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European Market Update: Sovereign fiscal comments by Japan PM Kan and Fitch provides rise in overall risk aversion sentiment (Trade the News)

Tuesday, June 08, 2010 5:49:13 AM

 European Market Update: Sovereign fiscal comments by Japan PM Kan and Fitch provides rise in overall risk aversion sentiment


***Economic Data***
- Ukraine Central Bank cuts discount rate by 75bps to 9.50% from 10.25%
- (SZ) Swiss May Unemployment Rate: 3.8% v 3.8%e; Unemployment Rate Seasonally Adj: 4.0% v 3.9%e
- (SZ) Swiss Jun SECO Economic Forecasts: Raises 2010 GDP view to 1.8% from 1.4% prior; Cuts 2011 GDP view to 1.6% from 2.0% prior
- (GE) Germany Apr Current Account: €11.8B v €12.2Be; Trade Balance: €13.4B v €15.0Be; Imports M/M: -7.3% v -3.0%e; Exports M/M: -5.9% v -2.0%e
- (JP) Japan May Eco Watchers Current Survey: 47.7 v 49.8 prior; Outlook Survey: 48.7 v 49.9 prior
- (FR) May Bank of France Business Sentiment: 101 v102e; Maintains Q2 GDP view of +0.5%
- (FR) France Apr Trade Balance: -€4.2B v -€4.1Be; Central Govt. Balance: -€56.2B v -€28.9B prior
- (CZ) Czech May Unemployment Rate: 8.7% v 8.9%e
- (HU) Hungary Apr Preliminary Trade Balance: €526.4M v €476.0Me
- (TU) Turkey Apr Industrial Production WDA M/M: 0.8% v 0.9% prior Y/Y: 17.3% v 17.8% prior; Industrial Production NSA Y/Y: 17.0% v 18.4%e
- (SZ) Swiss May CPI M/M: -0.1% v 0.0%e; Y/Y: 1.1% v 1.2%e
- (SW) Sweden Apr Unemployment Rate: % v 9.8% prior
- (NV) Netherlands Apr Industrial Production M/M: 1.2% v 1.9% prior; Y/Y: 10.2% v 7.1% prior; Industrial Sales Y/Y: 19.0% v 15.7% prior
- (CZ) Czech Q1 Current Account: €620.9M v -€289.7M prior
- (PH) Philippines Apr Bank Lending Y/Y: 6.2% v -0.9% prior ; Net Bank Lending Net Y/Y: 6.7% v 5.0% prior; M3 Money Supply Y/Y: 12.4% v 10.3% prior
- (SZ) Swiss May Foreign currency reserves: CHF232.4B v CHF153.6B prior
- (GR) Greece May Consumer Price Index Y/Y: 5.4% v 4.8% prior; CPI EU Harmonized Y/Y: 5.3% v 4.7% prior
- (IC) Iceland Q1 GDP Q/Q: 0.6% v 3.3% prior; Y/Y: -6.9% v -9.1% prior

Fixed Income Auctions:
- (NV) Netherlands Debt Agency (DSTA) sold €3.48B in 1.75% DSLs; avg yield 0.958%
- (AS) Austria debt Agency (AFFA) Bond Auction: Sold €750M in 3.50% in 2021 RAGB, avg price 89.93, bid-to-cover 1.8x v 2.0x prior; sold €750M in 4.65% in 2018 RAGB, avg price 109.85, bid-to-cover 1.8x v 2.7x prior
- (HU) Hungary sold
HUF45B in three-month Bills; avg yield 5.26%; Bid-to-cover: 2.4x
- (UK) DMO sold £1.1B in 1.25% Index-Linked 2027 Gilts; avg yield 0.939%; Bid-to-cover: 1.6x v 1.6x prior

- Equities: European equities opened the session higher, following the gains seen in some of the Asian equity markets. However, as of
5:40 EST markets have moved lower after the ECB's daily borrowing data, weakness in the euro and comments by Fitch about the UK. Also shares of Swiss bank UBS were weighed down by the Swiss Lower House agreeing to allow a popular vote on proposed tax settlement with the US. Euro Stoxx 50 index -1.5% at 2,492; DAX Index -1.35 at 5,827; CAC-40 Index -1.5% at 3,363 and FTSE 100 Index -1.35 at 5,005

- In Individual Stocks: Chloride [CHDL.UK]: ABB Group made an offer to acquire company. The price was 325p/shr. Note that yesterday EMR considered rising its offer its £275p/shr offer for Chloride Group after Chloride board rejected offer considering it undervalued company. EMR commented after the announced bid by ABB stating it was reconsidering its position. || Munich Re [MUV2.GE]: Raised cost estimate for
Chile earthquake to approx $1B from $700M but did not alter FY10 profit forecast. || Umeco [UMC.UK]: Reported FY10 adj pretax at £24.8M and Revenues of £409M both figures lower than year-ago levels of £28.5M and £419M. Stated that trading conditions remained uncertain. Expected modest growth in revenue especially from the wind energy sector. || Aggreko [AGK.UK]: In its trading statement, company expected H1 to grow by 10% and trading profit by 20%. Expected performance for the year as a whole will be significantly better than anticipated at the time of April Interim Management Statement. decided to raise further the rate of fleet investment and we now anticipate that fleet capital expenditure will be around £265M in the year. || SAP AG [SAP.GE]: In its AGM company reiterated 2010 targets of operating margins at 30-31%. Also guided FY10 software and services rev +4-8% y/y (implies €8.5-8.9B). Expected to return to top line growth this year. Opened to larger acquisitions and noted strong momentum for key market. Salzgitter [SZG]: In its AGM reiterated 2010 earnings forecast of a break-even, assuming that steel market is firm. Noted order intake for steel unit declined in April and May. Tubes unit may break-even is possible if economic recovery continues. Break-even in the steel unit was unlikely in 2010. Expected further rise in raw material prices in Q3.

- Speakers: Fitch commented on the
UK and stated that the country's fiscal challenge was 'formidable' and the situation warranted faster deficit cuts than in its April budget. It labled the current plan as 'un-ambitious.' The rise in UK public debt ratios since 2008 are the faster than other "AAA" rating sovereigns. Fitch urged the UK for an additional 1% GDP deficit cut annually and added the observation that the failure to target deficit at 5% in five years was striking.*** so ***Japan's PM Kan stated that the reason why Japan's fiscal state worsened was because gov't could not raise taxes. Simply raising consumption tax to restore financial health will accelerate deflation. He reiterated that restoring Japan's fiscal health was important for economic growth. He also noted his country's as export dependent and noted that a weak JPY currency would aid Japan's export sector.
***EU Monetary & Affairs Commissioner Rehn commented that it would assess if
France and Italy had taken bold steps regarding their respective budgets. He stressed all member States must meet the medium-term objectives beyond 2011 period. He noted that the German budget measures were in line with fiscal exit strategy ***Reportedly Hungary government likely to scrap plans of channeling private pension funds towards budget; likely to impose bank profits tax ***Poland Fin Min Rostowski commented that he did not see contagion risks from Hungary *** IEA commented that current oil prices were not seen having negative effect on producers and no indication that OPEC would adjust its output at its scheduled Oct meeting. It stated that oil prices between $60-80 per barrel in medium term due to ample stocks in OECD countries and spare OPEC capacity. The agency had concerns over Hungarian debt issue but believed any ripple effect would not be as big as the first financial crisis and the Greek situation***Kuwait Oil Min reiterated his prior view of oil being in a range of $75-$85 a barrel for remainder of year; Extraordinary OPEC meeting not needed and was unaware if OPEC members concerned with price below $70/barrel. *** Japan's PM Kan commented that the he reason why Japan's fiscal state has worsened is because gov't could not raise taxes *** Swiss SECO chief commented that it was pleased that the SNB repeatedly stressed to act decisively to prevent excessive rise of CHF against Euro ***Sweden Fin Min Borg stated that the Euro was a strong currency and would remain so. ***

- Currencies/Fixed Income: The European morning saw a reversal of the Asian price action as various factors contributed to a renewed sense of risk aversion. Comments from the new Japanese PM Kan, Fitch concerns over the pace of
UK fiscal consolidation and the ineffectiveness of the SNB to curb CHF strength all helped the European bourse move lower and provide momentum for a stronger USD and JY against the European and commodity-related pairs. EUR/USD slumped to retest the 1.19 level while GBP/USD plummeted over 100 pips to dip below 1.4370 on the Fitch comments. EUR/CHF hit fresh all-time lows below 1.38 after the Swiss May Foreign currency reserves swelled to CHF232.4B from Aprils CHF153.6B amount.

- Geo-Political:
Spain civil servant strikes began today to protest the government austerity measures. The plan was reported last month when the government revealed additional spending measures. *** UK Deputy Prime Minister Clegg planning constitutional change allowing MPs the ability to dissolve Parliament and initiate an election if over half of the House of Commons losses confidence. The Times article stated the announcement follows the Prime Minister and Deputy Prime Minister's comment last month to introduce legislation requiring 55% MP consent for dissolution. ***In the UK's government attempt to reduce its budget, Chancellor Osborne is requesting the public suggest which services to be cancelled. There is to be a five month review for the three year budget plan. In related news, the London Telegraph reported that according to some experts, the UK may have to double the size of its spending cuts to match Canada's deficit reduction measures seen in the 1990s. Note Chancellor Osborne is expected to use Canada as an example to help lower the UK's debt.

- Fed's Bernanke: US recovery is on track (comment aids risk appetite in Asian session)
- Risk aversion envelopes European morning after PM Kan comments on Japanese fiscal health; Fitch comments on UK's fiscal health and SNB ineffectiveness to curb losses in EUR/CHF cross
- Banks again park record €360B in overnight deposit facility
- Spot Gold hits fresh all-time highs above $1,250/oz
- Japan Dep Fin Min Noda takes over as 9th Fin Min since 2006. Main task at hand said to be budget restraint.

***Looking Ahead***
- 6:30 (HU) Hungary Central Bank to sell 2-week Bills
- 7:30 (EU) EU President Van Rumpuy
- 7:30 (US) May NFIB Small Business Optimism: 91.0e v 90.6 prior
- 7:45 (US) Weekly ICSC Chain Store Sales
- 8:00 (CL) Chile May CPI M/M: 0.4%e v 0.5% prior; Y/Y: 1.5%e v 0.9% prior; CPI Ex Perishables & Fuel M/M: 0.2%e v 0.2% prior
- 8:00 (BR) Brazil Q1 IBGE GDP Q/Q: 2.6%e v 2.0% prior; Y/Y: 8.5%e v 4.3% prior GDP 4Qtrs Accumulated: No est v -0.2% prior
- 8:15 (CA) Canada May Housing Starts: 202.0Ke v 200.7K prior
- 8:25 (US) Fed's Duke speaks on moving past the crisis
- 8:55 (US) Weekly Redbook Store Sales
- 9:00 (BR) Brazil Apr CNI Capacity Utilization: 82.5%e v 82.6% prior
- 9:10 (US) Fed's Evans on economic outlook
- 9:30 (BR) Brazil May Vehicle Production: v 290K prior; Vehicle Sales: v 277.8K prior; Vehicle Exports: v 47.1K prior
- 10:00 (US) Jun IBD/TIPP Economic Optimism: 48.4e v 48.7 prior
- 13:00 (US) Treasury to sell $36B in 3-year notes
- 16:30 (US) API Weekly energy inventories
- 17:00 (US) ABC Consumer Confidence w/e Jun 6th: No est v -44 prior


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