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Thursday June 17, 2010 - 10:15:34 GMT
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European Market Update: SNB says deflation risk had largely disappeared; CHF surges against major pairs (Trade the News)

Thursday, June 17, 2010 5:51:02 AM

 European Market Update: SNB says deflation risk had largely disappeared; CHF surges against major pairs


***Economic Data***
- (FI) Finland May PPI M/M: 1.1% v 0.5% prior; Y/Y: 5.2% v 3.6% prior
- (SZ) Swiss Q1 Industrial Production Q/Q: -7.8% v -7.0%e; Y/Y: 5.3% v 6.0%e
- (SZ) SNB maintained its 3-Month LIBOR Target at 0.25% (as expected). Make no initial reference to CHF currency.
- (NV) Netherlands May Unemployment Rate: 5.6% v 5.6% prior
- (SW) Sweden May Average House Prices (SEK) 1.98M v 1.89M prior
- (EU) ECB Monthly report: Mirrors Jun 10th press conference in which interest rates are appropriate and expects moderate economic recovery
- (HK) Hong Kong May Unemployment: 4.6% v 4.4%e
- (UK) May Retail sales Ex Auto&Fuel M/M: 0.5% v 0.1%e; Y/Y: 3.4% v 3.5%e
- (UK) May Retail sales Inc Auto&Fuel M/M: 0.6% v 0.1%e; Y/Y: 2.2% v 2.0%e

- (GR) Greece Q1 Unemployment rate: 11.7% v 10.3% prior
- (EU) Euro Zone Apr Construction Output M/M: -0.3% v 6.5% prior; Y/Y: -6.1% v -6.0% prior
- Eastern European Jun ZEW Consumer Confidence: 20.4 v 35.2 prior
- (SA) South Africa Apr Retail Sales: 3.2% v 2.1%e
- (UK) Jun CBI Industrial Trends Total Orders: -23 v -15e

Fixed Income Results in Session:
- (SP) Spain Debt Agency (Tesoro) Bond auction results: Sold total €3.5B in 10 and 30 year Bonds
-- Sold €3B in 4% Apr 2020 bonos; avg yield 4.864% v 4.045% prior; bid-to-cover: 1.89x v 2.03x prior
-- Sold€479.2M in 4.7% Jul 2041 bonos; avg yield 5.908% v 4.758% prior; bid-to-cover: 2.45x v 1.38x prior
- (FR) French Debt Agency (ATF) sold total of €8.0B in Notes
- Sold €2.64B in Sept 2012 BTAN; avg yield 0.81% v 0.73% prior; Bid-to-cover: 2.21x v 2.19x prior
- Sold €1.805B in Jul 2013 BTAN; avg yield 1.16% v 1.89% prior; Bid-to-cover: 2.4x v 2.27x prior
- Sold €3.55B in new Jul 2015 BTAN avg yield 2.10% v 1.75% prior; Bid-to-cover: 2.3x v 2.07x prior
- (HU) Hungary Debt Agency sold total
HUF50B in 3,6 and 10 year bond auctions, as planned
- (UK) DMO Sells £4.0B in 5% 2014 Gilts; avg yield 2.032%; Bid-to-cover: 2.28x with 0.2bps tail

- Equities: European equities opened the session mostly lower, following yesterday's mixed session in the US and lower close in China. However, as of
5:40 EST, equities have moved higher on sharp gains in shares of BP and initial relief following Spain's government bond auctions. Euro Stoxx 50 Index +0.9% at 2,744; DAX Index +0.7% at 6,234; CAC-40 Index +1.0% at 3,713 and FTSE 100 Index +0.9% at 5,284.

- In Individual Stocks: WS Atkins [ATK.UK]: Reported FY10 operating profit of £113M above year-ago levels of £103M. Revenues were £1.5B slightly lower than year-ago number of £1.5B. Noted uncertainty of impact of
UK public spending cuts. ||Game Group [GMG.UK]: In its interim statement, company reported a decrease of 12.3% in same-store sales for the 19-week period. Expected market revenues to decline in 2010 and anticipated negative full year like-for-like sales.|| British Petroleum [BP.UK]: Formally declared the establishment of a $20B claims fund. In yesterday's US session, company cancelled the quarterly dividends for 2010 and established an escrow fund instead until the initial $20B fund was paid. Name is trading higher by 7% at the time of writing. UBS [UBS.SZ]: Swiss legislators' ballet ended definitely today with the Swiss Lower House approving the US-UBS treaty without a popular referendum, which was opposed by the Swiss Upper House and which would have pushed the US-imposed deadline of August 24. CEO welcomed the decision and pledged to comply with the obligations under the agreement with DoJ and SEC. UBS shares are trading higher by 2% following the decision.

- Speakers: The SNB left its Three-month Libor Target range between 0.00% to 0.75%. It noted that the deflation risk had largely disappeared but would act as needed if CHF appreciation threatened deflation. The current expansionary monetary policy cannot be maintained for the entire forecast horizon and its inflation forecasts showed that short-term price stability was guaranteed but the new forecasts are associated with 'very considerable uncertainties'. The SNB raised its 2010 GDP growth view to at 2% from its March view of 1.5%. It raised 2010 inflation forecast to 0.9% from 0.7%prior and raised the 2011 inflation view to 1.0% from 0.9% prior ***SNB's Hildebrand commented that currency purchases had been effective in avoiding deflation ** Spain Econ Min commented that banks might need up to €30B from restructuring fund *** SNB's Danthine commented that SNB had range of tolls to drain liquidity if needed ***India Central Bank's Chakrabarty: Domestic inflation concerns are a bigger worry than the European debt crisis ***ECB's Noyer stated that the time was the key to fix the economic and financial system and that strong public action was necessary in dealing with sovereign debt crisis. European's anti-crisis intervention was 14% of
GDP and that the crisis triggered tensions over funding for banks. ***ECB's Liikanen commented that the Euro Zone Gov't debt was rising in net terms and not just gross terms. ECB bond purchase program was not a relaxation of monetary policy. He noted that it was too early to make a statement on double dip recession *** IMF's Asia Pacific Office Dir Ishii stated that China's yuan currency was undervalued despite fall in euro. *** Japan PM Kan commented that an unchecked debt could lead to IMF control of policy . He noted that he could not comment on when to raise consumption but the LDP's 10% sales tax rate proposal would be a reference. *** China State Council: sought the top 10 steelmakers to have more than 60% of production by 2015 *** Germany's Steel Federation raised its 2010 production forecast to 43M tons, +30% y/y . it did note that the economic recovery was still weak. ***(CH) China PBoC Q2 Bankers Confidence Index: 64% ***German IFW Institute raised its 2010 GDP view to 2.1% from 1.25 prior. German industrial output, orders and confidence indicators were better than previously expected. The institute lowered private consumption to -0.9% from +0.2% prior. It noted that the ECB might have to keep interest rates unchanged through 2011. ***OECD Chief commented that EUR/USD at 1.20 was better than the currency at 1.50 level. Might decline further but would not alone solve Europe's problems

- Currencies/Fixed Income: The session began with deep concerns over the Spanish banking sector as the EU Summit commenced couple with more EMU break up stories from the Italian press. Nonetheless the Euro managed find the effort to hit three-week highs against the dollar despite a Spanish bond auction selling at the low end of expectations. Dealers surmise that perhaps the auction was 'slightly better than very poor expectations' to account for the rebound in various asset classes. The USD/CHF pair seemed to set the tone for the session in regards to the dollar's price action. The EUR/USD tested 1.2245 before approaching the 1.24 area. The CHF was sharply higher following the lack of concern from the SNB on the recent CHF appreciation trend. The SNB commented that the country's deflation threat had largely disappeared. EUR/CHF plummeted below 1.38 while USD/CHF moved towards the lower end of the 1.11 handle.

- Geo-Political:
UK Chancellor Osborne ended the regulatory authority of the Financial Services Authority (FSA) and replaced it with three regulatory bodies, including a consumer protection agency. The Bank of England will head the new regulatory framework which includes three separate bodies. A committee within the BoE will be subject to oversight by the Parliament. ***Bank of England's King stated that interest rates may rise before bonds are sold during the exit from stimulus. He further notes that the financial crisis is not over and the council can step in if budget measures begin to hurt growth. There will be no hesitation to begin the exit from stimulus when deemed necessary. ***Top level talks between miners and Australian government failed to make progress. ***Spain's largest unions Comisiones Obreras (CCOO) and Union General de Trabajores (UGT) set general strike for the 29th of September to oppose yesterday's labor reforms that passed without union and business leader agreements. ***UBS-US tax treaty is approved by the Lower House without a referendum. The parliamentary vote scheduled for Friday will not take place anymore.

- EU summit begins with show of unity seen as the main strategy
- Traders seen if the S&P can stay above that 200 day moving average
- British Petroleum [BP.UK] rebounds by over 7% in Europe
- Spain sells total €3.5B in 10-year and 30-year bonds (range was €4-6B)
- Swiss lawmakers approved a UBS tax treaty with the US, ends a two-year legal battle

***Looking Ahead***
- (RU) Russia Gold & Forex Reserve: $ v $458.2B prior
- (IS) Isreal May Leading Indicator M/M: % v 0.1% prior
- (BR) Brazil May CAGED Formal Job Creation: K v 250.0Ke v 305.1K prior
- 7:00 (EU) EU's Kallas on Estonia's Euro bid
- 7:30 (BR) Brazil Central Bank (COPOM) Monetary Policy Minutes
- 7:30 (GE) Germany Dep Fin MinKampeter
- 8:00 ECB's Weber
- 8:00 (PD) Poland May Avg Gross Wages M/M: -2.0%e v -2.7% prior; Y/Y: 3.8%e v 3.2% prior
- 8:00 (PD) Poland May Employment M/M: 0.2%e v 0.3% prior; Y/Y: 0.5%e v 0.0% prior
- 8:00 (RU) Russia May Industrial Production M/M: -1.5%e v -3.4% prior; Y/Y: 10.0%e v 10.4% prior
- 8:30 (US) May Consumer Price Index M/M: -0.2%e v -0.1% prior; CPI Ex Food&Energy M/M: 0.1%e v 0.0% prior; CPI NSA: 218.155e v 218.009 prior
- 8:30 (US) Initial Jobless Claims: 450Ke v 456K prior; Continuing Claims: 4.500Me v 4.462M prior
- 8:30 (US) Q1 Current Account: -$121.9Be v -$115.6B prior

- 9:00 (GE) Germany Dep Fin MinKampeter on budget
- 10:00 (US) Jun Philadelphia Fed: 20.0e v 21.4 prior
- 10:00 (US) May Leading Indicators: 0.4%e v -0.1% prior
- 12:00 (TU) Turkey Central Bank Interest Rate Decision: Expected to maintain the Benchmark Repo rate at 7.00% and Maintain the Overnight Borrowing Rate at 6.50%



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