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Tuesday August 24, 2010 - 09:55:00 GMT
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European Market Update: Markets to test Japan's resolve on the JPY currency appreciation trend; Safe-haven flows propel 10-year yields on Bunds and Gilts to record lows (Trade the News)

Tuesday, August 24, 2010 5:50:12 AM

 European Market Update: Markets to test Japan's resolve on the JPY currency appreciation trend; Safe-haven flows propel 10-year yields on Bunds and Gilts to record lows


***Economic Data***
- (GE) Germany Q2 Final GDP Q/Q: 2.2% v 2.2%e; Y/Y: 4.1% v 4.1%e;
GDP wda Y/Y: 3.7% v 3.7%e
- (GE) Germany Q2 Private Consumption: 0.6% v 0.4%e ; Government Spending: 0.4% v 0.5%e; Domestic Demand: 1.4% v 1.5%e; Imports: 7.0% v 7.5%e; Exports: 8.2% v 7.9%e
- (FI) Finland July Unemployment Rate: 7.5% v 7.6%e
- (GE) Germany Q2 Construction Investment: 5.2% v 7.3%e; Capital Investment: 4.7% v 3.8%e
- (CZ) Czech Aug Business Confidence: 11.7 v 11.6 prior; Consumer Confidence:-11.8 v -7.3 prior; Consumer & Business Confidence: 7.0 v 7.8 prior
- (AS) Austria Jun Industrial Production M/M: -0.6% v 1.3% prior; Y/Y: 5.7% v 7.6% prior
- (SW) Sweden Q2 Total Number of Employees Y/Y: -0.6% v -1.5% prior
- (PD) Poland July Retail Sales M/M: 3.2% v 2.6%e; Y/Y: 3.9% v 4.1%e
- (PD) Poland July Unemployment Rate: 11.4% v 11.4%e
- (UK) July BBA Loans for House Purchase: K v 34.0Ke
- (EU) Euro Zone Jun Industrial New Orders M/M: % v 1.5%e; Y/Y: % v 24.0%e
- (SA) South Africa Q2 GDP Y/Y: 3.0% v 3.2%e; GDP Annualized: 3.2% v 3.8%e

Fixed income
- (SP) Spain Debt Agency sold total €4.0B in 3-month and 6-month Bills versus €4.5B indicated
- Sold €2.7B in 3-month Bills; avg yield 0.629% v 0.672% prior; Bid-to-cover: 2.2x v 5.7x prior
- Sold €1.31B in 6-month Bills; avg yield 1.037% v 1.144% prior; Bid-to-cover: 3.9x v 2.2x prior
- (SA) South Africasold ll ZAR1500 Mln R207 Bonds and Sell ZAR600 Mln R213 Bonds
- Sold ZAR1.5B in R207 Bonds, clearing yield 7.85%
- Sold ZAR600M in R213 Bonds, clearing yield 7.98%
- (EU) ECB allotted €150.3B in its 7-day main refi operation at fixed 1.0%
- (HU) Hungary Debt Agency sold
HUF50B in 3-month Bills versus HUF50B planned; avg yield 5.38% v 5.28% prior; Bid-to-cover: 2.6x v 2.3x prior

- Japan continues with verbal intervention with little effect. JPY hits 9 year highs against EUR and 15 year highs against USD; Japan Nikkei 225 Index closes below 9,000 for the first time in 15 months
- Record low 10-year yields in
Europe. German 10-year Bunds approaching 2.20%; 10-year Gilts below 2.92%
- BoE newest member Weale: Sees "significant" risk of double-dip recession;
- Australian opposition leader Abbott: No one should expect a speedy resolution to political situation.
- Price of progress: 60-mile traffic jam in China which has lasted 10 days because of road construction

- Equities:
- As of 5:30am ET Euro Stoxx 50 Index -1.3% at 2,626; DAX Index -0.9% at 5,957; CAC-40 Index -1.3% at 3,508 and FTSE 100 Index -1.1% at 5,179
- Risk aversion concerns continued to simmer aided by comments from the BOE newest member spoke of the double-dip scenario.

- Swiss chocolate maker Lindt & Spruengli [LISP.SZ] reported better than expected results and reiterated its FY10 outlook, a positive surprise given the rising prices for cocoa beans and extreme valuations of currency. In follow up comments, the CEO was confident company would be able to deal with even a stronger Swiss franc. Kabel Deutschland [KD8.GE] out of
Germany reported disappointing results with a loss wider than expected and revenues lower than consensus. However, the loss was an improvement compared to last year's results and main metrics such as ARPU had increased. Company adjusted its FY10 EBITDA outlook, projecting the EBITDA at the higher end of the range of €715-725M and reiterated FY11.
- Among notable
UK names, Antofagasta [ANTO.UK] reported revenues in line with estimates and a higher net profit over the prior comparable period. However, it lowered its guidance production for copper which sent the shares in the red. Cairn Energy [CNE.UK] reported strong results in terms of net earnings and revenues but disappointed investors with the exploration campaign in Greenland. The gas found in its first Greenland well does not have commercial values. The company (and the market) had hoped for oil discovery but still noted that the discovery of gas in thin sands is indicative of an active hydrocarbon system. Aer Lingus [AERL.UK] narrowed its loss compared to last year's period but revenues had decreased. The outlook was positive and the company expected its 2010 operating result (before exceptional items) should be no worse than break even.
- In M&A news Korea National Oil Company [KNOC] confirmed reports that it was not planning to raise its £1.7B offer for Dana Petroleum [DNX.UK]. Company went hostile taking the offer to the shareholders, 48% of which support KNOC's bid.

- German Econ Min Bruederle commented after the final Q2
GDP data and noted that the German industry and service sectors were in an economic upswing with its domestic consumption helping drive growth . He stressed that growth was not strictly driven by its export sector as both German investor and consumer confidence were returning.
- Greece Debt Agency (
PDMA) stated that it would begin monthly T-Bill auctions from Sept onwards for better cash management. It added that the plan was is in line with EU/IMF update memorandum
- Czech Central Bank Zamrazilova commented in a press interview that Czech interest rate hikes were 'on the table' and should be discussed as soon as possible. She stated that low interest rates were a problem and created bad allocation of capital. She stressed that she was personally against the politicizing of low borrowing costs
- Japan Fin Min Noda spoke at an unscheduled press conference and noted that recent currency moves were clearly 'one sided' and that it needed to watch FX with great interest. He reiterated the view that excessive and disorderly currency movements could adversely impact economy and financial system (Standard G7 line) and added that he would watch the stock markets 'more closely'. The minister had no comment on currency intervention.
- Head of Japan's Trade Union Rengo union (6M member strong) calls for G7 response to JPY appreciation

- Currencies/Fixed Income:
- Japanese Fin Min Noda seemed to join the long chorus of Japanese officials that the chances of direct FX intervention was slim but he did up the rhetoric a bit with the term of watching the JPY with 'great interest'. Nonetheless the JPY propelled itself against the major pairs as the market continued to test the MOF and BOJ resolve on the JPY currency appreciation. EUR/JPY fell to fresh 9 year lows of 106.10 while USD/JPY approached 84.15 for its lowest reading since April 1995. Only when
Japan's largest trade union spoke out did the JPY rise momentum seem to ebb. The Head of Japan's Trade Union Rengo union with 6M members sought a G7 response to JPY appreciation. The JPY enters the NY morning off its best level but quite firm against the European counterparts.
- The risk aversion theme continues to benefit the USD and JPY pairs but dealers continue to point of the potential of the CHF strength in
Eastern Europe. As EUR/CHF continues to probe towards its all-time low of 1.3070 hit in July, the pain on the carry-related trades against the HUF anf PLN tyes could resurface to the front-burner. The yield on the 3-month Hungarian Bill auction crept higher by 10bps for the first rise in five auctions.

- In the Papers-Geopolitical:
- Recently appointed member of Bank of England's Monetary Policy Committee Dr Martin Weale stated that he sees significant risk of double-dip recession in the UK. He goes on to say the Bank of England's central outlook for 2011
GDP at 2.8% and 2012 at 3.2% may be too optimistic.
- The Telegraph's business editor Evans-Pritchard noted that according to Bank of America's chief North American economist Ethan Harris, early data points for August suggest that the already weak
US recovery is becoming weaker. The weak recovery raises the risk of a double dip recession. Also the political disputes by Democrats and Republicans have the potential to worsen the US economy.
-The Head of Germany's council of economic advisors Wolfgang Franz reiterated that the German economy will slow after record expansion during the second quarter. He said the weakness in
US labor markets, sluggish growth in peripheral economies, and slowing recovery in emerging markets present key risks to Germany's export-driven growth.
US economist Joseph Stiglitz commented on the state of the economy in Europe and Ireland. In an interview with Irish media, the economist stated that Europe is at risk of a double dip recession. With regards to Ireland, he said that the restructuring of Irish banks are among the most problematic. In addition, the Irish government has allowed the economy in the country to get out of hand.

***Looking Ahead***
- (PD) Poland Central Bank Base Rate Announcement: Consensus expectations are for the Base Rate to remain unchanged at the current 3.50% level
- (BR) Brazil July Central Govt Budget (BRL) v 630M prior
- 7:00 (EU) ECB to drain €60.5B in 7-day Term deposit operation
- 7:00 (BR) Brazil Aug FGV Consumer Confidence: No est v 120 prior
- 7:45 (US) ICSC Weekly Retail Sales
- 8:30 (CA) Canada Jun Retail Sales M/M: 0.4%e v -0.2% prior; Retail Sales Less Autos M/M: 0.1%e v -0.1% prior
- 8:45 (US) Fed Evans
- 8:55 (US) Redbook Weekly Retail Sales
- 9:00 (BE) Belgium Aug Business Confidence: -6.0e v -6.5 prior
- 9:30 (BR) Brazil July Total Outstanding Loans (BRL) No est v 1.5T prior; Private Banks Lending: No est v 879M prior; Outstanding Loans M/M: No est v 2.0% prior
- 9:30 (EU) ECB calls for bids in 3-month refi tender
- 10:00 (US) July Existing Home Sales: 4.65Me v 5.37M prior
- 10:00 (MX) Mexico July Preliminary Trade Balance: -$730.0Me v -$340.5M prior
- 10:00 (US) Aug Richmond Fed Manufacturing: 8e v 16 prior
- 11:00 (US) Fed to Purchases Notes/Bonds
- 12:15 (CA) Bank of Canada Murray
- 13:00 (US) Treasury to Sell $37B in 2-Year Notes
- 15:00 (AR) Argentina July Trade Balance: $1.3Be v $1.3B prior
- 17:00 (US) ABC Consumer Confidence w/e Aug 22nd : -46e v -45 prior


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