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Tuesday June 15, 2010 - 10:03:49 GMT
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European Market Update: Markets shake off weak German ZEW data and lingering peripheral concerns (Trade the News)

Tuesday, June 15, 2010 5:54:11 AM

 European Market Update: Markets shake off weak German ZEW data and lingering peripheral concerns


***Economic Data***
- (EU) Euro Zone May EU-25 New Car Registrations: -9.3% v -7.4% prior
- (CZ) Czech May PPI industrial M/M: 0.7% v 0.3%e; Y/Y: 1.5% v 1.1%e
- (CZ) Czech Apr Export Price Index Y/Y: -3.1% v -5.4% prior; Import Price Index Y/Y: -0.4% v -2.6% prior
- (SP) Spain Q1 House Prices Q/Q: -1.2% v -0.4% prior; Y/Y: -2.9% v -4.3% prior
- (TU) Turkey Mar Unemployment Rate: 13.7% v 13.4%e
- (FI) Finland Apr Current Account: -€260M v -€320M prior
- (DE) Denmark May Wholesale Prices M/M: 0.4% v 1.3% prior; Y/Y: 5.2% v 5.1% prior
- (NE) Netherlands Apr Trade Balance: €3.5B v €4.6B prior
- (NE) Netherlands Apr Retail Sales Y/Y: -0.2% v 2.9% prior
- (NO) Norway May Trade Balance (NOK): 26.6B v 27.1B prior
- (IT) Italy Apr Total Trade Balance: €213M v -€1.3Be; Trade Balance EU: €213M v €18M prior
- (UK) May CPI M/M: 0.2% v 0.4%; Y/Y: 3.4% v 3.5%e; Core CPI Y/Y: 2.9% v 2.9%e
- (UK) May RPI M/M: 0.4% v 0.3%e; Y/Y: 5.1% v 5.0%e;
RPIX Y/Y: 5.1% v 5.0%e
- (UK) Apr DCLG House Prices Y/Y: 10.1% v 10.0%e
- (GE) Germany Jun ZEW Economic Sentiment: 28.7 v 42.0e (lowest reading since Apr 2009); Current Situation Survey: -7.9 v -15.0e
- (EU) Euro Zone Jun ZEW Economic Sentiment: 18.8 v 39.0e
- (EU) Euro Zone Apr Trade Balance: €1.8B v €2.8Be; Trade Balance Seasonally Adj: €1.4B v €1.5Be
- (EU) Euro Zone Q1 Employment Q/Q: 0.0% v -0.2% prior; Y/Y: -1.2% v -2.0% prior

Fixed Income Results in Session:
- (SP) Spain Debt Agency Sold €5.2B (lower end of €5-6B range) in 12-month and 18-month Bills
- Sold €987M in 18-month bills, avg yield at 2.837% v 1.951% prior; bid to cover 3.14x v 1.34x prior
- Sold €4.18B in 12-month bills; avg yield at 2.303% v 1.59% prior; bid-to-cover 1.5x v 1.26x prior
- (IR) Ireland Debt Agency (NTMA) sold total €1.5B in two tranches (as expected)
- Sold €750M in 4.6% in Apr 2016; avg yield 4.521% v prior 3.663%; bid-to-cover: 3.05x v 3.0x prior
- Sold €750M in 4.5% in Apr 2018 IGBs; avg yield 5.088% v 4.55% prior; bid-to-cover: 2.87x v 2.7x prior
- (HU) Hungary Auction Results: Sold HUF45B in 3-month Bills; avg yield 5.28% v 5.26% prior; Bid-to-cover 1.9x v 2.4x prior
- (BE) Belgium Debt Agency Bill Auction results for 3-month and 12-Month Bills
- Sold €503M 3-Month Treasuries, avg yield 0.286%
- Sold €2.00B 12-Month Treasuries, avg yield 0.624%

- Equities: European equities opened the session lower across the board as markets reacted to yesterday's move by Moody's to cut Greece's debt to junk. Equities were also weighed down by earlier declines in shares of BP, SocGen and Tesco. As of
5:36 EST, most equity markets have moved into positive territory, supported by Spain's bond auction results and weaker than expected UK CPI. Companies supporting the upside in markets include, shares of BSkyB and UBS. Euro Stoxx 50 Index +0.6% at 2,700; DAX Index +0.4% at 6,149; CAC-40 Index +0.7% at 3,649 and FTSE 100 Index +0.6% at 5,231.

- In Individual Stocks: Heidelberger Druckmaschien [HDD.GE] Reported FY loss of €229M worse than estimates of a loss of €182M. Revenues were in line with estimates at €2.3B. Guided mid-term revenue of more than €3B, op margin more than 5%. Does not plan to pay dividends. || Societe Generale [GLE.FR]: Targeted 2012 net earnings of €6B higher than estimates of €5.4B. Noted that the performance in the equity unit during Q2 was mixed due to lower risk appetite. || Tesco [TSCO.UK]: In its interim statement, company reported Q1 UK SSS (ex petrol and VAT adjusted) increasing 0.1% below estimates of an increase of 0.4%. Company noted that business was performing in line with expectations and the outlook for the year as a whole remained unchanged. Reiterated FY
UK like-for-like sales at 3%. || Oxford Instruments [OXIG.UK]: Reported FY operating profit at £27.4M and Revenues of £211.5M both figures above estimates of, respectively, £11M and £197M. Noted clear signs of improvements in industrial markets which have now returned to close to their pre-recession levels. || UBS: Name traded higher as Swiss Lower House approved the US-Swiss tax agreement after the leading Swiss party (SVP) shifted its prior position and decided to no longer oppose the deal. The results remained mixed, however, with the approval of the referendum, which if passed by the parliament, would push the decision past the US-imposed deadline of August 24 for the accounts' handover. The Swiss Parliament will reconvene and decide on June 18.

- Speakers: RBA's Battellino stated in prepared remarks that the RBA has returned interest rates to more normal levels. He noted that inflation risk were evident if policy stance was not discipline.
Asia and China were significant forces on its economy while the European debt problem was pretty well unprecedented. The member stated that it would take some time to see how things evolve while the key challenge was accommodating the mining boom. He welcomed China in its manner to try to slow its economic growth which he summed up as making 'everybody's life easier'. *** ECB's Bini-Smaghi commented that central banks cannot be requested to rescue private and public insolvent issuers. He noted that purchases of govt bonds was to repair financial mechanism not to finance public debt. *** German DIHK survey maintained its 2010 growth forecasts of 2.3% and saw 2010 unemployment at 3.2M. It noted that the economic recovery was speeding up driven by exports which are supported by a weak euro currency. -It expected that Euro currency rate to normalize and stressed that there was not only a downwards trend and was realistic scenario that EUR/USD could test back above 1.30 over the course of 2010 *** ZEW's Franz commented that the Germany economic recover remains fragile and that fiscal policy was well advised to implement consolidation measures but not until 2011 period ***ZEW Economists stated that financial market experts expected economic recovery in Germany to weaken by end of the year but that the overall outlook remained positive. It did note that the economic expectations survey posted its sharpest decline since Oct 2008 and that rumors about problems in Spain's financial markets had negatively impacted sentiment. It did add that expectations for USD appreciation had weakened **S&P commented that it saw refinancing risks as a threat to the quality of credit in Europe *** EU's Rehn commented that Moodys timing of Greece's sovereign downgrade was 'surprising and unfortunate'

- Currencies/Fixed Income: The European morning encountered a choppy and roller coaster session but risk appetite was gaining the upper hand as the NY morning approached. An initial wave of risk aversion swept the early European morning as press speculation of the political uncertainty surrounding
Germany couple with follow through selling from the Moody's multi-cut sovereign downgrade of Greece. The European trading desks seemed to believe the timing of the overall environment corresponded well with the S&P probing its 200 day at 1109 level and the EUR/USD approaching a key option barrier at 1.2300. However the European peripheral auctions again stymied the initial risk aversion sentiment as decent bid-to-cover in the Spanish 18-month paper proved decisive in the morning. However dealers stated that debt result as a 'stretch' to say it was "well received". The markets managed to shake off the dismal German ZEW data. EUR/USD at session highs ahead on NY morning at 1.2240. The GBP was stung by softer CPI data but overall risk appetite aiding the currency back toward 1.4750 after testing below 1.4690 in the initial reaction to UK inflation. USD/USD remains below the key 92.30 area on risk aversion concerns but unable to bust below 91 in the session. EUR/CHF moving back to 1.40 pivot point

- Geo-Political: According to some economists in a Financial Times article, UK Chancellor Osborne is expected to announce additional public spending cuts or tax increases of £34B p.a. in next week's emergency budget. The economists made the comments after looking at the
UK's revised economic forecasts released yesterday. Note the government is planning to reduce £9B from this year's budget. *** In Switzerland, the Lower House has backed the US-Swiss tax agreement, supporting the popular referendum. Note that this pushes the debate and the vote to the Swiss Upper House. The Swiss Parliament will vote on the final decision on Friday.

- European Peripherals: The Wall Street Journal commented on the market's reaction to yesterday's Moody's downgrade of
Greece stating that the markets took the 4 notch downgrade calmly. Some believe the downgrade was expected as Moody's warned on April 29th that a multi-notch downgrade was likely. Moody's downgraded the Greek government earlier four notches to BA1 from A3, which now places it at junk status. ***Brown Brothers Head of Currency Strategy Chandler said the impact of Greece downgrade by Moody's will be minimal because it is not expected to return to capital markets to raise funds. *** Fitch comments that has no plans to cut Greece ratings in the near future; comfortable with ratings at edge of investment grade. It is to assess the efforts by the government of Greece at the end of the year.***

- In The paper: The New York Times noted the German coalition may face possible collapse as it has been rocked by resignations of high-ranking officials, and significant setbacks in elections last month. There is to be a presidential vote on 30th June, which may indicate party solidarity The presidential vote is effectively a no-confidence vote for the Chancellor according to the article. ***In a column by London Telegraph's Ambrose Evans-Pritchard, citing AXA analysts, he noted that there is a serious likelihood the EU will break in half or disintegrate. One analyst at AXA said markets are nervous because they can see that there is a fatal flaw in the system and no clear way out. Separately the article notes that Spanish banks increased reliance on funds from the ECB to a record €86B in May

- German ZEW lower than expectations; Blames it on concerns over Spain debt woes
- European dealer enter the day seeing the news that Moody's cut Greece sovereign Debt to Junk.
- WSJ:
Spain says banks in credit crunch.
Spain and Italy auction results 'well received' at a 'higher price'
- BoJ unanimously leaves interest rates unchanged at 0.10% and introduces new loan scheme.
- China Bank Regulator CBRC: China credit risks still high on quantity of lending and uncertain quality of loans attributed to questionable oversight

***Looking Ahead***
- (BE) Belgium Mat Trade Balance: No est v -€656.9M prior
- 6:15 (US) Fed's Bullard speaks on asset bubble
- 7:45 (US) ICSC Weekly Chain Store sales
- 8:00 (PD) Poland May CPI M/M: 0.4%e v 0.4% prior; Y/Y: 2.3%e v 2.4% prior
- 8:30 (CA) Canada Q1 labor Productivity Q/Q: 1.3%e v 1.4% prior
- 8:30 (CA) Canada Apr manufacturing Sales M/M: 0.3%e v 1.2% prior
- 8:30 (CL) Chile May Copper Exports: No est v $3.2B prior
- 8:30 (US) May Import Price Index M/M: -1.3%e v 0.9% prior; Y/Y: 7.9%e v 11.1% prior
- 8:30 (US) Jun Empire Manufacturing: 20.0e v 19.11 prior
- 8:55 (US) Redbook Weekly Chain Store sales
- 9:00 (US) Apr Net Long Term TIC Flows: $70.0Be v $140.5B prior; Total Net TIC Flows: No est v $10.5B prior
- 9:00 (PD) Poland May Budget Level (PLN) No est v -4.3B; Budget Level YTD: -27.0B prior; Budget Performance: No est v 51.8% prior
- 10:00 (US) Jun NAHB Housing Markey Index: 21e v 22 prior
- 11:30 (IS) Israel May Consumer prices M/M: 0.45e v 0.9% prior; Y/Y: 3.0%e v 3.0% prior



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