European Market Update: Risk aversion sentiment builds in Session
Monday, April 19, 2010
European Market Update: Risk aversion sentiment builds in Session
*** ECONOMIC DATA *** - (PH) Philippines Mar Balance of Payments: $255M v -$125M prior - (FI) Finland Mar PPI M/M: 0.3% v 1.1% prior; Y/Y: 2.9% v 1.2% prior - (SP) Spain Q1 House Price Index Q/Q: -1.3% v -0.5% prior; Y/Y: -4.5% v - 6.2% prior - (SP) Spain Feb Industrial Orders NSA Y/Y: 7.4% v 0.7% prior; Service Sector Sales Y/Y: -0.9% v -4.1% prior - (AS) Austria Feb Producer Price Index M/M: 0.5% v -0.2% prior; Y/Y: -0.7% v -1.3% prior - (UK) Coucil of Mortage lenders (CML) UK March mortgage lending M/M: Â£11.5B v Â£9.3B prior; up 3% y/y. - 5:00 (EU) ECB's Weber - (EU) Euro Zone Feb Construction Output SA M/M: -3/3% v -0.9% prior; WDA Y/Y: -15.2% v -10.6% prior
*** SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM *** - Equities: Equity markets in Europe opened on a heavy theme following losses in Asia and NY (Friday). Macro themes that pushed this lower rotation included spreading fallout of an SEC charge against Goldman Sachs [GS] and expanding clarification of Chinese PBOC actions to cut down on property market speculation. Despite these negative themes, and rising anger amongst European airlines, delivery firms and airport operators, the majority of pre-market information was positive. Philips [PHIA.NV] delivered strong Q1 earnings on both the net and gross side. Philips showed volume increases in all business sectors and stated that the recovery in activity seen in Q1 is expected to roll over into Q2. Earnings from global logistics and shipper Kuehn & Nagel [KNIN.SZ] were also surprisingly positive. The firm stated that following Q1 results in its bulk shipping unit, it expected to return to growth in FY10. On the open, financials (despite a positive call from Nomura), airlines and commodities gave back ground. Sentiment appeared to approve through 4:30EST, but speculation regarding a widening of SEC investigations, and the slow march of Greek/German bond spreads through new post-EU highs again sent markets lower. The negative rotation has not been spectacular, with markets trading down between -0.60-0.90%. Volume levels, however, have picked up markedly as traders have turned interest to airline and financial sector names, pushing the rotation lower. Earnings from troubled US financial giant Citigroup [C] are expected in the NY morning.
- Individual equities: Philips [PHIA.NV]: Reports Q1 Net â‚¬201M v â‚¬110Me, Rev â‚¬5.68B v â‚¬5.3Be. || Kuehn & Nagel [KNIN.SZ]: Reports Q1 Net CHF131M v CHF127Me, Rev CHF4.6B v CHF4.4Be. || Axa Asia [AXA.AU]: (AU) Australia ACCC clears AMP bid for firm; to oppose NAB-AXA offer on competition concerns. || SeaDrill [SDRL.NO]: Completes 12.5M shrs in private placement operations (apprx 3% of shrs outstanding). || Tui Travel [TT.UK]: Provides update re volcano and air conditions: Estimated cumulative cost up to and including April 18 is approx Â£20M. || Arriva [ARI.UK]: Deutsche Bahn planning $2.6B offer for the company - Sunday Times. ||
- Speakers: EU's Junker commented that the Greece aid program to be on common EU/ECB/IMF terms and would discuss possibility of further austerity measures. He reiterated that the Euro zone would be ready with aid if it is requested from Greece *** Council of Mortage lenders (CML) stated that it expected a gentle improvement in market conditions later in the year due to gradual improving economic backdrop and low interest rates . it did noted that lending for the first three months of 2010 was the smallest amount of lending in a decade *** Germany's Fin Min official commented that Germany's regulator BaFin was in contact with SEC over Co. and that the BaFin regulator to decide on legal steps regarding Goldman Sachs. The Fin Min official saw no reason to blacklist Goldman Sachs ***Goldman Sachs [GS] commented that the security probe had no broader ramifications for CDOs markets and reiterated that the SEC allegations were "completely unfounded". It did note that the SEC investigation focused on a single 2007 transaction and that SEC had been examining CDO market for the past 18 months *** German Econ Min Bruederle commented that the Iceland volcanic ash crisis was threatening Germany's economic recovery. The Volcanic plume threatened the country's logistics chain and was to call for Industrial summit later today with German companies *** Fitch Revised Thailand's local currency rating outlook to negative from stable but affirmed the country's sovereign ratings at "A-". The outlook change on Thailand's Long-term local currency rating reflected an escalation in political uncertainty, coupled with a slow economic recovery and a deteriorating policy environment. However, Thailand's strong external financial position continued to support sovereign creditworthiness in foreign-currency terms *** Germany's BDI industry association forecasted that the country's 2010 GDP growth could hit 2%. It noted that conditions on growth depended that no economic deterioration ensued coupled with stable energy and raw material prices. ***
- Currencies/Fixed Income: Numerous factor contributed to the risk aversion sentiment and aided the USD and JPY currencies on a firmer footing relative to European and commodity pairs. Recent measures announced by China to cool off its property market and the Goldman Sachs fraud case seemed to be the excuse the markets have lynched on to curb the euphoria in the global equity rally. The travel disruption in Europe from the Icelandic volcano and ongoing concerns about Greece added to the risk aversion flows in Europe. The spread between 10-year Portuguese and German bonds nearing 150 bps while the Spread between 10-year Greek/German bonds continue to widen to all-time post Euro launch levels; nearing 470bps. The Euro zone yield spreads were widening again as the IMF meeting in Athens was delayed due to the air traffic disruptions over Europe. Concerns were that the disruptions would hit the fragile economic recovery and push up government deficits even further. EUR/USD tested 1.3435 ahead of the NY morning while GBP/USD tested 1.5200. The USD/JPY holding below the 92 handle.
- Geo-political: To the increasing chagrin of airlines, large blocks of air space, including the entire UK remain closed to travel. Volcanic ash from Iceland continues to paralyze air traffic in Europe with rail lines operating at full capacity (though limited by on-going strikes in France). BA, Lufthansa and Air France all held experimental flights over the weekend and have begun to strongly push for a relaxation of the current travel ban. *** Fallout from last Thursday's UK televised election debate continues as the most recent report from Yougov gives the Lib Dems 33% support to Conservative 32% and Labour 26%. Labour has furthered its courting process of the LibDems while the Conservatives have stepped up attacks. The possibility of current LibDem support carrying over to electoral success still waits to be seen. *** In what could lead to further challenges to a potential EU membership bid for Turkey, Dervis Eroglu, seen as a hard line Turkish Cypriot, has carried a key leadership vote over the weekend. Eroglu has attempted to play down such fears, committing himself to further talks leading to unification of the islands two half's. Despite such a pledge, Eroglu still stands opposed to the current unification plan that would call for a federal structure in which the two states would answer to a central government, Eroglu has continuously pushed for retained sovereignty in any agreement.
- In The papers: London Telegraph's Ambrose Evans-Pritchard article noted that Portugal posed a greater threat to EMU than Greece and unlike Greece, Portugal did not cheat to get into EMU and has been more frugal on spending, but has still not been rewarded. Citing Brussels statement suggesting Portugal indebtedness is attributable to access to easy credit reducing savings rate and igniting consumption. According to Commission estimates, Portugal's public debt will be 86% of 2010 GDP vs 124% for Greece, but also points to weak prospects of recovery for nation's exporters. Says it is different to expect a country to be more frugal when there has been no boom than to do so after a period of strong growth. Notes the country may have to do so under EU pressure, operating with a minority govt led by Socialist premier Socrates and with no safety net of a bailout by reluctant Germany and undercapitalized IMF.
***Notes/Observations: - Icelandic volcano having potential economic impact on Europe. - European Airline disruption delays IMF-Greek meeting by two-days - Spread on Greek/German Gov't bonds widen towards 470 bps; post Euro currency record
***Looking Ahead*** - 8:00 (PD) Poland Avg Gross Wages M/M: 3.9%e v 1.8% prior; Y/Y: 2.8%e v 2.9% prior - 8:00 (PD) Poland Mar Employment M/M: -0.1%e v -0.2% prior; Y/Y: -0.7%e v 1.1% prior - 8:30 (CA) Canada Feb Int'l Securities Transactions: C$9.0Be v C$11.8B prior - 9:00 (US) Fed's Bernanke and Evans on financial literacy - 9:20 (BE) Belgium Jan Trade Balance: No est v -â‚¬1.3B prior - 10:00 US Mar Leading Indicators:1.0%e v 0.1% prior - 11:00 (EU) ECB's Trumpel-Gugerell - 13:00 (EU) ECB's Papdemos - 16:00 (US) Fed's Duke - (AR) Argentina Apr Consumer Confidence: No est v 41.38
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