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Friday June 25, 2010 - 09:54:49 GMT
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European Market Update: Austerity measures and banking sector concerns weigh down risk appetite...again (Trade the News)

Friday, June 25, 2010 5:50:40 AM

 European Market Update: Austerity measures and banking sector concerns weigh down risk appetite...again


***Economic Data***
- (GE) Germany May Import Price Index M/M: 0.6% v 0.2%e; Y/Y: 8.5% v 8.0%e
- (FR) France Q1 Final GDP Q/Q: 0.1% v 0.1%e; Y/Y: 1.2% v 1.2%e
- (SP) Spain May Producer Prices M/M: 0.2% v 0.6%e; Y/Y: 3.8% v 4.1%e
- (GE) German CPI - Saxony M/M: 0.1% v 0.1% prior; Y/Y: 1.0% v 1.1% prior
- (NV) Netherland Jun Producer Confidence: -0.7 v 0.0e
- (FR) French Debt Agency: (AFT) Q1 Foreign ownership of French government bonds Q/Q: 69.4% v 67.9% prior
-(EU) Eurocoin Jun Indicator M/M 0.46% v 0.55% prior; third MoM decline
- (IT) Italy May Hourly wages M/M: 0.1% v 0.3% prior; Y/Y: 2.5% v 2.4%e

Fixed income Results in session:
- (IT) Italy Debt Agency (Tesoro) auction results
- Sold €3B in 2012 zero coupon bonds (CTZ) at 1.92% yield
- Sold €9B in 6-month Bills; avg yield 0.979%
- (SA) South Africa sold total ZAR400M in Index-Linked Bonds (below ZAR 600M expected)
- Sold ZAR80M in R212 Bonds, Ave Yield 3.00%
- Sold ZAR300M in R210 Bonds, Avg Yield 3.05%
- Sold ZAR10M in R202 Bonds, Avg Yield 2.99%

- Equities: European equities opened the session flat to marginally higher, following the sharp losses seen on yesterday's session. In terms of specific sectors, today's losses are being led by resource related companies, and financials are trading mixed. Factors weighing on markets include concerns about the global recovery, the widening of Greece's CDS spreads to new record levels and concerns related to Eastern Europe.***As of 5:45 Euro Stoxx 50 Index -0.9% at 2,621; DAX Index -0.9% at 6,060; CAC-40 Index -0.9% at 3,523 and FTSE 100 Index -0.7% at 5,065.

- In Individual Stocks: Basilea Pharmaceutica [BSLN.SW]: Shares opened down 6.4% after company announced that the new phase III program would delay by 18 months the market launch for antifungal Isavuconazole. Company was cut to Neutral from Buy by UBS. || Berkeley Group [BKG.UK]: Shares opened down 1% after disappointing earnings report. Company reported FY10 pretax at £110.3M lower than year-ago figures of £120.4M. Revenue was also lower at £615M compared to £702.2M last year. Noted the lower number of transactions due to economic conditions. || British Petroleum [BP.UK]: In its update noted that cost to date amounted to $2.35B compared to $2B on June 21st. Collected 16.8K barrels of oil on June 23. || Suedzuecker [SZU.GE]: Shares were up 3.8% at the open after positive earnings report. Company reported preliminary Q1 at €149M better than €88M reported last year. Revenues were at €1.5B also better than year-ago figures at €1.4B. Company reiterated FY11 outlook of a flat revenue and operating profit of €450M

- Speakers: ECB's Nowotny commented that Austrian Bank loan losses were expected to stay high and would need more capital in the medium term. He added that around
€8B in writedowns by Austrian banks this year and the stress scenario assumed losses of €15B. The Stress test to show improvement but he noted that banks needed to continue structural reforms and that Austria's loans loss provisions were seen to stay high. Tier 1 of all banking system would decline to 8.7% by end 2011 with the tier 1 ratio of top 6 banks would declining to 8% by end of 2011. Austrian banks have low exposure to troubled EU economies. ***India's PM Singh commented that the global economic recovery remained fragile and uneven. He expressed concern over signs emerging within the Euro zone. G20 challenge will be to sustain the global economic recovery and he commented that a stable global recovery was necessary for India to achieve faster growth *** The SNB reiterated that deflation risks had largely dissipated in the quarterly bulletin *** India Gov't approved market driven increase in petrol and diesel prices with gasoline prices to be raised by INR3.5/liter and diesel prices to be raised by INR2/liter. The India's Oil Ministry stated that the move would have a marginal impact on headline inflation.*** French Debt Agency commented that that the Q1 Foreign ownership of French government bonds rose to 69.4% from 67.9% seen at the end of Q4 of 2009 ***

- Currencies/Fixed Income: EUR/USD seemed initially supported by real money flows despite the soft weak in equity markets. The EUR/USD tested the 1.2350 area in the early moments of the session. However, comments by ECB's Nowotny on the Austrian banking sector ate away at the European currencies. The top Romanian Court ruled that some of the imposed austerity measures in that country were rule to be against the Constitution. This seemed to reverberate on what other courts in the EU might rule on the issue. The issue over peripheral concerns continue to linger with the Greek 5-year CDS at fresh record levels over 1,100 bps. The EUR/CHF cross also continues to exhibit safe-have flows as it tested below 1.3515 for fresh life-time lows. The SNB also reiterated that deflationary fears have ebb within the country at this time. The USD/JPY steady at 89.60 area while EUR/JPY and GBP/JPY pairs slumped into negative territory from the levels seen in Asia over the course of the European morning. G20 over the weekend tends to highlight the need for diversification in the global currency market and dealers eyeing if the PBoC resets the CNY back weaker levels after the meeting ends.

- Geo-Political: Adding to the growing global trend of civil and union protests, French unions today participated in a nationwide strike against revised pension plans of increasing the retirement age to 62 from 60 by 2018. Various industry sectors from transportation to education were affected, including those in the private sector. Note that unions are planning a larger protest in September when the proposed reform will go to parliament for approval. Similarly, unions in the UK have complained about yesterday's proposed raise in the pension age by the government. Italy's largest union, the Italian General Confederation of Labour (CGIL) organized general strikes today protesting against the government's austerity measures. ***Strains have started to emerge in UK's coalition government as the budget cuts have brought about disagreements between both parties. The budget announcement over VAT and pensions may be challenged by the Liberal Democrats according to various media sources. The deputy leader of the party Hughes warned that if certain pension benefits were to be cut, per coalition agreements, then the government could fall apart. Note during the UK parliamentary elections, the Liberal Democratic Party was against VAT increases. In addition, he further noted that amendments to the finance bill may be introduced. Though he commented that the budget will be voted on next week, measures in it may be amended if there is room for improvement. ***The Bank of England's Quarterly Financial Stability Report stated that it wanted to extend the transitional period on any capital liquidity buffers to help banks lend. Capital buffers should be set at a hard minimum, but be encouraged to fluctuate above that depending on the economic cycle. Additionally, the report noted that it would like to see new Basel rules on capital requiring a minimum level and a variable buffer, and global policymakers should consider restricting banks' ability to take part in certain activities.

In The Papers: Guardian article that Greece might have put up some of its islands for sale to save the economy. An area on Mykonos that is one-third owned by Greek govt said to be available for sale with prices start less than €2M for a smaller island ***

- China's PBoC sets Yuan at 5-yr high at 6.7896 ahead of G20 summit
- Baltic Dry Bulk index falling to 2,502; lowest level since early October and a 40% decline since the peak last month
- Greece may have put up some of its islands for sale to save the economy - Guardian
- US lawmakers agree on compromise to the 'Volcker rule'

***Looking Ahead***
- G8/G20 Summit in Canada this weekend
- 7:00 (BR) Brazil Jun FGV Construction Costs M/M: 2.0%e v 0.9% prior
- 8:30 (US) Q1 Final GDP Q/Q Annualized: 3.0%e v 3.0% prior; Personal Consumption: 3.5%e v 3.5% prior
- 8:30 (US) Q1 Final GDP Price Index: 1.0%e v 1.0% prior; Core PCE Q/Q: 0.6%e v 0.6% prior
- 9:55 (US) Jun Final University of Michigan Confidence: 75.5e v 75.5 prior
- 15:00 (AR) Argentina Apr Economic Activity Index M/M: No est v 1.0% prior; Y/Y: 7.1%e v 8.1% prior



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