European Market Update: The dawning of the Age of Austerity
Monday, May 24, 2010
European Market Update: The dawning of the Age of Austerity
***Economic Data*** - (CZ) Czech Apr Business Confidence: 8.8 v 6.6 prior; Consumer Confidence: -11.0 v -5.8 prior; Business&Consumer Confidence: 4.8 v 4.6 prior - (TT) Taiwan Apr Unemployment Rate: 5.4% v 5.6%e - (TT) Taiwan Apr Industrial Production Y/Y: 31.4% v 29.0%e; Commercial Sales Y/Y: 13.0% v 12.7%e
*** SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM *** - Equities: European equities opened the session higher, with the exception of Italy's FTSE MIB, tracking the sharp gains seen in China on the Shanghai Composite, amid speculation that China would delay further tightening measures due to the EU debt crisis. Additionally, the positive equity open coincided with the tightening of the EU peripheral debt spreads. Currently, equities are off by their best levels on factors including the possibly of a labor strike in Spain and concerns about Spanish banks, after it was reported over the weekend that Spanish savings bank CajaSur (â‚¬19B in assets) was placed into receivership by the Bank of Spain. As of , FTSE 100 is flat, DAX -0.50%, IBEX -0.90%, FTSE MIB -1.8%, CAC +0.47%.
- In Individual Stocks: BP [BP.UK) issued an update on the Gulf of Mexico oil spill in which it said oil collection estimates ranged from 1,360 bpd to 3,000 from 5,000 bpd on May 20th. || Deutsche Bank [DBK.GE] CFO the weekend said the bank might increase its dividend in coming years on the expectation that earnings will improve. || Invensys [ISYS.UK] reported FY10 results (Reports FY10 Net Â£147M v Â£130M y/y, Rev Â£2.24B v Â£2.28B y/y). || Chloride [CHLD.UK] issued FY10 results and said it sees positive signs in its end markets and order intake trends. || British Airways [BAY.UK] cabin crew started its 5-day strike today, following the break down in talks with management.
- Speakers: The BOJ May monthly report noted that the Japanese economy was starting to recover moderately amid overseas demand and improved capital spending and reiterated views that capital expenditure indicated signs of recovery and that private demand was expected to continue to improve. *** Japan Finance Min Kan stated that he would not label the current economic recovery as sustainable. He also noted that the direct impact from Greece situation on Japan was limited and that the MOF had no gaps in its views on economy with BoJ. *** White House official commented that measures taken by South Korea to punish North Korea 'entirely appropriate. President Obama had ordered review policies towards North Korea. Sec of State Clinton commented that the US was working hard to avoid escalation of the 'precarious' situation on the KoreanPeninsula *** UK Chancellor Osborne: Deficit needs to be dealt with or else economic consequences to be severe. He added that the deficit needed to be dealt with or else economic consequences would be severe. The UK should not build economy on 'shifting sands of debt' *** China Commerce Ministry (MOFCOM) stated that the US High Tech exports were at the core of trade imbalance issue and added that it was tough to balance trade without US lifting high-tech exports restrictions. China was concerned over the European debt crisis and was monitoring the developments there. China hopes and believes that Europe would overcome its crisis but note d the global impact was 'not too big' at this time. *** PBoC Zhou commented that it mainly considered domestic factors in deciding on monetary policy and noted that the US and China discussed yuan currency issue in speeches. He noted that the pace of global recovery would continue amid EU crisis. ***BoE's Miles commented that inflation to fall towards target during next 6 months and that higher inflation caused by external influence in the UK . he noted that the Euro Area problems were a risk to the UK ***
-Currencies/Fixed income: Risk appetite initially received a reprieve as speculation that China would delay or perhaps lessen measures to rein in its stimulus measures due to the euro area debt crisis. The European and commodity currencies were steady in the early going. However, the dawning of the age of austerity weighed upon sentiment as the session progressed. Comments from Spain's largest union talks about moving towards a general strike sent the European bourses into negative territory and the USD and JPY pairs firmer. The European peripheral situation remained precarious with a Spanish T-Bill auction set for Tuesday and a Portuguese auctions mid-week. ***The GBP/USD probed suspected Sterling buy-stops orders above the 1.45 level in early trading to test above its 200-hour moving average for the first time in over three weeks. The confirmation of Â£6.2B in spending cuts in the UK by Chancellor Osborne weighed upon risk appetite. He added that the debt situation was a 'huge risk' to UK economy and stressed that the deficit needed to be dealt with or else economic consequences would be severe. ***The JPY moved off its worst levels as the European morning wore on. The BOJ monthly report noted that the economic activity was picking up steadily, but kept its assessment unchanged in its May report. It was cautious because of the risk from overseas economies***
- In the Papers: FT article noting that Germany sought to cut its budget by â‚¬10B annually until 2016. The purpose of the cuts would be to set an example for the EU and to comply with budget deficit rules in the constitution. The cuts could be made through tax increases and reduced spending and the article noted that Germany could target lower subsidies for Germany's federal states. ***
***Notes/Observations: - Whit Monday holiday in Europe limiting market liquidity conditions . - Chinese equities surged over 3% on Chinese denials regarding property tax implementation. - Spanish saving bank Cajasur seized by regulator. - UK unveils over Â£6B in spending cuts as age of austerity dawns.
***Looking Ahead**** - 8:30 (US) Apr Chicago National Activity Index: No est v -0.07 prior - 9:30 (TU) Turkey May Capacity Utilization: No est v 72.2% prior; Industrial Confidence: No est v 118.8 prior - 10:00 (US) Apr existing Home Sales: 5.65M v 5.35M prior - 10:00 (MX) Mexico Apr preliminary Trade Balance: $21.5Me v $237.3M prior - 10:30 (IS) Israel Central Bank Interest Rate Decision: No change expected in the base rate from the 1.50% current level
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