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Tuesday June 22, 2010 - 10:22:30 GMT
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European Market Update: Pendulum swings back towards risk aversion sentiment (Trade the News)

Tuesday, June 22, 2010 5:47:18 AM

 European Market Update: Pendulum swings back towards risk aversion sentiment


***Economic Data***
- (FI) Finland May Unemployment Rate: % v 11.4%e v 9.3% prior
- (SZ) Swiss May Trade Balance (CHF): 0.8B v 2.0B prior; Exports M/M: 1.1% v 2.9% prior; Imports M/M: 13.2% v 0.8% prior
- (DE) Denmark Jun Consumer Confidence: -1.5 v 3.3e
- (SW) Sweden May Unemployment Rate: 8.8% v 9.4%e
- (TT) Taiwan May Unemployment Rate: 5.2% v 5.3%e
- (EU) Euro Zone Apr Current Account: -€5.1 v €1.7B prior; Current Account Net Seasonally Adj: -€6.9v €1.3B prior
- (GE) Germany Jun IFO Business Climate: 101.8 v 101.2e; Current Assessment: 101.1v 99.8e; Expectations Survey: 102.4 102.7e
- (SP) Spain Apr Trade Balance: -€5.0B v -€4.3B prior
- (PH) Philippines May Budget (PHP): -30.5B v 2.6B prior
- (HK) Hong Kong May
CPI Y/Y: 2.5% v 2.6%e
- (HK) Hong Kong Q1 Current Account: $26.3B v $36.2B prior; Overall Balance of Payments (BOP): $20.2B v -$230.6B prior
- (SP) Spain Central Gov't Budget Deficit for Jan-May €18.8B; ratio at 1.79% - Econ Min

- Fixed Income Results in session:
- (SP) Spain Debt Agency (Tesoro) to sell up to €4B in 3-month and 6-month Bills
- Sold €1.14B in 3-month Bills; avg yield 0.913% v 0.645% prior; Bid-to-cover: 5.1x v 3.14x prior
- Sold €2.88B in six-month Bills; avg yield 1.577% v 1.264% prior; Bid-to-cover: 2.5x v 1.91x prior
- (SA) South Afica Bond Auction results
- Sold ZAR1.2B in R208 Bonds; clearing yield 8.75%; Bid-to-cover: 3.9x
- Sold ZAR900M in R213 Bonds; clearing yield 9.00%; Bid-to-cover: 1.5x
- (NV) Netherlands Debt Agency (DSTA) Bond Auction
- Sold €500M in July 2018 DSLs; avg yield 2.639% v 3.355% prior
- Sold €660M in Jan 2023 DSLs; avg yield 3.171% v 0.770% prior
- (HU) Hungary Debt Agency sells
HUF50B in 3-month Bills; avg yield 5.24%; Bid-to-cover 3x

- Equities: European equities opened the session lower, tracking the declines in the US and Asia, as the initial optimism related to China's pledge to increase the flexibility of the yuan faded. Today's weakness is being led by banks in
France and Spain. Additionally miner shares have pulled back from the sharp losses seen on yesterday's session. As of 5:36 EST, most market have made fresh session lows. Euro Stoxx 50 Index -1.4% at 2,730; DAX Index -1.0% at 6,231; CAC-40 Index -1.4% at 3,685 and FTSE 100 Index -1.3% at 5,228.

- In Individual Stocks: European banks traded lower led by BNP's rating downgrade by Fitch. Shares were pressured by overall bearish sentiment on banks. Yesterday, Whitney expected banks revenues to disappoint and banks to accelerate foreclosure programs. During the EU session, Citi cut NBG to hold from buy. Furthermore, according to bank's stress test scenario on PIIGS, Commerzbank was most vulnerable in case of restructuring as it would need between €11.8-13.1B in fresh capital. || Aegon [AGN.NV]: Announced it was going to restructure and refocus its
UK business and aiming to cut costs by 25% by the end of 2011. Also confirmed speculations that it was looking to sell Transamerica Reinsurance in the US. Company said it was too early to provide guidance || Whitbread [WTB.UK]: Company's shares opened up 3.2% after it reported an increase of 13.5% in 13-week sales and an increase of 7.6% in SSS.|| Chemring [CHG.UK]: Reported H1 pretax profit at £25.3M lower than year-ago figure of £29.9M. Revenues were at £255.9M above figures of £233.5M. Company noted European orders were delayed into H2. Shares opened down 0.9% after the earnings report. || BP [BP.UK] Press speculations continue on company's debt offering. Last week there were reports that company may rise $5-10B or even as much as $50B over the next two years to meet its cost spills. The offering was expected to be as early as this week, but press notes that it may be delayed by two or three weeks. 3i Group [III.UK]: Sold its Inspectorate Unit to Bureau Veritas [BVI.FR] for £450M. The transaction is expected to be accretive to BVI earnings as of 2010 and to improve margins and growth opportunities.

- Speakers: Reportedly German govt officials stated that the IMF was preparing recommendation for countries to promote balance global growth for the upcoming G20 Summit. The official noted that
Germany did not need additional stimulus measures and that both Chancellor Merkel and US Pres Obama agreed on necessity to exit stimulus measures beginning in 2011. German fiscal policy remained expansive in 2010 and had to be role model and take the Maastricht Stability Pact seriously. There was no US pressure against consolidation in Germany. It saw the risk of global debt crisis as very high especially if there were no budget cuts envoked. No one in G20 was demanding further debt-financed stimulus programs.***China PBoC confirmed speculation that it would gradually expand cross-border Yuan trade settlement trials to twenty provinces *** Spain Econ Min Salgado commented in the Spanish press that the government did not rule out tax increases to meet its deficit objectives. Salgado noted that the country cannot fail to meet the objectives on the deficit and time to decide if Spain needed to make more effort on revenue front *** South Korea and Japan agreed to extend a $3B currency swap line to 2013 *** Moody's commented on Japan's upward revision to its 2010 GDP forecast and noted that the country's strategy was step in the right direction towards gov't financial health. Moody's stated that Japan's Gov't GDP growth projection was realistic but believed a 3% nominal growth rate was needed to improve the country's finances. The rating agency also noted that the outlook for South East Asian sovereigns and banks were 'mostly stable' but cautioned that it saw signs that Europe's problems might renew a credit crunch ***S&P affirmed Japan's "AA" sovereign rating with Negative Outlook and stated that the country's fiscal plan was 'better than nothing". S&P commented that Japan's credit quality was still eroding slowly and it would watch the mid-year Upper-House and DPJ leadership elections ***Fitch also commented that the Japanese fiscal plan lacked details and it was unrealistic to expect details in fiscal plan prior to elections. It Japan sovereign rating affirmed at "AA-" with a stable outlook *** France Debt Agency (ACT) CEO commented that French debt cost was approx 2.7% in H1 of this year compared to 2.95% for all of 2009. He noted that France had raised 67% of 2010 funding needs compared to 63% at same time in 2009. It might reduce T-Bills outstanding by at least €5B and consider the sale of a 15-year Index Link bond in H2 *** Moody's commented that it saw a low probability Greece debt restructuring has a low probability but 'not inconceivable' ***Swiss National Bank (SNB) Jordan reiterated view that there is no need for currency intervention and was prepared to deal with deflation if necessary. He also noted that Euro on balance sheet was a risk. ***Greece Debt Agency Head Christodoulou reaffirmed that the country was on target to meet its deficit goals. He noted that no one was marketing Greek bonds at the moment, just sell side *** German IFO Economists stated that survey members remained confident that economic recovery would continue but had scaled down expectations for export growth. Companies expected that employment levels to largely remain stable *** IFO's Abberger stated that the European debt crisis was not the main issue for German companies and noted that the the German government savings package was not so severe that it would damage the economy ***.ECB Ordonez commented that the institutional stability of the Euro Zone was threatened and that Spain had suffered contagion effect due to Greece. He noted that Spanish economic recovery at very early stage and reiterated that it was essential that Spain meet deficit targets. The regional governments must do more to cut deficits. Thirty-eight of Spain's savings banks were in merger discussions and that saving banks requested €10B in aid. *** Libya stated there no need for Opec to hold meeting prior to the scheduled October conference

- Currencies/Fixed Income: The sovereign jitters seemed to have swung the risk appetite pendulum back in vogue despite that PBoC's record high setting for the Yuan currency earlier backing up its weekend pledge to increase the currency's flexibility. European dealers noted that sovereign debt market concerns resurfaced over the last day after Fitch cut its long term credit rating for French bank
BNP Paribas, while S&P raised cumulative credit losses on Spanish banks. The stress of the markets was being exhibited in the EUR/CHF cross, which continued to hit fresh all-time lows below 1.3620 area. Germany prepares its pre-G20 positioning stressing that it sees a debt risk if there are no budget cuts among nations. The Spanish Bill auction results saw a decent bid-to-cover ratio in both the 3-month and 6-month issuance but again the 'success' of the auction coming at the expense of higher yields. EUR/USD was unable to stray far from the 1.2300 area while the JPY retained a firm tone. A better German IFO headline number failed to inspire the Euro. All eyes on the UK budget to be released in the early part of the NY morning (7:30am ET). The USD/CNY moved higher during the early European morning on chatter that Chinese State-owned banks were aggressive USD buyers taking the pair up above 6.82 before the pair settle down around the 6.81 area

- Geo-Political: The People's Bank of China confirmed press speculation that it would gradually expand cross-border yuan trade settlement trials to twenty provinces, as previous yuan trade settlements was limited to a few regions. This is part of
China's effort to increase cross-border yuan trade settlements and further improve cross-border flow monitoring.

- China PBoC backs up its pledge and set mid-point at 6.7980; USD/CNY ends session at 6.8136
- Sovereign jitters seemed to have swung the risk appetite pendulum back in vogue
- UK budget publication later this session
- Spain Bill auction a 'success' at a steep price
- Japan raises growth outlook; Rating agencies ask for details on fiscal plan
- German IFO better than expectations on export hopes
- CAD currency morphing into reserve currency status

***Looking Ahead***
- 6:30 (IT) Confindustria's Marcegaglia
- 7:00 (CA) Canada May Consumer Price Index M/M: 0.2%e v 0.3% prior; Y/Y: 1.3%e v 1.8% prior
- 7:00 (CA) Canada May Core CPI M/M: 0.3%e v 0.3% prior; Y/Y: 1.7%e v 1.9% prior
- 7:30 (UK) Exchequer Osborne presents UK Budget to House of Commons
- 7:45 (US) ICSC Weekly Chain Store Sales
- 8:00 (BR) Brazil Jun IBGE CPI-15 M/M: 0.4%e v 0.6% prior
- 8:00 (PD) Poland May Core inflation M/M: 0.2%e v 0.2% prior; Y/Y: 1.7%e v 1.9% prior
- 8:00 (GE) German Chancellor Merkel speech to DIHK Institute
- 8:55 (US) Redbook Weekly Chain Store sales
- 9:30 (BR) Brazil May Current Account: -$2.1Be v -$4.6B prior; Foreign Investment: $1.7Be v $2.2B prior
- 10:00 (US) Treasury Sec Geithner testifies to Congressional Oversight panel
- 10:00 (US) Jun Richmond Fed Manufacturing Index: 20e v 26 prior
- 10:00 (US) Apr House Price Index: No est v 0.3% prior
- 10:00 (US) May Existing Home Sales: 6.12Me v 5.77M prior; M/M: 7.1%e v 7.6% prior
- 10:00 (EU) Euro Zone Jun Advance Consumer Confidence: -19e v -18 prior
- 13:00 (US) Treasury to sell $40B in 2-year Notes
- 13:20 (CA) Bank of Canads's lane speaks
- 13:30 (BR) Brazil May tax Collections (BRL): 60.5Be v 70.9B prior
- 15:00 (AR) Argentina Mat Trade Balance: No est v $1.9B prior
- 16:30 (US) API weekly energy inventories



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