK.GE] rotated lower in first trades after announcing a temporary suspension in a Phase III trial for Stimuvax. Equity markets took a boost from comments from China's NDRC, seeing inflation in the expected 2-2.5% range for March. Markets accelerated to the upside after 4:30EST with financials leading the rotation. Earnings from Bank of China [3988.HK] included the comment that CNY loans in 2010 are expected at a growth rate of +17% y/y. This statement, in conjunction with NDRC statements led to a sharp upward movement in both European equities and US futures. Equity appetite spread to minerals, miners and heavy manufacturing names. Soft price index data from the UK provided a temporary roof to the upward rotation, but the international gearing of the FTSE100 prevented a pull back. Into 6:00EST, equity markets remain in the top third of their trading range on continued light turnover volumes.
- Individual equities: VT Group/Babcock [VTG.UK]: Babcock Intnl Group - Recommended Acquisition of VT Group plc at 750p/share, vlaues firm at Â£1.326B (as speculated). || Legal & General [LGEN.UK]: Reports FY09 IFRS Op Profit Â£1.9B v Â£592M y/y. || Iliad [ILD.FR]: Reports FY09 Net â‚¬176M v â‚¬173Me, EBITA â‚¬661.4M v â‚¬650Me, Rev â‚¬1.96B v â‚¬2Be. || Merck [MRK.GE]: Temporarily suspends clinical trials for Stimuvax. || Kuoni Reisen [KUNN.SZ]: Reports FY09 Net CHF1.6M v CHF151M y/y, EBIT CHF15.1M v CHF150.4M y/y, Total Rev CHF3.9B v 4.9B y/y. || Raiffeisen [RIBH.AS]: Reports final FY09 Net â‚¬212M v â‚¬982M y/y, Pretax â‚¬367.6M v â‚¬1.4B y/y. ||
- Speakers: China's National Development and Reform Commission (NDRC): Sees March CPI rise below Feb's level; Avg Q1 inflation to be in the range of 2-2.5% y/y. it noted that a rising PPI had had limited impact on CPI. It noted that both weather and lunar new year holiday impacted Feb CPI data but it did remain within its normal range*** SNB Hildebrand reiterated the view that SNB would act decisively to fight excessive CHF strength against the Euro. The SNB could not rule out renewed deflation risks and that excessive CHF gains might spark deflationary concerns. The president commented that it saw no short term risk to price stability, which must remain the SNB's top priority. Tighter monetary policy might be needed for financial stability and added that the SNB would not maintain its current policy through 2012. Monetary analysis might gain in importance ***Greece Fin Min Papaconstantinou reiterated that there is no choice but to succeed in the country's austerity measures and added that the margin for failure was zero. He again stressed that that Greece had not asked for aid and that funding problems were the country's own responsibility. He stated that Greece maintained its position to service its debt *** EU Diplomat commented that EU's Van Rompuy was seeking an agreement over Greece before Thursday summit *** Former EU Commission Prodi stated that IMF aid to Greece would hurt the Euro ***Germany's Econ Min Bruederle stated that criticism against German export strength was strange. He noted that the Germany's economic upswing was not yet self-sustaining. He bluntly commented that Germany was Europe's growth engine and added that France profits from Germany's economic strength and no one should try to curb the German economic engine. On the currency front, he stated that a stable Euro was important for its reputation and added that he wished for China to have the Yuan currency fully flexible but understands it was not easy for China to implement the policy. He continues to count on dialogue with China on currency issues***Czech PM Fisher commented that it was harder to formulate its 2011 budget compared to 2011 as proposed cuts are extremely complicated ***ECB Liikanen reiterated the view that global economic recovery would be uneven and bumpy and that the credit shortage might hamper its recovery. Future growth to be less than previous years. He did note that the weak euro was 'tightly' related to the Greece fiscal situation *** Fed's Plosser commented that he saw the need for simpler rules for setting interest rates and reiterated the belief that monetary policy should be governed by inflation target. He stated that the output gap and Taylor rule were too vague to use and preferred use of real output guide ***
- Currencies: The USD maintained a steady, positive tone against the European pairs in the session aided by earlier comments from ECB's Trichet who spoke against offering the low-interest loans for which the Greek government has pressed. The dollar continues to benefit from risk aversion flows ahead of the EU Summit set for Thursday about concerns that Greece might walk away from the summit 'empty handed. The recent rhetoric had drawn hardened battle lines within the EU. ***The GBP was probing below the 1.500 level after softer than expected inflation data for Feb. *** SNB Hildebrand reiterated that the central bank would act to fight excessive CHF strength against the Euro but did little to move the cross as it remains within striking distance of testing the Oct 2008 lows below 1.43 level.
- Geo/political: Ukraine Pres Yanukovich is to discuss a new gas payment regime with Russian authorities today. Yanukovich is holding his first official trip to Russia as Pres of Ukraine, with him, Energy Min Boyko and Naftogaz Chief Bakulin are making trip to Moscow. Analysts have put Ukraine as asking for a 45% discount to current gas prices in exchange for a 35% management stake in its pipeline system. Ukraine has also sought joint Russian/EU cooperation in gaining funding for upgrading and expanding current transit system, ensuring that it maintains a rival, cost effective method following the opening of the NordStream system. *** Turkey's ruling AKP party has put forward 26 amendments to the country's constitution. The amendments would radically increase the power of parliament over the countries judiciary and armed forces. Turkey's current constitution is a result of a 1980 military coup that put carefull checks on any elected body, along with stringent secular rules. The AKP has argued the new amendments would put Turkey more in line with EU requirements while the military and judiciary, currently under attack by the AKP see the action as a power grab.
***Notes/Observations: - UK inflation data softer than expectations - EU's Van Rompuy seeking an agreement over Greece before Thursday summit - Fed's Evans: "Extended period" means 3-4 meetings. - US 2 year auction - Macau gambling revenues hit $1.68 bio in first 3 weeks of Mar. - Premier Wen: China March trade deficit may be above $8B (would be China's first monthly trade deficit since April 2004)
***Looking Ahead: - 7:00 (UK) Mar CBI Distributive Trade: No est v +23 prior - 7:30 (TU) Turkey Deputy PM Babacan: Feb 8th: Conversations with IMF are ongoing; preparing legislation for fiscal rules - 7:45 (US) ICSC weekly Chain Store sales - 8:00 (BR) Brazil Mar IBGE CPI M/M: 0.5%e v 0.9% prior - 8:30 (CA) Canada Feb Leading Indicator M/M: 0.9%e v 0.9% prior - 8:55 (US) Redbook Retail sales - 9:30 (BR) Brazil Feb Total Outstanding Loans (BRL): No est v 1.42T prior; Private bank Lending: No est v 827B prior - 10:00 (US) Feb Existing Home Sales: 5.00Me v 5.05M prior; M/M: -1.1% v -7.2% prior - 10:00 (US) Jan House price Index M/M: -0.8%e v -1.6% prior - 10:00 (US) Mar Richmond Manufacturing Index: 5e v 2 prior - 10:00 (BE) Belgium Mar Business Confidence: -6.9e v -7.0 prior - 10:00 (US) Tsy Sec Geithner at House Financial Services - 10:00 (EU) EU's Ashton - 13:00 (US) US Tsy to sell $44B in 2-year notes - 15:00 (AR) Argentina Feb Trade Balance: No est v $1.2B prior - 15:30 (US) Fed's Yellen
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