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Tuesday May 18, 2010 - 10:07:23 GMT
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European Market Update: European equities pare gains after German ZEW data reflects EU debt concerns

Tuesday, May 18, 2010 6:05:17 AM

 European Market Update: European equities pare gains after German ZEW data reflects EU debt concerns


***Economic Data***
- (FR) France Q1 Wages Q/Q: 0.7% v 0.2% prior
- (FR) France Preliminary Q1 Non-Farm Payrolls Q/Q: -0.1% v -0.1% prior
- (HU) Hungary March Avg Gross Wages Y/Y: 9.4% v 1.6%e
- (SP) Spain March Industrial Orders NSA Y/Y: 12.0% v 7.4% prior
- (SW) Sweden April Average House Prices (SEK): 1.89B v 2.01M prior
- (AS) Austria April Consumer Price Index M/M: 0.3% v 1.1% prior; Y/Y:2.0 % v 2.0% prior
- (IT) Italy March Total Trade Balance: -€1.3B v -€2.3B prior; Trade Balance EU: -€139M v -€705M prior
- (NO) Norway April Trade Balance (NOK): 27.1B V 29.0B prior
- (UK) April CPI M/M: 0.6% v 0.4%e; Y/Y: 3.7% v 3.5%e; Core CPI Y/Y: 3.1% v 2.9%e
- (UK) April RPI M/M: 1.0% v 0.5%e; Y/Y 5.3% v 4.4%e; Y/Y Ex-mortgage 5.4% v 4.9%E
- (HK) Hong Kong April Unemployment Rate: 4.4% v 4.3%e
- (GE) Germany May ZEW Economic Sentiment: 45.8 v 47.0e; Current Situation Survey: -21.6 v -33.0e
- (EU) Euro Zone May ZEW Economic Sentiment: 37.6 v 38e
- (EU) Euro Zone April
CPI M/M: 0.5% v 0.4%e; Y/Y: 1.5% v 1.5%e: Core CPI Y/Y: 0.8% v 0.8%e
- (EU) EU March Trade Balance: €4.5B v €5.0Be; Trade Balance Seasonally Adj: €600M V €4.4Be


- Equities: - European equities opened the session higher led by gains on Spain's IBEX and banking shares. Additionally, shares in the
UK on the FTSE 100 were supported by earnings reports from British Land and Vodafone. The gains in equities have coincided with the early narrowing in the EU peripheral bond spreads and reports that Greece will make the €8.5B bond payment which is due on May 19th. As of 5:40 EST, equities have moved off of their best level following the German ZEW data. The FTSE 100 is higher by 0.47%, DAX +0.87%, IBEX +1.8%, FSTE MIB +0.70%, CAC +1.1%.

- In Individual Stocks: OC Oerlikon [OERL.SZ]: Reported Q1 Net loss of CHF104M better than year-ago loss of CHF166M. Revenue came in better at CHF705M compared with year-ago amount of CHF634M. Group confirmed outlook of modest recovery in business volumes from April 01 guidance. Cpmpany expects to return to operational profitability (EBIT before restructuring costs and impairments) in the second half of the year.|| European Aeronautic Defence & Space [EAD.FR]: Negotiations with Thales [HO.FR]related to A400M have slowed. There have been talks related to a new contract for the A400M but there are no indications that an agreement will be signed in the near term. According to an article from La Tribune, Thales is facing continued problems with the flight management system used in the A400M. || British Land [BLND.UK]: Reported FY10 Net £1.14B better than year-ago loss of £3.9B, NAV increased 27% to 504p/share compared to last year figure || SSL International [SSL.UK]: Reported Q1 Net profit at £85.3M and Revenues at £802.5M, both figures higher than year-ago amounts of £55.5M and £679.4M respectively. Group maintains growth target, of growing EPS by 50% in the three years to March 2012 and its longer term growth ambitions.|| Yell Group [YELL.UK]: Reported FY EBITDA £599.5M and Revenues at £2.2B both figures below year-ago results of £713.1M and £2.4B respectively. Group expected economic pressures to continue in 2010 but would reduce costs by an additional £60M. Group continues to experience noticeable improvement in the rate of decline.|| DCC [DCC.UK]: Reported FY10 Pretax £164.9M slightly lower than analysts' estimates at £169Me, whereas Revenues came in at £6.73B above analysts' estimates of £6.4B. Group anticipated an operating profit increase of approximately 5% with adjusted earnings per share to be modestly ahead of the prior year, both on a constant currency basis. Based on an exchange rate of £0.86 = EUR1.0, this would equated to an operating profit increase of approximately 10% and an adjusted earnings per share increase of approximately 5%, both on a reported basis.

- Speakers: EU's Juncker declared that Eurozone states ready to disburse initial tranche of loans to
Greece of about €20B on May 18th. Said that Greek measures are placing economy on the right track and remained confident that Greece would be able to meet its obligations. Called the additional austerity measures in Spain and Portugal courageous and satisfactory. Reiterated that price stability was critical in the Eurozone and that euro was a credible currency.*** In an interview with El Pais Germany's Merkel stated that Greece's rescue has shown that Europe is able to act when necessary. Said that Europe must be more competitive and that austerity measures were also important for Germany and France. *** France Budget Min Baroin echoed statements from the French government that no austerity measures were needed in country compared to others *** IMF's Lipsky stated that EU action would help stabilize global economy but that the world economy still needed policy measures and was still in a recovery phase.*** Germany's ZEW Franz commented following the data release and said that decline in Sentiment may have reflected uncertainty in the consolidation of public budget. The uncertainty was also spurred by euro exchange rate developments and expressed concern in the decline in Euro. Furthermore said that this assessment may have been reinforced by increases in German exports and industrial production.*** Following inflation data BoE King wrote a letter to Chancellor Osborne where he attributed recent spike to temporary factors. Said he was ready to either extend or reduce monetary stimulus and would continue to monitor inflation closely which is likely to fall back to target within a year.*** Chancellor Osborne responded by saying that he was certain that BoE will remain vigilant on upside CPI risks and was absolutely committed to maintaining stable CPI. Reiterated prior view that deficit and recovery are most urgent issues

- Currencies/Fixed Income: The EUR/USD remains above its fair value purchasing power parity level at 1.15 but more downside is expected especially as the
US economy is on the recovery track. The highlights of this session were the ZEW release and UK CPI. May ZEW was worse than expected but EUR-USD continued to hold up ahead of 1.2400. The pair pushed to 1.2433 highs ahead of the release, but EUR/USD price action remains choppy afterwards and at the time of writing is trading at 1.2380. Furthermore there has been renewed speculation of a yuan revaluation following Chinese official statement which vowed to improve exchange rate. There were also rumors in the market of a possible German VAT hike. Across the channel the inflation data was above the BOE's 2% inflation target, though BoE's chief continues to attribute the spike to temporary effects. Cable pulled back from 1.4520 post-CPI highs and moved steadily lower to trade at pullback lows of 1.4416, which was just a few pips from its early European base of 1.4408. Gilt futures fell further on the release, with the 10-year June contract now down 35 ticks at 117.58, versus 117.80 just prior to the release. EUR-CHF continued to meet demand ahead of 1.4000 after SNB bids put a floor in place at this level on Monday. A low of 1.3998 was noted, but speculative euro sellers were unable to trigger large stop losses below at 1.3990. SNB's Hildebrand expressed concern over the decline of the Euro as it would pressure the Swiss franc up. Market sources said the SNB is bidding with several yards of euros a day around 1.4000, which is now the new "line in the sand" after it pulled its bid at 1.4300-25 earlier on in the month.

- Geopolitical: European Union sent €14.5B portion of the loan package to
Greece following yesterday's comment by EU's Juncker stating that EU states were ready to disburse the initial tranche of loans of approximately €20B. Note that Greece has €8.5B in debt maturity due on May 19th. ***EU Finance Ministers continue to seek compromises with UK over hedge fund rules. European finance ministers continue to work on versions of the regulation a day after EU Parliament committee approved new stricter rules for private equity firms and hedge funds. The proposed rules to be further negotiated among the branches of the EU.***In related US news, WSJ reported yesterday US Senate approved a measure aimed at making it more difficult to use US funds for rescuing foreign governments. The measure was approved by a 94-0 vote. Under the bill, the Obama administration would be required to certify that any future loans made by the IMF would be fully repaid.***Civil Aviation Authority (CAA) sets new fly-zone for limited time; to allow for planes to fly at higher ash densities Tuesday. ***UK Chancellor Osborne seeking to prevent meddling with government forecast figures when Coalition pushes for quick spending cut measures on emergency budget next Monday. The Guardian reported that the Chancellor seeks to transfer new powers to the newly established Office for Budget Responsibilities, effectively alleviating control by chancellors to forecast economic and fiscal data, who will continue to retain control over decision regarding tax and spend.

***Looking ahead****

- 7:45 (US) ICSC Weekly Chain Store sales
- 8:30 (CA) Canada Mar Intl Securities transaction: C$5.0Be v C$6.7B prior
- 8:30 (US) Apr Producer Price Index M/M: 0.1%e v 0.7% prior; PPI Ex Food&Energy M/M: 0.1%e v 0.1% prior
- 8:30 (US) Apr Housing Starts: 650Ke v 626K prior; Building Permits: 680Ke v 680K prior (revised)
- 8:30 (CL) Chile Q1 GDP Y/Y: 1.2%e v 2.1% prior; Current Account: $1.3Be v $1.0B prior
- 8:55 (US) Redbook Weekly Retail Sales
- 9:20 (BE) Belgium Feb Trade Balance: No est v -€1.5B prior
- 10:00 (BZ) Brazil Apr Tax Collections (BRL): No est v 59.4B prior
- 12:00 (TU) Turkey Central Bank Interest rate Decision: expected to remain unchanged fom current 6.50% level
- 8:00 Hungarian Central Banker, Finance Minister speak
- 8:30 ECB's Weber speaks on financial regulation
- 12:20 Fed's Pianalto speaks in Pittsburgh


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