European Market Update: EUR/USD hits 1-month high following Spanish bond auction results (TTN)
Thursday, September 16, 2010
European Market Update: EUR/USD hits 1-month high following Spanish bond auction results
***Economic Data*** - (EU) Euro Zone EU 25 New Car Registrations: -12.9% V -18.6% PRIOR - (IN) India Weekly Primary Articles WPI y/y: 16.2% v 15.4% prior; Food Articles WPI: 15.1% v 11.5% prior - (IN) India Central Bank (RBI) raises key interest rates; Repo raised by 25bps to 6.00% (as expected); Reverse Repo raised by 50bps to 5.00% (more than 25bps expected). Cash reserve ratio is unchanged at 6.0% - (SZ) Swiss Q2 Industrial Production Q/Q: 5.7% v 6.1%e; Y/Y: 7.8% v 8.0%e - (RU) Russia Gold & Forex Reserves w/e Sept 10: $475.7B v $477.3B prior - (SW) Sweden Aug Unemployment Rate: 7.4% v 7.8%e - SW) Sweden Average House Prices (SEK): 2.0M v 1.908M prior - (NE) Netherlands Aug Unemployment Rate: 5.3% v 5.5%e - NE) Netherlands July Retail Sales Y/Y: 0.9% v 2.0%e - (RU) Russia Aug Producer Prices M/M: 3.3% v 1.0%e v 0.7% prior; Y/Y: 9.0% v 7.4%e - (HK) Hong Kong Aug Unemployment Rate: 4.2% v 4.3%e - (UK) Aug Retail Sales w/Auto Fuel M/M: -0.5% v +0.3%e; Y/Y: 0.4% v 1.9%e - (UK) Aug Retail Sales ex/Auto Fuel M/M: -0.4% v 0.2%e; Y/Y: 1.9% v 2.8%e - (UK) Bank of England Inflation Attitude Report: UK August 12-mo CPI expected at 3.4% y/y vs 3.3% May (highest since aug 2008) - (HK) Hong Kong Aug Unemployment Rate: 4.2% v 4.3%e - (EU) Euro-zone July Trade Balance: â‚¬6.7B v â‚¬1.3Be; Trade Balance seasonally adj: -â‚¬200m v -â‚¬500Me - (PD) Central/Eastern European Sept ZEW Indicator: 17.3 v 20.5 prior - (GR) Greece Q2 Unemployment rate: 11.8% v 11.7% prior - (IT) Italy July Current Account: â‚¬535M v -â‚¬2.7B prior
Fixed Income - (SP) Spain debt agency (tesoro) sells â‚¬4B in two tranches of 30 yr and 10 yr bonos - (FR) France Debt Agency Auction Results; Sells total â‚¬8.45b in three tranches - (HU) Hungary Debt Agency sells HUF50B versus HUF50B Target in 12-month bills; avg yield 5.80% v 5.82% prior - (UK) DMO Sells Â£3.0b in 3.75% 2020 gilts; avg yield 3.21% v 3.46% prior, bid-to-cover 1.68x v 1.9x prior
Equities: - As of 5:25 AM EST, FTSE 100 -0.05%, CAC-40 -0.20%, DAX flat Equities news were light during the EU session with just a few UK names reporting. In line with most UK companies, caution was the dominant theme in today's trading updates as well, given the austerity measures planned by the UK coalition. Home improvement retailer Kingfisher [KGF.UK] reported a rise in net profit but flat revenues for the first half. Company cautioned that consumer environment would remain challenging throughout 2011 despite that no significant downturn was expected. Kesa Electrics [KESA.UK] reported a strong growth revenue growth of 8.2% driven by world cup. Company remained cautious on the outlook as well and anticipated that environment would remain challenging. Private retailer John Lewis also cautioned for second half of the year despite rising sales in both its divisions, Waitrose and John Lewis. Chemring [CHG.UK] had a more reassuring trading update reporting a strengthening of the trade and a rise in revenues. Furthermore, company was the only one of the group that was confident in achieving its FY10 outlook.
**Speakers*** - (CH) China Banking Regulator (CBRC): No new capital adequacy ratio for big banks - (FR) France Budget Min Baroin: Sees 2010 growth slightly above 1.5% forecast; 2010 budget deficit may fall to 7.9% of GDP - (GE) German Econ Min Bruederle: 2010 GDP clearly above 2.5% - (GE) Germany Labor Agency Institute: Guides 2010 avg jobless at 3.24M and 2.96M for 2011 - (GR) Greece's PM Papandreou: Greece's policies remain on track; sees real progress and change - Moody's Senior Analyst: Sees upward pressure on Polish and Czech rating - (JP) Japan official: Reiterates intervention not over yet; future intervention depends on market conditions - (JP) Japan's PM Kan warns of more action on yen - FT - (JP) BoJ Gov Shirakawa: Pace of recovery slowing; US economy showing signs of slowdown - (RU) IMF: Russia's biggest challenge will be the financial stimulus withdrawal; recent inflation due to supply shock - (SZ) Swiss Govt: Raises 2010 GDP forecast to 2.7% v 1.8% prior; Further gains in the franc cannot be excluded; considerable uncertainty remains for fx outlook
Currencies/Fixed Income: - Japanese intervention effect started to evaporate from the EU session while Euro continued its rally towards the dollar. Euro continues to trade comfortably above the 1.300 level at 1.308. It also rose against the swissy trading currently at 1.308 ahead of the SNB's decision due in NY morning. The strength was also driven by the bad UK retail data which plunged the sterling. - Cable was trading higher in early EU session but registered session lows at 1.5540 as UK retail data dropped more than expected m/m and rose slightly y/y. Inflationary pressures continue to be creep higher in the UK as shown by BoE inflationary attitude report. British consumers have heightened thei inflationary expectations in August compared to the May report and also view current inflation at a higher level than it actually is. However, cable regained its strength trading at 1.5592 currently as traders remain bullish on the cross - All eyes are on SNB decision widely expected to leave 3-month labor target unchanged. Note that SNB has a target range between 0-0.25%. Traders are closely watching for words like deflation and any comment on the CHF. In June, SNB noted that deflation risks have largely dissipated but that the bank will act if the CHF appreciation threatened deflation. Markets do not expect SNB to resume intervention after the failed attempts to curb swissy's strength cost CHF14B to the SNB, and almost got Hildebrand fired. After SNB raised its growth forecast, It is likely that the SNB will reiterate that the accommodative policy cannot remain in place forever, as often repeated by many central bankers and govt officials. However, economic outlook is uncertain and it is unlikely for the Swiss bank to take any drastic action today or any time soon. - Bunds were trading lower in the session as stock markets opened higher. Bunds continue to trade lower compared to the Gilts which continue to decline. Gilts rose a little after the disappointing UK data but erased their gains after the unattractive gilts auction.
In the Papers-Geopolitical: - The Germany Labor Agency Institute forecasted unemployment data for Germany. The institute guides 2010 average unemployment at 3.24 Million, and 2.96 Million for next year. - The Italy Business Association confirmed its prior 2010 GDP 1.2%, and lowered its 2011 GDP guidance to 1.3% from 1.6% prior. - In Chile, union official state workers at the coutry's largest copper producer Codelco's Radomiro Tomic mine rejected an initial wage deal that reportedly would have avoided disruption to the copper supply. The wage proposal, including bonus and loans, is valued at an estimated $31,000 for each of the 760 workers involved. - The IMF assessed Russia's fiscal situation and said that its biggest challenge will be the withdrawal of financial stimulus withdrawal, and that the recent inflation experienced in the country was due to supply shocks. It expects the Russian Central Bank to move towards interest rate hikes, though there is no need for the Central Bank to react to a rise in inflation.
- Euro moves to 1 month against the USD following Spanish bond auction results - German 2-yr yield moves above 0.80% for the first time since early Aug - Dealers once again eyeing 0.8390 for EUR/GBP - Swiss Franc broadly weaker ahead of 8:00 AM EST SNP meeting - Chinese equities end lower on renewed policy tightening concerns - India's central bank hikes rates to deal with inflation risk
*** Looking Ahead - 8:00 (SZ) SNB Interest Rate Decision: Expected to maintain the 3-Month Libor Target Rate unchanged at the 0.25% level - 8:00 (PD) Poland Aug Avg Gross Wages M/M: -1.1% v 0.9% prior; Y/Y: 3.9%e v 2.1% prior - 8:00 (PD) Poland Aug Employment M/M: 0.20%e v 0.3% prior; Y/Y: 1.7%e v 1.4% prior - 8:30 (US) Aug Producer Price Index M/M: 0.3%e v 0.2% prior; PPI Ex Food & Energy M/M: 0.1%e v 0.3% prior - 8:30 (US) Initial Jobless Claims: 459Ke v 451K prior; Continuing Claims: 4.465Ke v 4.478M prior - 8:30 (US) Q2 Current Account: -$125Be v -$109.0B prior - 8:30 (CL) Chile Aug Copper Exports: No est v $3.1B prior - 9:00 (US) July Net Long-term TIC Flows: $47.5Be v $44.4B prior; Total Net TIC Flows: No est v -$6.7B prior - 9:30/10:30 (US) Weekly stats on Commercial Paper outstanding - 10:00 (US) Sept Philadelphia Fed: 0.3e v -7.7 prior - 10:30 (US) EIA Natural Gas Inventories - 12:00 (TU) Turkey Central Bank Interest Rate Decisions: Expected to leave the Benchmark Repo Rate unchanged at the current 7.00% level - 16:00 (BR) Brazil Aug Tax Collections (BRL) No est v 68.0B prior - 18:00 (CL) Chile Central Bank Interest Rate Decision: Expected to raise the Nominal Overnight Rate Target by 50bps to 2.50% - 6:00 (CZ) Czech Republic to sell CZK8.0B in 12-month Bills (364-Days)
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