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Thursday June 24, 2010 - 09:58:31 GMT
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European Market Update: Peripheral concerns and geopolitical risks provide a headwind for risk appetite (Trade the News)

Thursday, June 24, 2010 5:52:24 AM

 European Market Update: Peripheral concerns and geopolitical risks provide a headwind for risk appetite


***Economic Data***
- (RU) Russia Gold & Forex reserves w/e Jun 18th: $458.5B v $454.5B prior
- (FR) France May Consumer Spending M/M: 0.7% v 0.4%e; Y/Y: 1.9% v 1.4%e
- (CZ) Czech Jun Business Confidence: 8.6 v 8.8 prior; Consumer Confidence: -7.5 v -11.0 prior; Consumer&Business Confidence: 5.4 v 4.8 prior
- (HU) Hungary Apr Retail Trade Y/Y: -5.0% v -2.7%e
- (AS) Austria Apr Industrial Production M/M: 2.5% v -2.1% prior; Y/Y: 6.9% v -2.8% prior
- (NV) Netherlands Q1 Final GDP Q/Q: 0.3% v 0.2%e; Y/Y: 0.6% v 0.1%e
- (IT) Italy Apr Retail Sales M/M: -0.3% v -0.1%e; Y/Y: -0.5% v 2.1%e
- (PD) Poland May Retail Sales M/M: 3.1% v 2.0%e; Y/Y: 4.3% v 3.3%e
- (PD) Poland May Unemployment Rate: 11.9% v 12.0%e
- (HK) Hong Kong May Trade Balance (HKD): -25.1B v -28.0Be; Exports Y/Y: 24.4% v 23.0%e; Imports Y/Y: 29.7% v 29.8%e
- (EU) Euro Zone Apr Industrial New orders M/M: 0.9% v 1.6%e; Y/Y: 22.1% v 21.8%e
- (SA) South Africa Q1 Current Account (ZAR): -116.1B v -85.7Be; C/A to GDP ratio: -4.6% v -3.9%e
- (TT) Taiwan Central Bank raised the Benchmark Interest Rate by 12.5bps to 1.375%; Not expected
- (IT) Italy Q1 Unemployment Rate: 8.4% v 8.6%e
- (SA) South Africa May PPI M/M: 0.2% v 0.5%e; Y/Y: 6.8% v 7.2%e

Fixed income:
- (IT) Italy Debt Agency (Tesoro) €1.5B in 2.1% index-linked 2021 BTP; avg yield 2.72%; Bid-to-cover 1.3x
- (HU) Hungary Debt Agency sold
HUF40B in 12-month Bills; avg yield 5.41% v 5.35% prior

- Equities: European equities opened the session higher on slight gains in mining related shares on hopes that Australia's new incoming PM Gillard might makes concessions regarding the country's proposed mining tax. However, as the session progressed equities moved into negative territory as declines in commodity prices started to weigh on resource companies. Additionally, banks have declined as
Greece's debt spreads have widened out to record levels. ***As of 5:15 Euro Stoxx 50 Index -1.0% at 2,678; DAX Index -0.7% at 6,160; CAC-40 Index -1.1% at 3,602 and FTSE 100 Index -0.9% at 5,131.

- In Individual Stocks: Axa [CS.FR] and Resolution [RSL.UK] both confirmed the acquision of AXA's
UK unit for £2.75B. Axa expected an exceptional capital loss of €1.4B in 2010. Resolution will finance the acquisition with £2.06B rights issue and £400M facility.Axa shares opened up by 1.4%. || Hennes & Mauritz opened down 0.7% following lower than expected earnings results. Net profit was SEK5.2B slightly below estimates of SEK5.3B. Revenues were also lower at SEK27B compared to SEK27.7B. May SSS were down by 4% worse than expectations of a decrease of 2%. || DSG International [DSGI.UK]: Reported FY10 EBIT at £133.2M better than year-ago figures of £83M. Revenues were £8.5B slightly lower than estimates of £8.6B. Group expected consumer spending to remain pressured in the coming year due to fiscal tightening but group profitability would continue to improve. Shares opened up by 1.2%. || DS Smith [SMDS.UK]: Reported FY10 pretax profit at £68.3M lower than year-ago figures of £72.5M. Revenues was £2.1B higher than estimates of £2.0B. Group noted increasing sales volumes due to the continuing recovery in market conditions.|| Go-Ahead [GOG.UK]: In its trading update, company expected to meet its expectations for FY with a profit arounf £34M lower than year-ago figure of £61.5M. Noted that next year outlook would be difficult to predict and saw lower profit margin next year for the business unit. Shares opened lower by 1.9%

- Speakers:
China PBoC's adviser Li Daokui commented that the Yuan currency could rise 3% against the USDr by end of 2010 if euro stabilized. He added that Yuan reform had limited impact on interest rate decisions. ***German Fin Min Scheauble commented in a FT opinion piece that Germany was on course for 'expansionary consolidation'. He stated the need to reduce its deficit to ensure sustainable economic growth. He added that Gov't should not be addicted to borrowing and that stimulus exits must be considered carefully. He noted that Germany was not acting prematurely in cutting its deficit and that the measures equate to less than 0.5% of GDP ***ECB's Trichet commented in an Italian newspaper interview that the ECB was evaluating Italy's budget and believed Italy is going in the right direction. He reiterated the view that the Euro was a very credible currency. He stated that the threat of deflation was unlikely to materialize and reiterated the stance that inflation expectations were well anchored. Austerity measures were unlikely to trigger stagnation and the cooperation among the ECB, IMF and EU Commission remained excellent. Trichet also reiterated the view that Governments need to implement credible measures to consolidate their finances to correct divergent paths *** Swiss Gov't forecasted 2011 budget deficit of CHF600M and saw one-time items of CHF2B in 2011 for the national railways, pension fund and infrastructure. The Gov't noted that the budget had improved considerably and aided by lower spending and economic growth. *** Fitch commented that it did not anticipate further downgrades for Spain at this point. Spanish bank stress tests supported market confidence and to show that core banking system was strong. The rating agency added that fiscal adjustments had been aggressive *** Greece Debt Chief Christodoulou commented that the country's deficit plan remained on target and that the EU rescue package gave the country time to consolidate its fiscal situation. He stated that the agency could tap the markets if sentiment returned. And declined to comment on any timing when Greece would issue bonds again. He reiterated that the gov't was not looking any bond restructuring. ***Fitch commented that there have been no massive deterioration in Greece since April but again stressed that the country needed 'very significant' fiscal consolidation in 2011-12 period *** S&P's Kraemer reiterated that it saw no serious risks of Euro region break up and noted that the EU rescue package would give nations room to implement fiscal changes ***Portugal Treasury Secretary Costa comented that the country was in a good position to achieve its fiscal targets and has been able to fund the deficit without major problems. He noted that it was possible to combine fiscal consolidation with economic growth objectives *** Italy Confindustria revised Italy's 2010 and 2011 GDP growth forecasts higher. It now saw 2010 GDP growth at 1.2% compared to 1.1% prior and forecasted 2011 GDP at 1.6% versus 1.3% prior view.

- Currencies/Fixed Income: Peripheral concerns coupled with geopolitical risks undermined the trading sentiment during the European morning and provided a firm tone to the JPY and aised the USD to recover from its post FOMC lows. Dealers cited a last weekend's report of an American fleet passing through the
Suez Canal, triggering fears that the United States and Israel were preparing for an attack on Iran, with Egypt's cooperation. An Israeli press article today that IAF helicopters were recently unloaded complemented that weekend speculation. European peripherals continued to widen throughout the morning The Greece 5-year Credit Default Swaps (CDS) widens above 950bps while the spreads between the 10-year Greek/German Gov't Bonds widens to over 800bps in the session. EUR/USD retested the 1.2260 area while USD/JPY elected stops below 89.50 area. EUR/CHF also highlighted the safe-haven sentiment as it tested the 1.3550 level. However, spot gold did not respond and was lower in the session below the $1,235/oz level. Some of the risk aversion flows did ebbed as Taiwan central bank raised its interest rates citing the rebound in the global economic activity. GBP/USD managed to retest the 1.50 handle for the first tiime in over a month.

- Geo-Political: Following recent cuts in gas flow to
Belarus, Russia's Gazprom resumed gas supplies having received outstanding payments in full. Note yesterday European officials blamed Belarus for the reduction in gas supplies. Gazprom's CEO commented that issues with Belarus continue to remain, referencing the transit payment requested by Belarus. ***The British government is expected to confirm its plans to increase the pension age for men to 66 beginning in 2016 compared to the prior government's policy to raise it to 66 in 2024 with women to follow few years later. Note the Office of Budget Responsibility (OBR) announced this week that beginning next April, state pension are to go up by the increase in average earnings, or in line with prices or by 2.5% (if either of the two are greater). Before, the increase of 2.5% was every April, or the level of the Retail Prices Index from prior September.

- European peripherals remain stubbornly wide
- Geo-political concerns re-surface in the Mid-East over Iran
- Fed tweaked opening paragraph to slightly downgrade its growth and inflation outlook relative to April's statement
- Leadership change in Australia
- Taiwan Central Bank feels confident in the global recovery and raises interest rates

***Looking Ahead***
- 8:00 (BR) Brazil May Unemployment Rate: 7.1%e v 7.3% prior
- 8:30 (US) May Durable Goods Orders: -1.4%e v 2.8% prior (revised); Durables Ex-Transportation: 1.0%e v -1.1% prior (revised)
- 8:30 (US) Initial Jobless Claims: 463Ke v 472K prior; Continuing Claims: 4.550Me v 4.571K prior

- 9:00 (US) Apr RPX Composite 28-day Y/Y: No est v 2.2% prior
- 9:30 (TU) Turkey Jun Industrial Confidence: No est v 115.1 prior; Capacity Utilization: No est v 73.4% prior
- 10:00 (MX) Mexico May Unemployment Rate: 5.2%e v 5.4% prior
- 12:00 (CO) Colombia Q1 GDP Y/Y: 3.5%e v 2.5% prior
- 12:00 (FR) France May Net Change Jobseekers: No est v 15.7K prior; Total Jobseekers: No est v 2.68M prior
- 13:00 (US) Treasury to sell $30B in 7-year Notes

- (UK) BOE Financial Stability Report



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