European Market Update: Bernanke calls for global rebalancing; PBoC responds with tepid RRR increase (TTN)
Friday, November 19, 2010
European Market Update: Bernanke calls for global rebalancing; PBoC responds with tepid RRR increase
***Economic Data*** - (GE) Germany Oct Producer Prices M/M: 0.4% v 0.3%e; Y/Y: 4.3% v 4.1%e - (GR) Greece Sept Current Account: -â‚¬1.3B v -â‚¬259M prior - (TT) Taiwan Oct Export Orders Y/Y: 12.3% v 14.1%e - (HU) Hungary Sept Avg Gross Wages Y/Y: 2.3% v 1.6%e - (AS) Austria Sept Producer Price Index M/M: 0.3% v 0.1% prior; Y/Y: 3.3% v 3.9% prior - (TT) Taiwan Q3 Current Account: $9.0B v $9.2Be - (NV) Netherlands Sept Consumer Spending Y/Y: 1.5% v 1.4% prior - (IT) Italy Sept Industrial Orders M/M: -1.2% v -2.0%e; Y/Y: 17.9% v 17.0%e - (IT) Italy Sept Industrial Sales M/M: -0.2% v 2.6% prior; Y/Y: 10.8% v 13.8% prior - (PD) Nov Central/Eastern European ZEW: 31.4 v 19.3 prior
*** SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM ** Notes/Observations: - Hong Kong confirms plans to implement additional measures to slow the property market - Market believes that China PBoC will again raise interest rates before year end. PBoC did raise the RRR once again - Fed's Bernanke defends launch of QE and stresses the importance of currency flexibility. Mirrors US Tsy view that recent USD weakness reflects reversal of safe haven flows
Equities: EuroStoxx 50 at 2847, -0.26%, FTSE100 at 5731,-0.66%, CAC40 at 3864, -0.10%, DAX at 6832, +0.01%
- European shares opened up but slipped in negative territory during the session. Ireland continues to dominate markets as the situation remaining unclear. Investors will refrain from making a bold move ahead of potential requests from EU and IMF in case of a potential bailout in Ireland. The main focus is the corporate tax rate of 12.5%, lower than the European average. Ireland is being pressured by the EU and IMF to raise the rate, a request that the Irish govt has refused to negotiate. Mining stocks also fell as traders are focusing on a Chinese signal of monetary policy tightening. - As earnings season is slowing down, there were few companies providing an update on their operations. Yesterday after the EU close, it was reported that Safran would not make an offer for Zodiac as conditions for a friendly combination were not in place. Shares of Zodiac fell about 9% at the open, while Safran climbed about 4%. New World Resources, the coal and coke producer, disappointed markets as results failed to beat expectations. Company said it was on track to meet their production guidance and reported a 9% and 63% in coal and coke external sales. Shares are trading down by almost 3%. Dutch semiconductor ASML [ASML.NV] opened higher by 1% and continues to trade in positive territory after company stated that the it expected logistics and foundry systems to show strong growth in 2011. Also planned to use use extra cash for dividends and share purchases. - Investors are awaiting an interim update from Allied Irish Bank following the visits of EU and IMF officials. The company is due to issue the report today during the day.
Speakers: - ECB's Stark started off the day-lng ECB conference in Germany stating that monetization of gov't debt must be avoided. He added that monetary policy must be directed towards the medium term and avoid fine-tuning temptations in the short term. - Attending the ECB conference Greek Fin Min Papaconstantinou observed that Ireland problems stem from its banking sector (thus different from other sovereign woes). He added that decisions must be made regarding Ireland. - EU Spokesperson stated that Commissioner EU's Rehn canceled his ECD conference appearance to focus on Ireland's talks. The spokesperson added that there no imminent announcement was foreseen on Ireland - Japan PM Kan stated that Japan to support the USD as key global reserve currency since there are no alternatives - ECB's Gonzalez-Paramo spoke in Spain that the decision on aid was up to Ireland and commented that governments must take steps to help lower market tensions. - PBoC: Purpose of reserve ratio hike is to strength liquidity management
Currencies: Risk appetite began the European session aided by several factors. Fed's Bernanke prepared remarks were pre-released ahead of his schedule panel appearance at the ECB banking conference in which the Chairman defended the launch of its QE2 measures. The formal start to the Irish examination by IMF officials continued to provide expectations of an Ireland aid package. Lastly a reversal in the last hour of the Shanghai Composite from -2.0% to +0.8% helped to sooth concerns on a potential PBoC rate hike that was rumored all week. - The EUR/USD moved above the 1.37 handle as dealers took notice that that Bernanke's comments stressed the rebalancing of the global economy and implied it to mean a weaker USD. CitiFX analyst once again recommended clients to establish long Euro positions suggesting purchases at 1.3580 with stop loss placed below 1.3550 (and no upward price target provided). - The USD briefly popped higher after the PBoC raised its reserve requirement ratio (RRR) for the fifth time this year by 50 bps. However, the USD returned to session lows after the market realized it was NOT the rate hike it was long fearing.
Geopolitical/In the papers: - The Telegraph's Evans-Pritchard noted that the ECB warned it will move forward with exiting easy policy measures even if hurts peripheral countries. He references comments from ECB's Trichet in which he warned about banks becoming dependent on emergency measures. The article notes a rise in ECB rates would hurt mortgage holders in Spain, as these loans are linked to the Euribor rate. - Analysts reacted to the recent monthly UK government borrowing and retail sales data according to an article in the Telegraph. In the article, an economist at IHS Global Insight reported that the government is on pace to meet their budget targets, while others believe if the UK's growth is worse than expected, the targets may not be met. In terms of retail sales figures, Capital Economics believes that the data suggested a tepid recovery in retail sales, but believes sales could weaken in 2011.
***Looking Ahead *** - (CO) Colombia Central Bank Interest Rate Decision: Expected to maintain the Overnight Lending Rate unchanged at 3.00% - (RU) Russia Q3 Foreign Direct Investment (FDI) % v -11.0% prior - 6:00 (IR) Ireland Sept Trade Balance: No est v â‚¬3.8B prior - 7:30 (GE) IMF Chief Strauss-Kahn, ECB's Trichet and Weber speak in Frankfurt - 8:00 (PD) Poland Oct Sold Industrial Output M/M: 0.0%e v 13.2% prior; Y/Y: 10.1%e v 11.8% prior - 8:00 (PD) Poland Oct Producer Prices M/M: 0.2%e v 0.1% prior; Y/Y: 4.1%e v 4.3% prior - 8:45 (EU) ECB's Constancio, Tumpel-Gugerell Speak in Frankfurt - 10:00 (PO) EU Leaders meet President Obama in Lisbon - 9:00 (BE) Belgium Nov Consumer Confidence: No est v -2 prior - 11:30 (BR) Brazil Oct CAGED Formal Job Creation: 169.0Ke v 246.9K prior - 14:00 (AR) Argentina Sept Economic Activity Index M/M: No est v 0.3% prior; Y/Y: 8.8%e v 8.5% prior - 14:00 (AR) Argentina Industrial Production M/M: No est v 1.2% prior; Y/Y: 9.0%e v 10.1% prior
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