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Friday August 20, 2010 - 09:57:05 GMT
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European Market Update: ECB member Weber took on a 'dovish' tone from his usual 'hawkish demeanor on concerns over year-end funding tensions (Trade the News)

Friday, August 20, 2010 5:51:57 AM

 European Market Update: ECB member Weber took on a 'dovish' tone from his usual 'hawkish demeanor on concerns over year-end funding tensions


***Economic Data***
- (JP) Japan Convenience Store Sales Y/Y: +0.5% v -1.5% prior
- (NV) Netherlands Consumer Spending Y/Y: 1.3% v 0.8% prior
- (TT) Taiwan July Export Orders Y/Y: 18.2% v 20.5%e
- (TT) Taiwan Q2 Current Account Balance: $10.6B v $11.0Be
- (HK) Hong Kong CPI - Composite Index Y/Y: 1.3% v 2.9%e
- (EU) Aug Central/Eastern European (CEE Region) ZEW Consumer Confidence: 20.5 v 11.4 prior

- Asian equities follow US lower after the Weekly claims data entered a new phase of higher readings
- European Equities again unable to hold opening gains; GILTS and BUND futures making new highs (lower yields)
- ECB member Weber took on a 'dovish' tone from his usual 'hawkish demeanor on concerns over year-end funding tensions
-Japan Fin Min Noda: Ministry is communicating with other G7 countries on currencies amid growing concern the strong yen will further dent Japan's export-reliant economy.
- Option expiration Friday

- Equities:
- As of 5:30am ET Euro Stoxx 50 Index -0.4% at 2,664; DAX Index -0.5% at 6,045; CAC-40 Index -0.4% at 3,558 and FTSE 100 Index -0.2% at 5,200

European equities again were unable to maintain its initial gains and risk aversion crept back into sentiment following dovish comments from ECB member Weber.

- The equity session was light this Friday with the most notable news being Korea National Oil's decision to go hostile and take the Dana Petroleum [DNX.UK] deal directly to shareholders after the management rejected the €1.7B offer as undervaluing the company. But shareholders which own 48% of the company had sent a letter of intent to KNOC to sell their shares for £18 which is the price offered by KNOC. Among the major shareholders intending to sell their share to KNOC is Schroders, Blackrock, JPMorgan Asset Management which have a combined stake of 21%. KNOC announced today it would acquire company's convertible debt along with the shares valuing the transaction at £1.87B. The £18/shr price represents a 59% premium over the company's price before the approach was revealed. The hostile bid was anticipated and speculated by the press which indicates the political pressure on the state-owned KNOC as one of
South Korea's top priority is energy security. This has in turn pressured KNOC to target an increase in production to 300K b/d from 137K b/d by 2012. Dana Petroleum is trading up by 98 points.
Among other
UK names, there were reports circulating that Dimension Data [DDT.UK], which agreed to be acquired by Nippon Telegraph and Telephone Crop for 120p/shr in July, is being investigated by South African regulator on insider trading. A couple of days ahead of the announcement there was an unusual trading activity such as significantly higher volume and an increase in the price. Shares are trading flat at the time of writing.

- Speakers:
- ECB's Weber broke away from his usual hawking rhetoric and stated that the ECB should keep its unlimited lending allotment until after the end of 2010. He added that the discussion of the Exit would resume then in Q1. ECB must take into account year-end funding tensions
- Global recovery is on track and ECB is likely to raise the Euro-Area growth forecast
- German growth to slow in H2; Guides Q3 and Q4 growth be around Q1's growth of 0.5%
- Reiterates standard ECB view that interest rates are appropriate; Inflation to be low over the medium term
- Germany Finance Ministry monthly report largely reflected the Thursday release seen from the Bundesbank. Monthly economic indicators point to the German economy's positive start IN Q3. The Ministry stated that it would considerably modify its official forecast for 2010 growth from the current level of +1.4% but stated the H2 economic momentum would likely be considerably less robust compared to levels achieved in H1
- Ireland's Central Bank Gov Honohan commented that the current economic recovery in both US and Europe were slower than hoped for. He added that the sharp decline in Irish economy was at an end and that there were no reason to doubt the planned austerity measures in
Ireland. He observed that Irish govt debt spreads were "very high". Only two Irish banks are of "major concern" and that bank bailout costs were manageable. He stated that the bank guarantee should be phased out within quarters
- Iran Nuclear Chief Salehi commented that his country rejected the latest US call to suspend its uranium-enrichment activities and reiterated that Iran's goal was to use own Uranium for new power facilities
- India Finance Ministry: Reiterated that current FY11 fiscal deficit was seen at 5.5% GDP
- EU Commission released its formal report on Greece and stated that the country's fiscal austerity plans appeared sufficient to meet its FY10 target. EU reiterated its positive assessment of Greek deficit plan and expected EU member states to approve the next tranche. It stated that
Greece can meet its 2014 deficit target if the economic forecasts prove accurate but budget information remained incomplete at this time. It noted that market concerns of a Greek debt restructuring was unfounded.
Greece formally requests second part of aid agreement

- Currencies/Fixed Income:
- The European morning began with dealers questioning the direction of the USD given the current environment. Initially the sentiment perhaps the greenback had decoupled from the risk aversion theme and was focusing more on interest rate differentials. However, as the session wore on it began apparent that the risk aversion theme was gaining the upper handle on the debate. Comments from ECB member Weber took on a 'dovish' tone from his usual 'hawkish demeanor. Weber noted that ECB should keep its unlimited lending allotment until after the end of 2010 to take into account year-end funding tensions. The comment sent European equity, interest rate yields and the Euro currency lower. The 10-year Gilt yield fell below the 3.0% level for fresh 17-month lows while the Sept Bund contract posted fresh record highs above 132.60. EUR/USD dipped below the 1.2750 level; EUR/CHF cross was back within striking distance of life-time lows and the EUR/JPY cross was trading under the 109 handle for the first time since July 1st. Other key currency levels in other pairs managed to stay intact with GBP/USD holding above the 1.5500 (talk of Asian central bank bidding there) and USD/JPY continue to trade with an 85 handle.

- In the Papers-Geopolitical:
- French press reported that France might lower its 2011 growth forecast from the current 2.5%. The French Finance Minister Lagarde ssaw 2011 growth of approximately 2%
- Russia might still possibly be debating whether or not to supply an air-defense system to Iran. Back on the 10th of June,
Russia's Foreign Minister stated that the new United Nations sanctions do not prohibit the sale of S-300 surface-to-air missiles to Iran.

***Looking Ahead***
- (CO) Colombia Central Bank Interest rate Decision: Unanimous analyst expectations is for the Overnight Lending Rate to remain unchanged at 3.00%
- 7:00 (CA) Canada Consumer Price Index M/M: +0.6%e v -0.1% prior; Y/Y: 1.9%e v 1.0% prior
- 7:00 (CA) Canada Core CPI M/M: +0.1%e v -0.1% prior; Y/Y: 1.8%e v 1.7% prior

- 8:00 (BR) Brazil Aug IBGE CPI IPCA-15 M/M: +0.1%e v -0.1% prior
- 8:00 (PD) Poland July Core Inflation M/M: 0.1%e v 0.2% prior; Y/Y: 1.2%e v 1.5% prior
- 9:00 (BE) Belgium Aug Consumer Confidence: No est v -7 prior
- 10:00 (MX) Mexico Jun Global Economic Indicator IGAE: 7.4%e v 8.9% prior
- 10:00 (MX) Mexico Q2 GDP 7.5%e v 4.3% prior
- 10:00 (MX) Mexico Central Bank Interest rate Decision: Unanimous analyst expectations is for the Overnight Rate to remain unchanged at 4.50%
- 15:00 (AR) Argentina July Industrial Production M/M: No est v -0.4% prior; Y/Y: 8.0%e v 9.8% prior



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