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Thursday May 6, 2010 - 09:59:33 GMT
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European Market Update: Market looks towards ECB decision and press conference to counter contagion (Trade the News)

Thursday, May 06, 2010 5:51:12 AM

 European Market Update: Market looks towards ECB decision and press conference to counter contagion


***Economic Data***
- (IN) India Mar Exports Y/Y: 54.0% v 34.8% prior
- (RU) Russia Gold & Forex Reserves w/e Apr 30th: $460.7B v $454.7B prior
- (HU) Hungary Mar Preliminary Industrial Output M/M: -0.4% v -1.5% prior; Y/Y: 2.8% v 4.7%e
- (SZ) Swiss Apr CPI M/M: 0.9% v 0.8%e; Y/Y: 1.4% v 1.3%e
- (UK) Apr PMI Services: 55.3 v 57.0e

- Equities: European equities opened the session lower, following the negative leads out of the US and Asia. However, as the session progressed equities pared losses, led by shares of
Germany's Commerzbank, after the company reported better than expected Q1 earnings. Additionally, markets were supported by a positive reaction to the trading update given by Diageo. As of 5:45 EST, equities have moved off of their best levels as markets await the ECB.

- In Individual Stocks: Zurich Financials [ZURN.SZ]: Reports Q1 Net $935M v $846Me, Op profit €1.26B v €1.2Be || AXA [CS.FR]: Reports Q1 Net €4B v €3.3B y/y, Rev €27.9B v €27.6B y/y || HeidelbergerCement [HEI.GE]: Reports Q1 Op profit €171M v €11.3M y/y, Rev €2.18B v €2.Be || Alcatel-Lucent [ALU.FR]: Reports Q1 Net loss €515M v loss €166Me, Rev €3.25B v €3.5Be || Addeco [ADEN.SZ]: Reports Q1 Net €57M v €49Me, Op income €100M v €30M y/y, Rev €4.0B v €3.9Be; continues to see good revenue developments in the majority of our markets|| Swiss Re [
RUKN.SZ]: Reports Q1 Net $158M v $140Me, R$8.07B v $5.2B y/y || Commerzbank [CBK.GE]: Reports Q1 Net €708M v €500Me, Rev €3.6B v €3.4Be; cannot extrapolate a good first quarter to the entire year || Cap Gemini [CAP.FR]: Reports Q1 Rev €2.05B v €2.1Be; Sees return to growth in H2 of 2010 || Hermes International [RMS.FR]: Reports Q1 Rev €507M v €428.4M y/y; Q1 sales growth cannot be extrapolated to the full year || Legrand [LR.FR]: Reports Q1 Net €90.3M v €88Me, Op profit €181M v €147Me, Rev €911.7M v €895Me || Pages Jaunes [PAJ.FR]: Reports Q1 Rev €234M v €228Me; Targets internet revenue by 50% in 2012 || Beiersdorf AG [BEI.GE]: Reports Q1 EBIT €186M v €173Me, Rev €1.54B v €1.5Be || Vedanta [VED.UK] Reports FY09 Net $602.3M v $568Me, Rev $7.9B v $6.58B y/y || Smith and Newphew [SN.UK]: Reports Q1 Trading profit $250M, Rev $995M v $865M y/y; Reaffirms 2010 outlook

- Speakers: France's Sarkozy and Germany's Merkel write in Le Monde that they are determined to keep the Euro zone stable ***Germany Fin Min Schaeuble commented that a Greece debt restructuring would ignite a firestorm. He added that Europe is in a fundamental crisis with stability of Euro at stake *** Greece Fin Min Papaconstantinou commented that the only way to avoid default was to accept EU/IMF rescue package otherwise the country could endure a decade of recession without aid***German Vice Chancellor Westerwelle commented that it was nearing a broad majority in Bundestag lower house on aid to Greece. The Germany's SPD Opposition signaled it could possible support for Greek aid package ***Moody's assessed sovereign risk in European banking sectors and noted that contagion could spread to Spain, Italy and UK banks ***EU Barroso reiterated the view that more policy coordination was needed in Europe. Accepting Greece aid package was in the interest of all EMU *** EU Trade Commissioner De Gucht commented in a German press interview that the current euro currency rate was not a concern ***EU's Rehn commented in an address to Lawmakers
that the current crisis had to do with whole Euro Zone and did not touch Greece alone ***

- Currencies/Fixed Income: Thursday marks a day of key decisions in Europe. The
UK elections are underway where some 44M voters decide the fate of one and the ECB press conference where Trichet 'decides' the fate of many. European peripheral continued to widen and remained the focus ahead of the ECB rate decision and press conference. Dealers noting that recent price action might be a bit overstretched as the EUR/USD hit fresh 14-month lows below 1.2740 before consolidating. There is some vague chatter on option barriers at 1.2700. The FX market is centering whether the ECB re-enters its swap lines with the Fed (as it did during the financial crisis two years ago). Vague dealer chatter that FED swap lines might be reopened with central banks. Focus during the NY morning will be how Trichet acknowledges the ECB collateral issue with the peripheral situation unfolding, approach Gov't bond purchases to instill confidence, and if there is a shift in policy direction. The Spanish 5-year auction result sold total amount of €2.345B (in the lower half of the €2-3B target range). had a healthy bid-to-cover of 2.35X compared to the March auction of 1.5X. However, the country paid a higher price for the issue with the average yield coming in at 3.532% versus 2.8% in March. The peripherals spreads did narrow marginally from their widest point in the session afterwards.**The EUR/CHF cross fell dramatically ahead of the NY morning on chatter that the SNB pulled its bids at 1.4325 from the dealing machines. The pair fell 100 pips to test 1.4225

Geopolitical: UK Election: Polling stations opened today from 700BST to 2200BST with initial declaration expected at 2300BST. Recent polling data suggested a hung Parliament, which would be the first time since 1974. Guardian/ICM poll: Tories on 36%, Labour on 28% and the Lib Dems on 26%; ComRes poll for ITV News and Independent: Tories on 37%, Labour and Lib Dems both on 28%; YouGov: Increase for Lib Dems to even out with Labour on 28%, Tories on 35%. ***
- Greece: Greek protests turned into a tragedy when three employees from the Bank of Athens died as a consequence of a petrol bomb thrown as protests became increasingly violent. The Greek prime minister called the deaths a "murdereous act" and further stated that he will continue to push the €110B austerity package demanded by the EU and IMF. Similar comments were made by the Finance minister during the session, reiterating the government's determination at any political cost. During the session Greek Finance Minister addressed Greek Parliament reiterating the importance of the austerity measures and urging the latter to approve the €110B cut Meanwhile Germany and Italy are expected to move on to parliament vote on May 7 on Greek aid package. According to an article on FT Germany's share may have to rise to if EU agrees to exempt states whose borrowing costs are above the interest received from
Greece. Greek problems have also US investors and policy makers concerned as they fear it could start to impact the US economic recovery, WSJ reports. WSJ says officials at the US Treasury have been urging officials in the EU and IMF to move quickly on their rescue plan, to contain the damage. Notes amid the demand for US dollars due to Greece, the 3-month Libor has risen to about 0.36 percentage point from 0.25 in late Feb. WSJ also commented that these strikes present a critical test for the Greek government to implement the measures. On the other hand, Barroso reserved strong words against rating agencies and speculators saying they are testing not only the markets but also the "regulatory authorities and democratic institutions". *** Europe: Germany is set for parliamentary proceedings tomorrow as the Bundestag lower house prepares to vote on legislation for Greece aid. Though the SPD opposition threatened to delay the fast track process, it was reported today that the SPD opposition was signaling possible support for the Greek aid package. German Vice Chancellor Westerwelle also commented that the lower house was nearing a broad majority. Note France and Germany have the highest exposure to Greek debt, with the Bank of International Settlements (BIS) approximating that French banks hold $75bn in Greek debt and Germany at $45bn. On Tuesday, German financial institutions agreed to support the aid package by opening credit lines and allowing lending extension when current debt matures. Following Germany's decision, Finance Minister Lagarde commented yesterday that France's leading banks were committed to continue its lending to Greece. Spain will have a cabinet meeting tomorrow to approve Greek aid where their contribution is slightly below €10bn; Although Italy did not explicitly state a date of approval by its cabinet, their portion of the aid package at €14.7bn may be approved next week; Netherland's €4.7bn portion is going to parlimentary debate tomorrow, which will need to pass both houses for approval.

UK elections. Polls close at 10pm local time
- ECB rate decision and press conference
- Japan returns from Golden Week holiday; Nikkei -3.25%. China Shanghai off 4% at 8-month lows
- Chinese Lawmaker Cheng Siwei a 3% move in the yuan exchange rate is acceptable; expects
CPI to rise by 5% in 2010 vs government est of 3%. Should coordinate rate hikes with US, EU and Japan and June G20 meeting.
China FX Regulator: Debt crisis could become contagious. Pressure on bank share prices.
- Monster online employment index 133 in April up from 125 in March. Y/Y advance largest since Jul 2007.
- Australia retail sales +0.3% v +0.8%e.
- Feds Rosengren: Prefers first rate hikes than asset sales. Would not rule out swap lines with Europe if needed

***Looking Ahead***
- (RU) Russia Apr Official Reserve Assets: $ v 456.0Be
- 7:00 (CZ) Czech Central Bank Interest Rate Decision: No change expected in the repo rate from the 1.00% current level
- 7:00 (BR) Brazil Apr FGV Inflation: 0.9% ev 0.65 prior
- 7:30 (BR) Brazil Central Bank (COPOM) minutes
- 7:30 (GE) German Parliament votes on solar-power industry subsidies
- 7:30 (GE) German Fin Fin Schaeuble testifies on Greece to German upper house panel
- 7:45 (EU) ECB Interest rate Decision: Unanimous analyst expectations for the main refi Rate to remain steady at 1.00%
- 8:30 (EU) ECB's Trichet press conference
- 8:30 (US) Q1 Preliminary Nonfarm Productivity: 2.6%e v 6.9% prior; Unit labor Costs: -0.7%e v -5.9% prior
- 8:30 (US) Initial Jobless Claims: 440Ke v 448K prior; Continuing Claims: 4.610Me v 4.645M prior
- 8:30 (CA) Canada Mar Building Permits M/M: 0.7%e v -0.5% prior
- 9:00 (US) Tsy Sec Geithner:
- 9:10 (US) Fed's Bullard speaks on US economy
- 9:20 (US) Fed's Evans at banking conference
- 9:30 (BR) Brazil Apr Vehicle Production: No est v 331K prior; Vehicle sales: No est v 353.7K prior; Vehicle Exports: no ets v 57.9K prior
- 10:00 (CA) Canada Apr Ivey Purchasing Managers Index: 55.5e v 57.8 prior
- 10:10 (US) Fed's lacker: speaks on US economy
- 10:30 (US) ICSC Chain Store sales Y/Y: No est v 9.0% prior
- 10:50 (US) Fed's Parkinson speaks at banking conference
- 15:00 (US) Fed Evans speaks on economy in Chicago



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