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Wednesday September 22, 2010 - 10:14:45 GMT
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European Market Update: European equities decline as the US Fed voices concerns about deflation (TTN)

Wednesday, September 22, 2010 6:05:35 AM

 European Market Update: European equities decline as the US Fed voices concerns about deflation


***Economic Data***
- (HU) Hungary July Retail Trade Y/Y: +1.7% V -3.0%E
- (SA) South Africa Q2 Current Account (ZAR): -66.9B v -77.3BBe; C/A to GDP ratio: -2.5% v -3.2%e
- (DE) Denmark Sept Consumer Confidence: 2.3 v 4.1e
- (NV) Netherlands July Consumer Spending Y/Y: 0.2% v 1.5% prior
- (NO) Norway Sept Unemployment Rate: 3.3% V 3.5%E
- (UK) BOE MINUTES: voted 8-1 to maintain interest rates unchanged at 0.50%
- (UK) BOE voted unanimous to maintain the asset purchase target (apt) at £200B
- (IC) Iceland Central Bank (Sedlabanki) cuts by 75 bps v 100 bps expected to 6.25% from 7.00%, less than expected
- (EU) Euro zone July Industrial New Orders M/M: -2.4% V -1.4%E; Y/Y: 11.2% V 16.2%E
- (MA) Malaysia Aug CPI Y/Y: 2.1% V 2.0%E
- (IC) Iceland August Wage Index M/M: 0.0% V 0.3% PRIOR; Y/Y: 6.0% V 6.0% PRIOR

Fixed Income:
- (GE) Germany sells €4.715b in 5-year bobls; avg yield 1.52% V 1.60% prior, 1.6X V 1.8X
- (PO) Portugal Debt Agency (IGCP) Auction Results; Sells total of €750M v €750M-1B expected


- As of 06:02 FTSE100 -0.44%, DAX -0.79%, CAC40 -0.87%
- European equities opened and remained in negative territory as markets reacted to Fed's dovish statement from yesterday. Investors remain concerned over the global economic recovery and banks are the major losers. Deutsche Bank [DBK.GE] traded -8.2% at the open following the formal release on Postbank offer. Despite announcing a lower than expected charge of €2.3B from €2.4B in Q3, the bank announced that it would reinvest its profits, thus implying the dividends would be lower. As expected the CEO of Unicredit [UCG.IT] resigned at the board's agreement yesterday citing the need for a change in leadership. The truth lies elsewhere as the CEO resigned over dramatic conflicts with the board and the investors as Profumo's strategy which turned Credito Italiano into Unicredit, one of the largest banks in
Europe, backfired. International expansion heavied on net income as bad loans accumulated and Profumo was forced to sell stocks to investors, which Profumo had vowed not to do. Political implications arose when Libyan shareholders rose stake to 2.59% from 2.1%, prompting members of the extreme right party North League (who are also members of the Italian foundations that own 11% of Unicredit) to call for a limit to Libyan investments. Shares had priced in the resignation and opened down by less than 1%. Spanish clothes retailer Inditex [ITX.SP] reported better than expected earnings and revenues. Profitability also had improved as margins increased to 59.4%. Due to the decline of the IBEX, shares of the company are in the red but they continue to outperform the index. Imperial Tobbaco [IMT.UK] opened higher at 1.5% following its trading update. Company guided its FY10 revenues to grow at a 3% rate (implying £27.3B).

- (FR) France Budget Min Baroin said the government should seek to lower the budget deficit to 2% of GDP in 2014 v 7.8% expected for 2010 - French Media
- (EU) EU president Van Rompuy: Need more work on sanctions for rule breakers
- (HU) Hungary Central Bank VP Karvalits: Rates may rise if
CPI risks continue, risk assessment
- (UK) UK Business Sec Cable: No problems over large salaries, but banking bonuses are the issue
- (US) US Treasury Sec Geithner: Basell III requires substantially more capital; US banks can use profits to meet those capital requirements

Currencies/Fixed Income:
- The FOMC sent a clear dovish signal to the markets when it said that inflation is likely to remain subdued for some time before rising to levels the Committee considers consistent with its mandate. This weakened dollar sharply against the major currencies. EUR/USD reached intra-session highs and is currently trading at 1.3378 even as the Europeans had time to digest the statement. The dollar fell against the yen and is trading at 84.6 after trading well above the 85 level after the BoJ intervention. As
Japan returns from holidays, speculations on a renewed intervention wave may begin. USD/CHF fell to 10-month low at 0.9930 while EUR/CHF continued to rally high, in continuation to the prior days. The Fed statement stood in contrast with RBA's hawkish tone which sent the Aussie to 26-month highs and is currently trading at 0.9553. Cable was trading at 1.5700 in early trade as markets were waiting the BoE minutes from the interest rate decision on September 9th. As expected, there was a split vote of 8-1 with the solitary hawk Sentence sought a 25 bps hike from the current level of 05%. Cable fell into the 1.5600 range after the comments as members see stonger headwinds to recovery and were ready to respond in either direction.

In the Papers-Geopolitical
- French media reported that France Budget Minister Baroin said the government should seek to lower the budget deficit to 2% of GDP in 2014. For 2010, the country's budget deficit-to-GDP ratio is expected at about 7.8%. Note
France in the past has pledged to lower its budget deficit to 3% of GDP by the end of 2013.
- In an article by the Irish Independent, any default in the future of Anglo Irish bonds will be dealt with by the English court system. Though the government is not planning to default on any of the bank's bonds, the idea has been recommended by third-level academics and some opposition politicians in recent weeks. The government is expected to give Anglo Irish the approval to repurchase some of its bonds. With regards to the English court system, in prior cases the courts have ordered bond issuers to not only pay missed coupon payments, but also the legal costs related to the litigation.
- Spanish Prime Minister Zapatero stated that the European debt crisis is over and does not expect the Spanish economy to contract in the coming quarters. In an article in the Wall Street Journal, the Spanish prime minister added that negotiations to pass next year's budget plan are well advanced in parliament. A separate WSJ "Heard on the Street" report noted that Zapatero used his meeting with hedge fund managers Soros and Paulson to defend
Spain's austerity program.

- USD broadly weaker after FOMC statement: US dollar index hits lowest level since mid April; EUR/USD hits 4-month; USD/CHF at lows not seen in more than 25 months.
- 10-yr Gilt yield extends declines below the 3.00% level, following the BoE minutes.
- Gold hits another record high above $1,290, silver moves to 30-month high
- EU peripheral bond spreads wider, after tightening on yesterday's session.

*** Looking ahead***
- 07:00 (US) MBA Mortgage Applications w/e Sept 17th: No est v -8.9%prior
- 07:00 (BR) Brazil Sept FGV Consumer Confidence: No est v 120.8 prior
- 08:00 (NO) Norway Central Bank (Norges) Interest Rate Decision: Expected to maintain Deposit Rates at the current level of 2.00%
- 08:30 (CA) Canada Aug Leading Indicators M/M: 0.3%e v 0.4% prior
- 08:30 (CA) Canada July Retail Sales M/M: 0.6%e v 0.1% prior; Less Autos M/M: 0.4%e v -0.5% prior
- 09:00 (BE) Belgium Sept Business Confidence: -5.1e v -5.1 prior
- 09:30 (BR) Brazil Aug Total Outstanding Loans (BRL): No est v $1,55T; Private Banks Lending: No est v $891B prior
- 10:00 (MX) Mexico Q2 Aggregate Supply & Demand: 12.2%e v 7.6% prior
- 10:00 (US) July House Price Index M/M: -0.2%e v -0.3% prior
- 10:00 (EU) Euro-Zone Sept Advanced Consumer Confidence: -10e v -11.0 prior
- 10:30 (US) DOE weekly Energy Inventories

Fixed Income:
- 5:15 (GE) Germany to Sell €6.0B in 5-Year BOBLs
- 6:00 (RU) Russia to sell Up to RUB40.0B in OFZ Bonds
- 8:00 (RU) Russia to sell Up to RUB30.0B in OFZ Bonds



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