European Market Update: Markets awaiting the outcome of two-day EcoFin meeting; Better German ZEW data ignored
Tuesday, November 16, 2010
European Market Update: Markets awaiting the outcome of two-day EcoFin meeting; Better German ZEW data ignored
***Economic Data*** - (EU) Euro Zone Oct EU 25 New Car Registrations: -16.6% v -9.6% prior - (FR) France Q3 Preliminary Non-Farm Payrolls Q/Q: 0.3% v 0.2%e ; Wages Q/Q: 0.3% v 0.4% prior - (HK) Hong Kong Oct Unemployment Rate: 4.2% v 4.1%e - (SW) Sweden Q3 Total Number of Employees Y/Y: +0.9% v -0.6% prior - (AS) Austria Oct Consumer Price Index M/M: 0.2% v 0.4% prior; Y/Y: 2.0% v 1.9% prior - (IT) Italy Oct Final CPI (NIC incl. tobacco) M/M: 0.2% v 0.2%e; Y/Y: 1.7% v 1.7%e - (IT) Italy Oct Final CPI EU Harmonized M/M: 0.7% v 0.7%e; Y/Y: 2.0% v 2.0%e - (RU) Russia Oct Producer Prices M/M: 2.2% v 0.0%e; Y/Y: 10.4% v 8.0%e - (UK) Sept DCLG UK House Prices Y/Y: 6.1% v 8.1% prior - (UK) Oct CPI M/M: 0.3% v 0.2%e; Y/Y: 3.2% v 3.1%e; Core CPI Y/Y: 2.7% v 2.6%e - (UK) Oct RPI M/M: 0.2% v 0.3%e; Y/Y: 4.5% v 4.6%e; RPIX Y/Y: 4.6% v 4.6%e - (EU)Euro-Zone CPI M/M: 0.4% v 0.3%e; Y/Y: 1.9% v 1.9%e; CPI Core Y/Y: 1.1% v 1.0%e - (GE) Germany Nov ZEW Economic Sentiment: +1.8 v -6.0e; Current Situation: 81.5 v 75.0e - (EU) Euro Zone Nov ZEW Economic Sentiment: 13.8 v 2.0e - (IS) Israel Nov Inflation Forecast: 2.8% v 2.9% prior
Fixed Income: - (SA) South Africa to Sold total ZAR2.1B in 8% 2018 and 7% 2031 Bonds - (SP) Spain Debt Agency (Tesoro) sold total â‚¬4.97B in 12-month and 18 Month Bills vs. â‚¬4.5-5.5B Indicated - Sold â‚¬3.73B in 12-month Bills; Avg Yield 2.363% v 1.842% prior; Bid-to-cover: 1.90x v 2.06x prior - Sold â‚¬1.24B in 18-month Bills; Avg Yield 2.664% v 2.009% prior; Bid-to-cover: 3.7x v 2.03x prior - (GR) Greece Debt Agency (PDMA) sold â‚¬390M vs. â‚¬300M Indicated in 13-week Bills; Avg Yield 4.10% v 3.75% prior; Bid-to-cover: 5.0x v 5.19x prior - (EU) ECB allotted â‚¬186.0B in its 7-Day Main-Refi Tender at a fixed 1.0%; with 177 bids bidding vs. 146 prior w/w - (HU) Hungary Debt Agency sold HUF40B in 3-Month Bills; avg yield 5.26% v 5.24% prior - (BE) Belgium Debt Agency sold total â‚¬2.81B in 3-month and 12-month Bills vs. â‚¬2.8B indicated) - Sold â‚¬1.0 in 3-month Bills; avg yield 0.784% v 0.777% prior; - Sold â‚¬1.81 in 12-month Bills; avg yield 1.117% v 0.901% prior
*** SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM ** Notes/Observations: - EU EcoFin to meet the next two days to avoid any peripheral contagion - Another steep decline in China equities -Hedge Fund Paulson trims or sells entire stakes in US bank holdings while Buffet buys BNY & Wells Fargo - South Korea raises interest rates by 25 bps ending a 4-month pause in its tightening cycle - German ZEW exceeds expectations - Peripheral auctions for Spain and Greece viewed as 'mediocre' by dalers
Equities: EuroStoxx 50 at 2817.7, -1.1%, FTSE100 at 5745, -1.29%, CAC40 at 3814, -1.29%, DAX at 6755, -0.52%
- European shares continued their decline led by banks and miners due to Irish debt uncertainty which has put pressure also on Portugal and Spain, eyed by investors. - Low cost carrier EasyJet [EZJ.UK] reported better than expected results and as expected the CEO announced it would pay its first dividend in 2012 for the current fiscal year, pressured by founder Stelios Haji-Ioannou. Company's metrics had also increased overall. Despite uncertainties in Europe, the airline said it would boost its corporate flyers share beyond the current 18%. Overall, airlines in Europe such as Ryanair and British Airways have surprised positively investors this quarter, benefitting from a surge in demand. EasyJet's shares opened higher but are now trading in the red following weakness in the markets. Luxury retailer, Burberry [BRBY.UK] is trading up by 0.6% on better than expected results, tracking the trend of its European peers which all posted stronger results in the month. Company raised its dividend by 43% and expects to increase average selling space by about 25% in the second half. Homebuilder Taylor Wimpey [TW.UK] provided its interim statement noting that it performed well in recent periods and that trading was above views. Company expected Group profit before tax to be at the upper end of expectations - Infineon [IFX.GE] beat estimates for its Q4 earnings and resumed its dividend of â‚¬0.10 for 2010. Company guided Q1 Rev to be flat to down slightly vs Q4 and FY11 Rev +10% with mid to high teens y/y. Shares are up by 2.5% approximately. - Vivendi [VIV.FR] reported slightly better than expected results and affirmed its FY10 targets of a higher operating profit.
Speakers: - Ireland European Min Roche spoke ahead of the EcoFin meeting that markets were not operating 'rationally' and stressed that there was o reason to trigger and EU/IMF bailout package. He expressed hope that EcoFin would bring logic to the situation and reiterated that Ireland would not 'go broke' next year. He stressed that the issue at hand was one of bank liquidity and there was no need to panic. - Spain's Dep Fin Min Ocana commented that the country was advanced in its deficit reduction and reiterates that it would reduce its deficit to GDP ratio to 6% in 2011 - ECB's Constancio commented that if Ireland tapped aid it could use â‚¬60B EU stabilization mechanism as a starting point . he saw no necessary link between Ireland getting assistance and Portugal following suit although he did concede that several countries are under pressure from market forces but situation are different for Spain and Portugal. He stated that he was unaware of any specific request by Ireland for assistance but such a request would stabilize the European situation. - Japan Fin Min Noda reiterated that Japan was ready to take bold action on FX if needed and also reiterated view that excessive currency moves could impact economy - ZEW Economists commented after the strong Nov ZEW survey that growing optimism over growth in other countries but cautioned about being overly optimistic in 2011. It did note that positive development of German labor market had stimulated domestic demand and the current situation in Germany was exceptionally good. It did add that it was but difficult to assess the impact from the Irish crisis as the survey answers came in before crisis intensified. It did note that Euro currency appreciation and a banking crisis - BOE Inflation Letter reiterated the quarterly report released last week. It noted that the BOE was prepared to act in both direction as it saw both upside and downside risks in inflation.
Currencies: - The market was looking for a conclusion of the Irish situation in front of the two-day EcoFin meeting in Brussels. The USD managed to recover the bulk of its soft tone exhibited in Asia as dealer chatter centered on German banks exposure to Ireland versus that of Greece with German TV highlighting that German banks have lent over â‚¬120B to Ireland compared to the â‚¬30B they lent to Greece. The EUR/USD failed to benefit from a better ZEW survey for Nov as the Spanish and Greek Bill auctions were viewed as mediocre at best. As the NY morning approached the EUR/USD lingered below the 1.36 handle. The GBP/USD was supported by the higher CPI data but the BOE inflation letter reiterated much of last week's content from the quarterly report. The GBP/USD moving back towards the lower portion of the 1.60 area after testing 1.6080 in the aftermath of the CPI data.
Geopolitical/In the papers: - In an interview with French press, Greek Prime Minister Papandreou addressed financial concerns stating that restructuring of its Greek debt is out of the question. - In a press report, Portugal became the most recent EU nation to acknowledge that it was at a high risk of requiring an international bailout. Ireland had confirmed it is holding preliminary discussions on debt. The report points to the Financial Times citing Portugal Finance Minister Dos Santos, stating that the risk is high because the country is facing more than just a national or country problem. It is the problems of Greece, Portugal and Ireland. In addition, it clarifies Portugal was not preparing to take steps to seek assistance. - The Telegraph reported that according to the Institute of Directors (IoD), growth in the UK will miss forecasts in 2011. The organization expects the country to grow by 1.2% in 2011 against the prior forecast of 1.8%. Note that the Office of Budget Responsibility forecasted 2011 GDP at 2.3%. - The Telegraph's Evans-Pritchard noted that concerns about Ireland have started to spread to Portugal. In the article, EU officials were angered by Ireland's refusal to accept a bailout as the officials are concerned that the crisis will spread to other countries. The main concern is that the crisis could spread to Spain, which has a much larger economy than Greece and Portugal. Note foreign banks have about â‚¬850 billion worth of exposure to Spanish debt, and a bailout for Portugal and Ireland at the same time may cost about â‚¬200 billion.
***Looking Ahead *** - (SA) South Africa Q3 BER Business Confidence: No est v 47.0 prior - (IS) Israel Q3 Advanced GDP Annualized: % v 4.5% prior - 7:00 (EU) ECB to drain â‚¬65B in 7-day Term Deposit Tender - 7:45 (US) Weekly ICSC Chain Store Sales - 8:30 (CA) Canada Sept Manufacturing Sales M/M: -0.9%e v 2.0% prior - 8:30 (US) Oct Producer Price Index M/M: 0.8%e v 0.4% prior; PPI Ex Food & Energy M/M: 0.1%e v 0.1% prior - 8:55 (US) Weekly Redbook Retail Sales - 9:00 (BE) Belgium Aug Trade Balance: No est v â‚¬477.6M prior - 9:00 (US) Sept Total Net TIC Flows: No est v $38.9B prior; Net Long-term TIC Flows: $62.5Be v $128.7B prior - 9:15 (US) Oct Industrial Production: 0.3%e v -0.2% prior; Capacity Utilization: 74.9%e v 74.7% prior - 9:30 (GE) ECB's Stark Speaks in Frankfurt - 10:00 (US) Nov NAHB Housing Market Index: 17e v 16 prior - 11:00 (EU) Euro-Area Finance Ministers Meet in Brussels - 11:30 (US) Treasury to sell 4-Week Bills and Sell $23B in 52-Week Bills - 14:30 (US) Senate Banking Committee Votes on Diamond Fed Nomination - 15:00 (CL) Chile Central Bank Interest Rate Decision: Expected to raise the Nominal Overnight Rate Target by 25bps to 3.00% from 2.75% current level. - 16:30 (US) Weekly API energy Inventories - (US) ABC Consumer Confidence w/e Nov 14th: No est v -46 prior
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