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Monday May 10, 2010 - 09:56:56 GMT
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European market Update: EU/IMF €750M bailout pledges reignites risk appetite

Monday, May 10, 2010 5:55:17 AM

 European market Update: EU/IMF €750M bailout pledges reignites risk appetite


***Economic Data***
- (GE) Germany Mar Current Account: €18.0B v €13.5Be; Trade Balance: €17.2B v €14.0Be Imports M/M: 11.0% v 0.5%e; Exports M/M:10.7% v 3.0%e
- (FI) Finland Mar Industrial Production M/M: 1.5% v -1.3% prior; Y/Y: 1.7% v -1.9% prior
- (FI) Finland Mar Preliminary Trade Balance: -€285M v -€80M prior
- (FR) Apr Bank of France Bus. Sentiment: 102 v 104e
- (FR) France Mar Manufacturing Production M/M: 0.8% v 0.5%e; Y/Y: 6.7% v 6.4%e
- (FR) France Mar Industrial Production M/M: 1.0% v 0.3%e; Y/Y: 6.2% v 5.2%e
- (HU) Hungary Mar Preliminary Trade Balance: €653.1M v €513.5Me
- (CZ) Czech Apr CPI M/M: 0.3% v 0.3%e; Y/Y: 1.1% v 1.1%e
- (CZ) Czech Apr Unemployment Rate: 9.2% v 9.4%e
- (SP) Spain Mar House transactions Y/Y: 9.0% v 18.7% prior
- (TU) Turkey Mar Industrial Production WDA M/M: 0.9% v 1.6% prior; Y/Y: 17.8% v 18.2% prior; Industrial Production NSA Y/Y: 21.1% v 24.0%
- (DE) Denmark Mar Current Account (DKK): 5.0B v 0.5Be; Trade Balance Ex Shipping: 8.3B v 5.0Be
- (DE) Denmark Apr CPI M/M: 0.2% v 0.2%e; Y/Y: 2.4% v 2.5%
- (DE) Denmark Apr EU Harmonized CPI M/M: 0.2% v 0.2%e; Y/Y: 2.4% v 2.4%e
- (NO) Norway Apr CPI M/M: 0.2 % v -0.2%e; Y/Y: 3.3% v 2.9%e
- (NO) Norway Apr CPI Underlying M/M: 0.3% v 0.2%e; Y/Y: 1.7% v 1.6%e
- (NO) Norway Apr Producer Prices (incl.Oil) M/M: 3.5% v 2.3% prior; Y/Y: 26.7% v 21.7% prior
- (IT) Italy Mar Industrial Production M/M: -0.1% v 1.0%e; Y/Y: 8.7% v 10.8%e ; Industrial Production WDA Y/Y: 6.4% v 8.1%e
- (EU) Euro Zone May Sentix Investor Confidence: -6.4 v -1.0e
- (GR) Greece Mar Industrial Production Y/Y: -3.7% v -9.2% prior

- Equities: Heading into the NY morning European equities were continuing to trade near their best levels in the session after opening sharply higher as spreads narrowed significantly following the disclosure of the EU's $962B emergency loan package. Major European bourses were higher between 4% to 9% and Spain's IBEX-35 index up almost 12%. Today's equity gains have been led by indices which had the largest declines on Friday's session, including the CAC-40, Portugal's PSI 20, and Greece's ASE. In terms of individual sectors, financials are outperforming led by French banks. BNP Paribas Deutsche Bank were leading the way for the financial secotr. Overall The European price action saw their largest gain in a year following the EU bailout pledge.

- In Individual Stocks: QSC [QSC.GE]: Reported Q1 Net €3.2M compared to €3M estimates. Revenues were in line with analyst estimates at €105.9M. the company confirmed 2010 forecast with further rise in revenues, EBITA and net income. || Vedanta Resources [VED.UK]: Acquired Anglo American zinc assets for $1.34B|| Lonmin [LMI.UK]: Reported half-year results with underlying profit before tax at $82M compared to year-ago loss of $113M. Revenues came in at $661M up from the $436M seen last year. || Dignity [DTY.UK]: Reported Op profit £20.4M and in line with consensus estimates. Revenues were £53.9M just above the £53M estimates || GEM Diamonds [GEM.UK] Issued a trading update and noted that rough diamond prices had firmed in Q1|| Centrica [CNA.UK]: Provided its trading update and noted that it profited from cold weather in Q1 period with gas consumption +7%y/y || RWE.GE: Analysts at Goldman Sachs saw more downside risk for RWE.GE on the fragility of the nuclear extensions post German election. Risk was due to Biblis A and Biblis B. Analysts expected market to be disappointed over the news as investors were more optimistic about Biblis A.

- Speakers: BoJ Deputy Gov Yamaguchi commented that there was no need to change BoJ's economic view in April report and the global bailout package unveiled over the weekend were introduced to stop economy from worsening. He expected the global policy steps provided to stabilize markets due to that the fund strains in Europe might destabilize global markets. No large problem for local banks' foreign currency funding and not likely that Japanese banks had large exposures to Greece ***France Fin Min Lagarde commented that the EU and ECB bailout packages were a significant amount and sent a powerful signal to markets . Each member EU State to provides guarantees which need not be necessary to implement. The mechanism to defend the Euro and she expresses that conviction that the measures would work. She added that some member States did NOT want to participate in the bailout due to legal issues but that Europe was in it together to make the Euro work. Lastly she noted that it remained to be seen whether if Greece respected its obligations at the end of the month*** German Government commented that the EMU would not issue euro bonds but that a new Euro Group unit would seek loans in the open market. The spokesperson confirmed that not all EMU govt would have to participate in the bailout plan *** IMF's Strauss-Kahn commented that the EU/IMF aid package announced over the weekend was a 'big step forward' and very significant. He added that he believed €750B package would be enough and prove effective. He saw the the IMF portion of aid package contribution roughly same proportion as in past with 2-1 Ratio seen ***EU Pres Van Rompuy: To unveil a radical fiscal package this year; calls for increased European Economic Union **European dealers confirmed that central banks have been sighted buying peripheral government bonds with the Bank of Finland confirming all EMU Central Banks had been involved in purchasing bonds in the session. The Bundesbank also confirmed the activity. *** S&P commented on EU aid package and stated that the EU aid package was "very impressive" and "comprehensive". S&P added that the bailout did addresse long term issues for the region. *** Both the ECB and BOE confirmed the reopening of the USD swap lines. *** German Chancellor Merkel stated that the "unprecedented' rescue package was to protect the Euro. She noted that the ECB was doing everything possible to ensure stability of Euro currency. She noted it was important that Spain and Portugal sent budget cut signals to the markets and welcomed their savings measures. Merkle also commented that the German Cabinet would pass the Euro aid package tomorrow with no additional measures needed to approve first €60B ***

- Currencies/Fixed Income: The safe-haven flows that characterized that price action of last week reversed in the Asia/European session following the EU bailout package with the USD and JPY weaker against he major European and commodity-related pairs. Overall the price action in all asset classes encountered gaps as a result of the weekend developments. Major European bourses were higher between 4% to 8%, spot gold declined over 1.5% to dip below the $1,190 area per oz. EUR/CHF cross rallied above 1.4300 level. The EUR/USD moved above the 1.3050 area before consolidating its session gains from the 1.2750 close Friday. Dealers noting that from current levels the Euro's upside probably limited by skepticism of the rescue package as details are better known. The EUR/USD remained below the former 8-year uptrend line around the 1.31 area that was violated last week. Dealers also noting that no key data until later this week when Euro area GDP figures are released so markets are left to their own devices until then. The USD/JPY back above the 93 handle with the 95.30 seen as the pivotal directional point. European peripherals spreads narrowed dramatically in session after announcement of on EU bailout package. The 10-year Greek/German bond spread was below 400bps after opening up around 800bps (this spread was over 1,000 late Friday) The 10-year Portuguese/German bond spread below 300bps after opening at 360bps compared to its closeof 375 late Friday. The 10-year Spanish/German bond spread below 110bps after opening up around 130bps and down from the 170 level experience late Friday

- Geopolitical: German election update: Results from Sunday's elections are pointing towards a loss of CDU majority in the German upper house to 31 votes from the current 37 out of 69. Based upon provisional polling results, the CDU on 34.6% of the votes versus 44.8% in 2005, with main rivals Social Democrats on 34.5%, and Green Party on 12.1%. Without a majority position in the Bundesrat, Merkel's party must now negotiate with opposition parties to pass legislative efforts, however, it is still undecided as to which parties will be governing the state. Note the regional elections of North Rhine-Westphaila dealt a worse than the expected 10% decline. *** Following last week's UK election results, the leaders from Liberal Democrats and Tories have twice met with regards to the prospects of a coalition between the two parties, though Prime Minister Brown had also met with Liberal Democrats' Clegg on a prospective post-election deal. Note with 306 seats acquired from the election, an alliance with Liberal Democrats, 57 seats, could result in the formation of new government in Parliament. Clegg and Cameron are to meet again Monday to further discuss possible alliances. *** EU finance ministers and IMF agreed on a €720B rescue package for the Euro zone over the weekend, which contains €440B in a mix of government-backed loan and debt guarantees from EU members; €60B of emergency fund by EU members and €220B by the IMF. After rumors circulating in the markets for a week, the ECB also announced it would start buying euro zone public and private bonds in order to ease market tensions and re-absorb liquidity. At the same time, BOE, BOC, FED will re-establish dollar liquidity facility. The multinational agreement would contain the Greek crisis and the first loan payment would come before May 19, according to Spain's Finance Minister Salgado. German Chancellor Merkel called this an "unprecedented" package to protect the Euro and invited Portugal and Spain to send budget cut signals to the markets while welcoming their savings measures. Furthermore, officials noted the need for the regulation against speculation. While welcoming the EU rescue package as consolidating the EU periphery, analysts at Morgan Stanley argued that the impact on the Euro currency and Bunds remains uncertain.

- It's all about the package. The session saw the markets react to the extent that positions were "off-sides". Overall dealer sentiment continues that the core EU problems remain. Dealers still question the exact details of payments, debt subordination and guarantees. The compliance issues to fiscal measures and penalties have not changed.
- Meanwhile in Germany the voters speak and Chancellor Merkel loses majority in upper chamber.

***Looking Ahead***
- 7:00 (UK) BOE Interest Rate Decision: Expected to leave Interest Rates Unchanged at 0.50% and Maintain the Asset Purchase Target at £200B
- 8:15 (CA) Canada Apr Housing Starts: 205.0Ke v 200.9K prior
- 10:00 (MX) Mexico Mar Final Trade Balance:
- 12:30 (US) Fed's Kocherlakota



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