Economic Data
- (GE) Germany Nov Producer Prices M/M: 0.2% v 0.3%e; Y/Y: 4.4% v 4.5%e
- (JP) Japan Nov Convenience Store Sales Y/Y: +1.1% v -5.9% prior
- (TT) Taiwan Nov Export Orders Y/Y: 14.3% v 13.1%e
- (AS) Austria Oct Producer Price Index M/M: % v 0.3% prior; Y/Y: 4.0% v 3.3% prior
- (DE) Denmark Dec Consumer Confidence Indicator: -0.7 v +2.8e
- (NV) Netherlands Dec Consumer Confidence: -14 v -6e
- (IC) Iceland Nov Wage Index M/M: 0.2% v 0.3% prior; Y/Y: 4.7% v 6.0% prior
- (EU) Euro Zone Oct Current Account: -€2.3B v -€13.1B prior; Current Account Seasonally Adj: -€9.8B v -€9.2B prior
SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM
Notes/Observations:
- ECB expressing concerns over the quality of collateral being offered by Ireland's banks
- South Korea to implement levy on non-deposit foreign currency debt held by domestic and foreign banks
- South Korea military commenced its live-fire ammunition drill off Yeonpyeong Island
Equities:
- The Euro STOXX 50 2,835.7 at 0.5%, DAX 7,010 at +0.4%, CAC 40 3,894 at +0.7%, FTSE100 5,881 at 0.2%
- European shares are in positive territory but caution persists among investors due to Korean peninsula conflict and debt crisis in Eurozone. Later during the session, however, North Korea seemed to soften its bellicose rhetoric noting that the South Korean drill was undeserving of attention. In Europe, analysts are predicting a downgrade of France's AAA grade after rating agencies are speeding up peripheral countries' sovereign rating cuts and even semi-core Belgium faces a downgrade due to political instability. Banks are trading mixed with Irish banks trading in negative territory. Automobiles and utilities are trading higher. Volume is light as for most traders the year is over and it is unlikely that there will be any directions in markets in the next coming days.
- Both Volkswagen [VOW3.GE] and Peugeot [UG.FR] rallied during the session following positive newsflow. Volkswagen said that it expects Chinese sales to grow by 10-15% next year while Peugeot also expected to sell more cars in China than France by 2015, targeting sales of 500K vehicles in China by 2015.
- In M&A news, Spanish infrastructure company Abertis [ABE.SP] rose 3% after press reports noted that UK private equity group CVC may bid for Abertis in a transaction valued at €12B. 888 Holdings [888.UK] rallied over 21% after confirming that it is in the early stages of discussions in respect of a possible transaction involving Ladbrokes. French company Ingenico [ING.FR] traded down by 7% after rejecting a €28/shr offer from Danaher Group. Furthermore, Les Echos reported that the French govt was opposed to a takeover by a foreign company given that it considers Ingenico's technology as strategic.
- Airline companies, British Airways and Lufthansa were down after broad flight cancellations in Europe due to heavy snowfalls.
Speakers:
- ECB Trichet commented during a radio broadcast that the Euro was not the cause of the Euro Zone crisis and again stressed that the central bank demanded that member gov''t fulfill their fiscal responsibilities. He noted that it was up to each country make their own effort. Trichet reiterated his view that Euro was a credible currency and 'absurd' that any country would leave EMU. He did concede that there were problems with some member's sovereign ratings.
- China PBoC Official commented that an interest rate raise would hurt its desired economic soft landing. The official noted that increases in rates could restrict liquidity in the non-financial sector
- OECD commented on Spain in its annual report on the country and stated that the country's deficit reduction plan appeared appropriate but added its GDP forecasts seemed on the optimistic side. The country's deep recession will "have a lasting effect." Further deficit measures might become necessary and new controls on Regional Gov;t spending was needed. OECD believed that Spain GDP growth forecasts of 1.3% growth in 2011 and of 2.5% in 2012 are "on the optimistic side," which could mean that tax receipts come in lower than forecast.
- Finland Finance Ministry published its forecast for the Economy and stated that the economy had recovered from the 2009 financial crisis very quickly
- North Korea army reportedly noted that provocation from South Korea's drill did not merit a response
Currencies:
- Thinning year-end conditions provided the backdrop for continued safe haven flows. The live ammunition drills by South Korea and lingering European peripheral concerns aided the CHF and JPY currencies in the session. EUR/CHF again hit fresh lifetime lows below 1.2710 while the EUR/USD languished below 1.3190 area and was testing 1.3135 as the NY morning approached. The 200-day moving average currently stands at 1.3097 level but the redrawn Jun uptrend line is currently at 1.3070 area. The ECB wrote in a position paper that it had concerns over the quality of collateral being offered by Ireland's banks.
The GBP/USD was firmer in the session aide by comments from the CBI and tested above 1.5540. The CBI commented during the Asian session that it forecasted that BoE's would begin to raise interest rates by spring 2011 with the key rate hitting 1.25% by Q4 of that year (current level is 0.50%).
The GBP/USD was firmer in the session aide by comments from the CBI and tested above 1.5540. The CBI commented during the Asian session that it forecasted that BoE's would begin to raise interest rates by spring 2011 with the key rate hitting 1.25% by Q4 of that year (current level is 0.50%).
Geo-Political/ In the Papers:
- Following up on earlier reports of South Korean live fire military exercises, North Korea in an unexpected move, have not retaliated as had previously warned. The North Koreans denounced the exercises of their southern neighbors, dismissing it as an act that did not merit a response. - Continuing the theme of sovereign downgrades, according to analysts cited in Businessweek, France may lose its "AAA" grade as downgrades spread due to debt crisis. The analysts note that credit-default swaps related to France imply a Baa1 rating. - In the Financial Times the ECB, expressing concerns over the quality of collateral being offered by Irish banks, has requested member countries increase capital contributions to help offset any losses from possible emergency lending. The central bank is concerned with the quality of collateral being posted by Irish banks. The Irish banks are responsible for approximately 25% of all lending out of the ECB and the central bank website expressed concern about some of the collateral backing those loans.
- In the Irish press, the ECB expressed concerns over the recently passed Irish bank Bill last Thursday. The ECB stated that the new legislation could take away its rights over the collateral given as security for bank liquidity. In addition, there are problems of legal uncertainty pertaining to the rights of the Irish Central Bank, ECB and other euro central banks. The bill allows the Minister for Finance more comprehensive authority to the Minister for Finance to both reform and restructure the banking sector, incl the ability to appoint a manager to take over an institution.
- It was reported that some economists and analysts have questioned the pace at which the Spanish Caja banks are being restructured. According to the Financial Times article, there are concerns that if the banks are not reformed fast enough that their recapitalization needs will rise.
Looking Ahead:
- (IS) Israel Dec Inflation Forecast: no est v 2.8% prior
- (PH) Philippines Nov Balance of Payments: $ v $2.7B prior
- (PO) Portugal Nov Producer Prices M/M: No est v -0.2% prior; Y/Y: No est v 4.6% prior
- (AR) Argentina Dec Consumer Confidence: No est v 55.36 prior
- 6:00 (PD) Poland to Sell 52-Week T-bills
- 7:30 (EU) Belgium's Vanackere Briefs Press on EU Presidency
- 8:00 (HU) Hungary Central Bank Interest Rate Decision: Expected to maintain the Base Rate Announcement at 5.50%
- 8:30 (HU) Hungary's Martonyi, Gyori Brief Press on EU Presidency
- 8:30 (CA) Canada Oct Wholesale Sales M/M: 0.8%e v 0.4% prior
- 8:30 (US) Nov Chicago Fed National Activity Index: 0.0e v -0.28 prior
- 9:00 (FR) France Debt Agency to sell €5.0B in 3-month and 1-year Bills Apr
- 9:30 (EU) ECB Calls for Bids in Main 7-Day Refi Tender
- 10:00 (EU) Euro-Zone Dec Advanced Consumer Confidence: No est v -9.4 prior
- 10:00 (MX) Mexico Oct Retail Sales 4.8%e v 4.1% prior
- 11:00 (US) Fed to Purchases $7-9B in Notes/Bonds
- 11:30 (US) Treasury to Sell $29B in 3-Month and $28B in 6-Month Bills
- 14:00 (US) Fed to Purchase USD6-8 Bln Notes/Bonds
- 14:00 (AR) Argentina Q3 Current Account: $906Me v $3.1B prior
-19:30 (AU) Reserve Bank's Board December
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