European Market Update: EUR/GBP hits 2-month high on peripheral bond auction results, as markets await FOMC decision (TTN)
Tuesday, September 21, 2010
European Market Update: EUR/GBP hits 2-month high on peripheral bond auction results, as markets await FOMC decision
***Economic Data*** - (FI) Finland August Unemployment Rate: 7.3% V 7.5% PRIOR - (JP) Japan Aug Final Machine Tool Orders Y/Y: 170.0% V 170.0% PRIOR - (SZ) Swiss August Trade Balance (CHF): 570M V 2.8B PRIOR - (SZ) Swiss August M3 Money Supply Y/Y: 6.6% V 6.5% PRIOR - (UK) July Public Finances (PSNCR) Â£5.8B V Â£8.1BE; Public sector net borrowing: Â£15.3B V Â£12.5B - (HK) Hong Kong August CPI Y/Y: 3.0% v 3.1%e
Fixed income - (IR) Ireland Debt Agency (NTMA) Sells Total â‚¬1.5B in 2014 and 2018 bonds versus â‚¬1.5B indicated -(SP) Spain Sells â‚¬7.0B in 12 and 18 months bills vs â‚¬7.0B expected - (DE) Denmark sells DKK2.84B vs DKK5B in 2013 bonds; avg yield 1.25%; bid-to-cover 1.3X - (GR) Greece Debt Agency (PDMA) sells â‚¬390M in 13-week bills v â‚¬300Me; avg yield 3.975% v 4.05% prior; bid-to-cover: 6.25x v 3.85x prior - (HU) Hungary Debt Agency Sells HUF65b in 3-month bills; avg yield 5.43% v 5.48%
Equities - As of 06:08 DAX +0.39%. CAC40 +0.45%, FTSE100 +0.39% - European equities opened negative but returned into positive territory during a choppy session as investors braced for the Fed's meeting and PIIGS auctions. - In individual names, the news flow was light as sessions become quiet ahead of the 3rd quarter earnings season starting in mid-October. Among notable moves, Unicredit [UCG.IT] opened down by more than 3% following reports that the CEO Profumo, who has been on the job for 15 years and is one of the most influential bankers will resign today at the board's meeting. Resignation is reportedly linked to a board dispute after CEO allowed Libya to raise its stake to 2.59% from 2.1% and eroded his investors' support. - French electrical company Legrand [LR.FR] opened down by 4% as reports circulated that Wendel [MF.FR] and Kohlberg Kravis Roberts would sell about 9% of the shares of the company. The proceeds for Wendel would be about â‚¬300M which would help the company's high level of debt. Wendel is trading up by approximately 3%. - Swiss Gurit [GUR.SZ] published first half figures reporting an increase in EBIT over last year but a decrease in revenues. Company noted that a considerable level of uncertainty remains especially in Wind Energy market. Shares were down by almost 1% following report. - Wellstream Holdings [WSM.UK] rose 25% after confirming that it had received a number of preliminary approaches regarding a possible bid. - French bank BNP Paribas [BNP.FR] opened up by 1.8% following comments from the CEO who said that the company would not have to raise capital to meet the requirements of Basel rules. The statement and an upgrade at Goldman Sachs supported rally.
***SPEAKERS*** - (CH) Former IMF China chief Eswar Prasad: Internationalization of yuan currency has its limits -(CH) China Foreign Min: It is inappropriate for Premier Wen to meet Japan PM at UN meeting - (EU) ECB's Wellink: Would reconsider exit plans if were afraid of negative impact, would NOT forecast a sharp rise in market rates currently; US data suggests deterioration may have hit bottom - (IR) European Financial Stability Facility (EFSF) CEO Regling: Ireland has not yet approached him regarding aid; Reiterates does not expect EFSF to be used. - (IR) EU's Barroso:Ireland taking courageous measures on finances; Ireland can deal with more difficult situation. - (IR) Citigroup's Buiter notes that Irish bond yields are good; high yield on Ireland 10-yr bonds are "ridiculous" - (JP) Japan Bank Lobby chief: FX intervention by Japan was effective; new global bank capital requirements of 7% is harsh for banks in Japan; Sees no need for banks in Japan to raise more capital. - (JP) Japan Former MoF official Sakakibara (aka Mr Yen): Expects yen to reach new record high against USD this year - (JP) Fitch: New Basel III rules unlikely to affect Japanese banks' ratings - (SP) Spain Fin Min Salgado not many changes regarding tax on FY11 budget; Convinced budget to pass - (UK) UK Dep PM Clegg: Duty of the govt to minimize tax loopholes; Not in interest of banks to reward large bonuses.
Currencies/Fixed Income: - It's all about the Fed! Anticipation has supported the common currency across the session as traders await FOMC's meeting. Like weed, European debt woes have been growing back into the markets but that did little to temper EUR strength in today's session. Even the much awaited PIIGS auctions left little room for celebration; Spain and Ireland were expensive and unwanted, Greece was a happier surprise for the markets as the yield was lower and the bid-to-cover doubled from the prior but then again the 13-week maturity is too short to be notable. Meanwhile, EUR/USD tested session highs at 1.3150, EUR/GBP hit 2-month high at 0.8641 and EUR/JPY rallied to 112.40 from session lows of 111.43. Swissy extended declines against Euro as the sharp decline in Swiss trade balance cast a shadow over Swiss economic recovery which relies significantly on exports. Euro strength is possibly a result of the weak dollar ahead of Fed's meeting. Although few expect that the Fed will restart QE at today's meeting, traders are looking to see changes in language. The key words are changes to the 'extended period of time' phrase or an increase of balance sheets, which would indicate a possible restart of the QE operations, and hurt the greenback. Note that most of the other central banks are either turning hawkish (RBA) or standing still (ECB). The question is how more dovish can the Fed and the answer is not much. UK public borrowing was worse than expected but the sterling did not move significantly. Gilts however fell lower but are still outperforming against the Bunds.
In the Papers-Geopolitical - The Financial Times commented on earlier statements made by Irish Central Bank Governor Honohan suggesting the Irish government may need further cuts in the budget to reassure the markets. He also said the sentiment could add pressure for the Prime Minister to resign. - The Telegraph's Evan-Pritchard noted that, according to Goldman Sachs, there is a measurable risk that Portugal and Ireland may have to use the â‚¬440 billion European Financial Stability Facility (EFSF). The investment banking firm said Portugal or Ireland might need to use the EFSF by early next year. Former Portugal Finance Minister Bagao said the current minority government could struggle to find the votes for further austerity. In terms of the EFSF, the facility has not yet been ruled on by Germany's constitutional court and if the court ruled against the EFSF, Germany would no longer be able to be the guarantor of the fund, which would limit the facility's lending capacity. - British deputy prime minister Clegg said the duty of the government is to minimise tax loopholes. He also said that it is not in the interest of banks to reward large bonuses, though corporations are entitled to minimise tax payments.
*Notes/Observations*** - EUR/GBP hites 2-month high following EU bond auctions and UK public finance data. - USD/CNY 3-month offshore forwards hit a record low as China continues to set the yuan stronger - US 2-yr Treasury yield hits record low - Gold in tight range ahead of FOMC meeting. - EU periperal bond spreads continue to tighten following bond auctions.
*** Looking ahead*** - 7:00 (CA) Canada Aug Consumer Price Index M/M: 0.0%e v 0.5% prior; Y/Y: 1.9%e v 1.8% prior - 7:00 (CA) Canada Aug Core CPI M/M: 0.1%e v -0.1% prior; Y/Y: 1.6%e v 1.6% prior - 7:00 (BR) Brazil FGV Inflation IGP-M: 1.1%e v 1.1% prior - 7:45 (US) ICSC/GS weekly chain store sales - 8:00 (BR) Brazil Sept IBGE CPI IPCA-15 M/M: 0.2%e v -0.1% prior - 8:00 (PD) Poland Aug Core Inflation M/M: 0.0%e v 0.1% prior Y/Y: 1.2%e v 1.2% prior - 8:30 (US) Aug Housing Starts: 550Ke v 546K prior; Building Permits: 560Ke v 565K (2nd revision) - 8:55 (US) Redbook Retail Sales - 9:00 (EU) ECB weekly Forex reserves - 9:30 (BR) Brazil Aug Current Account: -$2.5Be v -$4.5B prior; Foreign Direct Investment (FDI): -$2.2Be v $2.6B prior - 10:00 (MX) Mexico July Retail Sales: 2.2%e v 1.5% prior - 14:15 (US) FOMC Rate Decision: Expected to maintain interest rates at 0.25% - 16:30 (US) API Weekly energy Inventories - 17:00 (US) ABC Consumer Confidence w/e Sept 19th: No est v prior
Fixed Income: - 7:00 (EU) ECB Term Deposit Tender
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