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Friday December 10, 2010 - 10:49:33 GMT
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| | Email European Market Update: China PBoC raises reserve requirement ratio (RRR) by 50bps ahead of its key inflation report

Friday, December 10, 2010 5:47:02 AM European Market Update: China PBoC raises reserve requirement ratio (RRR) by 50bps ahead of its key inflation report


***Economic Data***
- (CH) China PBoC raises Reserve Requirement Ratio (RRR) by 50bps; Effective Dec 20th (6th hike this year)
- (CH) China Nov New Yuan Loans (CNY): 564B v 500Be (3-month low)
- (IN) India Oct Industrial Production Y/Y: 10.8% v 8.5%e
- (FI) Finland Oct Industrial Production M/M: 1.5% v 1.3% prior; Y/Y: 11.3% v 8.8% prior
- (FI) Finland Oct Preliminary Trade Balance: €1.3B v -€140M prior
- (GE) Germany Nov Wholesale Prices M/M: 0.7% v -0.3% prior; Y/Y: 7.8% v 7.7% prior
- (FR) France Oct Industrial Production M/M: -0.8% v +0.3%e; Y/Y: 4.7% v 5.3%e
- (FR) France Oct Manufacturing Production M/M: -0.8% v +0.4%e; Y/Y: 4.5% v 5.2%e
- (HU) Hungary Nov Consumer Prices M/M: 0.3% v 0.2%e; Y/Y: 4.2% v 4.2%e
- (TU) Turkey Q3 GDP Q/Q: 1.1% v 3.7% prior; Y/Y: 5.5% v 6.5%e;
GDP wda Y/Y: 6.4% v 10.2% prior
- (DE) Denmark Nov CPI M/M: 0.1% v 0.1%e; Y/Y: 2.6% v 2.6%e
- (DE) Denmark Nov CPI EU Harmonized M/M: 0.1% v 0.0%e; Y/Y: 2.5% v 2.4%e
- (NV) Netherlands Oct Industrial Production M/M: 0.4% v 0.9%e; Y/Y: 5.1% v 4.9%e; Industrial Sales: 11.1% v 10.6% prior
- (SW) Sweden Oct Industrial Production M/M: 0.2% v 1.0%e; Y/Y: 11.3% v 12.8%e
- (SW) Sweden Oct Industrial Orders M/M: 3.0% v 5.6% prior; Y/Y: 11.4% v 13.7% prior
- (IT) Italy Oct Industrial Production M/M: -0.1% v 0.7%e; Y/Y: -0.2% v 4.6%e; Industrial Production wda Y/Y: 2.9% v 4.5%e
- (NO) Norway Nov CPI M/M: 0.2% v 0.2%e; Y/Y: 1.9% v 1.9%e
- (NO) Norway Nov CPI Underlying M/M: 0.1% v 0.1%e; Y/Y: 1.0% v 1.0%e
- (NO) Norway Nov Producer Prices (incl Oil) M/M: 3.5% v 0.0% prior; Y/Y: 17.9% v 18.0% prior
- (UK) Nov PPI Output M/M: 0.3% v 0.3%e; Y/Y: 3.9% v 4.0%e
- (UK) Nov PPI Output Core M/M: 0.2% v 0.3%e; Y/Y: 3.3% v 3.5%e
- (GR) Greece Nov YTD Cash Balance: -€21.4B v -€27.5B y/y
- (GR) Greece Oct Industrial Production Y/Y: -4.2% v -7.1% prior
- (IT) Italy Q3 Final
GDP Q/Q: 0.3% v 0.2%e; Y/Y: 1.1% v 1.0%e

Fixed Income:
- (IT) Italy Debt Agency (Tesoro) sells €4.0B in 12-month Bills; avg yield 2.014% v 1.778% prior; Bid-to-cover: 2.0x v 2.1x prior


Eurostoxx50 2843.52 at +0.10%, FTSE 5813 at +0.08%, CAC 3868 at +0.24%, DAX 7009 at +0.60%

- European stocks fluctuated during session but failed to secure solid gains. The upside was supported by Wall Street gains at the close yesterday but banks continue to weigh in the markets. Investors remain cautious of the Euro zone concerns which, to some analysts, are now overdone. The main worry remains
China's imminent interest rate hike which seems even more plausible now given strong exports data. As a first step, China announced another hike in its reserve requirement rate (RRR) by 50 bps in the European session which had a minimal impact on the equities. However, this lending restriction put the brakes on the rally and investors' risk appetite. The investors will be eyeing the key inflationary data out of China which will be published on Saturday, but markets find it increasingly difficult for China to justify its interest rate level with its inflationary expectations rising rapidly.
- The financials' decline was led by Standard Chartered after the bank was downgraded by Tier-1 firm following its unsatisfactory trading update on Thursday.
UK insurer Prudential [PRU.UK] moved up by 1% after UBS added the firm to its Key Calls list. However the gains were not enough to offset the losses from Prudential and the FTSE100 is trading flat. Meanwhile, Rolls Royce fell about 2% and continues to trade in negative territory after reports noted that the company may face costs exceeding $80M following the engine failure problems.

- China Trade Surplus widens with both exports and imports rising
- China PBoC raises the RRR for the 6th time in 2010 (but not its key 1-year lending rates) ahead of key weekend release of CPI
- US Trade data out later today and likely heat up the Yuan currency issue

- India Central Bank Dep Chakrabarty commented that the RBI can still raise interest rates despite the pause in its outlook as policy remained accommodative. He added that inflation remained a major concern and might need to take steps if it does not decline to projected level by end of 2010/11 fiscal year (March). Lastly he added that the real interest rates remained negative
-Spain Fin Min Salgado commented during a radio interview that the country's deficit targets were unconditional and would revise the budget as necessary to achieve targets. There were no plans to raise either gasoline taxes or value-added tax (VAT). She noted that the yields on government debt were not alarming but yields could rise on bond auctions in coming weeks.
- ECB's Mersch commented that there was a scope for Euro zone financial stability fund to be broadened to prevent contagion. He added that he would not exclude Euro bonds but added that any EU-wide debt would require an EU-wide tax. The ECB saw financial risks on bond program as monetary policy should not be "overburdened". Cannot "blur" the line between monetary and fiscal policy and ECB cannot substitute for Gov't policy making.
- IEA Monthly Report noted that it saw 2011 demand growth moderating after a strong Q3. It forecasted 2011 demand growth 1.3M bpd vs. 2.5M bps in 2010. It noted that Q4 Market fundamentals looked to be more balanced but demand could rise as a result of weather and/or tighter oil markets. The IEA raised Q4 oil demand by 300K bps to 87.8M bpd and increased Q4 Non-OPEC supply by 200K bps to 53.2M bpd. The IEA raised 2010 global oil demand to 84.4M bpd vs 86.6M bpd prior. It raised 2011 global oil demand by 300K to 88.8M bpd vs 87.9M bpd prior

- Overall the currency markets entered a phase of consolidation into the weekend.
- The EUR/USD once again saw its gains from the Asian session evaporate as the European morning wore on. The EUR/USD tested 1.3220 as the peripheral spreads and CDS widened a few basis points on the equity open. The Chinese RRR increase was greeted with hesitant relief that the PBoC did not raise its key one-year interest rates. The EUR/USD entering the NY morning back in positive territory and above the 1,3250 level. A break above 1.3330 could elect some sizeable Euro Buy stops that would be complemented by thinning liquidity conditions into year-end

Geopolitical/In the papers:
Iceland will repay approximately €4 billion to the UK and the Netherlands following an Icesave deal reached between the three countries. The repayment period would span 30 years beginning 2016 and end 2046. Iceland will begin interest payments on debt beginning 2011. The agreement next needs to be approved by both the parliament and president of Iceland.
- The plan by the British coalition government to increase tuition fees won initial approved amid massive student protests. The motion, led by the coalition to raise English university tuition fees, passed with 323 voting in favor against 302 in the House of Commons, though approval by the House of Lords is still required. In total 21 Liberal Democrats along with 6 Conservatives voted against the motion with 2 Conservative members abstaining. Tuition fees could have the potential to be raised to a maximum of £9,000. There was also a second motion that passed, which would increase the main cap to £6,000 from £3,290 current.

***Looking Ahead ***
- (PO) Portugal Oct Construction Works Index: No est v 75.6 prior
- 6:00 (IR) Ireland Oct Industrial Production M/M: % v 7.9% prior; Y/Y: % v 10.9% prior
- 8:30 (CA) Canada Oct Int'l Merchandise Trade: -C$2.0Be v -C$2.5B prior
- 8:30 (US) Oct Trade Balance: -$44.0Be v -$44.0B prior
- 8:30 (US) Nov Import Price Index M/M: 0.8%e v 0.9% prior; Y/Y: 2.9%e v 3.6% prior
- 9:00 (US) Former Fed Chair Volcker speaks on Panel in Washington
- 9:55 (US) Dec Preliminary University of Michigan Confidence: 72.0e v 71.6 prior
- 10:00 (MX) Mexico Sept Gross Fixed Investment: No est v 4.8% prior
- 11:15 (SP) ECB members Trichet and Ordonez Speak in Madrid
- 13:00 (EU) EU President Van Rompuy speaks in Madrid
- 14:00 (US) Nov Budget Statement: -$130.0Be v -$120.3B prior
- (PE) Peru Oct Trade Balance: No est v $601.0M prior
Key Weekend data:
- (CH) China Nov CPI Y/Y: 4.7%e v 4.4% prior
- (CH) China Nov Industrial Production Y/Y: 13.1%e v 13.1% prior

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