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Tuesday July 27, 2010 - 10:00:07 GMT
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European Market Update: Financials aid risk appetite in session (Trade the News)

Tuesday, July 27, 2010 5:46:22 AM

 European Market Update: Financials aid risk appetite in session


***Economic Data***
- (IN) India Central Bank (RBI) raised its Reverse repo by 50bps to 4.50%; more than the 25bps expected; Raised Repo rate by 25bps to 5.75%; as expected and maintained the Cash Reserve at 6.00%; as expected
- (GE) Germany Jun Import Price Index M/M: 0.9% v 0.6%e; Y/Y: 9.1% v 8.6%e
- (GE) Germany Aug GfK Consumer Confidence: 3.9 v 3.5e
- (SZ) Swiss Jun Consumption Indicator: 1.810 v 1.712 prior
- (FI) Finland Jul Business Confidence: 3.0 v 5 prior; Consumer Confidence: 19.1 v 18.7 prior
- (FI) Finland Jun Unemployment Rate: 8.8% v 10.5% prior
- (SW) Sweden Jun PPI M/M: 1.3% v 0.2%e; Y/Y: 1.6% v 0.5%e
- (SW) Sweden Jun Household Lending Y/Y: 8.9% v 9.1% prior
- (NV) Netherlands Jul Producer Confidence: -2.4 v -0.7 prior
- (EU) Euro-Zone Jun M3 Y/Y: 0.2% v -0.1%e; M3 three-month avg: 0.0% v -0.2%e
- (TT) Taiwan Jun Leading Index M/M: -0.1% v 0.3% prior; Coincident Index M/M: No est v 0.9% prior
- (HK) Hong Kong Jun Trade Balance (HKD) -30.6B v -25.6Be; Exports Y/Y:26.7% v 22.8%e; Imports Y/Y: 31.0% v 25.2%e
- (SA) South Africa Q2 Unemployment: 25.3% v 25.2% prior

Fixed Income:
- (SP) Spain Debt Agency (Tesoro) sold aprox €3.4B of the indicative €3.5B target in 3-month, 6-month Bills
- Sold €971M in three-month Bills; avg yield 0.672% v 0.913% prior; Bid-to-cover: 5.7x v 5.1x prior
- Sold €2.46B in six-month Bills; avg yield 1.144% v 1.577% prior; Bid-to-cover: 2.2x v 2.5x prior
- (NV) Netherlands Debt Agency (DSTA) sold total 1.05B v indicative size of up to €2.0B in 2015 and 2018 bonds
- Sold €300M in 3.25% Jul 2015 OLO; avg yield 1.94% v 1.740% prior
- Sold €715M in 5.5% Jan 2028 OlO; avg yield 3.36% v 4.217
- (IT) Italy Debt Agency (Tesoro) sold €9.0B in 6-month Bills and €2.5B in zero 2012 bonds; as expected
- Sold €9.0B in 6-month Bills avg yield 1.034% v 0.979% prior; bid-to cover :2x
- Sold €2.5B in Zero coupn 2012 bonds; avg yield 1.643% v 1.92% prior; bid-to-cover: 1.6x
- (HU) Hungary sold
HUF50B in 3-month Bills; avg yield 5.46% v 5.47% prior

- India's central bank raised interest rates more forcefully than expected in the face of inflation that has held stubbornly above 10% for the past five months.
- Eurozone M3 money supply growth accelerated; Germany import prices higher than expectations
- Spain


- As of 5:30am ET Euro Stoxx 50 Index +0.9% at 2,768 ; DAX Index +0.4% at 6,217; CAC-40 Index +0.8% at 3,665 and FTSE 100 Index +0.6 at 5,382

- Results from Deutsche Bank and UBS were both strong with earnings and revenues beating analysts' estimates. But UBS stole the show as the first bank to report an increase in investment banking pretax profit to CHF1.3B from CHF1.19B attributed mainly to a raise in equity revenues. This is in contrast with numbers from Credit Suisse last week which reported a decrease in investment banking pretax profit and with Deutsche Bank's revenues which reported a decrease in corporate and investment banking revenue to €4.7B vs a quarter ago figures of €6.6B. UBS reported a decreasing trend in net new money outflows while Deutsche Bank reported a significant decrease in provisions to €243M compared to a figure of €262M last quarter and €1.0B last year. Both names are trading higher, UBS also lifting Credit Suisse. Banco Popolar also reported today but noted a decline in 32% in Q2 profit due to lower revenue from lending and a surge in bad loans (bad loans at 5.04% vs 4.91% q/q)
- BP reported its Q2 earnings with an impressive loss of $17.2B mainly due to replacement cost loss. Revenues came slightly higher than estimates at $75.9B. As expected the company announced the resignation of Tony Hayward and the replacement of the former by American Bob
Dudley. Shares opened flat and are trading higher given that much of the uncertainty is over. BP said it was planning a $30B in asset sales over the next 18 months. Guided CAPEX at $1.8B in 2010 and 2011 and expected to decrease the debt by 10-15B over the next 18 months. Company will forego payment of dividend this year but will reconsider at the Q4 results in February 2011
- Among other
UK names ARM holdings reported earnings and revenues above estimates but did not impress with its outlook. The management expects Q3 and Q4 seasonal uptick to have a flatter trajectory than normal. Shares opened down and are trading down by 6 points. Shares of Xstrata are trading higher as production volumes increased for ferrochrome, PGMs, Australian coking and semi-soft coal, refined nickel, zinc in concentrate and lead in concentrate compared to the first half of 2009. Mined copper output was down 3.0% y/y. Croda reported a significant growth in first half operating profit and revenues but expressed concern over the rise in raw material prices.
- Among notable European names reporting, SAP disappointed on net income although revenue was slightly above analysts' estimates at €2.9B. Company reported overall strong revenues on software and software related services and raises FY10 software and services rev at 9-11% vs 4-8% prior, implying €8.9B-9.1B. Company completed its tender offer for Sybase and now holds a 92% stake. Shares are trading down.
KPN NV reported reported both earnings and revenues above estimates and reaffirmed its outlook for FY10 and FY11.

- Speakers:
- China Banking Regulatory Commission (CBRC): Not all loans to China local governments are identified as risky will become non-performing loans
- India Planning Panel Dep Ahluwalia commented that FY11 GDP growth could exceed 8.5% and that India should target for 9.0% GDP growth in FY12. He added that the RBI interest rate increase would not hit its economy
- German Econ Min Bruederle: Decline in unemployment increases confidence; Reiterates prior views that sees consumption to increase through the year

- Currencies: The USD, CHF and JPY started the European morning on softer tones as rising risk appetite prompted flows from the usualsafe-havens. Dealer chatter was all abuzz that Stock purchasing hits bull market record at mutual funds while US indices rallied back to unchanged for YTD returns. The euro was firmer against the major but saw its gains against the dollar evaporate ahead of the NY morning. EUR/USD tested 1.3020 before dipping back below 1.2990 with continued dealer chatter that SNB euro sales was capping upward momentum. Dealers also noted that M&A flows might be capping the Euro's upward momentum as well with talk that
Germany's SAP $5.8B cash acquisition of Sybase was a factor in Euro sales. EUR/CHF was at session highs as it approached 1.3750 area. USD/JPY above 87.35 and firmer by over 40 pips from its Tokyo open. The AUD continued its firm tone as dealers noted that a US think tank was bucking consensus view and looking for the RBA to raise interest rates at next week policy meeting after a two meeting pause.

- Geopolitical:
- In the quarterly report from Federation of German Industry (BDI), it noted that it cautious about the pace of the economic recovery though optimistic on second half growth.
- The Office of Gas and Electricity Markets (OFGEM) released a new framework of rules for the power industry, attempting to draw in £32B of investment into the sector over ten years to fund the linking of wind and wave projects to rural areas and integrating into the national grid.
- The World Trade Organization ruled that EU tariffs on imports of widely used electronic products violate international trade agreement.
- British union Unite announced it is pursuing legal action over the removal of free travel from the striking cabin crew members stating that it is a violation of European human rights legislation

- In The Papers:
- WSJ article stated that the IMF viewed the Chinese Yuan currency as "substantially undervalued". The article noted that the IMF determination was bound to put pressure on
Beijing to let the currency appreciate more than the 0.7% it has risen since China loosened the yuan's peg to the dollar on June 19th. The IMF determination was backed by the U.S., Germany, France, the United Kingdom, among others.
- The Wall Street Journal article reported that delegates from the European and International Monetary Fund began a two week visit to Greece to determine whether to continue funding.
- The UK government clarified that the FSA will move inside the Bank of England as the central bank's Prudential Regulatory Authority, with a new consumer protection agency and Financial Policy Committee to be created as noted in the Wall Street Journal.
- Telegraph's Ambrose Evans-Pritchard noted the EU bank stress tests have reduced the pressure on banks in Spain, however, he does additionally note that the test have not done that much to lower the strains in interbank credit markets.
- According to the Telegraph, in a survey of 680 executives conducted by the Economist Intelligence Unit, nearly a third of those surveyed said the biggest threat was a double dip in H2; 20% though sovereign debt default and 10% said weak governance; 86% were confident that their businesses would survive the uncertainty.

***Looking Ahead ***
- (UK) DMO syndicate 2040 Index link Gilt results expected
- 6:00 (UK) Jul CBI Distributive Trade : No est v -5 prior
- 6:00 (IR) Ireland Jun PPI M/M: No est v 1.1% prior; Y/Y: No est v 2.0% prior
- 7:00 (BR) Brazil Jul FGV Construction Costs M/M: 0.7%e v 1.8% prior
- 7:45 (US) Weekly ICSC Retail sales
- 8:55 (US) Weekly Redbook Retail Sales
- 9:00 (US) May S&P/CaseShiller Home Price Index: No est v 144.56 prior; S&P/CS 20 City M/M: 0.0%e v 0.4% prior; S&P/CS Composite-20 Y/Y: 3.8%e v 3.8% prior
- 9:00 (EU) Weekly ECB Forex Reserves
- 9:30 (BR) Brazil Jun Total Outstanding Loans (BRL): No est v 1.50T prior; Private Banks Lending: No est v 871B prior
- 10:00 (US) Jul Richmond Fed Manufacturing Index: 11e v 23 prior
- 10:00 (MX) Mexico May Global Economic Indicator: 8.0%e v 7.2% prior
- 10:00 (US) Jul Consumer Confidence: 51.0e v52.9 prior
- 12:00 (FR) France Jun Total Jobseekers: 2.69Me v 2.70M prior; Net Change Jobseekers: 10.0Ke v 22.6K prior
- 13:00 (US) Treasury's to sell $38B in 2-year notes
- 14:00 (US) Treasury Brainard
- (BR) Brazil Jun Central Govt Budget (BRL): 1.1B v -510M prior
- 16:30 (US) EIA Weekly Energy Inventories
- 17:00 (US) ABC Consumer Confidence w/e Jul 25th: -46e v -45 prior



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