TradeTheNews.com European Market Update: ECB Overnight borrowings surges to its highest level in 19 months
Thursday, February 17, 2011
TradeTheNews.com European Market Update: ECB Overnight borrowings surges to its highest level in 19 months
***Economic Data*** - (IN) India Primary Articles WPI w/e Feb 5th: Y/Y: 14.6% v 16.2% prior; Food Articles WPI Y/Y: 11.1% v 13.1% prior - (FI) Finland Jan PPI M/M: 0.6% v 1.5% prior; Y/Y: 7.2% v 7.8% prior - (TT) Taiwan Q4 Final GDP Y/Y: 6.9% v 6.4%e - (NV) Netherlands Jan Unemployment Rate: 5.1% v 5.1%e - (SW) Sweden Jan Headline CPI M/M: -0.5% v -0.4%e; Y/Y: 2.5% - (SW) Sweden Jan Underlying CPI M/M: -1.1% v -0.5%e; Y/Y: 1.4% v 2.0%e - (SW) Sweden Jan Unemployment Rate: 8.2% v 8.0%e - (RU) Russia Gold & Forex Reserve w/e Feb 11th: $486.1B v $487.0B prior - (EU) Euro Zone Dec Current Account: -â‚¬0.1B v -â‚¬6.0B prior; Current Account Seasonally Adj: -â‚¬13.3B v -â‚¬11.2B prior - (NO) Norway Q4 GDP: 2.4% v 1.7; Mainland GDP Q/Q: 0.3% v 0.9%e - (RU) Russia Jan Producer Prices M/M: 2.1% v 1.2%e; Y/Y: 19.4% v 18.7%e - (VN) Vietnam Central bank raises the Refi Rate by 200bps to 11.0%; effective Feb 17th - (EU) Euro Zone Dec Construction Output M/M: -1.8% v -0.9% prior; Y/Y: -12.0% v -6.3% prior - (SZ) Swiss Feb Credit Suisse ZEW Expectations Survey: -17.2 v -18.4 prior - (PO) Portugal Jan Producer Prices M/M: 2.0% v 0.6% prior; Y/Y: 5.7% v 4.9% prior - (UK) Feb CBI Industrial Trends Total Orders: -8 v -9e
Fixed Income: - (SP) Spain Debt Agency (Tesoro) sold approx â‚¬3.5B vs. â‚¬3B-4B Indicated Range in 2020 and 2037 Bonds - Sold â‚¬2.47B in 4.85% Oct 2020 Bono; Avg Yield 5.200% v 5.446% prior; Bid-to-cover: 1.54x v 1.67x prior - Sold â‚¬997M in 4.20%Jan 2037 Bono; Avg Yield 5.957% v 4.801% prior; Bid-to-cover: 3.81x v 1.99x prior - (FR) France Debt Agency (AFT) sells approx â‚¬8.4B vs. â‚¬7.0-8.5B Indicated range in 2013, 2014 and 2016 Bonds - Sold â‚¬2.69B in 3.75% Jan 2013 BTAN; Avg Yield 1.53% v 1.18% prior; Bid-to-cover: 2.77x v 2.25x prior - Sold â‚¬1.985B in 2.5% Jan 2014 BTAN; Avg Yield 1.89% v 1.30% prior; Bid-to-cover: 2.88x v 5.08x prior - Sold â‚¬3.73B in 3.75% Feb 2016 BTAN; Avg Yield 2.69% v 2.54% prior; Bid-to-cover: 1.85x v 2.39x prior - (HU) Hungary Debt Agency (AKK) sold HUF60B in 12-Month Bills; Avg Yield 5.97% v 5.96% prior - (UK) DMO sells Â£2.75B in 3.75% Sept 2020 Gilts; Avg Yield 3.889% v 3.691% prior; Bid-to-Cover: 2.06x v 2.0x prior; Tail 0.3BPS
*** SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM *** ***Notes/Observations: - Massive jump in ECB's overnight borrowing to its highest level since June 2009 - Suez Official: No Iranian Warships have passed through nor are scheduled to pass through - S&P up over 100% from 2009 lows. Market participants say 'does it feel 100% better???' - Protests continue in several Mid-East countries, several deaths reported in Libya and Bahrain
Equities: FTSE 100 -0.03% at 6083, DAX +0.04% at 7416, CAC 40 -0.02% at 4150, IBEX 35 +0.30% at 11080, FTSE MIB +0.01% at 23,170, SMI -0.25% at 6696
- European shares continue to rally for the 5th straight session on positive corporate earnings and FOMC's more optimistic outlook on US economy. Today's session was rich in French and Swiss earnings notably Nestle and BNP Paribas - World's largest food company, Nestle [NESN.SZ] reported revenues that beat consensus although net was slightly softer. There was organic sales growth in all of company's markets, especially in the emerging markets while Nestle forecast further growth in revenues and EBIT margins. Dividend was raised by 16%. Shares rallied by over 2% at the open. French computer -services company, CapGemini [CAP.FR] gained over 5.5%, the biggest in gain in 7 months, after beating estimates on stronger technology demand. Outlook was also positive as company forecast revenue growth and an improvement in the operating margin. - Among decliners, BNP Paribas [BNP.FR] lost about 0.90% at the open after missing analysts' expectations due to an impairment charge related to their stake in French insurance company Axa. Shares are nonetheless trading in positive territory now after the initial reaction to the numbers. In fact, profit had raised by 14% on a yearly basis boosted by higher revenue in its investment banking division. In line with its US and European peers, fixed income revenues had declined on a yearly basis while equities revenues had increased by 15.7%. Its balance sheet metrics have also strengthened and provisions were lower by almost 434% on a yearly basis. - Axa [CS.FR] also reported earnings which were well below consensus on declining revenue from its Life and Savings division as low interest rates are pressuring returns on investment and demand for life insurance has waned. Earnings were sustained artificially by the sale of UK life insurance business to Resolution; the divestment is in line with the company's strategy as it tries to diversify away from developed markets and into emerging ones. Shares were lower by 1.3% at the open and continue to trade in negative territory. Results were also disappointing for Swiss Re [RUKN.SZ], which swung to a loss of $725M worse than expectations of a loss of $400M. Insurer said the loss was due to the repayment of the $3B loan to Warren Buffet which led to a pretax charge of $1B booked in Q4. However company decided to raise its dividend and shares are now trading in positive territory. - Out of the UK, Bae Systems [BA.UK] lost about 2.5% after missing consensus and forecasting a decline in revenues for FY11.
Speakers: - Former Japanese Fin Min Fujii commented that the strong yen has been difficult on the country's export industry and noted that the JPY strength was due to USD weakness. He added that Japan needed to accept current FX state of affairs. Government would continue talks with opposition about consumption tax and he did not think that rebelling members would oppose the ruling party (DPJ) on the issue. Free trade was the key to Japan's economic future. - An Egyptian official commented that the planned crossing of two Iranian warships in Suez Canal would NOT go ahead - China Commerce Ministry (MOFCOM) was said to be considering cutting a range of import taxes including High-Tech. MOFCOM was asking other ministries for their opinion on the issue. - ChinaState Administration of Foreign Exchange (SAFE) provided a rare insight into money flows. It stated that 2010 "hot money' inflows was at $75.5. SAFE added that an estimated total of $289B worth of such hot money flowed into China between 2001 and 2010 period. The regulator noted that not all speculative money was for short term arbitrage or illegal inflows and did include legal FX transactions - BoE's Sentence stepped up his rhetoric on inflation and commented that the BOE quarterly report understated the upside risks to inflation. He stressed that interest rate hikes needed to rise faster than market expectations (opposite of Gov's King's view). Sentence believed that it was unlikely that global inflation would quickly decline as assumed in inflation report. MPC should focus on the value of the British Pound as it sought to move inflation back to the 2.0% target, as a benefit of higher rates would be a stronger Sterling, which would lessen global price pressures. He later clarified his views and would drop rate hike call if the global economy faltered. He noted that he was not arguing for token rate hike but did concede that an abrupt rate rise could hurt the UK recovery. A gradual rate hike cycle would become less likely as inflation persisted. - China PBoC Stats Chief issues statement on New Financial Supply Measures. Financial conditions encompassed more than just loans and must look at the equity and bond markets - Former China PBoC Adviser commented that US and China should hold talks before any changes to China's US Treasury purchases
Currencies/Fixed income: - The EUR/USD was under mild pressure once the equity markets opened in Europe with simmering financial markets concerns. The daily ECB borrowings showed a surge to its highest level since 2009 at EUR15.8B with dealers surmising what bank was forced to borrow from the ECB. Adding to financial concerns was Moody's reports that it would review Commerzbank Group ratings for a possible downgrade. However, the pair managed to regain some composure and trade little changed from its opening levels in Asia. - The GBP was again boosted by MPC hawk David Sentence who reasoned that higher UK interest rates would boost the trade-weighted value of sterling, which itself would offset inflationary pressures. The GBP/USD was around the 1.6140 area as the NY morning approached
Geo-Political/ In the Papers: - The Irish press reported that Irish banks have been using government guarantees to borrow cheaply from the ECB. According to the report, four Irish banks issued â‚¬17 billion in bonds to themselves under the government's extended guarantee (the Eligible Liabilities Guarantee) to use as collateral to borrow from the ECB. - The Voting bill passed the House of Lords allowing the referendum to take place on the 5th May. The voting referendum was part of the coalition agreements. Note that the electoral reforms were part of the Liberal Democrats' campaign theme. They were seeking to change the current first-past-the-post-voting system, which supports a two party system, in an attempt to seek proportional representation for smaller political parties through the proposed Alternative Voting system. - The Iceland parliament approved the Icesave deal, though it is still pending approval by the President. The agreement involves an Iceland payment of â‚¬4 billion to the governments of Britain and the Netherlands due to the losses of the financial crisis. The terms of the new agreement will allow Iceland longer time to repay at a lower rate of interest than before. The actual cost is expected to be much less than the â‚¬4 billion owed, as the majority of the repayment will come from the sale of Landsbanki assets. - The former Bank of England member Blanchflower stated that Britain has no inflation problems, and that price pressure will recede as temporary factors disappear according to the financial press. The press report, citing earlier comments by Bank of England governor King, play down market expectations for a rate hike.
***Looking Ahead*** - (AR) Argentina Feb Consumer Confidence: No est v 55.7 prior - (PO) Portugal Jan Producer Prices M/M: No est v 0.6% prior; Y/Y: No est v 4.9% prior - 6:00 (UK) Feb CBI Industrial Trends Total Orders: -9e v -16 prior - 8:30 (CA) Canada Dec Wholesale Sales M/M: 0.9%e v 1.2% prior - 8:30 (US) Jan Consumer Price Index M/M: 0.3%e v 0.5% prior; CPI Ex Food & Energy M/M: 0.1%e v 0.1% prior; CPI NSA: 220.176e v 219.179 prior - 8:30 (US) Initial Jobless Claims: 400Ke v 383K prior; Continuing Claims: 3.89Me v 3.888M prior - 10:00 (EU) Euro-Zone Feb Advanced Consumer Confidence: -11.0e v -11.2 prior - 10:00 (US) Jan Leading Indicators: 0.2%e v 1.0% prior - 10:00 (US) Feb Philadelphia Fed Index: 21.0e v 19.3 prior - 10:00 (US) Q4 Mortgage Delinquencies; MBA Mortgage Foreclosures: No est v 4.39% prior - 10:00 (US) Fed Chairman Bernanke and members Bair, Schapiro testify on Dodd-Frank - 10:20 (EU) EU President Van Rompuy meets Latvian Leaders in Riga - 10:30 (CA) Bank of Canada review published - 12:30 (US) Fed's Evans speaks on Economy in Rockford, IL - 13:00 (US) Treasury to sell $9.0B in 30-Year TIPS - 13:00 Fed's Fisher - 16:00 (CL) Chile Central Bank Interest Rate Decision: Expected to raise the Nominal Overnight Rate Target by 25bps to 3.50% - 16:00 (US) Dec RPX Composite 28dy Y/Y: No est v -2.18% prior; RPX Composite 28dy Index: No est v 189.44 prior - 21:00 (CH) China Jan Property Prices: 5.5%e v 6.4% prior - 21:00 (CH) China Dec Leading Indicators
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