European Market Update: Move by Singapore prompts chatter of possible US/China currency deal in the works (TTN)
Thursday, October 14, 2010
European Market Update: Move by Singapore prompts chatter of possible US/China currency deal in the works
***Economic Data*** - (RU) Russia Gold & Forex Reserve w/e Oct 8th: $501.1B v $494.4B prior - (FI) Finland Sept CPI M/M: 0.4% v 0.4% prior; Y/Y: 1.4% v 1.2% prior - (FI) Finland Aug Final Retail Sales Volume Y/Y: 5.6% v 4.5% prelim - (JP) Japan Sept Final Machine Tool Orders: 113.6% v 112.9% prelim - (HU) Hungary Aug Final Industrial Output M/M: 2.2% v 2.2% prelim; Y/Y: 14.9% v 14.9% prelim - (SP) Spain Sept Consumer Price Index M/M: 0.1% v 0.0%e; Y/Y: 2.1% v 2.0%e - (SP) Spain Sept CPI EU Harmonized M/M: 0.0% v 0.0%e; Y/Y: 2.1% v 2.0%e - (SP) Spain Sept CPI Core M/M: 0.0% v 0.1%e; Y/Y: 1.1% v 1.1%e - (NV) Netherlands Aug Retail Sales Y/Y: +0.6% v -0.3%e - (GR) Greece July Unemployment Rate: 12.0% v 11.9%e
Fixed Income: - 5:00 (IT) Italy Debt Agency (Tesoro) sells total â‚¬ in 2015, 2023 and 2037 bonds - Sold â‚¬3.5B in Jun 3.00% 2015 BTPs; avg yield 2.53% v 2.69% prior; Bid-to-cover: 1.37x v 1.44x prior - Sold â‚¬846M in 4.75% Aug 2023 BTPs; avg yield 3.93% v 4.43% prior; Bid-to-cover: 2.49x v 1.51x prior
- Sold â‚¬1.15B in 4.00% Feb 2037 BTPs; avg yield 4.53% v 4.91% prior; Bid-to-cover: 1.97x v 1.90x prior - (HU) Hungary Debt Agency sold HUF50B in 12-Month Bills; avg yield 5.72% v 5.74%% prior - (UK) DMO sold Â£3.75M in 4.75% 2015 Gilts; avg yield 1.687% v 2.910% prior; Bid-to-cover: 1.97x v 1.88x prior; Tail 0.4bps
*** SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM ** Notes/Observations: - Singapore central bank widens its currency band. This follows the Russian central bank move on Wednesday. Dealers view this as a barometer of Asian economic growth - China researcher: World must be on guard for the deliberate strategy to devalue USD - Dealer chatter circulating of a possible deal between US and China on the CNY - FX Dealer: Everything trading higher except for "rectangular shaped greenish colored paper"
Equities: FTSE100 -0.10% at 5740, CAC40 +0.24% at 3837, DAX +0.65% at 6476, Eurostoxx50 +0.49% at 2854.
- European shares opened higher for the second day tracking Asian gains and on positive news flow from European corporate earnings. Syngenta [SYNN.SZ], world's largest maker of agricultural chemicals, opened higher by 4% and remained in positive territory following its Q3 sales report. Company beat estimates and maintained its FY guidance of continuing positive volume momentum for second half 2010. - Luxury brand LVMH [MC.FR] also rose after its Q3 sales beat estimates and its like-for-like sales rose 14%. Company said it would pursue targeted expansion in most promising markets Swiss pharmaceutical Roche's sales came almost in line with estimates and company affirmed its 2010 outlook but the market was not satisfied as its shares dropped lower. - Vodafone [VOD.UK] traded higher following upgrade at Nomura and the news that it would launch iPhone in Hungary and Netherlands. - Saint-Gobain [SGO.FR] announced it would begin the process of possible IPO for half of packing operations which is expected to occur in Q2. Shares opened up by 3%. In M&A news, Alfa-Laval [ALFA.SW] refused to raise bid for Munters (MTRS.SW)which remains at SEK75/shr. In Wednesday's session, Nordic Capital prepared to raise bid for Munters to SEK77/shr. Shares of Alfa-Laval were flat.
Speakers: - OPEC President commented just ahead of today's meeting in Vienna that the consensus was to maintain quotas at current levels. He added that oil price between $75 to $85 was not a threat to global economy - China State Administration of Foreign Exchange (SAFE) commented that China faced large capital inflow stress due to Yuan currency appreciation expectations. The regulator added that it should improve Yuan exchange rate mechanism over the long term and avoid giving "hot money" continuous arbitrage opportunity. It noted that Euro appreciation added $80B to the country's reserves for Q3 - China Ministry of Foreign spokesperson reiterated the country's view that a gradual increase of yuan flexibility was in both the world's and China's interest. China was dedicated to exchange rate mechanism reform but reiterated that yuan appreciation would not solve US trade deficit. - China Commerce Min (MOFCOM): Sharp CNY price swings could impact world markets - ECB's Noyer commented that it must find a currency solutions through cooperation and that the issue must be tackle on multiple fronts. There needs to be fundamental structural correction in the global monetary system and that different FX regimes penalized the whole world. On the theme of global rebalancing he noted that the US savings needed to rise while Chinese consumers must lower their saving and spend more - Japan Fin Min Noda commented that the recent G7 reconfirmed that emerging nations (like China) with trade surplus needed to work to make their currency rates more flexible. He added that it sought to deepen debate on currency cooperation at future G7 and G20 meetings. - BoJ Gov Shirakawa stated that he expected recent BOJ monetary easing to have impact in the long term and noted that it usually took 18 to 24 months for monetary policy to take effect. Company borrowing costs have fallen since BoJs recent easing - Major German Institutes released their bi-annual economic forecasts and raise EU 2010 GDP forecast to 1.6% v 0.9% prior but maintained 2011 GDP view at 1.3. the institutes stated that they believed the ECB would raise interest rates by 25 bps before the end of 2011. It noted that the probability for a new US recession was not negligible and that the Euro zone bailout plan should not be extended ECB's Bini Smaghi commented that it was an Illusion that the current crisis was cyclical and noted that both fiscal and monetary policies might not suffice. He added that wealthier advanced economies were now poorer and this would result in weaker growth in the future - BoE Tucker commented in a newspaper interview that the global economic recovery remained fragile. He added the commercial property market remained a concern in many countries and a threat towards the recovery - Hungary Central Bank Gov Simor commented that any looser monetary policy was difficult to justify - ECB Oct. Monthly Report: Reiterated the Trichet post rate decision press conference comments (as expected). The report noted that interest rates were appropriate, price developments remained moderate with inflationary expectations firmly anchored - (SP) Spanish banks Sept ECB borrowings at â‚¬112B v â‚¬126B m/m
Currencies: - The move ahead of the European morning by Singapore central bank to widen its currency bands et the theme for the session. Dealers noted that the more pressure on Asian and emerging market currencies continued to provide the catalyst of anti-dollar diversification pressures. The greenback exhibited weakness from the onset of the session and the move was complemented by record highs in gold and three decade highs in silver. There was a rumor circulating that a deal between US and China was in the works whereby China would allow the CNY to appreciate at a faster pace with the US taking a less aggressive QE stance. EUR/USD tested above 1.41 while USD/JPY hit fresh 15-year lows below 80.90. USD/CAD tested parity while AUD/USD just missed the milestone by 5 pips
Geopolitical/ In the papers: - The UK Treasury reported changes to its pension system, with an effective to begin in April 2011, which is to raise about Â£4.0 billion annually. The changes are likely to affect around 100,000 pension savers. - In the Financial Times, Martin Wolf noted that in the global currency war, the US will win by either inflating the rest of the world or force the nominal exchange rates against the US dollar
***Looking Ahead *** - (RU) Russia Sept Real Industrial Production M/M: % v 0.6%e; Y/Y: % v 5.7%e - 6:00 (IR) Ireland Sept CPI M/M: No est v 0.7% prior; Y/Y: No est v 0.2% prior - 6:00 (IR) Ireland Sept CPI EU Harmonized M/M: % v 0.2% prior; Y/Y: %v -1.2% prior - 6:00 (GE) ECB's Weber Speaks on Fiscal Policy - 6:30 (EU) ECB's Mersch Speaking in London - 8:00 (BR) Brazil Aug Retail Sales M/M: 1.5%e%e v 0.4% prior; Y/Y: 10.0%e%e v 10.9% prior - 8:30 (CA) Canada Aug Int'l Merchandise Trade: -C$2.3Be v -C$2.7B prior - - 8:30 (US) Aug Trade Balance: -$44.0Be v -$42.8B prior - 8:30 (US) Sept Producer Price Index (M/M: 0.2%e v 0.4% prior; Ex Food & Energy M/M: 0.1%e v 0.1% prior - 8:30 (US) Initial Jobless Claims: 445Ke v 445K prior; Continuing Claims: 4.45Me v 4.462M prior - 10:30 (US) Weekly EIA Natural gas Inventories - 11:00 (US) Weekly DOE Energy inventories - 12:00 (TU) Turkey Central Bank Benchmark Interest rate Decision: Consensus expectations to leave the Benchmark rate unchanged at 7.00% - 13:00 (US) Treasury to sell 30-Year Bonds Reopening - 13:00 (EU) EU's Barroso Speaks at Friends of Europe Dinner - 17:00 (US) Fed's Kocherlakota Speaks in Bloomington, Minnesota - 17:00 (CL) Chile Central Bank Nominal Overnight Rate Target decision: Expected to raise rates by 25bps to 2.75% from the current 2.50% level
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