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Monday August 23, 2010 - 09:55:05 GMT
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European Market Update: M&A activity continues to simmer; Markets pause to digest Australian election results (Trade the News)

Monday, August 23, 2010 5:46:09 AM

 European Market Update: M&A activity continues to simmer; Markets pause to digest Australian election results


***Economic Data***
- (SZ) Swiss July M3 Money Supply Y/Y: 6.5% v 7.4% prior
- (FR) France Aug Preliminary PMI Manufacturing: 54.7 v 53.4e; PMI Services: 59.9 v 60.5e
- (DE) Denmark Aug Consumer Confidence: 4.4 v 3.8e
- (GE) Germany Aug Advanced PMI Manufacturing: 58.2 v 60.5e; PMI Services: 58.5 v 56.2e v 56.5 prior
- (TT) Taiwan July Unemployment Rate: 5.2% v 5.1%e
- (TT) Taiwan July Industrial Production Y/Y: 20.7% v 21.0%e v 24.3% prior; Commercial Sales Y/Y: % v 8.0%e
- (EU) Euro Zone Aug Advanced PMI Manufacturing: 55.0 v 56.1e; PMI Services: 55.6 v 55.4e; PMI Composite: 56.1 v 56.3e
- (IC) Iceland July Wage Index M/M: % v 2.2% prior; Y/Y: % v 6.1% prior

Fixed income
- (GE) Germany sold €3.56B in 12-month BuBills; Avg yield 0.4995% v 0.6069% prior; Bid-to-cover: 2.4x v 2.9x prior


- Political limbo in Australia following elections results. First Hung Parliament in seven decades
- M&A activity heating up.
China's Sino Chem and Brazil's Vale enter the bidding for POT. UK's SAB Miller bids £7.0B for Australia's Carlton United Brewery.

- Equities:
- As of 5:40am ET Euro Stoxx 50 Index +0.5% at 2,655; DAX Index +0.3% at 6,022; CAC-40 Index +0.6% at 3,546 and FTSE 100 Index +0.6% at 5,224

- After BHP [BHP.AU] took its $39B bid for Potash [
POT] hostile, press speculated the company was contacted by Sinochem and Vale [VALE]regarding a potential counteroffer to BHP. Sunday Times reported that it was actually Potash which had encouraged Sinochem to launch a rival offer to BHP's bid. While it makes sense for a China-owned company to stop BHP from dominating supplies , given country's heavy dependence on potassium fertilizer, if Sinochem goes through with an offer and BHP leaves, industry analysts believe that even a minority control of Sinochem will weigh on the long-term value for Potash shares.This would be caused by a control of future flows and potential joint-venture concessions that a stake would require Potash to make. Executives from Sinochem did not verify if the companies have been in talks and some analysts believe it would be irrational for Sinochem to bid given the exorbitant costs and China's efforts to become less dependent on foreign imports.
- Meanwhile, HSBC [HSBA.UK] is seeking to acquire the 52% stake in Nedbank [NED.SA] from Old Mutual [OML.UK] for an estimated £4.5B. This deal seems to go more smoothly than the prior given that the three parties view the offer as attractive. Old Mutual confirmed reception of HSBC's offer, considering it a significant step in reducing group's complexity. Old Mutual would use £1.5B of proceeds to repay debt and the rest would be deployed in
South Africa. Furthermore, Old Mutual noted it had already received a positive feedback from South African regulator. Follow up comments from South African regulator noted that it was too early to comment on bid. Shares of all names were up in the opening.
- Bovis Homes [BVS.UK] reported its final H1 results, returning to profit as compared to last year. However, revenues declined but home completion and net average selling price had increased. Profitability improved slightly with an increase in gross margins. Company remained cautious on expectation of transaction volumes and sales prices in the short term. Amlin [AML.UK] reported a decrease in the net profit of almost 50% on a yearly basis but Gross written premiums had increased. Company maintained its outlook for 2010 and expected that the overall investment return for 2010 will be lower than last year.

- Speakers:
Japan Senior Gov't Official commented that PM Kan sought to work with ruling party on the economy and currency issues. He added that the Ruling party panel would compile its economy steps proposal by Aug 26th
- Japan DJP official stated that he was not optimistic regarding the rise in yen and its impact on the country's employment scenario. He stressed that it needed to take comprehensive steps on economy
Japan Finance Min Noda stated that he did discussed recent economic and market trends with PM Kan but did not talk about specific stimulus measures . The Fin Min was instructed by PM Kan to continue to watch markets and that both
Kan and BoJ Gov Shirakawa would consider a meeting if needed. The Finance Ministry would want to continue close cooperation with BOJ
India Trade Min: Gov't to provide export incentive for some labor intensive sectors. To provide interest subsidy of 2% to engineering and textile sectors for FY11
- Reportedly Germany's Cabinet planned to pass the bank insolvency bill on Wed, Aug 25th to allow orderly restructuring of failed banks. The bill might include a bank tax which will be used to finance a restructuring fund, which will be used to deal with future crisis. The charge would only be levied on banks headquartered in
Germany and limited to a maximum of 15% of annual earning and only be levied on banks which are profitable. Banking charge would not be tax deductible as business expense
- Moody's released tidbits of its Semi Annual European Sovereign Outlook and noted that the European economic growth was seen lower compared to other region of the world. The report suggested that lower growth posed downside risks for its sovereign ratings. Financial crisis and divergences to challenge EU 'cornerstone' but added that the fiscal consolidation could be positive for growth and that the stronger focus on government spending was 'encouraging'.
Greece debt stabilization could occur before 2013
- BOE/CEPR Roundtable: Commented that it saw signs that the global economy might be losing momentum with risks to growth largely to the downside. It believed that British Pound currency decline was key in the resilience of inflation and that the broad consensus that QE would be effective if used again

- Currencies/Fixed Income:
- The currency markets were relative subdued given the events unfolding on the sidelines between hung Australia elections results, various Japanese meetings on its markets and mixed German and French PMI data. The USD was little changed against the majors from its opening levels seen in
Tokyo as the NY morning approached. The GBP was stung a bit by a BOE/CEPR Roundtable in which it believed that a weaker GBP was key in the resilience of inflation. GBP/USD did test above the 1.56 handle but was entering the US session hobbling towards the lower end of the 1.55 handle. The USD/JPY was quiet and continued to hold a 85 handle. Japanese officials continue to provide sound bites on recent meeting but the current stance remains to continue watching markets observe developments. AUD/USD off its Asian opening lows and at 0.8940 as the market digests the implications of its first hung parliament in 70 years.

- In the Papers-Geopolitical:
- UK Telegraph noted that Policy Exchange's Andrew Lilico saw the country's inflation rising to higher levels and the Bank of England thus having to raise interest rates up to 8% by 2012 and perhaps higher
- London Telegraph's Evans-Pritchard commented on the efforts by China to diversify its foreign exchange reserves. In particular he noted various countries, including
China, Japan and the UK, have decreased treasury positions. As some countries have lowered their exposures to US government bonds, US citizens have increased savings and investments in bond funds.
- In union news, the General Confederation of Labor in
France intends to stage some action. The organization wanted workers to stage a strike on the 7th of September due to concerns about France's retirement program. The organization is sizeable at 300,000 members making it the third largest union in France.

***Looking Ahead***
- (BE) Belgium Debt Agency to sell up to 2.8B in 2013, 2020 and 2022 Bonds
- 6:00 (PD) Poland DebtAgency auction results
- 8:00 (HU) Hungary Central Bank Base Rate Announcement: Consensus expectations are for the base rate to remain unchanged at 5.25%
- 8:30 (US) July Chicago Fed National Activity Index: -0.10e v -0.63 prior
- 9:00 (FR) France Debt Agency to Sell EUR8 Bln in Bills
- 9:30 (EU) ECB calls for bids in main 7-day refi operation
- 9:30 (BR) Brazil July Current Account: -$4.4Be v -$5.2B prior; Foreign Investment: $2.0Be v $708M prior
- 10:00 (MX) Mexico Jun Retail Sales (INEGI): 4.3%e v 5.0% prior
- 10:00 (EU) Euro Zone Aug Advanced Consumer Confidence: -14 v -14 prior
- 10:30 (IS) Israeli Central Bank Base Rate Announcement: Consensus expectations are for the base rate to remain unchanged at 1.75%. There is a less than 10% chance that the rate could be raised by 25bps to 2.00%
- 10:30 (US0 Fed's Hoenig testifies at congressional hearings
- 13:00 (US) Treasury to Sell 30-Year TIPS
- 15:00 (AR) Argentina Q2 Unemployment Rate: 8.1%e v 8.3% prior



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