European Market Update: Concerns over Spain's financial system undermines sentiment (Trade the News)
Wednesday, June 16, 2010
European Market Update: Concerns over Spain's financial system undermines sentiment
***Economic Data*** - (JP) Japan May Final Machine Tool Orders Y/Y: 192.5% v 191.8% prior - (SP) Spain Q1 Labor Costs Y/Y: 1.0% v 2.5% prior - (TU) Turkey May Consumer Confidence 86.6 v 85.8 - (AS) Austria May Consumer Price Index M/M: 0.1% v 0.3% prior; Y/Y: 1.9% v 2.0% prior - (CZ) Czech Apr Current Account (CZK): 12.4B v -5.5Be - (IT) Italy May Final CPI (NIC incl. tobacco) M/M: 0.1% v 0.1%e; Y/Y: 1.4% v 1.4%e - (IT) Italy May Final CPI EU Harmonized M/M: 0.1% v 0.1%e; Y/Y: 1.6% v 1.6%e - (UK) May Jobless Claims Change: -30.9K v -20.0Ke; Claimant Count Rate: 5.2% v 4.7%e - (UK) Apr Average Weekly Earnings 3M/Y/Y: 4.2% v 4.5e%; Weekly Earnings exBonus 3M/Y/Y: 1.9% v 2.0%e - (UK) Apr ILO Unemployment Rate: 7.9% v 8.0%e - (SZ) Swiss Jun Credit Suisse ZEW Expectations Survey: 17.5 v 40.5 prior; lowest reading since Jul 2009 - (EU) Euro-Zone May CPI M/M: 0.1% v 0.1%e; Y/Y: 1.6% v 1.6%e; Core CPI Y/Y: 0.8% v 0.8%e - (EU) Euro-Zone Q1 Euro-Zone Labor Costs Y/Y: 2.1% v 2.1%e
***Fixed Income Auction results in Session*** - (SW) Sweden Debt Agency Bond auction results: *** Sold SEK625M in 3.5% 2039 bonds; avg yield 3.19%; Bid-to-cover: 1.0x ***Sold SEK2.0B in 5% 2020 bonds; avg yield 2.529%; Bid-to-cover:1.12 x - (GE) Germany sold â‚¬4.06B in 3% Jul 2020 Bunds; avg yield 2.67% v 2.75% prior; Bid-to-cover: 1.6x v 1.4x prior - (UK) DMO sold Â£550M in 1.25% Index-linked 2017 Gilts; avg yield 0.328%; bid-to-cover: 2.5x v 1.6x prior - (PO) Portugal sold up to â‚¬718M in 9-month bills; avg yield 2.689% v 2.443% prior; Bid-to-cover: 1.8x v 2.3x prior
*** SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM *** - Equities: Following the positive session in the US and Asia, most European equity markets opened slightly higher. The early gains were led by banks. However, as the session has progressed equities have moved off of their best levels weighed down by Spanish banks and the widening in the peripheral bond spreads.
- In Individual Stocks: Sainsbury [SBRY.UK]: In its Q1 update, company reported total revenue growth of 7% and SSS (ex fuel and inc VAT) increased 1.1% higher than estimates of 1.0%. Company continued to expect consumer environment to stay challenging. Expected extremely low growth levels and did not expect an improvement in consumer confidence for Q2. || RPC [RPC.UK] Reported Net profit of Â£13.2M better than year-ago loss of Â£7.7M. Revenues were Â£719.9M lower than year-ago figure of Â£769.1M. Stated that the main short term uncertainty continued to be the volume outlook although a further deterioration in activity levels was currently not anticipated. Noted encouraging trends in terms of volumes. || Volvo AV [VOLVB.SW]: Reported May group truck sales at 13.6K a slight increase from a month ago figures of 13K. Noted gradual improvement in North American demand. Asian deliveries grew 90% thanks to firmer economic upturn.
- Speakers: France Labor Minister Woerth revealed the country's pension reform. France sought to gradually raise the minimum retirement age to 60 from 62 by 2018 and raise the with-holding tax on investment income by 1% to fund pensions. He also proposed to raise the income tax rate for top earners to assist in fund the pension deficit and targeted to balance pension accounts by 2020 and align private and public pension regimes. Working longer is unavoidable. An unnamed France Official added tyat the pension reforms were expected to reduce deficit to GDP ratio by 0.5% by 2013 and by 1.9% by 2020 *** Fitch Director commented that a break up of the EU was a remote risk, but was not Fitch's central view *** China Vice PM reiterated its view that it firmly supported the Euro Zone as well as the IMF bailout of Greece. He did note that solving the sovereign debt crisis was a long term task and that China supported Greece's Gov't austerity plans to address the situation ***ECB's Stark reiterated the central bank view that no inflation risks were seen over the next two years (medium term) . he noted that the German Gov't was on the right path in regards to its austerity measures. The surge in the ECB deposit facility data showed that banks do not trust each other ***World bank commented that Russia 2010 economic recovery would be slower than prior forecasts before growth accelerated in 2011***German CSU Parliament leader Friedrich commented that EU aid to Spain was not "legally possible" ***Reportedly, Czech coalition parties agreed not to set euro adoption date for at this time** EU's Commissioner Rehn commented that Market turmoil might still derail the recovery of the economy
- Currencies/Fixed Income: The USD recovered from some of its luster as continued amid persistent speculation over Spain's banking system. European peripherals widened in session as the markets seemed to test the government resolve on potential turmoil. Speculators have set their sights on Spain. The Spain/German 10-year Gov't Bond premium hit fresh Euro launch record level as it moved beyond the 220bps. Other peripheral spreads followed in tandem with Portugal/German Gov Bond premium at 305bps, wider by almost 20bps and the Greek/German Gov Bond premium nearing 700bps area (wider by almost 30bps). EUR/USD back below the 1.23 handle after initially retesting the 1.2350 highs seen n Tuesday. USD/JPY at 91.70 and up around 20 pips from its Tokyo open.
- Geo-Political: The French government revealed its pension reforms. Labor Minister Woerth stated the government is to gradually propose increasing the minimum retirement age to 60 from 62 by 2018. Other proposals include raising the income tax rate for top earners to assist in funding the pension deficit, estimated to increase revenues by â‚¬3.7B. As a result of the new measures, the labor minister noted that working longer is unavoidable. The Reforms are expected to generate revenues between â‚¬3-4B in the short-term and â‚¬5B in 2020 ***Britain's largest trade union Unison sent a warning regarding possible limits and reduction in pay and pensions by the government. Unison does not intend to release its plans until after the emergency budget revealed on 22nd June.
In the Papers: In an article in the Telegraph, Ambrose Evans-Pritchard commented that Spanish authorities have little to lose by publishing the data as the country's debt markets are mostly frozen. These were comments related the desires of Spanish officials to release the results to the EU's bank stress tests. He referred to Deutsche Bank CEO Ackermann warning last week that it would be very dangerous to publish the results of each bank on concerns that it would lead to a flight from weak lenders and set off a chain reaction. ***The Wall Street Journal reported today that company administrators in Europe are to announce a plan to accelerate the return of up to $22B in assets. Under the plan, the majority of unsecured creditor claims will be agreed to by the end of 2010 and cash distributions will be made in 2011. Lehman's European unit has about 6,500 unsecured creditors. Note on 24th November, it was reported that Lehman's administrators for the firm's European unit disclosed claims against the US parent company may total $150B.
- European Peripherals: El Economista reported that the EU, IMF and US Treasury were drafting a liquidity plan for Spain which involved a credit line of up to â‚¬250B. The purpose of the plan was to avoid a rescue plan similar to that offered to Greece. On Tuesday, a spokesman for the Spanish government said talks between Spain's PM and IMF head Strauss-Kahn for Friday were not connected with media reports that Spain might seek a Greek-like bailout. In a follow-up an EU spokesperson denied press speculation that the EU, IMF and US were preparing credit line for Spain
***Notes/Observations: - Markets appear to be forcing the issue on Spain despite repeated denials of any EU, IMF or US aid package for the country - French government revealed its pension reforms
***Looking Ahead*** - (RU) Russia May Industrial Production M/M: % v -1.5%e; Y/Y: % v 10.0%e - (IS) Israel Q1 Preliminary GDP Annualized: No est v 3.3% prior - (BR) Brazil May CAGED Formal Job Creation: 250.0Ke v 305.1K prior - (IS) Israel Jun Inflation Forecast: No est v 2.7% prior - 7:00 (US) MBA Mortgage Applications w/e Jun 11th: No est v -12.2% - 7:00 (BR) Brazil Jun FGV Inflation IGP-10 M/M: 1.5%e v 1.1% prior - 8:00 (BR) Brazil Apr Retail Sales M/M: -1.5%e v -1.6% prior; Y/Y: 10.1%e v 15.7% prior - 8:00 (PD) Poland Apr Current Account: -â‚¬650Me v -â‚¬559M prior; Trade Balance: -â‚¬410Me v -â‚¬514M prior - 8:00 (GE) German Parliament budget committee discusses Euro rescue fund - 8:30 (CL) Chile Central Bank Monetary Policy Report - 8:30 (US) May Producer Price Index M/M: -0.5%e v -0.1%; PPI Ex Food&Energy M/M: 0.1%e v 0.2% prior - 8:30 (US) May Housing Starts: 648Ke v 672K prior; Building Permits: 625Ke v 610K prior (revised) - 9:15 (US) May Industrial Production: 0.9%e v 0.8% prior; Capacity Utilization: 74.5%e v 73.7% prior - 10:30 (US) DOE Weekly energy inventories: Crude: -1.2Me; Gasoline:+500Ke; Distillate: +1Me; Utilization: 89.1% - 11:35 (CA) Bank of Canada's Carney - 13:15 ECB's Bini Smaghi speaks in NY - 13:30 EU Socialists and Conservatives hold separate per-EU Summits - 14:15 (US) Fed's Plosser speaks in NY - 15:45 (UK) BOE's King speaks in London ** Reminder: EU Summit in Brussels on Jun 17th-18th
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