TradeTheNews.com European Market Update: Obama extension of the Bush Tax Cuts fuels risk appetite; China shakes off renewed rumors of pending rate hikes
Tuesday, December 07, 2010
TradeTheNews.com European Market Update: Obama extension of the Bush Tax Cuts fuels risk appetite; China shakes off renewed rumors of pending rate hikes
***Economic Data*** - (SZ) Swiss Nov Unemployment Rate: 3.6% v 3.6%e; Unemployment Rate (Seasonally Adj): 3.6% v 3.6%e - (CZ) Czech Oct Industrial Output Y/Y:6.9 % v 9.5%e; Construction Output Y/Y: -1,4% v -5.1% prior - (CZ) Czech Oct Retail Sales Y/Y: -0.7% v +0.9%e - (CZ) Czech Oct Trade Balance (CZK): 15.3B v 11.0Be - (HU) Hungary Oct Preliminary Industrial Output M/M: -1.0% v 0.5% prior; Y/Y: 8.3% v 9.7%e - (TT) Taiwan Nov Total Trade Balance: $0.4B v $2.5Be v $3.0B prior; Exports Y/Y: 21.8% v 18.9%e; Total Imports Y/Y: 33.8% v 18.1%e - (AS) Austria Nov Wholesale Price Index M/M:+ 0.8% v -0.2% prior; Y/Y: 7.7% v 7.0% prior - (DE) Denmark Oct Industrial Production M/M: -4.8% v +4.1% prior; Industrial Orders M/M: +3.0% v -26.9% prior - (SW) Sweden Nov Budget Balance: +13.7B v -16.6B prior - (IC) Iceland Nov Preliminary Trade Balance (ISK): 10.4B v 10.1B prior - (IC) Iceland Q3 GDP Q/Q: +1.2% v -3.1% prior (first quarterly rise in two years); Y/Y: -1.6% v -8.4% prior - (NO) Norway Oct Industrial Production M/M: 8.6% v 1.8% prior; Y/Y: -2,4% v -10.9% prior - (NO) Norway Oct Industrial Production Manufacturing M/M: -0.3% v +0.4%e; Y/Y: 4.0% v 4.7% - (RU) Russia Nov Official Reserve Assets: $483.1B v $484.5Be - (UK) Oct Industrial Production SA M/M: -0.2% v 0.3%e; Y/Y: 3.3% v 3.9%e - (UK) Oct Manufacturing Production M/M: 0.6% v 0.3%e; Y/Y: 5.8% v 5.4%e - (CL) Chile Nov CPI M/M: 0.1% v 0.2%e; Y/Y: 2.5% v 2.5%e; CPI Ex Perishables & Fuel M/M: -0.1% v 0.0%e - (GE) Germany Oct Factory Orders M/M: 1.6% v 1.9%e; Y/Y: 17.9% v 18.6%e
Fixed Income: - (SA) South Africa bond auction results: Sold total ZAR2.1B in 2021 and 2036 bonds - (DE) Denmark sold approx DKK5,6B in 2013 and 2016 Bonds - (EU) ECB announces allotments for its 7-Day Main Refi and 1-month Tenders - Alloted â‚¬197.3B in 7-day Main Refi Operation at fixed 1.0% rate - Alloted â‚¬68.1B in one-month Tender - (HU) Hungary Debt Agency (AKK) sold HUF45B in 3-Month Bills vs. HUF40B Targeted;; avg Yield: 5.72% v 5.78% prior - (UK) DMO sold Â£2.0B in 4.25% Dec 2049 Gilts; Avg Yield 4.379% v 4.344% prior; Bid-to-cover: 1.8x v 1.8x prior
EuroStoxx50 at 2812, +1.56%, FTSE100 at 5832, +1.08%, CAC40 at 3823, +1.97%, DAX at 7035, +1.16%
- European shares rose in the session sustained by President Obama's announcement to extend Bush tax cuts, while extending unemployment benefits to an additional 13 months and cutting the payroll tax by $120B for a year. The President reaffirmed that the compromise was not ideal but an essential step to recovery. The news was well received by investors and market analysts who argue that the extension will relieve monetary policy of the burden of being the only tool to stimulate the economic recovery. This compromise offset European debt concerns despite escalating disagreements between EU leaders as Merkel, as expected, rejected a bigger emergency fund and the creation of euro-bonds. Markets are also optimistic of the approval by the Irish parliament as it votes today on its 2011 budget, especially after EU formally approved Ireland's aid package. Investors also shrugged off the rumors of a possible interest rate hike by China. Financial sector, however, continues to trade lower despite gains in indices. - Among retailers, Tesco [TSCO.UK] rose about 1.3% following its third quarter sales update. Sales overall rose 8.8% which was better than the 8.0% expected by analysts. Company also saw steady economic recovery. BP [BP.UK] is trading higher by 2.4% after press reports indicated that the company has approached several energy companies to whom it could sell its North Sea assets for $1B. This is part of BP's strategy to divest $30B of its assets in order to deal with the Gulf of Mexico financial burden. Norwegian fertilizer Yara [YAR.NO] also increased by about 1.6% following its Capital Markets Day presentation. Company noted that demand continued to grow strongly and steadily. Bellway [BWY.UK] also rose 8% after company announced that home reservations are ahead of Board's expectations.
Notes/Observations: - US Treasury Department sold its remaining stock in Citigroup [C] - US President Obama agrees to two-year extension to Bush Tax cuts with 13-month extension in jobless benefits. - Risk appetite gets a lift with rotation out of bonds into stocks. German Dax at 2 year highs above 7,000 - Front-month NYMEX Crude futures hits $90.00/contract for 26-month highs - China Shanghai Composite shakes off renewed rumor of possible interest hike to ends session higher
Speakers: - ECB's Stark reiterated the German view in newspaper interview that Member States were responsible for own debts and not the ECB's job to finance member States. EU states must accept that single currency limits budget autonomy. He added that the financial crisis would continue as debt levels were too high unless governments enacted structural reforms. On the inflation front the typical hawk stated that he was not concerned about inflation. - India Finance Ministry Mid-Year review raised its FY2010/11 GDP view to 8.75% from 8.5% prior. The ministry added that FY2010/11 GDP growth could top the 9.0% as growth in H2 possible at a faster clip compared to H1. Overall it saw FY11 fiscal deficit at no more than 5.5% of GDP. Forecasted FY11 Headline inflation around 9% and Food inflation around 20.0% - Portugal Treasury official commented that raising the domestic savings was the key to reduce dependence on foreign financing. The solution to the crisis was not based upon investing less - The EcoFin meeting in Brussels failed to provide any resolution in the debate to increase the EU safety net from the â‚¬750B level. A Luxembourg official commented that the size of EFSF funds was sufficient at this time. He added that the topic of Eurobond not discontinued since it was not yet discussed by the ministers - EU formally approved Ireland's aid package; Extended the country's deficit reduction target by one year until 2015
Currencies: - Risk appetite was the theme during the European morning as the market perceived the two-year extension of the Bush-era tax cuts would aid the US economic picture. There was a rotation out of bonds into equities highlighted by the German DAX probing above the 7,000 level for its highest reading since June 2008. The USD was softer against the major European pairs with EUR/USD pair approaching 1.34. The Irish budget sentiment also aided the Euro after two-key independent members appeared to support the ruling Gov't 2011 budget. The peripheral situation complemented the scenario with a slight tighten across the board.
Geopolitical/In the papers: - As speculated in earlier reports, the press has confirmed that Irish Independents Lowry and Healy-Rae will support the proposed 2011 budget due out later today in the Irish Lower House (dail). The coalition government has a narrow lead of two seats in parliament. The Irish Finance Minister Lenihan will address parliament and unveil the 2011 budget outline at followed by voting by Irish lawmakers during the evening. As noted earlier the initial vote today will cover excise duties and sales tax. - According to the press, the tax compromise in the US between President Obama and Republicans did not include an extension to the Build America Bond program. The program is expected to expire at the end of 2010 and the outlook for the program has been one of the factors linked to the recent declines in the municipal bond market. - In the press, the UK Office of Budget Responsibility (OBR) member Steve Nickell had stated that the European currency was at a risk though does not currently see this as a high probability occurrence. He was also noted as stating that the general consensus for currency unions is that they eventually fail.
***Looking Ahead *** - 6:00 (CL) Chile Nov CPI M/M: 0.2%e v 0.1% prior; Y/Y: 2.5%e v 2.0% prior; CPI Ex Perishables & Fuel M/M: 0.0%e v -0.1% prior - 6:00 (GE) Germany Oct Factory Orders M/M: 1.8%e v -4.0% prior; Y/Y: 18.6%e v 14.0% prior - 6:00 (IR) Ireland Nov New Vehicle Licenses: No est v 4.8K prior - 6:30 (CL) Chile Nov Trade Balance: $1.3Be v $214.9M prior - 7:00 (EU) ECB to drain â‚¬69B in 7-day Term Deposit Tender - 7:45 (US) Weekly ICSC Chain Store Sales - 8:55 (US) Weekly Redbook Retail Sales - 9:00 (CA) Bank of Canada Interest Rate Decisions: Expected to leaves rates unchanged at 1.00% - 10:00 (US) Dec IBD/TIPP Economic Optimism: 47.2e v 46.7 prior - 10:00 (UK) Nov NIESR GDP Estimate: No est v 0.5% prior - 11:00 (HU) Hungary Nov YTD Budget Balance (HUF): No est v -1.1B - 11:00 (US) Fed to purchase $6-8B in Notes/Bonds - 11:30 (US) Treasury to sell 4-Week Bills - 13:00 (US) Treasury to sell $32B in 3-Year Notes -13:15 (EU) ECB's Constancio speaks in Paris - 15:00 (US) Oct Consumer Credit: -$1.0Be v +$2.1B prior - 16:30 (US) Weekly API Energy Inventories - 17:00 (US) ABC Consumer Confidence w/e Dec 5th: No est v -45 prior
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