European Market Update: The theme remains the same - Equities continue their euphoria into key upcoming rate decisions and payroll data (TTN)
Wednesday, October 06, 2010
European Market Update: The theme remains the same - Equities continue their euphoria into key upcoming rate decisions and payroll data
***Economic Data*** - (UK) Sept New Car Registrations Y/Y: -8.5% v -17.5% prior - (HU) Hungary Aug Preliminary Industrial Output M/M: 2.2% v -1.1% prior; Y/Y: 14.9% v 11.5%e - (SP) Spain Aug Industrial Output WDA Y/Y: 1.4% v 0.2%e; Industrial Output NSA Y/Y: 3.2% v -1.6% prior - (SZ) Swiss Sept Foreign Currency Reserves (CHF): 215.3B v 218.1B prior - (EU) Euro Zone Q2 Final GDP Q/Q: 1.0% v 1.0%e; Y/Y: 1.9% v 1.9%e - (EU) Euro Zone Q2 Final Household Consumption Q/Q: 0.2% v 0.5%e; Gross Fixed Capital Q/Q: 1.5% v 1.8%e; Gov't Expenditures Q/Q: 0.5% v 0.5%e - (GE) Germany Aug Factory Orders M/M: 3.4% v 0.9%e; Y/Y: 20.3% v 17.2%e
Fixed income: - (GE) Germany sold â‚¬4.1B in 0.75% Sep 2012 Scht; avg yield 0.76% v 0.58% prior; - (NO) Norway Debt Agency sells NOK3.0B in May 2021 bonds; avg yield 3.29% Bid-to-cover: 2.2x v 1.7x prior - (SW) Sweden sold SEK10.0B in 103-Day Bills; avg yield 0.609% - (EU) ECB alloted $60M to one bank in its 7-day USD liquidity operation at fixed 1.20%; The SNB & BOE have zero allotted in their respective USD operations - (PO) Portugal Debt Agency (IGCP) sold total â‚¬1.0B v â‚¬1.0B targeted in 3-month and 12-month Bills - Sold â‚¬500M in Jan 2011 Bills; Avg Yield 1.595% v 0.994% prior; Bid-to-cover: 3.0x v 2.5x prior - Sold â‚¬500M in Sept 2011 Bills; Avg Yield 3.333% v 3.369% prior; Bid-to-cover: 2.8x v 1.6x prior - (GE) Germany sold â‚¬998M in index-linked 1.75% 2020 Bunds; avg yield 0.57%; Bid-to-cover: 2.2x v 1.5x prior
*** SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM ** Notes/Observations: - Risk appetite continues dominate equity and FX moves. Stocks continue broad gains on aided by the theme of low interest rates prospect of cash injections. - Precious metals continue to advance. Spot gold approached the $1,350 level for all-time highs while Silver tested above the $23/oz level (30-year highs). Palladium moving towards the $600/oz level. - Euribor 3-month rates continue to edge higher while US 2-year and 5-years yields hit fresh all-time lows
- Equities: - As of 06:10 am Euro Stoxx +1.2% at 2,791; FTSE100 +1.1% at 5,695; CAC40 +1.2% at 3,777; DAX +1.1% at 6,284
- European shares rose in early trading supported by gains in Asia and US as investors regain hope on economy and additional QE measures. Miners BHP Billiton and Rio Tinto were trading higher as commodities gained, tracking the momentum from the Asian session. The rally in shares is sustained for the second day in a row after six days of declining sessions as markets speculate that other central banks will follow the Japanese example. Already on Tuesday, markets were boosted by BoJ's decision to lower target rate to 0% and an article appearing on WSJ today noted that there could be further division in the Bank of England as dovish member Posen may vote for a rate hike or additional monetary easing measures. BoE and ECB are expected to decide on interest rates on Thursday. Investors will be looking for extra measures or any change in BoE's language but it is unlikely that the bank will unveil any new actions tomorrow. In individual names, SportingBet [SBT.UK] rose 1.3% at the open after its full-year results which showed an increase on a yearly basis. The company boosted its final dividend. Easyjet [EZJ.UK] was up by 7.8% after it announced that it expected its pre-tax profit to beat the prior guidance of Â£100-150M. The costs related to the volcano were expected to be lower than the original guidance. Sainsbury [SBRY.UK] in its trading update provided reporting an increase in like-for-like sales of 4.3% but noted that fuel price inflation has pressured household budget and the consumer environment would remain challenging. Shares were flat. Thyssenkrup [TKA.GE] expected a pretax profit of â‚¬1B which is well above the consensus of â‚¬600-850M. Shares rose 1.4%. Volkswagen [VOW3.GE] also rose 1.6% after announcing it would consider a plan to raise production of mid-sized sedans in China citing demand trends. H&M [HMB.SW] dropped less than 1% following downgraded the stock to a sell.
Speakers: - Bundesbank board member commented in a German press interview that he considered fx rate manipulation as problematic but currency intervention could be justified in rare situations. He added that seeking economic growth via Forex channels was a problem - (HU) Hungary Central Bank member Kiraly commented that Hungary should not save its foreign currency borrowers - Europe and South Korea sign a free trade agreement taking effect July 2011 - Romania high court ruled Gov't pension reform bill was constitutional - Japan Ruling Party (DPJ) seeking additional budget valued at over Â¥4.8T to help economy counter effects of a strong yen and deflationary concerns. The party urged govt to establish sovereign wealth fund to make better use of fx reserves and to take advantage of yen value to secure rare earth minerals and various other sources. - Japan Ruling Party (DPJ)lawmaker Naoshima not considering selling US treasuries in managing fx reserves - Moody's stated it would take action or Irish Banks for further sovereign ratings review
Currencies: - The theme remains the same heading into the NY morning as global equity markets pop higher aided by the low interest rate environment coupled with the prospect of more Gov't cash injections to prop up the growth front. Benign dollar neglect continues to reverberate. The EUR/USD testing its former Jan pivot point of 1.3850 while USD/JPY moving backs towards the initial BOJ intervention level from mid-Sept. Key interest rate decision and US employment data still yet to come over the next few session.
- Geopolitical/ In the papers: - The British Foreign & Commonwealth Office (FCO) confirmed earlier reports of explosions near the British Embassy in Yemen. The explosion was near a vehicle carrying Deputy Chief of British Mission in Yemen resulting in one casualty among Yemen Embassy staff. - The European and South Korea enter into Europe's first accord with an Asian country by signing into a free trade agreement with an effect date starting at the beginning of July 2011. - Moody's have continued to comment on Irish banks by stating they will take further action on sovereign ratings review. Note that the agency recently placed Ireland's Aa2 sovereign rating for possible downgrades.
***Looking Ahead *** - (CZ) Czech Republic sells CZK in 3.4% Sept 2015 Bonds - (RU) Russia to Sell Up to RUB35B OFZ Bonds - (PD) Poland to Sell Up to PLN3B Zero Coupon Bonds - 7:00 (IR) Ireland Sept Consumer Confidence: No est v 61.4 prior - 7:00 (US) MBA Mortgage Applications w/e Oct 1st: No est v -0.8% prior - 7:30 (US) Sept Challenger Job Cuts Y/Y: No est v 34.8K prior; No est v -54.5% prior - 8:00 (HU) Hungary Central Bank's Minutes - 8:15 (US) Sept ADP Employment Change: +20Ke v -10K prior - 10:00 (CA) Canada Sept Ivey Purchasing Managers Index: 62.0e v 65.9 prior - 10:30 (US) Weekly DOE energy inventories: Crude: +500Ke; Gasoline: -500Ke; Distillate:-1Me; Utilization: 85.4%e
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