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European Market Update: BOE minutes show three-way split on policy action (TTN)

Wednesday, October 20, 2010 5:51:11 AM

 European Market Update: BOE minutes show three-way split on policy action

 

***Economic Data***
- (GE) Germany Sept Producer Prices M/M: 0.3% v 0.2%e; Y/Y: 3.9% v 3.8%e
- (TH) Thailand Sept Customs Trade Balance: $3.1 v $1.7Be v $643M prior; Customs Exports Y/Y: 21.25 v 15.0%e; Customs Imports Y/Y: 16.0% v 22.6%e
- (JP) Japan Sept Convenience Store Sales Y/Y: 12.% v 1.0% prior
- (AS) Austria Aug Producer Price Index M/M: 0.1% v 0.4% prior; Y/Y: 3.9% v 4.2% prior
- (TH) Thailand Central Bank Interest Rate maintained the Benchmark Interest Rate unchanged at 1.75%; as expected
- (NE) Netherlands Oct Consumer Confidence: -10 v -16e
- (IT) Italy Aug Industrial Orders M/M: % v 3.5%e; Y/Y: % v 10.4%e
- (IT) Italy Aug Industrial Sales M/M: % v -2.7% prior; Y/Y: % v 8.9% prior
- (TT) Taiwan Sept Export Orders Y/Y: % v 13.5%e
- (UK) Bank of England Minutes: Voted 7-1-1 to maintain interest rates and Asset Purchase Target (APT) at 0.50% and £200B respectively
- (UK) Sept Public Finances (PSNCR): £20.7B v £15.3Be; Public Sector Net Borrowing: £15.6B v £14.5Be; PSNB ex Interventions: £16.2B v £14.3Be

- (UK) Sept Preliminary M4 Money Supply M/M: -0.3 % v 0.3%e; Y/Y: 0.9% v 1.5%e
- (GR) Greece Aug Current Account: -€259M v -€1.5B prior
- (SP) Spain Aug Trade Balance: -€4.5B v -€4.3B prior

Fixed income:
- (PO) Portugal Debt Agency (IGCP) sold €760M in 12-month Bills; Avg Yield 2.886% v 3.333% prior; Bid-to-cover: 2.4x v 2.8 x prior

*** SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM **
Notes/Observations:
- Today's date 20 10 2010 figure seems to have a good omen
- Shanghai opens -2% on the back of Tuesday PBoC rate hike, and then rallies. Overall the index ended the session little changed at 3,004
- "Big data" day for China on Thursday with Q3 GDP and Sept releases of CPI, Retail sales and Industrial Production.
- BOE minutes showed three-way split on decisions
- Reportedly, China to raise retail fuel price on Thursday
- Spain government finalizing the process to reshuffle its cabinet

Equities:
- FTSE100 +0.12% at 5710, CAC40 +0.03% at 3808, DAX +0.12% at 6498, EuroStoxx50 +0.03% at 2838

- European shares opened in negative territory and continued to trade flat following China's surprise rate hike yesterday. The hike, the first since 2007, was unexpected especially since China had just increased the reserve rate for six of its largest banks which was seen as a milder move ahead of an actual rate hike. The hike, probably motivated by soaring asset prices and inflation, ignited worries that a slowdown of China's economy could in turn temper growth elsewhere. Commodities and risky currencies sold off. Banks were the biggest fallers due to continuing concerns over foreclosures. FTSE100 turned positive after Bank of England's minutes showed a split vote on asset purchase target with member Posen voting to increase the target to £250B from £200B. On the other hand, as expected Sentance voted for a 25 bps hike to the interest rate. Markets interpreted the split as a signal that BoE may restart QE.
- Major European companies reported today as earnings season is gaining momentum. Dutch name TomTom [TOM2.NV] traded down by 3% after missing significantly on its net earnings due to a derivatives charge. The revenue was slightly higher than estimates and company reiterated its outlook for FY10. Profitability had decreased on a quarterly basis due to a stronger US dollar compared to euro and company forecasted that marketing expenses would increase in Q4.
- Out of Sweden, Tele2 [TEL2B.SW] beat estimates on its Net and EBIT while revenue came in line with estimates. The numbers are primarily attributed to a 10% growth in the local market due to smart phone segment success and growth in the Russian market. Swedish bank Svenska Handelsbanken [SHBA.SW] reported results in line with estimates. Loan losses were lower than expected and metrics were stronger than last year's. However, trading profit had decreased by 61% due to lower profit for fixed income and foreign exchange trading. Shares were in the red, tracking the general sector weakness.
- Carmaker Peugeot [UG.FR] fell about 2% after its earnings report. The company reported an increase in revenue and increased its guidance but that was already built in the consensus. Company did not provide an outlook for 2011. Schneider Electric [SU.FR] positively surprised the markets and increased its guidance for 2010. Shares were trading higher by less than 1%
- German BASF [BAS.GE] reported its preliminary Q3 results beating estimates. It also provided a more quantitative guidance, forecasting FY10 revenues at £63B and EBIT at more than €8B. These numbers exceed the 2007/2008 record levels.

Speakers:
- IMF's Regional Economic Outlook for Europe noted that Europe's recovery was underway but gov't must ensure necessary fiscal consolidation did not hurt jobs or growth. It added that the ECB should be prepared to redeploy extraordinary measures. Emerging Europe must rely more on export growth and that the emerging Europe region was vulnerable to euro zone crisis. The rise in government bond yields would hit Emerging Europe banks. IMF's Chopra commented that the Euro strength could lead to headwinds.
- The BOE minutes showed a spilt among its members on its policy direction. Member Posen voted to raise bonds purchase program by £50B to £250B while member Sentance voted to raise interest rates by 25 bps. The minutes showed that some of the majority saw an increased likelihood of a new stimulus. The rise in commodity prices and decline in sterling currency had exacerbated inflation. Member Posen saw spare capacity large enough to allow stimulus and thus more QE lowered the risk of self-reinforcing supply fall. Member Sentence stated that the loss of credibility if BOE did not respond to high CPI. BOE voted 8-1 on interest rates and voted 8-1 on Asset Purchase Target.
- ECB Constancio stated that the central bank could return to a 'normal' monetary policy once recovery was secured .He prefered tighter and more automatic EU rules on deficits and added he was unsure if council was split on the issue
- The Thai Central Bank made comments after leaving its benchmark rate unchanged at 1.75% (as expected). It noted that the interest rate cycle remained on an uptrend but that it held rates steady due to uncertainty in global market and not because of currency matters. The central bank did not consider more measures to curb the TBH currency appreciation trend. It decision took into account the recent China PBoC interest rate increase and that overall its decision would not impact its goal of price stability.
- Ireland Fin Min Lenihan commented that it now expected 2011 growth to be lower than prior forecasts but saw signs of stabilization in the labor market. - The gov't was on track to meet 2010 budget deficit/GDP target of 11.9% but conceded the Gov't was fully aware that more austerity measures are needed
- German DIHK raised its 2010 forecast and now saw the economy growing 3.4% vs. 2.3% seen in June. It put 2.4% in 2011. The think tank's chief Economist stated that Germany economy would feel pressure if EUR/USD rose beyond the $1.50 level

Currencies:
The ability of the Chinese equity markets to shake off the PBoC rate hike help to instill calm in the markets following the spat of risk aversion that enveloped sentiment on Tuesday. The USD saw a good portion of its gains evaporate but the EUR/USD had difficulties moving back above the 1.3830 level. The USD/JPY pair remained within striking distance of fresh 15-year lows and traded around the 81.20 ahead of the NY morning.
The split inside the BOE on the next policy action weighed upon the GBP currency. Member Posen vote to raise bonds purchases by £50B to £250B level couple with fellow member Sentance desire to raise interest rates by 25 bps sent the GBP/USD below the 1.57 handle before steadying.

Geopolitical/ In the papers:
- During the presentation of the EU budget, EU Commissioner is considering an EU-wide VAT. The budget review is looking at various options on 'raise in spend' once the current financial framework ends in 2013.
- In various British media reports, the Chief Secretary to the Treasury Alexander had inadvertently revealed that the Office for Budget Responsibility is forecasting public job cuts of 490,000 by 2014-2015. This data release comes ahead of the coalition's release of the anticipated Spending Review due out later during the European trading session.

***Looking Ahead ***
- (IC) Iceland Q3 Unemployment Rate: Mo estv 8.7% prior
- (PO) Portugal Sept Producer Prices M/M: % v 0.3% prior; Y/Y: % v 3.9% prior
- 6:00 (CZ) Czech Republic to sell CZK6B in 5.7% May 2024 Bonds
- 6:00 (RU) Russia to sell up to RUB15.5B in OFZ Bonds
- 6:00 (EU) ECB's Stark Speaks in Frankfurt
- 7:00 (BR) Brazil Oct IBGE CPI IPCA-15 M/M: 0.6%e v 0.3% prior
- 7:00 (US) MBA Mortgage Applications w/e Oct 15th: No est v 14.6% prior
- 7:30 (UK) UK Chancellor Osborne will announce in Parliament the spending review/cuts
- 8:00 (PD) Poland Sept Core Inflation M/M: 0.2%e v -0.1% prior; Y/Y: 1.2%e v 1.2% prior
- 8:00 (RU) Russia to sell up to RUB9.5B in OFZ Bonds
- 8:30 (CA) Canada Aug Wholesale Sales M/M: 0.5%e v -0.1% prior
- 9:00 (GE) German Chancellor Merkel at BGA Business Conference
- 10:00 (MX) Mexico Aug Retail Sales: 2.1%e v 2.0% prior - INEGI
- 10:30 (CA) Bank of Canada Monetary Policy Report
- 10:30 (US) DOE Weekly energy inventories: Crude: +2.5Me; Gasoline:-1.5Me; Distillate: -1Me; Utilization: 81.9%e
- 12:45 (US) Fed's Plosser Speaks on "Incentives and Regulation"
- 14:00 (US) Fed's Beige Book
- 14:00 (GE) Princeton's Krugman holds lecture at Berlin's Free University
- 16:00 (US) Fed's Lacker speaks about U.S. Economic Outlook
- (BR) Brazil Central Bank (COPOM) Interest Rate Decision: Expected to maintain the SELIC Target unchanged at the 10.75% level
- 22:00 (CH) China Q3 Real GDP Y/Y : 9.5%e v 10.3% prior
- 22:00 (CH) China Sept Consumer Prices Y/Y: 3.6%e v 3.5% prior

- 22:00 (CH) China Sept Retail Sales Y/Y: 18.5%e v 18.4% prior
- 22:00 (CH) China Sept Industrial Production Y/Y: 14.0%e v 13.9% prior

 

 

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Amazing Trader EVENT RISK Calendar:

Wed 18 Oct
12:30 US- Housing Starts & Permits
14:30 US- EIA Crude
Thu 19 Oct
01:30 AU- Employment
08:30 GB- Retail Sales
12:30 US- Weekly Jobless
Fri 20 Oct
12:30 CA- Retail Sales & CPI
14:00 US- Existing Homes Sales

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  • POTENTIAL PRICE RISK: HIGH Tue-- 08:30 GMT GB- CPI top tier confirmation of Inflation.

  • POTENTIAL PRICE RISK: Medium Tue-- 09:00 GMT DE- ZEW Survey second most important German monthly Survey.

  • POTENTIAL PRICE RISK: Medium Tue-- 09:00 GMT EZ- final HICP revision to flash report. Revisions are usually minor.

  • POTENTIAL PRICE RISK: Medium Tue-- 13:15 GMT US- Industrial Production. Top output indicator.



  • POTENTIAL PRICE RISK: Medium Wed-- 12:30 GMT US- Housing Starts and Permits revision to flash report. Useful housing leading indicator.

  • POTENTIAL PRICE RISK: Medium Wed-- 14:30 GMT US- EIA Crude. Top WTI inventory measure.



  • POTENTIAL PRICE RISK: Medium Thu-- 01:30 GMT AU- Employment. Top economic indicator.


  • POTENTIAL PRICE RISK: Medium Thu-- 02:00 GMT CN- GDP. Top economic indicator.


  • POTENTIAL PRICE RISK: HIGH Thu-- 08:30 GMT GB- Retail Sales. Top consumption indicator.


  • POTENTIAL PRICE RISK: Medium Thu-- 12:30 GMT US- Weekly Jobless. Employment Indicator.



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