European Market Update: Risk aversion subsides for the time being after Dubai World to receive $9.5B in new funds from Dubai; Focus on EU Summit and the Greek situation
Thursday, March 25, 2010
European Market Update: Risk aversion subsides for the time being after Dubai World to receive $9.5B in new funds from Dubai; Focus on EU Summit and the Greek situation
*** ECONOMIC DATA *** - (GE) Germany Apr GFK Consumer Confidence: 3.2 v 3.1e - (SA) South Africa Feb PPI M/M: 0.4% v 0.6%e; Y/Y: 3.5% v 3.7%e - (FR) France Feb Consumer Spending M/M: -1.2% v 0.4%e; Y/Y: 1.6% v 3.6%e - (SP) Spain Feb Producer Prices M/M: 0.2% v 0.1%e; Y/Y: 1.1% v 1.0%e - (IT) Italy Mar Business Confidence: 84.1 v 84.5e - (SW) Sweden Feb PPI M/M: 0.3% v 0.2%e; Y/Y: 0.8% v 0.6%e - (SW) Sweden Feb Household Lending Y/Y: 9.3% v 9.2% prior - (NV) Netherlands Jan Consumer Spending Y/Y: -0.7% v -1.5%e - (HK) Hong Kong Feb Trade Balance (HKD): -19.7Bv -34.4Be; Exports Y/Y: 28.5% v 25.3%e; Imports Y/Y: 22.4% v 25.0%e - (NV) Netherlands Q4 Final GDP Q/Q: 0.2% v 0.3%e; Y/Y: -2.2% v -2.2%e - (RU) Russia Gold & Forex Reserves w/e Mar 19th: $448.2B v $441.3B prior - (EU) Euro-Zone Feb M3 Money Supply Y/Y: -0.4% v -0.1%e; M3 Three-Month Average: -0.2% v -0.1%e - (IT) Italy Jan Retail Sales M/M: -0.5% v 0.1%e; Y/Y: -2.6% v 0.8%e - (TT) Taiwan Central Bank Maintained the Benchmark Interest Rate at 1.25%; as expected - (UK) Feb Retail Sales M/M: 2.1% v 0.8%e; Y/Y: 3.5% v 3.3%e - (UK) Feb Retail Sales Ex Auto M/M: 1.6% v 0.6%e; Y/Y: 5.4% v 4.9%e
*** SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM *** - Equities: Commentary from the Dubai Financial Support Fund jolted what had been a lackluster premarket session. The DFSF, while notably failing to answer some investor questions, assured markets of state support for Dubai World which rallied equity futures and was felt in Indian trading. In premarket flows, UK retailers Next [NXT.UK], Kingfisher [KGF.UK] and Ted Baker [TBK.UK] reported FY figures. Next provided stronger than expected guidance for H1 2010 and lifted the sector on the FTSE100. Following strong reports yesterday, travel/holiday firm Thomas Cook [TCG.UK] continued a sector up drift. Continued speculation of an alliance between Daimler [DAI.GE] and Renault [RNO.FR] bid those names on speculative interest. Dubai commentary and UKFI commentary on stake positions led to upward rotation in financial names that was most pronounced in globally geared firms. Trading levels have been choppy, driven by unfolding macro plays. The ECB's Trichet announced intentions to gradually cut back support operations beginning in Jan 2010, the comments had an immediate negative effects on financials which pulled back. Commentary from German Chancellor Merkel, speaking at what is to be a two-day EU summit, continued to fight a Greek bailout (ex-emergencies) and stated that Germany would not act to sacrifice its export strength. The statements sharply rallied the DAX, with tech and industrials leading the recovery, before feeding into broader European markets. Into 6:00EST, equity markets have maintained their best levels, trading on good volumes ex-FTSE.
- Individual equities: ICBC Bank [1398.HK]: Reports FY09 Net CNY128.6B v CNY129Be; To raise up to CNY25B via convertible bond offering. || Petro China [857.HK]: Reports FY09 Net CNY103.4B v CNY106Be, Rev CNY1.02T v CNY1.1T y/y. || Next [NXT.UK]: Reports FY09 Pretax Â£505.3M v Â£428.8M y/y, Rev Â£3.41B v Â£3.27B y/y. || Hermes [RMS.FR]: Reports final FY09 Net â‚¬288.8M v â‚¬295Me; to pay FY09 dividend of â‚¬1.05/share. || Hotchtief [HOT.GE]: Reports FY09 Net â‚¬195.2M v â‚¬156.7M y/y, EBITA â‚¬767.2M v â‚¬652.9M y/y, Rev â‚¬18.17B v â‚¬18.7B y/y. || Air Berlin [AB1.GE]: Expects to grow better than overall market in 2010; 2010 passenger figures seen over 30M. || Vossloh [VOS.GE]: Raises FY10 guidance Rev at over â‚¬1.3B, Guides FY10 EBIT at over â‚¬154M (guided Rev â‚¬1.23-1.28B on 12/03). ||
- Speakers: China PBoC's Zhu: Reiterates view that the global economic recovery will be weak this year and coupled with economic volatility. He stressed that the recovery continued to be driven by government stimulus programs and inventory restocking and that growth only appeared to be strong due to last year's low base. Global Private investment and consumption remained weak. He commented that markets remained nervous about Gov't debt situation and called the Greek fiscal situation the 'tip of the iceberg'. He added that the Spanish and Italian deficits were a concern. The US unemployment rate and government debt to remain high over the course of the next few years. On the topic of Chia, Zhu stated that its strong domestic demand and growth were causing inflationary pressures. He reiterated the view that it desired smooth loan growth and that the March figures is expected to slow compared t prior months. Some sectors in China such as steel and cement were showing overcapacity and stated that the key towards rebalancing economic growth was adjusting capacity and this requires policy coordination. On the currency front, the PBoC member reiterated that yuan appreciation was not the solution to global trade imbalances and that China should and will continue to improve floating currency regime. ** China Foreign Min Spokesperson Qin Gang commented that China was willing to strengthen its communication with the US over the valuation on the yuan currency issue. He noted that confrontation on the topic could only bring negative effects *** Govt of Dubai to support restructuring of Dubai World and Nakheel though $9.5B in new funding *** UK Chancellor Darling commented No Plans for special post-election budget should Labour win general election *** ECB's Nowotny commented in a newspaper interview that the recent Euro depreciation was actually a positive development for whole economy. He noted that Greece must resolve its own problems ***ECB's Trichet commented that the central bank would introduce a graded collateral haircut in Jan 2011 and noted that maintaining support measures for too long adds the risk of building dependency. He did note that the ECB would maintain the current "BBB-" collateral rules until next year *** ECB's Nowotny commented in an Australian newspaper interview that the recent Euro depreciation was a positive fact *** German Chancellor Merkel commented in an address to the EU parliament that German was ready to do its part to help the EU succeed and noted that no State could meet the challenges on its own. She added that the domestic policies of Germany were strengthening the EU but stressed it would be wrong to weaken the Maastrict Stability Pact
- Currencies/Fixed Income: The dollar initially traded on a firm footing ahead of the European morning as it build upon momentum garnered from risk aversion factors highlighted the Portugal sovereign downgrade on Wed and the poor US 5-year auction result. The EU begins a two day Summit. market was not expecting anything concrete to come out of the EU Summit today as continued divisions has hampered a bailout agreement. None-the-less the USD consolidated its recent gains throughout the session. After hitting fresh 10-month lows at 1.3285, the EUR/USD moved back towards the mid-1.33 area ahead of the NY morning and awaited fresh details on what exactly will result out of Europe on the fiscal concerns that have been simmering. The GBP retested the 1.50 handle after the better-than-expected retail sales data for Feb. The rebound in that data series was expected due to the poor weather related declines registered in Jan. The GBP gains were halted as the prior month data was revised lowered. ***The USD/JPY continues to probe the all-pivotal weekly pivot point of 92.30, which represents the current three-year downtrend line in the pair. The Chinese Vice Commerce Minister noted that China was willing to strengthen communication with the US over the valuation on the yuan currency issue as confrontation can only bring negative effects.
Geo-Political: The government of Dubai, via the Dubai Financial Support Fund (DSFS), has finally made a statement regarding debt negotiations between Dubai World/Nakheel and its creditors. As expected, the Dubai government has offered a financial injection of $9.5B (including $5.7B from Abu Dhabi) to restructure and pay down debts. Dubai has stressed that this will be the last state aid to the firms and that the city-state does not need to tap financial markets, or ask for further funds from its fellow UAE states. Dubai proposed $8B in aid for Nahkeel along with full repayments on Sukuks. Regarding DW, Dubai has offered to 'equitize' its $8.9B stake and commit a further $1.5B in funds. While tricky questions of haircuts, conversion prices and coupon rates were not cleared up, DW equities, debts and CDS improved/tightened on some levels of clarification. *** It has been reported that the US gov is planning a new tone and direction in its fight to halt Iran from gaining nuclear weapons. Rather than pursuing the vocal, tough sanction approach, administration insiders have stated that a softened tone has been engaged to bring China and Russia into the fold. Both states, Russia, with commercial and nuclear operations in Iran, and China with a very cautious internationalist personality have blocked most US led challenges to Iran. In this new tone, banking, travel, air and water-space restrictions are seen as being dropped to encourage a broader coalition.
***Notes/Observations: - Two-day EU summit begins today with low expectations - Trichet: ECB to keep collateral rules beyond 2010 - Lots on the China front - China PBOC Dep Gov Zhu: Greek crisis just the beginning as Spain and Italy are concerns too. China should and could move towards a floating currency regime - Chinese Vice Commerce Minister noted that China was willing to strengthen communication with the US over the valuation on the yuan - China central bank executes biggest weekly liquidity drain in two years. - ECB members vocal on the currency front too: Bini Smaghi: Germay stance on Greek crisis threatens Euro; ECB's Nowotny: Euro depreciation is positive for whole economy. - Dubai govt to recapitalize Dubai World with $9.5B - UK Feb retail sales rebound but downward revisions in jan
***Looking Ahead: - 7:00 (IR) Ireland Q4 GDP Q/Q: No est v 0.35 prior; Y/Y: No est v -7.4% prior; Current Account Balance: No est v -â‚¬902M prior - 7:30 (BR) Brazil Central Bank (COPOM) Monetary Policy Meeting minutes from Mar 17th (left rate unchanged) - 8:00 (BR) Brazil Feb Unemployment Rate: 7.6%e v 7.2% prior - 8:00 (CZ) Czech Central Bank Interest Rate Decision: Expected to maintain the Repo Rate at 1.00% - 8:30 (US) Initial Jobless Claims: 450Ke v 457K prior; Continuing Claims: 4.562Me v 4.579M prior - 9:00 (US) Jan RPXComposite 28-day Y/Y: No est v -1.1% prior; Index; No est v 193.91 prior - 9:10 Fed's Pianalto - 10:00 Fed's Bernanke testifies on Exit strategies - 10:00 US Treasy's Allison - 10:00 (SA) South Africa Central bank (SARB) Interest Rate decision: Expected to maintain interest rates steady at 7.00% - 11:00 (MX) Mexico Feb Unemployment Rate: 5.7%e v 5.9% prior - 12:00 (CO) Colombia Q4 GDP Y/Y: 1.7%e v -0.2% prior - 13:00 (US) US Tsy to sell $32B in 7-year Notes - 13:30 US Tsy Sec Geithner - 14:30 (EU) ECB's Gonzalez-Paramo - ECB's Mersch
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