European Market Update: Better European peripheral Bill auctions and ZEW data aids risk appetite (TTN)
Tuesday, October 19, 2010
European Market Update: Better European peripheral Bill auctions and ZEW data aids risk appetite
***Economic Data*** - (PH) Philippines Sept Balance of Payments (BOP): $3.1B v $40M prior - (HU) Hungary Aug Avg Gross Wages Y/Y: 1.9% v 1.7%e - (SP) Spain Aug Industrial Orders Y/Y: 5.4% v 2.0% prior; Service Sector Sales Y/Y: 1.9% v -3.8% prior; Services Employment Y/Y: -0.7% v -1.1% prior - (NE) Netherlands Aug Consumer Spending Y/Y: 1.6% v 0.2% prior - (EU) Euro-Zone Current Account: -â‚¬7.5B v -â‚¬4.1B prior; Current Account Net Seasonally Adj: â‚¬10.5 v +â‚¬3.4B prior - (HK) Hong Kong Sept Unemployment Rate: 4.2% v 4.1%e - (GE) Germany Oct ZEW Economic Sentiment: -7.2 v -7.0e; Current Situation: 72.6 v 64.0e - (EU) Euro-Zone Aug Construction Output: M/M: -0.4% v -3.2% prior; Y/Y: -8.5% v -6.9% prior - (EU) Euro-Zone Oct ZEW Economic Sentiment: +1.8 v-2.0e v 4.4 prior
Fixed Income: - (SP) Spain Debt Agency (Tesoro) sold total â‚¬6.4B in 12-month and 18-month Bills vs â‚¬7.0B indicated - Sold â‚¬4.18B in 12-month Bills; avg yield 1.842% v 1.908% prior; Bid-to-cover:2.1 x v 1.7x prior - Sold â‚¬2.2B in 18-month Bills; avg yield 2.009% v 2.146% prior; Bid-to-cover: 2.0x v 2.9x prior - (GR) Greece Debt Agency (PDMA) sold â‚¬1.17B in 13-Week Bills v â‚¬900M Indicated; Avg Yield 3.75% v 3.975% prior; Bid-to-cover: 5.2x v 6.26x prior - (SA) South Africa sold total ZAR2.1B in R208 and R203 Bonds - Sold ZAR1.1B in R208 Bonds (2021); avg yield 7.96%; bid to cover 1.57X - Sold ZAR1.0B in R203 Bonds (2017); avg yield 7.57%, bid to cover 1.95X - (HU) Hungary Debt Agency sold HUF40B vs. HUF40B Targeted in 3-Month Bills; avg yield 5.26% v 5.24% prior - (UK) DMO sold Â£1.25B in 1.25% Indexed-Linked 2032 Gilts; avg yield 0.71%; Bid-to-cover: 1.59x
*** SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM ** Notes/Observations: - German ZEW data aids risk appetite - European peripheral auctions go off without a hitch - US Tsy Geithner talks down USD-devaluation - World Bank: Experience shows that capital controls are not very effective in limiting level of inflows - Brazil raises IOF tax from 4.0% to 6.0% (2nd rise this month) and then calls for an end to worldwide currency war - South Korea: Currency policy is based on fundamentals as well as supply and demand; Not managing currency for exports - AAPL & IBM profit growth & forecasts fall short of estimates - Barrage of Central bank speak set for later today
Equities: - FTS100 +0.10% at 5477, CAC40 +0.15% at 3840, DAX +0.25% at 6532, Eurostoxx50 +0.26% at 2858
- European stocks were up during the session lifted by banks. Markets are anticipating results from US banks Goldman Sachs, Bank of America and Bank of NY due to report during the NY morning. Weaker commodities prices continue to drag miners lower while tech stocks also pressured the markets after Apple's iPads sales were lower than expected and the company guided lower. However, banks' strength has offset the tech's weakness and all European bourses have remained in positive territory. - In individual names, Swedish SKFAB [SKFB.SW] reported better than expected results and gave a positive outlook, forecasting margin and revenue growth. It also announced it acquired US based lubrication systems company Lincoln Industrial. Shares opened up by 10%. - Yara [YAR.NO] beat analysts' estimates noting that fertilizer margins had improved, volumes and deliveries had increased and its plants outside of China were running at a full capacity. The longer term nitrogen fertilizer balance remained healthy and expected a strong increase in wheat profitability due to price increase for wheat. Q4 energy costs are expected to be approximately NOK 500M higher than last year, and first-quarter 2011 energy costs are expected to be NOK 550M higher than a year earlier. Shares were up by 2.5% - Among notable UK names, Xstrata [XTA.UK] reported mixed production results for its Q3. Copper production was up by 10% on a yearly basis but coal and ferrochrome production were down 5% and 7% respectively. Shares went slightly down in the FTSE100. Autonomy [AU.UK] reported improving results on a yearly basis but noted unexpected volatility in customers' purchasing behavior. Also reported that some deals did not close in time but emphasized that there was no softening of the demand. Maintained view to deliver good EPS growth in 2011 with upside to current market consensus.
Speakers: - China Foreign Ministry confirmed that China had taken measures to limit the rare earth industry but did comment neither on specific rare earth mineral quotas nor of exports limits to Japan. - German BGA Trade Association raised their 2010 nominal export +16% from over 10% prior view. This would mark the stronger growth exhibited in a decade for Germany. It noted that currency issues to begin to considerably burden German Exports in USD related areas. It added that uncertainty about the U.S. economy and the Chinese real estate market were risks to the scenario. - Basel Committee reaches agreement on liquidity requirements on banks. The new standards would be subject to observation period and review clause - Russia Fin Min Kudrin commented that Russia to meet its 2010 domestic borrowing plans - Philippines Central Bank commented that it would prudently use enhanced measures to manage inflows and currency volatilities - Greece's budget deficit for 2009 expected to be revised significantly higher to 15.5% of GDP from 12.7% - Greek Press - France senator Gaudin stated that Parliamentary debate over pension reform might last the entire week and noted that a pension vote was expected on Oct 21st - Japan Econ Min Kaieda echoed the Cabinet report and noted that a strong yen and weak shares are downside risks to Japan economy - Philippines Central Bank Dep commented that the country was not contemplating any type of capital controls - Fitch: Performance by major UK banks improved though regulation to weigh on earnings
Currencies: The EUR/USD maintained its current consolidation range with both 1.3850 and 1.4000 levels tested over the last 24 hours. Dealers noted that a potential break of either level could increase the volatility and subject the pair towards a 200pip move. The German ZEW survey came in as expected but 'better' than the whisper number to aid the EUR/USD and this was complemented by decent Spanish and Greek Bill auctions.
Geopolitical/ In the papers: - The Wall Street Journal commented on the ECB foregoing purchases of government bonds for the first time in more than five months. The development occurs amid disagreements among members of the ECB regarding the merits of such bond purchases. The article also mentions the recent comments made by ECB's Weber in which he said that bond purchases should be phased out permanently. - Rolling strikes continue to affect various French industry sectors with the government maintaining its position that the proposed retirement age will not be changed. In particular, concerns over fuel shortages persist with blockades and refinery strikes entering into its eighth day. Continued strike actions at all twelve refineries were confirmed by one of France's largest labor union, CGT. Also various reports state that about 2,400 petrol stations, approximately a fifth, are dry. In response, the government has stated that fuels reserves remain at adequate levels, with shortages not yet at critical levels. Though French president Sarkozy's political party has majority positions in both houses of parliament, vote on pension, originally scheduled for Wednesday, may be extended further to Thursday or even next week in a possible attempt to mitigate the social unrest. - According to the Greek press, the 2009 Greek budget deficit is expected to be revised significantly higher to 15.5% of GDP from the prior 12.7% estimate. The revision follows a review by Eurostat. The deficit for 2010 may be also revised to 8.2%. Please note Eurostat was forced to disclose details related to a report about Greece's statistics issued in Oct of 2009. In the report, Greece claimed in early October that it saw its deficit at â‚¬14.4B (5.99% of GDP). However, by the 21st of that month, Greece had revised the data to a deficit of 12.5% of GDP.
***Looking Ahead *** - (PD) Poland Sept Budget Level (PLN): v -2.0B prior; Budget Level YTD: v 4.0B prior - 7:00 (EU) EU to Outline Options for Reforming Bloc's Budget - 7:45 (US) ICSC Weekly Chain Store Sales - 7:00 (EU) ECB to drain â‚¬63.5B in 7-day term Deposit Tender - 8:00 (PD) Poland Sept Sold Industrial Output M/M: 12.4%e v -1.8% prior; Y/Y: 11.2%e v 13.5% prior - 8:00 (PD) Poland Sept Producer Prices M/M: -0.1%e v -0.2% prior; Y/Y: 4.2%e v 4.1% prior - 8:30 (US) Sept Housing Starts: 580Ke v 598K prior; Building Permits: 575Ke v 571K (revised from 569M) - 8:30 (EU) ECB's Trichet Speaking in Frankfurt - 8:55 (US) Weekly Redbook Retail Sales - 9:00 (EU) EU's Barroso Takes Part in Parliament Question Time - 9:00 (EU) ECB's Provopoulos, Kranjec, Belgium's Praet, Chile's Marfan - 9:00 (BE) Belgium Oct Consumer Confidence: No est v -4 prior - 9:00 (BR) Brazil Sept CAGED Formal Job Creation: 300.0Ke v 299.4K prior - 9:00 (CA) Bank of Canada Interest Rate Decisions: Expected to maintain rates at the current 1.00% level - 9:40 (US) Fed's Evans Speaks on Economy - 10:00 (US) Fed's Dudley to Speak at Regional Economic Briefing - 11:00 (EU) ECB's Costa Speaking in Frankfurt - 11:30 (US) Fed's Lockhart to Speak on Economy - 12:50 (US) Fed's Fisher Speaks in New York - 13:20 (US) Kocherlakota Speaks in Fargo, North Dakota - 15:00 (BR) Brazil Sept Tax Collections (BRL) 62.6Be v 62.7B prior - 16:30 (US) EIA Energy Inventories - 16:00 (US) Fed Gov Bernanke Gives Brief Remarks in Fairfax, Virginia - 17:00 (US) ABC Consumer Confidence w/e Oct 17th: No est v -45 prior - 17:00 (CO) Colombia Aug Industrial Production Y/Y: 5.5%e v -0.2% prior; Retail Sales Y/Y: 12.3%e v 13.8% prior - 18:00 (PD) Polish Central Banker Belka, - 18:00 (HU) Hungarian Central Banker Kiraly Speaks
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