TradeTheNews.com EU Market Update: Spain 10-year Govt yield test the pivotal 7.0% level following downgrades
Thursday, June 14, 2012
TradeTheNews.com EU Market Update: Spain 10-year Govt yield test the pivotal 7.0% level following downgrades
***Economic Data*** - (RU) Russia Gold % Forex Reserves w/e Jun 8th: $512.4B v $509.2B prior - (EU) ECB: €789M borrowed in overnight loan facility vs. €2.4B prior; €703.5B parked in deposit facility vs. €798.2B prior (new reserve period) - (DE) Germany May Wholesale Prices M/M: -0.7% v +0.5% prior; Y/Y: 1.7% v 2.4% prior - (FI) Finland May CPI M/M: 0.0% v 0.0%e; Y/Y: 3.1% v 3.1%e - (IN) India May Wholesale Price Index (WPI) Y/Y: 7.6% v 7.5%e - (ES) Spain Q1 House Prices ToT Homes Q/Q: -5.0% v -4.2% prior; Y/Y: -12.6% v -11.2% prior - (CN) China Q1 Current Account Balance: $23.5B v $59.8B prior </ >- (CH) Swiss National Bank (SNB) leaves the 3-Month Libor Target Rate unchanged at 0.00% and reiterated to enforce cap on Franc of 1.20 per Euro - (NL) Netherlands Apr Retail Sales Y/Y: -8.7% v 2.4% prior - (NL) Netherlands Apr Trade Balance: €4.4B v €4.1B prior - (AT) Austria May Consumer Price Index M/M: -0.1% v +0.4% prior; Y/Y: 2.1% v 2.3% prior - (PH) Philippines Central Bank leaves the Overnight Borrowing Rate unchanged at 4.00% - (HK) Hong Kong Q1 Industrial Production Y/Y: -1.6% v -2.2% prior - (HK) Hong Kong Q1 Producer Price Y/Y: 3.6% v 6.6% prior - (IT) Italy Apr General Government Debt: 1.948T v €1.946T prior - (EU) Euro Zone Q1 Labor Costs Y/Y: 2.0% v 2.6%e - (EU) Euro Zone May CPI M/M: -0.1% v -0.2%e; Y/Y: 2.4% v 2.4%e; CPI Core Y/Y: 1.6% v 1.6%e - (GR) Greece Q1 Unemployment Rate: 22.6% v 20.7% prior
Fixed Income: </ >- (RU) Russia sold RUB13.6B vs. RUB20.0B indicated in 2022 OFZ Bonds; Yield 8.64% vs. guidance 8.55-8.65% - (IT) Italy Debt Agency (Tesoro) sold total €4.5B vs. €2.75-4.5B indicated range in 2015, 2019 and 2020 BTP bonds - Sold €3.0B vs. €3.0B indicated in 2.5% Mar 2015 BTP; Avg Yield 5.30% (highest since Dec) v 3.91% prior; Bid-to-cover: 1.59x v 1.52x prior - Sold €627M in 4.25% Feb 2019 BTP; Avg yield 6.10% v 5.21% prior; Bid-to-cover: 1.99x v 2.27x prior - Sold €873M in 4.25% Mar 2020 BTP; Avg Yield 6.13% v 5.33% prior; Bid-to-cover: 1.66x v 2.08x prior - (UK) DMO sold £1.5B in 4% 2060 Gilts; Avg Yield 3.278% v 4.150% prior syndicate; Bid-to-cover: 1.81x; Tail 0.7bps (HU) Hungary Debt Agency (AKK) sold total HUF59B vs. HUF45B indicated in 2015, 2017 and 2022 Bonds - 6:30 (PL) Poland to hold exchange offer Auction
*** SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM *** ***Notes/Observations*** - Moody's cuts Spain sovereign to lowest level of investment grade; new plan increases debt burden - RBNZ leaves interest rates unchanged at 2.5% (as expected) - Spain 10-yield hits fresh EMU record high as its tests 7.00% - Italy auction results sees broadly higher yields but sells upper end of range - SNB leaves interest rate unchanged and maintains EUR/CHF floor at 1.2000 - Key question for upcoming FMOC decision is whether economic growth is fast enough to make material progress in reducing unemployment - Credit Agricole (Greece's largest foreign ban) warned it would abandon operations in Greece if they leave the EMU - PIMCO drops bunds from its portfolio. "Germany is losing quality due to conditional liabilities that are piling up on bunds"
***Equities*** </ >FTSE 100 -0.90% at 5433, DAX -1% at 6090, CAC-40 -0.90% at 3003, IBEX-35 -0.20% at 6600, FTSE MIB -0.90% at 12,773, SMI -0.80% at 5895
- European equity indices have continued to trade mostly in negative territory (FTSE MIB in Italy underperforming), as Italy sold 2015, 2019 and 2020 bonds. European banks are currently trading mixed, as Spain's 10-yr yield has hit a new record high near 7% (a level deemed by some to be unsustainable). In news related to Spanish banks, ECB data showed that institutions in the country have continued to increase their reliance on the central bank (Spain May ECB banks borrowing at record high €324.6B v €316.9B prior in April). Also, following yesterday's close Spain's Economy Ministry stated that there were no plans to liquidate any banks in the country. The comments came after EU official Almunia said that liquidating troubled banks was an option in certain cases. In terms of commodity related companies, most of the UK listed miners are trading lower (Xstrata -3.5%, Rio Tinto -2%), following cautious comments out of BHP regarding the outlook for commodity prices. - In Finland shares of Nokia [NOK1V.FI] have declined by over 6% as the company lowered guidance for its Q2 devices/services unit operating margin. Additionally, the firm announced management changes and a plan to cut up to 10,000 (~7% of total workforce). UK listed luxury retailer Mulberry [MUL.UK] has declined by over 22%, amid concerns about slowing growth. The company reported FY11/12 sales growth of approx. 39%, but noted that its retail sales were only higher by 12% for the 10 weeks to June 9th. Shares of British Sky [BSY.UK] and BT Group [BT.UK] are trading lower, as there are some concerns about the amounts that the firms paid to win the broadcasting rights to the UK Premier League soccer matches. UK Banks are trading mostly lower ahead of Chancellor Osborne's comments on the Vickers banking reforms. In other UK movers, shares of Carphone Warehouse [CPW.UK] are higher by ~1% (issued FY12 results), while technology services firm Computacenter [CCC.UK] has declined by over 15% (issued trading update). German solar-related names are mostly lower (including Wacker Chemie [WCH.DE] and Solarworld [SWV.DE]) amid reports that Germany's government was unable to reach an agreement related to solar subsidy levels. Centrotherm [CTN.DE] has lost over 30%, on concerns that certain credit insurers have refused to lend to the company. In other German movers, Kabel Deutschland [KD8.DE] is lower by over 2% after issuing Q4 results and its initial outlook for FY13, while Heidelberger Druck [HDD.DE] is slightly higher (issued final Q4 results and affirmed its medium-term targets). In France, Technicolor [TCH.FR] has gained over 4%, after receiving a revised offer from Vector Capital. Credit Suisse [CSGN.CH] has declined by ~8%, after SNB official Dathine said the firm needs to strengthen its capital base.
Speakers: </ >- German Chancellor Merkel addressed her Parliament on goals at the upcoming G20 Summit. She noted that she would to discuss sustainable economic growth measures and counter protectionist tendencies. European debt crisis would be the central theme at the G20 Summit. She warned that German strength was not limitless and that all measures to fail if relied solely on Germany. Europe must move step by step towards a political union and not opt for the quick, easy solutions to the crisis. Thus she reiterated that if the euro failed so will Europe. Lastly joint liabilities in EMU would be counterproductive - SNB commented at its rate decision that the CHF currency (Franc) was still high and further appreciation would have a serious impact on both prices and the domestic economy. The SNB reiterated it was ready to take further measures at any time if needed and prepared to buy currencies in unlimited quantities. It also stressed that uncertainty about future developments in the Euro Area had again risen. - SNB Jordan stated that he expected significant economic slowdown in Q2 and that its balance sheet would expand due to enforcing the EUR/CHF cross. He saw no need of discussion of exit strategy from EUR/CHF floor at this timeHe reiterated view that CHF currency remained too high even at the 1.2000 floor in cross and that the central bank could bear balance sheet risks in its currency purchases. He noted that a sovereign wealth fund would not help enforce the EUR/CHF cross floor and confirmed that the SNB had added the South Korea Won currency to its forex portfolio. The SNB would evaluate other emerging market investments - SNB's Danthine commented that banking giants UBS and Credit Suisse needed to continue to strengthen their capital bases - France Fin Min Moscovici reiterated that France would meet its planned 2012 and 2013 deficit targets and was possible without austerity measures - ECB's Likenan reiterated the view that ECB did not pre-commit on rate decisions (response to question whether rates could go to zero) - Reserve Bank of Australia (RBA) member Edwards commented that Australia had policy flexibility with room to ease monetary and fiscal settings if required. Recent Q1 GDP was a pretty good result with a softer AUD currency being a help, the biggest risk to Australia was from China - Spain Foreign Min Margallo commented that the EU rescue fund needed to intervene in markets to ease tensions - India Fin Min Mukherjee commented that FY13 inflation to stay between 6.5-7.5% range - Qatar Central Bank Gov commented maintaining USD currency peg involved 'challenges' as following US monetary policy might not always suit the country but had no plans to drop the USD peg - Philippine Central Bank: Reiterates that PHP currency rate is determined by market forces but will act to smooth volatility -Hong Kong Monetary Authority (HKMA) announced measures to increase offshore Yuan liquidity; effective Friday, Jun 15th (as speculated). To set up facility to provide Yuan term funds to banks on request
Currencies: - Once again the session's price action mostly reflected short covering sentiment of prior risk aversion theme. The Euro managed brushed off a fresh round of sovereign downgrades after the NY close on Wed and fresh record Spanish 10-year yields. - Moody's decision to slash Spain's sovereign rating by three notches to Baa3, leaving it just one notch above junk status. Spanish yields have moved to new euro-era highs at 7.00% and provided a stiff headwind on risk appetite. The steep climb in Italian auctions yields had the Euro surrender its Asian gains. The EUR/USD hovered around the 1.2555 level ahead of the NY morning - The CHF was steady as the SNB threw no surprises. SNB chief Jordan reiterated view that CHF currency remained too high even at the 1.2000 floor in cross and saw no need of discussion of exit strategy from EUR/CHF floor at this time. The EUR/CHF was little moved in the session at 1.2010
Political/ In the Papers: - The Telegraph's Evans-Pritchard noted that in private comments officials in Berlin said Chancellor Merkel is willing to become more supportive of the European Redemption Fund proposal. He suggested Merkel might drop her opposition to the fund if it is properly supervised according to sources, adding that there would be no "master plan" or break-through at the EU summit (June 28-29th). The Finance Minister Schauble, however, expressed opposition to the redemption fund, as he believes it would violate European treaties and the no bail-out clause. German top court officials said the fund appears compatible with the country's constitution. - The UK Chancellor of the Exchequer Osborne is to adopt the bulk of the Vickers banking reform per report by the FT. The government is expected to publish, ahead of the speech that will provide more details of implementation of the recommendations, that it has resisted pressure by the industry to row back from reform and go forward with the bulk of proposals in a manner that does not undermine the competitiveness. - The UK Times reported that the German government faces €15B claim for compensation from various energy companies as a result of its decision to shutdown nuclear power. Germany's E.ON in particular is seeking €8B in claims, while RWE is seeking an amount in the billions. The constitutional court will assess the government and stakeholder's views over the validity of the claims during the week.
***Looking Ahead*** ***All times listed for economic events are denominated in Eastern Standard Time (Add 4 hours for GMT equivalent) - (FI) Finland Parliament sets no confidence vote - OPEC meeting - (IS) Israel Q1 Current Account: No est v -$740M prior - 6:30 (PL) Poland to hold exchange offer Auction - 8:00 (PL) Poland May M3 Money Supply: No est v -0.5% prior - 8:00 (BR) Brazil Apr Retail Sales M/M: 1.4%e v 0.2% prior; Y/Y: 7.5%e v 12.5% prior; Broad Retail Sales Y/Y: No est v 10.2% prior - 8:00 (RO) Romania to sell 2014 Bonds - 8:30 (CA) Canada Q1 Capacity Utilization Rate: 80.5%e v 80.5% prior - 8:30 (CA) Canada Apr New Housing Price Index M/M: 0.3%e v 0.3% prior; Y/Y: 2.6%e v 2.6% prior - 8:30 (US) Q1 Current Account Balance: -$132.0Be v -$124.1B prior </ >- 8:30 (US) May Consumer Price Index M/M: -0.2%e v 0.0% prior; Y/Y: 1.8%e v 2.3% prior - 8:30 (US) May CPI Ex Food & Energy M/M: 0.2%e v 0.2% prior; Y/Y: 1.8%e v 2.3% prior - 8:30 (US) May Consumer Price Index NSA: 229.800e v 230.085 prior; CPI Core Index SA: 229.328e v 228.984 prior - 8:30 (US) Initial Jobless Claims: 375Ke v 377K prior; Continuing Claims: 3.27Me v 3.293M prior - 9:00 (MX) Mexico Q1 Aggregate Supply & Demand: 5.2%e v 3.9% prior - 9:30 (EU) ECB's Weidmann, Eurogroup Chief Juncker speak in Mannheim - 9:30 (US) Weekly Commercial Paper data - 10:00 (IT) Italy PM Monri meets France President Hollande - 10:30 (CA) Bank of Canada publishes Financial System Review - 10:00 (US) Treasury 30-year TIPS refunding announcement - 10:30 (CA Bank of Canada publishes Financial System Review - 10:30 (US) Weekly EIA Natural Gas Storage - 11:00 (BR) Brazil to sell Zero Coupon Fixed Rate 2013, 2014, 2016 and 2018 Bills - 11:00 (US) Fed to purchase $1.50-2.25B in Notes - 12:30 (US) World Bank President Zoellick - 12:50 (CA) Bank of Canada Dep Gov Cote speaks in Montreal </ >- 13:00 (US) Treasury to sell $13B in 30-Year Bonds Reopening - 14:00 (UK) Chancellor Osborne, BOE Gov King speak at Lord Mayor's Dinner - 18:00 (CL) Chile Central Bank Interest Rate Decision: expected to leave the Nominal Overnight Rate Target unchanged at 5.00% </ >- (JP) BOJ Interest Rate decision expected on Friday
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