European Market Update: GBP currency slips as risks of a UK double-dip recession edge higher (TTN)
Monday, September 06, 2010
European Market Update: GBP currency slips as risks of a UK double-dip recession edge higher
***Economic Data*** - (HU) Hungary Sept YTD Budget Balance (HUF): No est v -997.5B prior - (RU) Russia Aug Consumer Prices M/M: 0.8%e v 0.4% prior; Y/Y: 6.3%e v 5.5% prior; CPI YTD: 5.5%e v 4.8% prior - (RU) Russia Aug CPI Core M/M: 0.6%e v 0.4% prior;; CPI Core YTD: 3.0%e v 2.4% prior - (UK) Aug New Car Registrations Y/Y: -17.5% v -13.2% prior - (CZ) Czech July Trade Balance (CZK):6.3 v 6.0Be - (CZ) Czech July Industrial Output Y/Y: 5.3% v 7.5%e; Construction Output Y/Y: % v -4.7% prior - (CZ) Czech July Retail Sales Y/Y: -1.0% v -0.7%e - (TT) Taiwan Aug CPI Y/Y: -0.5% v 0.0%e; WPI Y/Y: 3.4% v 3.1%e - (EU) Euro Zone Sept Sentix Investor Confidence: 7.6 v 9.0e
Equities: - As of 5:35am ET (9:30 GMT) Euro Stoxx 50 Index +0.4% at 2,757; DAX Index +0.3% at 6,155; CAC-40 Index +0.4% at 3,688 and FTSE 100 Index +0.4% at 5,449
- French names Natixis [KN.FR] and Publicis [PUB.FR] traded higher after announcements that they would replace, respectively, Dexia [DEXB.BE] and Lagardere [MMB.FR] in the CAC40 index. - France Telecom's [FTE.FR] Polish unit Telekomunikacja Polska was ordered by an Austrian court to pay â‚¬396M to Danish Polish Telecommunications Group. This ruling covers an initial period from February 1994 to June 2004, and the second phase of the proceedings will examine the period from July 2004 to January 2009, unless the parties negotiate a settlement. France Telecom reaffirmed that it was committed to pay the dividend of â‚¬1.4 for 2010, 2011, 2012. Danish telecom company GN Store [GN.DE] rose 6.1% following the ruling. France Telecom also opened higher after reaffirming commitment to dividend. - Airbus [EAD.FR]denied press speculations that company would miss 2010 A380 delivery target. Airbus will deliver 20 A380s in 2010 and the A380 production is stable at 2 units a month - Russian steel name Severstal [CHMF.RU] missed the net forecast but it swung to a profit of $192M from a loss of $290M a year ago. Revenues were also higher from a year ago. Company expects an improvement in steel markets for the remainder of the year, with prices supported by higher raw materials costs. Re-stocking and stronger market demand are expected to drive volumes at Severstal Russian Steel, with the oil and gas, automotive and construction sectors continuing to strengthen as the year progresses. Severstal Resources should continue to benefit from better output pricing. US recovery to continue to be gradual - German utilities RWE [RWE.GE] and E.OAN [EOAN.GE] rallied after news that German govt reached an agreement on nuclear extension. Coalition agreed for 14 year extension of nuclear power station lifespan for plants built before 1980 and 8 year extension for plants built after 1980. That would mean an average extension of 12 years for the last 17 plants in operation - Cable and Wireless [CW.UK] rose 3.1% as London Sunday Times reported that SingTel was starting to put together a bid for CW estimated at Â£1.8B.
Speakers: - Bank for International Settlements (BIS) noted in its quarterly report that sustained debt reduction need not be a cause of weaker economic growth. The BIS found that almost all crises that have been preceded by a credit boom were followed by significant drops in the credit-to-output ratio, suggesting that debt reduction cannot be avoided. ousehold and companies would continue to reduce debt built up before the financial crisis, given historical trends. Lower house prices may induce households to reduce their desired level of debt. A lower output and tighter financial conditions would, in turn, put firms under pressure to reduce leverage. - Spain's Labor Min: To take 3-4 yrs to return to pre-crisis unemployment rate - Australia independent MPs: No decision reached yet on forming new Gov't . Independent MP Oakeshott commented that a decision might come on Tuesday, Sept 7th - Germany's Trade Industry Association expects consumption increase in especially textiles, furniture and electronic items - Germany's Chancellor Merkel stated that she was confident that nuclear plant life extension could be accomplished without Upper House (Bundesrat) approval. She added that the exact date to close the last nuclear power plant was unclear but noted German companies must invest considerable amounts of security for nuclear facilities. Substantial profits from nuclear power would be used to expand renewable energy. - German Dep Econ Min stated that the German Gov't agreed to a two-tier nuclear extension in return for a fuel rod tax - Germany's Banking Association: Ten biggest German banks are expected to need â‚¬105B of additional capital under Basel III under assumption of tier-1 ratio of 6% Norway Central Bank (Norges) Gjedrem commented that low interest rates were not enough to spur investments . He expected the NOK currency will weaken over time
Currencies/Fixed Income: - The GBP exhibited weakness following the Aug new car registration data in which the SMMT stated that it expects monthly declines to continue through the rest of 2010. Thus the market speculated that the risks of a UK double-dip recession was much higher than previously expected. GBP/USD dipped below the 1.54 level while EUR/GBP edged close towards 0.84 area. The EUR/USD tested 1.2920 early in the session on chatter of interest from far East sovereign names. The momentum waned a bit following the UK car registration data and reports that the BIS was again offering euros. Despite a firmer equity market sentiment the JPY currency maintained a firmer tone ahead of the scheduled BOJ meeting this week. USD/JPY continues to trade within striking distance of fresh 15-year lows below the 83.57 area but entered the holiday-thin US session just above the 84 handle.
- In the Papers-Geopolitical: - National Union of Mineworkers announces that its members have started a wage strike at the South Africa Northam Platinum - An article on the Economist suggested that China-driven growth in Asia is not yet insulated from global economic downturns. Article noted that despite the emergence of demand, growth in China looks particularly impressive only because it was so bad in H1 of 2009 - In Belgium, coalition talks between Socialist Party broke down which widened the gap between Belgium bonds and Bunds. The King accepted Mr Di Rupo's resignation as a prospective PM after proposed govt failed to reach support from Dutch-speaking majority. This leaves the defeated pre-election govt in charge of the country. Following the June elections, the Flemish nationalist N-VA party rose as a dominant political force in Flanders and holder of most seats in the parliament. N-VA, which seeks an eventual break-up of Belgium, and Socialist's party Di Rupo failed to agree on reforms which would give more power to regional govts, a key Flemish demand - Korean press sees US increasingly less optimistic about 6-party talks on North Korea denuclearization. Noted that disagreement with China may be widening - North Korea announced that it would release a South Korean fishing boat. North Korea seized South Korean fishing boat off the eastern coast on August 8th
***Notes/Observations*** - US equity and Bond markets closed for Labor Day holiday - National Economic Council Director Summers arrived in China and the USD/CNY rate declined by the largest amount in two weeks Eco Fin Min meeting in Brussels.
***Looking Ahead*** - (SA) South Africa Q3 BER Business Confidence:No est v 36 prior - 6:00 (NE))Netherlands Debt Agency to sell Bills - 6:00 (PD) Poland Bill auction results - 8:30 (CL) Chile July Economic Activity Y/Y: 6.4%e v 6.8% prior - 9:00 (FR) France Debt Agency Bill auction results: to sell Bills - 13:00 (MX) Mexico Aug IMEF Manufacturing Index 53.8e v 53.5 prior; Non Manufacturing Index: 53.4e v 53.7 prior
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