European Market Update: Participants wait to cast their vote on the FOMC decision (TTN)
Wednesday, November 03, 2010
European Market Update: Participants wait to cast their vote on the FOMC decision
***Economic Data*** - (SP) Spain Oct Net Unemployment M/M: 68.2K v 82.8Ke - (TU) Turkey Oct Consumer Prices M/M: 1.8% v 1.3%e; Y/Y: 8.6% v 8.0%e - (TU) Turkey Oct Producer Prices M/M: 1.2% v 0.5% prior; Y/Y: 9.9% v 8.9% prior - (EU) ECB: â‚¬4.9B borrowed in overnight loan facility v â‚¬459M prior; â‚¬33.5B parked in deposit facility v â‚¬28.1B prior - (SZ) Swiss Sept Real Retail Sales Y/Y: 3.8% v 0.1% prior - (IC) Iceland Central Bank (Sedlabanki) cuts its key 7-day lending rate by 75bps to 5.50% - (NO) Norway Aug AKU Unemployment Rate: 3.4% v 3.4%e - (SP) Spain Oct Consumer Confidence: 67.1 v 72.8 prior - (UK) Oct PMI Services: 53.2 v 52.6e - (SA) South Africa Oct SACCI Business Confidence: 85.9 v 87.8 prior
Fixed Income: - No events
*** SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM ** Notes/Observations: - Republicans score huge in the House but fall short of taking the Senate. Republicans also capture many Governor Seats as well - Australia's building approvals fall shy of expectations. - FOMC later today. Focus is not on rates but on QE - US jobs data over the next few days with ADP today, initial claims on Thurs and Non-Farm Payroll on Friday - UK PMI Services beats expectations - Peripheral spreads continue to widen; Irish/German 10-year gov't premium nearing 500bps
Equities: EuroStoxx at 2864, +0.13%, FTSE100 at 5760, +0.05%, CAC40 at 3878, +0.33%, DAX at 6668, +0.22%
- European shares fluctuated in the session opening higher after yesterday's 6-month high close. Banks were among the gainers which supported the rally. Major bourses have been drifting on and off in negative territory as markts remain muted ahead of Fed's meeting. - Societe Generale [GLE.FR] rose about 2% after announcing its Q3 results and noting that it would not need a capital raise to meet Basel III. Following the quarter's trend, investment banking revenues had decreased but all the other segments reported higher results on a yearly basis. - Despite good numbers and a reaffirmation of significant increase in earnings and revenues, BMW [BMW.GE] lost about 2% as investors were unsatisfied and were expecting more. Furthemore, BMW increased its forecast for automobile EBIT margin of above 7% from 5%/ This attitude from the markets is similar to Daimler's which also exceeded expectations but whose shares also declined. This may be an indication that investors are nervous over the 2011 economic outlook which auto names failed to provide. - Continental AG [CON.GE] did not help the auto sector this morning with a significant miss on its net earnings, citing raw material costs. Company noted that increase in raw material costs burdened Rubber Group with more than â‚¬450M. Shares fell about 3.7%. - World's largest brewer Anheuser-Busch InBev [ABI.BE] fell about 1.3% after reporting results in line with estimates. The volumes had increased driven by a strong growth in Brazil and Latin America. Norwegian oil name Statoil [STL.NO] beat expectations but cut its FY10 production. The equity production for the quarter was also down by 17%. Shares slipped by 4.6%.
Speakers: - German VCI chemical assoc reaffirmd 2010 forecasts but noted that the pace of growth was weakening. It continued to forecast that 20100 German Chemical Production: +11% y/y; Chemical Sales: +18% y/y
Currencies: - The price action for the most part in Europe was muted as dealers awaited the FOMC announcement later today. The EUR/USD continued to find resistance towards the 1.4060 area and lingered near the upper end of it range throughout the morning. There has been market chatter of Far East sovereigns legging into Euro after bidding in numerous local currencies (KRW, IDR and SGD cited). Dealers continue to watch for any break of the three-week consolidation in the pair which that 1.4060 is the ceiling. - The GBP/USD was former aided by the stronger PMI services data. GBP/USD hit its best level since late Jan as it tested above the 1.6110 as the NY morning approached. - Peripheral spreads continue to widen in session with the Irish/German 10-yr Gov't bond premium widening by almost 10bps to record level above 490bps
Geopolitical - US Elections: - As expected, the Republicans won a majority in the House of Representatives, with the party being projected to have at least a 53 seat majority (Note: 218 votes are needed for a majority). Before the midterm elections, the Democrats controlled the House by a 255 to 178 margin, with two vacancies. Some of the key victories by the Republicans for the House came in South Carolina, Missouri, Texas and North Dakota. Overall, the Republicans fared better in the House than in 1994, when the Democrats lost 54 seats and the House will see the largest shift in power since the Democrats lost 75 seats in 1948. - In terms of the Senate, the Democrats maintained control of the body with 51 seats vs. 46 seats for the Republicans. Overall, the Republic party picked up at least 6 seats which were held by Democrats. In some of the key races, Republican Pat Toomey won in Pennsylvania, Republican Ron Johnson defeated Democrat Feingold in Wisconsin, while Republican Mark Kirk won President Obama's old seat in Illinois. As for the Democrats, Senator Majority Leader Reid defeated Sharron Angel in Nevada. Also, Democrat Joe Manchin won a Senate seat in West Virginia.
In the papers - In the Telegraph, Merrill Lynch Wealth Management issued a cautious note on Gilts. The article noted that risks for the Gilt market include rising inflation, higher interest rates and the end of quantitative easing (QE). - Fathom Consulting believes that the UK government should launch a 'bad bank' for distressed mortgages. According to the Telegraph, the consulting firm sees the purchases should be conducted through a second round of quantitative easing (QE). Banks would be short Â£20 billion if they recognized their bad mortgage assets today and this figure could rise to Â£180 billion if property prices declined by another 20% between now and 2012.
***Looking Ahead *** - 6:00 (MA) Malaysia Sept Trade Balance (MYR): 8.1Be; Exports Y/Y: 10.1%e; Imports Y/Y: 16.3%e - 6:15 (GE) Germany to Sell Add'l â‚¬5.0B in 5-year BOBLs - 6:30 (PO) Portugal Debt Agency (IGCP) to sell up to â‚¬1.0B in 3-Month and 12-month Bills - 7:00 (RU) Russia to Sell up to RUB14.5B in OFZ Bonds - 7:00 (IR) Ireland Oct Live Register Monthly Change: No est v 5.4K prior; Registry Level : No est v 449.6K prior - 7:00 (IR) Ireland Oct Unemployment Rate: No est v 13.7% prior - 7:00 (US) MBA Mortgage Applications w/e Oct 29th: No est v 3.2% prior - 7:30 (US) Oct Challenger Job Cuts: No est v 37.2K prior; Y/Y: No est v -44.1% prior - 8:15 (US) Oct ADP Employment Change: +20K v -39K prior - 9:00 (BR) Brazil Oct Trade Balance: No est v $1.1B prior - 9:00 (RU) Russia to Sell up to RUB10.0B in OFZ Bonds - 10:00 (US) Oct ISM Non-Manufacturing Composite: 53.5e v 53.2 prior - 10:00 (US) Sept Factory Orders: 1.6%e v -0.5% prior - 10:30 (US) Weekly DOE Energy Inventories: Crude: +1Me; Gasoline: -500Ke; Distillate: -1Me; Utilization: 83.9%e - 12:00 (MX) Mexico Oct IMEF Non Manufacturing Index: 52.3e v 52 prior; Manufacturing Index: 52.4e v 52.2 prior - 12:15 (SZ) SNB's Jordan speaks in Zurich - 14:15 (US) FOMC Interest Rate Decision: Expected to maintain rates at 0.25% level - 17:00 (US) Oct Domestic Vehicle Sales: 8.95Me v 8.82M prior; Total Vehicle Sales: 11.8Me v 11.73M prior
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