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Wednesday August 4, 2010 - 10:01:04 GMT
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European Market Update: Softer European Service PMI data tempers equity euphoria (Trade the News)

Wednesday, August 04, 2010 5:56:52 AM

 European Market Update: Softer European Service PMI data tempers equity euphoria


***Economic Data***
- (UK) Halifax House prices M/M: +0.6% v -0.3%e; 3M/Y: 4.9% v 4.6%e
- (ID) Indonesia Central Bank Decision: maintained the Reference Rate at 6.50%; as expected
- (IR) Ireland July NCB Services PMI: 55.7 v 55.4prior
- (SP) Spain July Services PMI: 51.3 v 51.8 prior
- (IT) Italy July PMI Services: 49.6 v 51.4e; First reading below 50 since Nov 2009
- (FR) France July Final PMI Services: 61.1 v 61.3e
- (GE) Germany July Final PMI Services: 56.5 v 57.3e
- (E) Euro Zone July Final PMI Services: 55.8 v 56.0e; PMI Composite: 56.7 v 56.7e
- (UK) July PMI Services: 53.1 v 54.5e; Lowest reading since Jun 2009
- (EU) Euro-Zone Jun Retail Sales M/M: 0.0% v 0.0%e; Y/Y: 0.4% v 0.1%e

Fixed Income:
- (PO) Portugal Debt Agency (IGCP) sold total €1.17B in 6-month and 12-month Bills versus €1.0B indicated
- Sold €660M in 6-month Bills; avg yield 1.960% v 1.947% prior; Bid-to-cover: 2.4x v 1.8x prior
- Sold €505M in 12-month Bills; avg yield 2.394.% v 2.452% prior; Bid-to-cover: 2.2x v 1.3x prior
- Lloyds: reported a profit for the first time since its acquisition of HBOS some 19 months ago; - Soc Gen big beat on earnings. Standard Charter beats analyst estimates by a hair
- Major European Services PMI dip a bit from their preliminary readings; Italy back below the 50 level
- USD/JPY probing 15 year low and approaching the pivotal 85.00 levels. JGB yields continue to hit fresh t 7 year lows below 1.00%. Nikkei 225 down over 2% in session
- Israel/Lebanon tensions rising again
- Iran President Ahmadinejad NOT injured when a press car accompanying him was hit by a grenade

- Equities
- As of 5:30am ET Euro Stoxx 50 Index -1.0% at 2,791; DAX Index -0.6% at 6,269; CAC-40 Index -0.8% at 3,718 and FTSE 100 Index -1.4% at 5,321

- Slowing US economic growth was capping global enthusiasm on equities and the softer European PMI services did little to inspire the markets. Losses were broad based and further exacerbated by the banking sector, after weak earnings from Allied Irish Banks weighed on the sector

-European financial names reported today with Societe Generale opening the session. Company beat estimates on both net income and revenues. The tier-1 ratio was stronger sequentially and loan loss provisions were slightly lower compared to the last quarter and better than analysts estimates. The Corporate and Investment banking showed a decline on a yearly basis, mirroring BNP Paribas' which, yesterday, reported a decline in CIB as well. Lloyds reported very strong results with a significant decrease (more than 50 %) in impairments and a stronger core tier-1 ratio. The retail segment pretax profit was also significantly higher but bank reported a wider loss in Wealth management. Company maintained the overall macroeconomic outlook. Standard Chartered also reported an impressive decline in impairment losses while earnings were in line with estimates. Net interest income was higher but the bank reported a decrease of 12% in non-interest income. Company also raised the dividend by 10% Shares opened down -2.7% after failing to impress with revenues. Axa disappointed markets with a sharp yearly decline in the net profit due to loss related to the sale of UK Life operations. Revenues came in line with estimates and segments showed little growth in revenues over the year. 40 minutes into the EU open shares fell 1% and are continuing to trade lower. Deutsche Postbank was the weaker link in terms of provisions for losses being the only company in the session that reported an increase. Adding insult to injury, despite reporting in line with estimates, the bank did not impress with its outlook saying that it did not expect the results from H1 to continue in H2. Allied Irish Bank widened its loss at €1.7B compared to last year of €829M but it was still better than analysts' estimates of €2.3B. Provisions were a bit lower on a yearly basis but the Tier 1 had decreased.
- Munich Re's earnings beat analyst estimates and company raised it outlook for gross premium revenues. Shares opened 1.1% after the results. Legal and General opened up by 0.7% as company reported a growth in earnings on a yearly basis. The final dividend was increased by 20% and the company reaffirmed its 2010 targets. Suez Environment also reported strong earnings and raised its outlook on both revenue and EBITDA. Finally, British Land was disappointing on its outlook seeing low rental growth in London and an uncertain environment. The quarter earnings were however better on a yearly basis.

- Speakers:
- Italy Fin Min Tremonti: No need for further budgetary adjustments in autumn period; Maintains 2010 GDP view of +1.1%
- IMF: Romania has met conditions for continuing €20B economic bailout agreement
- Japan Finance Min Noda: Current fx moves a little one-sided; to watch fx markets "more closely"
- New Zealand Fin Min English: Offshore debt is the country's single largest vulnerability; reiterates stronger NZD will hurt recovery

- Currencies
- The main focus in FX was the pivotal 85.00 level in USD/JPY. The Asian low was 85.31 but the European price action was contained around the 85.50 area. Dealers also noted the decline in volume of margin trading turnover since the new regulations went into effect this month in Japan and could impact potential carry-related trades. Downward revision in euro zone July final services PMI provided some relief to recent USD bearishness against the European pairs but the retracement was nonetheless muted. Dealers did note that technical support remained around the mid-1.31 area but the Euro remained far from that level and only tested 1.3185 as the low during the session. Euro Zone retail sales data helped to stabilize the EUR/USD back above the 1.32 level as did the continued rise in Euribor fixing with the 3-month rate hitting 0.90% for the first time in over a year.
Spot gold traded above $1196/oz for its highest level in two weeks.

- In the Papers-Geopolitical:
- The Iranian province of Hamada, there was news of an attack on Iranian President Ahmadinejad. A press car accompanying the president was hit by an explosion. Cause of the explosion is still under speculation though initial press reports indicate that it was a bomb. The president was unharmed in the attack, though there were some reports of injuries.
- In Spain, air traffic controllers voted for a strike against government actions to change working hours and reduce the amount of accrued overtime pay allowed. The strike is initially expected to begin Wednesday the 18th of August and continue for up to three days, though final decisions on the exact start date and duration are to be released in the next couple of days. Approximately 2,300 air traffic controllers are to participate. Note that tourism in the country has been estimated to account for more than 10% of its GDP.
- The Financial Time reported that some of the recent strength in crude oil prices is attributable to lower production in the North Sea as a result of scheduled maintenance. Citing analysts, 'Oil companies such as Nexen have delayed supply of some cargoes of physical Brent blend crude as many of the North Seas 50 or so fields undergo planned seasonal maintenance and production in others stops due to unplanned outages.'

***Looking Ahead ***
- (RU) Russia July Official Reserve Assets: $ v $461.2B prior
- (RU) Russia July CPI Core M/M: 0.3%e v 0.2% prior; Core Inflation YTD: 2.2%e v 2.0% prior
- (RU) Russia July Consumer Prices M/M: 0.4%e v 0.4% prior; Y/Y: 5.6%e v 5.8% prior; CPI YTD: 4.8%e v 4.4% prior
- 6:00 (CZ) Czech Republic to sell up to CZK7.0B in 2.0% Sept 2013 Bonds
- 7:00 (US) MBA Mortgage Applications w/e July 30th: No est v -4.4% prior
- 7:30 (US) July Challenger Job Cuts: No est v K prior; Y/Y: No est v -47.1% prior
- 8:15 (US) July ADP Employment Change: 30Ke v 13K prior
- 9:00 (BR) Brazil Jun CNI Capacity Utilization: 82.2%e v 82.3% prior
- 9:30 (US) Treasury Barr
- 10:00 (US) Quarterly Refunding news conference
- 10:00 (US) July ISM Non-Manufacturing: 53.0e v 53.8 prior
- 10:00 (MX) Mexico July Consumer Confidence: 88.8e v 87.5 prior
- 10:30 (US) DOE weekly energy inventories: Crude-1.2Me; Gasoline: -1Me; Distillate: +1Me Utilization: 90.1%e
12:00 (US) Treasury Sec Geithner
- 12:00 (CA) Canada to sell C$3.2B in 3-year Notes
- 17:00 (CO) Colombia July Producer Price Index M/M: No est v -0.1% prior; Y/Y: No est v 2.1% prior



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