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Wednesday April 28, 2010 - 10:26:43 GMT
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European Market Update: Greek debt insurance now the most expensive in the world; 5-year CDS over 900bps

Wednesday, April 28, 2010 5:51:47 AM

 European Market Update: Greek debt insurance now the most expensive in the world; 5-year CDS over 900bps


- (FI) Finland Mar Preliminary Retail Sales Volume: 8.4% v 1.3% prior
- (HU) Hungary Mar Unemployment Rate: 11.8% v 11.5%e
- (SP) Spain Mar Adj Real Retail Sales Y/Y: 2.1% v -1.0%e; Real Retail Sales Y/Y: 3.5% v -1.1% prior
- (GE) Germany Apr CPI Saxony M/M: -0.1% v 0.6% prior; Y/Y: 1.1% v 1.3% prior
- (SW) Sweden Mar Unemployment Rate: 9.1% v 9.5%e
- (IT) Italy Apr Business Confidence: 85.5 v 85.0e
- (GE) Germany Apr CPI Hesse M/M: -0.1% v 0.4% prior; Y/Y: 0.8% v 0.8% prior
- (GE) Germany Apr
CPI Brandenburg M/M: 0.0% v 0.3% prior; Y/Y: 0.7% v 0.8% prior
- (GE) Germany Apr CPI Baden Wuerttemberg M/M: -0.2% v 0.7 prior; Y/Y: 1.1% v 1.3% prior
- (SA) South Africa Mar
CPI (all items) M/M: 0.8% v 0.9%e; Y/Y: 5.1% v 5.2%e
- (GE) Germany Apr CPI Bavaria M/M: -0.1% v 0.5% prior; Y/Y: 0.9% v 1.1% prior

- Equities: European equity bourses have added to their losses from yesterday's session on the back of sovereign risk issues emanating from the European peripherals. Joining a global equity market selloff, S&P comments on
Portugal and Greece on Tuesday have once again centered financial market attention on debt and sovereign default issues. European bourses opened offered and accelerated to the downside after 4:00EST as the ECB provided the results of a Q1 lending survey that confirmed expectations that banks had indeed tightened credit standards for lending to both private and commercial end clients. Ahead of the open, Greek market regulators stepped in to ban short-selling following continued losses in listed financials. This action has served to roll selling interest from Greek banks directly to European banks with Greek exposure; financials have led the lower rotation. Macro level commentary has all but washed out corporate news as Europe moved into the thick of earnings season. German blue-chips SAP [SAP.GE], Merck [MRK.GE] and Infineon [IFX.GE] reported, with Merck and Infineon both upgrading FY10 guidance. In the UK, Royal Dutch Shell [RDSA.UK] followed BP [BP.UK] with significantly stronger than expected earnings figures. Additional UK names that reported included both Rolls Royce [RR.UK] and Home Retail [HOME.UK]. Earnings figures from the alternative energy sector have been mixed as solar manufacturer Renewable Energy [REC.NO] beat estimates (and provided supportive 2010 ASP guidance), while wind turbine name Vestas [VWS.DE] missed estimates with a negative net (though the firm maintained its 2010 guidance). Earnings news and macro events have sent trading volumes massively higher. Turnover in financials, highlighted by RBS [RBS.UK] and Lloyds [LLOY.UK] sent volumes on the FTSE100 over 300% higher than moving averages.

- Individual equities: Infineon [
IFX.GE] reported Q2 Op profit €110M v €96Me, Rev €1.04B v €1Be; raises FY10 guidance.|| Merck Ag [MRK.GE] reported Q1 Net €195M v €233Me, Rev €2.1B v €2Be; Raises FY10 operating profit guidance.|| SAP [SAP.GE] reported Q1 Net €387M v €390Me (not clear if comparable), Rev €2.51B v €2.4Be; Reaffirms outlook. Continental [CON.GE] offered a preliminary Q1 EBIT €494M v €370Me, Rev €6.0B v€5.4Be; confirms FY10 guidance. Royal Dutch Shell [RDSA.UK] reported Q1 Net $5.8B v $4Be, Rev $86.1B v $67.3Be. Rolls Royce [RR.UK]: Interim management statement: Have seen signs of stabilization, environment remains challenging. BBVA [BBVA.SP] reported Q1 Net €1.24B v €1.2Be, Net interest income €3.39B v €3.4Be. Renewable Energy [REC.NO] reported Q1 Pretax NOK730M v loss NOK274Me, Rev NOK2.36B v NOK2.4Be. Vestas [VWS.DE] reported Q1 Net loss €82M v profit €15Me, Rev €755M v €963Me; Reiterates FY10 guidance. Home Retail [HOME.UK] reported prelim FY10 Pretax profit £293M v £299.8M y/y, Rev £6.02B v £5.9B y/y.

- Speakers: EU confirmed that it would hold a summit on May 10th to discuss Greece *** Germany's Dep Fin Min Asmussen stated that 2010 remained a year of fiscal expansion and that was working hard on exit strategy from fiscal support measures. H expressed optimism that
Germany economy would continue to recover throughout the year but did concede that the rebound remained fragile. Financial markets have stabilized but remain far from normal. All EU members must consolidate budgets and sought tougher penalties for member States that break budget rules. He forecasted that Germany's 2010 deficit to GDP ratio would be 5.5% and it s Total debt to GDP ratio at 79% *** ECB's Stark commented that the crisis was not over yet and that the deterioration in public finances remained a concern. He reiterated that high budget debt might drive inflationary expectations and was carefully watching commodity prices in emerging markets. It was not clear if global recovery was yet sustainable but reiterated that ECB interest rates were appropriate. He saw clear signs of improvement in Euro Zone and global economies and that talk of credit crunch in EU was unfounded . On the European peripherals, Stark stated that he saw no connection between Greece and Portugal as Greece was a singular case. ECB purchases of Greek bonds was not being discussed and that the issue at hand was loans and not transfers***ECB's Mersch commented on the peripheral situation in Europe and stated that "We are in a crisis situation and need verbal discipline". He noted that it was possible the new shock could trigger more write downs in banking sector. He observed that each country's situation was different in regards to any contagion risk bu t expressed confidence about result of talks that are occurring related to Greece. The European Union, International Monetary Fund and ECB have the task of bringing Greece back to the path of sustainable growth. He also noted that asset prices were an essential factor in determining monetary policy ***China PBoC published its 2009 China Financial Market Report and noted that the : 2010 Global recovery continued to be fragile. The central bank would manage inflationary expectations. It did not expect the US to exit stimulus policy in short-term. China would maintain consistency and stability in its monetary policy and reiterated the stance to maintain "moderately loose" monetary policy this year. It noted that equities in China could face turbulence and it would take steps to stabilize the domestic equity market. It saw ising risks in China's fiscal and financial areas this year and added that the Chinese banking sector needed to replenish capital base. ***

- Currencies/Fixed Income: Another volatile session on the fixed income side for the peripherals as concerns heightened about potential sovereign defaults. The USD continued to benefit from risk aversion flows. The cost to insure against bond losses continue to hit new heights following the Tuesday sovereign downgrades of Greece and Portugal deb. Greek two-year note yields soared to 21.4% then hit hyper drive to test over 38% while the spread between Greek/German 10-year bonds approached 1,000bps. The EUR/USD tested fresh one-year lows at 1.3142 and edged nearer to the 8-year uptrend line at 1.3070 area. Vague chatter circulated that the UK could lose its "AAA" sovereign rating as the GBP/USD tested 1.5150

- Greek debt insurance now the most expensive in the world; 5-year CDS over 900bps; 10-year spread against Germany over 1,000bps
- Germany to meet ECB, EU and IMF in Berlin today to talk about German reluctance on Greece.
- Japan retail sales above expectations
- China 1 yr T-bill auction undersubscribed
- FOMC meeting later today with rhetoric maintaining the "extended period"

***Looking Ahead***
- (GE) Germany Apr Consumer Price Index M/M: 0.2%e v 0.5% prior; Y/Y: 1.2%e v 1.1% prior
- (GE) Germany Apr CPI EU Harmonized M/M: 0.2%e v 0.6% prior; Y/Y: 1.3%e v 1.2% prior
- 7:00 (US) MBA Mortgage Applications w/e Apr 23rd: No est v 13.6% prior
- 7:00 ECB's Honohan speech in Dublin
- 8:00 (PD) Poland Central Bank interest rate decision: Consensus expectations for the Base Rate to remain unchanged at 3.50%
- 9:00 (GE) German Finance Ministry press conference with ECB and IMF heads
- 9:00 (BE) Belgium Q1 Preliminary GDP Q/Q: No est v 0.3% prior; Y/Y: No est v -0.8% prior
- 9:00 (CL) Chile Mar Industrial Production Y/Y: -7.3%e v 0.5% prior; Industrial Sales Y/Y: -3.3%e v 1.5% prior
- 9:00 (CL) Chile Mar Total Copper Production: No est v 394.7K tons
- 9:00 (CA) Canada Feb House Price Index Y/Y: No est v 7.5%e
- 10:00 (MX) Mexico Mar Remittances: No est v $1.6Be
- 10:00 (US) Treasury's Wolin
- (US) Weekly DOW energy inventories: Crude +750Ke; Gasoline: +500Ke; Distillate: +1.2Me; Utilization: 85.9%e
- 11:00 (GE) Germany's Merkel meets with OECD's Gurria, WTO's Lamy and IMF's Strauss-Kahn
- 11:30 (GE) Germany's Fin Min Schaeuble briefing on States finance
- (SZ) Swiss President Leuthard on post financial crisis
- 13:00 (US) Treasury to sell $42B in 5-year notes
- 14:10 (US) FOMC Interest Rate Decision: Expected to maintain interest rates unchanged at 0.25%
- 15:00 (AR) Argentina Mar Supermarket Sales Y/Y: No est v 12.9% prior
- 17:00 (NZ) New Zealand Central Bank Interest Rate Decision: Expected to maintain the Official cash Rate unchanged at 2.50%
- (BR) Brazil Central Bank (COPOM) Interest Rte Decision: Expected to raise the SELIC target Rate by 50bps to 9.25% (Currently at 8.75%)



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