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Monday September 20, 2010 - 10:18:32 GMT
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European Market Update: Equities rally despite widening of peripheral spreads (TTN)

Monday, September 20, 2010 5:59:37 AM

 European Market Update: Equities rally despite widening of peripheral spreads


***Economic Data***
- (PH) Philippine Aug Budget (PHP): +1.3B v -32.7B prior (first surplus since April)
- (NV) Netherlands Aug Consumer Confidence: -14 V -11 prior
- (TT) Taiwan August Export Orders Y/Y: 23.3% V 20.7%E
- (IT) Italy July Total trade balance: €1.75B V -€1.0BE; EU Trade Balance: €1.9B V -€2.0B prior
- (UK) August Preliminary M4 Money Supply M/M: -0.2% v +0.2%e, Y/Y: 1.8% v 2.3% prior
- (SZ) Swiss KOF Jun Economic Forecasts: Raises FY10 GDP to 2.7% v 1.8% prior
- (GR) Greece July Current Account: -€1.5B V -€2.0B prior

Fixed Income:
- (GE) Germany Sells €1.60B in 9-month bubills; avg yields 0.5599%; bid-to-cover 3.5x v 1.9x prior


- As of 05:52 DAX +0.62%, CAC40 +0.95%, FTSE100 +1.08%
- News flow in European equities was light during the session, the most notable movers being UK wind turbine manufacturer Clipper Windpower and BP. Clipper Windpower [CWP.UK] fell 11% in early trade after its disappointing trading update. Company forecast a net loss of $26-30M for the first half which is narrower than last year's loss of $120M. The revenue was expected to decrease in the $150-154M range vs $357.3M y/y. Company said it expected to face significant liquidity strain within the next yeardue to lower receipts of deposits and progress payments from customers under new and existing orders. BP [BP.UK]rose 1.5% after reports that it had definitely killed the Macondo well
- In M&A news, BAE Systems confirmed that it acquired L-1's [ID] intelligence services for a cash consideration of $295.8M. BAE's acquisition paved the way for Safran to acquire L-1. L-1 later confirmed that it would be acquired by Safran for $12/share in cash or $1.6B in total
- The saga between Potash [POT], BHP and Sinochem continues as several press reports over the weekend noted that Sinochem was seeking partners for a possible bid in Potash and requested formal government backing for a Potash bid. Sinochem's executive comments suggesting that even a $10B bid for Potash asset may be too large for the company, were later removed from the Chinese newspaper they originally appeared.

(CH) China Iron & Steel Association (CISA): China domestic steel prices to remain volatile in the near future because of oversupply
(EU) EFSF CEO Regling: Central scenario is that the EU's emergency loan facility will NOT have to be used
(EU) ECB's Nowotny: Markets not stable enough for normalization; Extremely problematic to spilt euro region into two; Weak euro zone countries need to undertake structural reforms.
(IR) EU's Rehn: Has full confidence in Ireland to tackle its banking issues
(FR) France Budget Min Baroin: Changes to the tax bracket and wealth tax are possible; Sees FY10 budget deficit of 7.8%
(IR) ECB's Honohan: Ireland's banking costs are manageable; Anglo cost to be less than number touted around; NAMA valuation process is taking longer than reported; Real economy and rates of interest on borrowing have evolved in a less favorable way
(GE) German Finance Ministry Aug Monthly Report: Economic recovery to continue at lower pace; expects inflation to increase later this year; FY10 Federal net borrowing seen at less than €60B.
(GE) German Banking Assoc chief: No longer expects that banks in Germany will need more than €100B in new capital following Basel III; Basel III rules pose challenges
(GR) Greece Central Bank: Will postpone Sept stress test to later during the autumn, possibly in Oct
(RU) Russia Central Bank: Trade balance favors appreciation in the rouble; Targets FY11-13 inflation in line with economic forecasts.
South Africa Fin Min Gordhan: Requires at least 6.5% growth to affect unemployment levels; There are many worrying signs over the global economy.
(TU) Turkey Central Bank: Banking loans will show more signs of stability; Country's fx reserves need to be strengthened.
(TT) Taiwan govt: Forecasts Sept and Oct export orders to continue to increase
(UK) Business Sec Cable: Sees no signs of a double dip recession
(US) US economist Stiglitz: Reiterates that the US economy needs additional stimulus

Currencies/Fixed Income:
- US dollar weakness continues to persist despite Friday's weaker than expected US consumer confidence data and Eurozone debt concerns which revived risk aversion. Trading was thin in
Asia already and continued to remain subdued in Europe as markets remain calm ahead of the storm; the FOMC meeting tomorrow. FOMC may renew its QE operations but is not expected to do so at tomorrow's meeting. Some risk that it does has already been priced in. In the meantime, USD/JPY is safely trading above the 85 levels. EUR/USD traded above 1.31 thanks to the soft dollar while dealers were speculating that a supranational bank, namely BIS was a buyer in the early trade. Gains are expected to be capped on renewed concerns over the European debt situation. Apart from the FOMC, traders will be watching with interest tomorrow's European auctions, namely Spain, Greece, Ireland and Hungarty Meanwhile, Swissy strengthened against the Euro regaining losses from SNB's dovish statement on European concerns suggesting that short-term safe haven trading may have returned to the markets. EUR/CHF reached a daily low of 1.3136 but is currently quoted at 1.3150. Cable traded at 1.5670 in early trading but lost its gains on disappointing UK mortgage and money supply data and is currently trading at 1.5589.
Hawkish statement for the RBA warning of higher rates if there were no downside possibilities emerging in the economy, sent the Aussie at its 2-yr high at 0.9470 against the greenback.
Bunds and Gilts gained some terrain on Friday due to risk aversion. Bunds however were lower during the session while Gilts did not change much due to a meager economic agenda.

In the Papers-Geopolitical:
- Preliminary results from
Sweden's parliamentary (Riksdag) elections produced first ever re-election for the country's centre-right bloc winning 173 seats v 178 prior (the opposition won 156 seats v 171 prior). As expected the incumbent government won the election but falls short of the 175 seats needed for a parliamentary majority. Also notable is the first parliament victory for the anti-immigration tagged Swedish Democrats winning 20 Seats. Following the preliminary results, Sweden's re-elected Prime Minister Reinfeldt said he refused to work with the Democrat Party, and plans to get in touch with the Green Party about cooperation bringing forth the possibilities of a hung parliament.
- The Telegraph's Evans-Pritchard commented on recent concerns in the market related to
Portugal, Greece and Ireland. Citing the head of Portugal's bank lobby de Soua, banks in the there are facing tough conditions raising funds abroad, noting that Portuguese banks rely on foreign funding to cover about 40% of their assets. Also referenced, former Bank of England member and Citigroup economist Buiter raised concerns about Ireland's credit condition; and Greece's high probability of default.
- In the Wall Street Journal,
Greece's main centre-right opposition party leader Samaras said the socialist government turned a debt crisis into a borrowing crisis and that the tough austerity policies could have been avoided had the government acted in time. He goes on to say that the current solution is worse than the problem.
- According to a study performed by Britain's Oxford University, fines imposed by financial regulators usually cause losses to shareholders 10 times greater on average than the fine itself. Though the results are from quantified case studies, the authors of the studies not that the relationship between the size of the fine and damage to reputation was not direct.

- Thin trading ahead of FOMC's meeting tomorrow
- Rightmove and UK mortgage approval data add to signs of slowdown in the property market
- In Aug, UK M4 money supply grew at the weakest y/y rate on record
- EUR/USD: Dealers chatter attribute pair strength to buying interest from supranational bank and Asian sovereigns
- USD/JPY continues to trade in narrow range following last week's fx intervention by Japan
- EUR/GBP moves above 84p to a 7-week high
- USD/CNY 3-month offshore forwards move to record as China continues to set the yuan at the highest level since the 2005 revaluation"
- AUD/USD continues to trade near 2-yr highs following comments from the RBA Gov Stevens
- Swedish bond yields rise, while Swedish Krona declined after the Swedish ruling center-right alliance was not able to win a majority in parliament
- Chinese Shanghai Composite property index hit lowest level since July on concerns that China might tighten policy.
- Spot Gold hits another record high above $1283/oz.

*** Looking ahead***
- 8:30 (CA) Canada July Int'l Securities Transactions: C$8.0Be est v C$5.4B prior
- 8:30 (CA) Canada July Wholesale Sales M/M: 0.1%e v -0.3% prior
- 10:00 (US) Sept NAHB Housing Market Index: 14.0e v 13.0 prior
- 6:00 (NE) Netherlands Debt Agency to sell Bills
- 6:00 (PD) Poland to sell up to PLN1.0B in 52-Week Bills
- 9:00 (FR) France Debt Agency (ATF) to sell Bills (BTF)


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