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Thursday June 12, 2014 - 10:07:50 GMT
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| | Email EU Market Update: Iraq unrest continues to rattle oil markets

Thu, 12 Jun 2014 5:22 AM EST

- Islamist militants in Iraq vow to march on to capital of Baghdad; Kurdish forces in full control of Kirkuk following the exit of the Iraq army

- New Zealand Central Bank (RBNZ) hikes its Official Cash Rate by another 25bps to 3.25%; hints of more to come
- Bank of Korea (BoK) again leaves 7-Day Repo Rate unchanged at 2.50%; 13th straight pause
- Australia May Employment Change come in below expectations and registers its first decline in four months (-4.8K vs. +10.0Ke) but AUD finds comfort in the Full Time component (+22.2K v +14.2K prior)

***Economic Data***
- (DE) Germany May Wholesale Price Index M/M: -0.1% v +0.2% prior; Y/Y: -0.9% v -1.3% prior

- (FR) France Apr Current Account Balance: -1.6B v -1.5B prior
- (FR) France May CPI M/M: 0.0% v 0.1%e; Y/Y: 0.7% v 0.7%e; CPI Ex-Tobacco Index: 126.27 v 126.28e
- (FR) France May CPI EU Harmonized M/M: 0.0% v 0.0%e; Y/Y: 0.8% v 0.8%e
- (TR) Turkey Apr Current Account Balance: -$4.8B v -$4.9Be
- (HU) Hungary Apr Final Industrial Production M/M: 2.4 v 2.4% prelim; Y/Y: 10.1% v 10.1% prelim
- (EU) ECB 8M borrowed in overnight loan facility vs. 16.0M prior; 13.6B parked in deposit facility vs. 39.0B prior - Daily Eurosystem Liquidity Conditions
- (SE) Sweden May CPI M/M: 0.1% v 0.0%e; Y/Y: -0.2% v -0.2%e; CPI Level : 314.05 v 314.03e
- (SE) Sweden May CPI Underlying (CPIF) M/M: 0.1% v 0.1%e; Y/Y: 0.4% v 0.4%e
- (SE) Sweden May Average House Prices (SEK): 2.213M v 2.299M prior
- 03:30 (NL) Netherlands Apr Trade Balance: 4.5B v 4.9B prior
- (CN) China May New Yuan Loans (CNY): 870.8B v 750.0Be
- (CN) China May Aggregate Financing (CNY): 1.40T v 1.300Te
- (CN) China May M2 Money Supply Y/Y: 13.4% v 13.1%e; M1 Money Supply Y/Y: 5.7% v 5.6%e; M0 Money Supply Y/Y: 6.7% v 5.8%e

- (ID) Indonesia Central Bank (BI) left its Reference Rate unchanged at 7.50%, as expected
- (UK) Apr Mortgage Advances: 53.2K, +6.2% y/y - CML
- (GR) Greece Q1 Unemployment Rate: 27.8% v 27.8% prior
- (EU) Euro Zone Apr Industrial Production M/M: 0.8% v 0.5%e; Y/Y: 1.4% v 0.9%e

Fixed Income:
- (ES) Spain Debt Agency (Tesoro)
opened its books to sell Euro-denominated Oct 2024 bond via syndicate; final spread at +118bps over mid-swaps (Implies Yield at 2.75%); Order book in excess of 12B
- (SE) Sweden sold SEK1.0 vs. SEK1.0B indicated in 0.1% I/L 2022 Bonds; Yield: 0.2321% v 0.4457 prior
- (IT) Italy Debt Agency (Tesoro) sold total 8.5Bvs. 6.5B-8.5B indicated range in 2017, 2021 and 2044 BTP bonds
- Sold 3.5B vs. 3.5B indicated in 1.15% 2017 BTP; Avg Yield: 0.89% (record low) v 1.07% prior; Bid-to-cover: 1.63x v 1.53x prior
- Sold 4.0B vs. 4.0B indicated in new 2.15% 2021 BTP; Avg Yield: 2.12% v 2.29% prior; Bid-to-cover: 1.42x v 1.53x prior
- Sold 1.0B vs. 1.0B indicated in 4.75% 2044 BTP; Avg Yield: 4.05% v 4.27% prior; Bid-to-cover: 1.39x v 1.51x prior

Indices [Stoxx50 +0.1%,
FTSE 100 -0.1% at 6,830, DAX flat at 9,956, CAC-40 +0.2% at 4,563, IBEX-35 +0.2% at 11,100, FTSE MIB -0.1% at 22,199, SMI -0.3% at 8,690, S&P 500 Futures +0.1% at 1,945]

- Market Focal Points/Key Themes: Equity markets trade mixed amid declines in Asia and slight rise in peripheral bond yields, Resource related firms weigh on FTSE 100, Aer Lingus issues profit warning, Consolidation speculation supports France's telecom sector

By Sector
- Industrials
[FCC FCC.ES +4% (M&A speculation)]
- Healthcare [Morphosys MOR.DE +2% (strategic agreement with Merck)]
- Consumer Discretionary [ BOO.UK +4% (FY gross margins rose); Laura Ashley ALY.UK -5% (19-week sales -0.9%)]
- Telecom [Bouygues EN.FR +3% (ongoing M&A speculation)]
- Stoxx50 sectors [Utilities -0.2%; Technology +0.5%, Energy +0.4%, Financials +0.3%, Industrials +0.2%, Basic Materials +0.2%, Telecom +0.1%, Consumer Non-Cyclical +0.1%, Consumer Cyclical +0.1%]

- Kurdish forces said to be in full control of Kirkuk following the exit of the Iraq army.
Iraq army said to have regained full control of Tikrit
- ECB Monthly Reports reiterated its stance that the current situation did not suggest an outright deflationary episode is imminent. It did caution that too prolonged period of positive but low inflation might require a response
- France Fin Min Sapin: May raise Livret-A ceiling (**Note: Device is savings account that is tax free on annual deposits up to 23k)
- Poland Central Bank Chojna-Duch (dove) stated that it should consider rate possible cut at July meeting after recent ECB moves and it should not signal rate increases in near future
- Poland Fin Min Szczurek stated that it might pre-finance 20-30% of 2015 financing needs and that current PLN currency (Zloty) strength was not a reason for concern
- UK Treasury, BOE and FCA to review wholesale financial markets
- Sweden FSA released its bi-annual report which stressed that household debt was a risk to financial stability as market funding made banks vulnerable. Any new measure might be directed to households and their ability and willingness to borrow
- South Africa AMCU union to present PGM wage offer to its members today
- RBNZ Assistant Gov McDermott stated that its July rate decision would be data driven and added that it expected to raise rates another 50bps this year. Signaling rate pause would be counter-productive, speculation of pause was flattening yield curve. NZD should fall if people were pricing it right.
- India RBI's Khan: Looking for ways to help banks raise capital as Govt might not be able to infuse capital into state-run banks. Large corporates were looking at overseas borrowings. To come out with revised version of inflation-linked bonds; discussing possibility of quarterly coupon
- S&P affirmed China sovereign rating at AA-; Stable Outlook
- China Vice Commerce Min Gao Yan: Hopes UK can help in having EU relax export controls

Currencies/Fixed Income:
- The major pairs were little moved in the session. EUR/USD still holding above the post-ECB lows of 1.3503. Price action said to be cross driven against commodity-related currencies and high-yielders. Dealer noting that divergence in G10 policy, especially within Europe, likely to be a major driving force of currencies.
- The NZD currency (Kiwi) registered gains in Asia after RBNZ projections affirmed Dec-end 90-day bill rate at 4%, potentially signally another two rate hikes this year. Traders had anticipated a more dovish and possibly signal a pause due to slowing dairy prices and persistent strength in the NZD. Instead, even some of the more skeptical analysts have now renewed expectations for another 25bp move next month.
- Oil continued its move higher on Iraq concerns. Reports noted that Kurdish forces were in full control of Kirkuk following the exit of the Iraq army and later ISIL seized Baiji oil refinery. Islamist militants in Iraq vow to march on to capital of Baghdad (said to be less than 20 miles away)

Political/In the Weekend Papers:
- (UK) UK finance ministry to introduce criminal sanctions for rigging currency, fixed income, commodity benchmarks - financial press
- (UK) Chancellor George Osborne is set to reveal plans at his annual Mansion House speech that will speed up development of disused industrial sites, in his latest attempt to stop housing shortages from holding back economic growth.
- (CN) China SAFE (fx regulator): FX reserves investment now very diversified; Gold market too small for China's large fx reserves; Yuan's two way moves since Feb lowers inflow pressure.
- (JP) Japan govt and ruling party officials said to have decided to cut corporate tax rate to 20% over the next several years (current rate above 35%) - Nikkei
(JP) BOJ to consider maintaining large balance sheet after meeting its inflation target - financial press

**Looking Ahead***
All times listed for economic events are denominated in Eastern Standard Time (Add 4 hours for GMT equivalent)
- (BR) Fifa World Cup begins
- (UK) Chancellor George Osborne annual Mansion House speech
- (CZ) Czech Republic to sell 12-month Bills
- 05:30 (ZA) South Africa Apr Mining Production M/M: -4.9%e v -5.5% prior; Y/Y: -7.0%e v -4.7% prior; Gold Production Y/Y: No est v -2.9% prior
- 05:30 (HU) Hungary Debt Agency (AKK) to sell Bonds
- 05:30 (UK) DMO to sell 1.4B in 0.125% I/L 2019 Gilts
- 06:00 (PT) Portugal May CPI M/M: 0.1%e v 0.2% prior; Y/Y: -0.2%e v +0.1% prior
- 06:00 (PT) Portugal May CPI EU Harmonized M/M: 0.1%e v 0.3% prior; Y/Y: -0.3%e v -0.1% prior
- 06:00 (IE) Ireland May CPI M/M: No est v 0.1% prior; Y/Y: No est v 0.3% prior
- 06:00 (IE) Ireland May CPI EU Harmonized M/M: No est v 0.3% prior; Y/Y: No est v -0.1% prior
- 06:00 (IL) Israel May Trade Balance: No est v -$1.9B prior
- 06:00 (IS) Iceland to sell Bills
- 06:45 (US) Daily Libor Fixing
- 06:45 (ES) Bank of Spain Duran
- 08:00 (IN) India May CPI Y/Y: 8.4%e v 8.6% prior
- 08:00 (IN) India Apr Industrial Production Y/Y: +1.9%e v -0.5% prior
- 08:00 (BR) Brazil Apr Retail Sales M/M: -0.1%e v -0.5% prior; Y/Y: +6.2%e v -1.1% prio
r; Broad Retail Sales Y/Y: +1.1%e v -5.7% prior
- 08:00 (EU) Eurogroup chief Dijsselbloem on agenda at The Hague
- 08:15 Baltic Dry Bulk Index
- 08:30 (US) May Advance Retail Sales M/M: 0.6%e v 0.1% prior; Retail Sales Ex Auto M/M: 0.4%e v 0.0% prior; Retail Sales Ex Auto and Gas: +0.4%e v -0.1% prior; Retail Sales Control Group: +0.4%e v -0.1% prior
- 08:30 (US) May Import Price Index M/M: +0.2%e v -0.4% prior; Y/Y: +0.5%e v -0.3% prior
- 08:30 (US) Initial Jobless Claims: 309Ke v 312K prior; Continuing Claims: 2.63Me v 2.603M prior
- 08:30 (CA) Canada Q1 Capacity Utilization Rate: 82.4%e v 82.0% prior
- 08:30 (CA) Canada Apr New Housing Price Index M/M: 0.2%e v 0.2% prior; Y/Y: No est v 1.6% prior
- 08:30 (US) Weekly USDA Net Export Sales
- 09:00 (CA) Canada May Teranet/National Bank HPI M/M: No est v 0.5% prior; Y/Y: no est v 4.9% prior; House Price Index: No est v 161.28 prior
- 10:00 (US) Apr Business Inventories:
- 10:00 (US) Senate confirmation votes for Brainard, Powell & Fischer (as Vice Chair)
- 10:30 (US) Weekly EIA Natural Gas Inventories
- 11:00 (US) Fed to purchase $0.5-0.8B in bonds
- 11:15 (CA) Bank of Canada gov Poloz press conference
- 13:00 (US) Treasury to sell $13B in 30-Year Bonds Reopening
- 14:00 (UK) BOE gov Carney with Chancellor Osborne at Mansion House dinner
- 18:00 (CL) Chile Central Bank Interest Rate Decision: Expected to leave Overnight Rate Target unchanged at 4.00%
- 19:00 (PE) Peru Central Bank Interest Rate Decision: Expected to leave Reference Rate unchanged at 4.00%
- (CO) Colombia Central Bank's Economists Survey
- (JP) Bank of Japan (BOJ) Interest Rate Decision



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