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Wednesday August 11, 2010 - 10:12:54 GMT
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European Market Update: Risk aversion sentiment sweeps global markets (Trade the News)

Wednesday, August 11, 2010 5:59:56 AM

 European Market Update: Risk aversion sentiment sweeps global markets


***Economic Data***
- (FR) France Jun Current Account: -€2.7B v -€4.0B prior
- (HU) Hungary July Consumer Prices M/M: 0.1% v 0.2% prior; Y/Y: 4.0% v 4.0%e
- (TU) Turkey Jun Current Account (TRY) -3.3B v -3.5B
- (NV) Netherlands Jun Trade Balance: €2.7B v €2.4B prior
- (CZ) Czech Jun Current Account (CZK): -15.0B v -16.3Be
- (UK) July Jobless Claims Change: -3.8K v -17.0Ke; Claimant Count Rate: 4.5% v 4.5%e
- (UK) Jun Average Weekly Earnings 3M/YoY: 1.3% v 1.1%e; Weekly Earnings ex-Bonus 3M/YoY: 1.6% v 1.6%e
- (UK) Jun Unemployment Rate: 7.8% v 7.8%e
- (PO) Portugal July Consumer Price Index M/M: +0.1% v -0.3%e; Y/Y:1.8 % v 1.5%e
- (PO) Portugal CPI - EU Harmonized M/M: 0.4% v 0.2% prior; Y/Y: 1.9% v 1.1%
- (RU) Russia Jun Trade Balance: $12.5B v $10.9Be
- UK) Bank of England Quarterly Inflation Report: Lowers GDP outlook and saw inflation back within its 2% target by 2012

Fixed Income:
-(IT) Italy Debt Agency (Tesoro) sold €6.5B in 12-month Bills versus €6.5B indicated; avg yield 1.374% v 1.399% prior; Bid-to-cover: 2.0x v 1.7x prior
- (GE) Germany sold €5.9B in Sept 2012 Schatz; avg yield 0.73% v 0.53% prior; Bid-to-cover: 1.6x v 1.6x prior


- Japan Nikkei 225 down 2.7% on 'heavy' volume; USD/JPY tests 85.00
- Fed down beat on economy; BOE lowers GDP forecast
- Risk aversion sentiment back in vogue
- NYU's Roubini: European Gov't are 'crumbling' under weight of austerity

- Equities:
- As of 5:50am ET Euro Stoxx 50 Index -1.6% at 2,755; DAX Index -1.5% at 6,195; CAC-40 Index -1.7% at 3,668 and FTSE 100 Index -1.5% at 5,294

- Major Swiss names such as Adecco [] and Nestle [NESN.SZ] reported today beating estimates. Adecco was positive in the outlook as name noted healthy demand which would sustain the growth in revenues. Nestle showed a stable organic growth of 6.1% for the first half and good growth in all its geographical and segment sales. Nestle however expected to be more challenging as raw material prices would continue to rise. For both companies, profitability showed improvement as EBITA margin increased on a yearly basis. Both shares opened up in the first reaction to the earnings but are trading lower following outperformance.
- ING [INGN.NV]reported better than expected numbers, solid metrics and lower loan provisions. Risk-adversion persists as company lowered its exposure to Spain and Portugal. Banks profit was much better than insurance which reported a loss over last year's profit Shares opened up by less than 1% after the earnings.
Among notable German names that reported, E.ON reported in line with estimates and reiterated its forecast for a flat to 3% growth of adjusted EBIT. All its units reported an increase in adjusted EBIT apart from its Central European market unit which declined by 11%. Kloeckner & Co returned to profitability in its first half and reported an increase in revenues. It reiterated its revenue forecast for 2010 and expected a significant growth in net income.
Two travel names reported today as well TUI [TUI1.GE] and Thomas Cook.[TCG.UK] TUI managed to surprise investors amd reported an increase in its units. However ThomasCook expected underlying operating profits for the FY to be at the lower end of market expectations. Its shares are trading lower which have also pressured TUI AG

- Speakers:
- Japan Vice Banking Min Otsuka commented that FX rates were at critical juncture at this time and added that any Solo currency intervention by BOJ would have little effect on the markets. The BoJ would need to act if FX moves had a negative impact on the Japanese economy. He reiterated the commonly held view that that Japanese Gov't and BoJ must work together to prevent rapid yen appreciation from deepening deflation
Japan Fin Min Noda: Monitoring currency movements closely
- Japan Trade Min Naoshima commented in a Japanese press interview that it was difficult to determine currency intervention at this time. He added that Japan needed more time to observe the economy prior to any additional stimulus steps
- China National Development and Reform Commission (NDRC) commented that a "double dip" recession in the Euro region could not be ruled out and saw weakening growth momentum in the US, though recovery to continue there. Lastly the official noted that it was difficult to be optimistic about prospect in Japan's recovery
- IEA Monthly report saw a slight increase in its 2010 and 2011 global oil demand forecast. The IEA did note that a threat of weaker economic recovery posed risk to its forecast. It currently saw 2011 demand growth of 1.5% versus 2.2% seen in 2010
- Bank of England lowered its GDP forecast saw inflation back within its target by 2012. It did note there were two-way risks in its CPI forecast and that the central bank was prepared to respond either way to the risks.

- Currencies/Fixed Income:
- Risk aversion sentiment helped to push the USD and JPY currencies higher and at their best levels against the European pairs ahead of the NY morning in the post FOMC decision environment. The combination of the Fed downgrade of the US economic assessment and China new Yuan loan data painted a moderating picture of economic activity and weighed on the session sentiment. Safe haven flows prompted the US Treasury 2-year note yield to move below 0.50% level for fresh all-time lows while the 10-year Note yield tested a 16-month lows below 2.72% level. The USD/JPY pair tested the 85.00 level for the first time since Nov 2009. Various Japanese officials mentioned the JPY currency level. The market again appeared to be testing central bank resolve. Japan Vice Banking Min Otsuka commented on the obvious that FX rates were at a critical juncture at this time. He added that long market believe that any solo attempt at currency intervention by BOJ would have little effect (aka useless). The GBP exhibited weakness following the BOE quarterly inflation report in the central bank cuts its GDP forecast and noted that inflation was likely to move back under its 2.0% target by 2012. GBP/USD tested below 1.5700 in the aftermath of the BOE report. EUR/USD at its August lows probing 1.3020.

- In the Papers-Geopolitical:
- The Union of Air Traffic Controllers (USCA), representing Spain's air controllers decided not to strike in August as had originally planned earlier this month. The union stated that they would act responsibly and avoid a strike during the country's peak tourist period.
- According to the Wall Street Journal, there are concerns about a slowdown in property prices has caused some banks and creditors to accelerate sales of distress commercial property assets. So far in 2010, there have been 64 transactions which involved a bank or receiver equaling £1.7 billion.
- In the Financial Times, economists estimated that the recent drought, heat wave, and fires could wipe about 1% off of Russia 2010 GDP. Citing HSBC, economist note the impact on agriculture activity, exports, and business closures could cost the economy about $15B. Further, the article noted automakers like Avtovaz and GAZ closed assembly lines this month claiming that the hot temperatures make working conditions impossible.

***Looking Ahead ***
- 7:00 (US) MBA Mortgage Applications w/e Aug 6th: No est v 1.30% prior
- 7:00 (SA) South Africa Jun M/M: -0.6%e v 0.3% prior; Y/Y: 6.7%e v 7.9% prior
- 8:00 (RU) Russia Q2 Advance GDP Y/Y: % v 5.7%e v 2.9% prior
- 8:00 (HU) Hungary Central Bank's Minutes
- 8:00 (NO) Norway Central Bank (Norges) Interest Rate Decision: Unanimous analyst expectations for the central bank to maintain the Deposit Rates unchanged at 2.00%
- 8:00 (BR) Brazil Jun Retail Sales M/M: 0.3%e v 1.4% prior; Y/Y: 10.0%e v 10.2% prior
- 8:00 (PD) Poland Jun Current Account: -€765Me v -€268M prior; Trade Balance: -€480Me v -€455M prior
- 8:00 (RU) Russia to sell up to RUB5B in OFZ bonds
- 8:30 (US) Jun Trade Balance: -$42.1Be v -$42.3B prior
- 8:30 (CA) Canada Jun Int'l Merchandise Trade: -C$300Me v -C$500M prior (Range of est -1.0B to +0.2B)
- 10:00 (MX) Mexico Jun Industrial Production Y/Y: 8.4%e v 8.4% prior
- 10:30 (US) Weekly DOE inventories
- 14:00 (US) July Monthly Budget Statement: -$169.0Be v -$180.7B prior



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