European Market Update: Sentiment mixed between optimism over the Korean situation and pessimism over the European peripherals
Economic Data
- (GE) Germany Jan GfK Consumer Confidence: 5.3 v 5.7e
- (FI) Finland Nov Unemployment Rate: 7.1% v 7.6%e
- (SZ) Swiss Nov Trade Balance (CHF): 1.9B v 2.1B prior; Exports M/M: -3.4 v +2.3% prior; Imports M/M: -3.3% v +1.7% prior
- (SW) Sweden Dec Consumer Confidence: 20.8 v 22.6e; Economic Tendency:111.2 v 114.3e; Manufacturing Confidence: 4 v 9e
- (SZ) Swiss Nov M3 Money Supply Y/Y: 6.4% v 6.3% prior
- (NV) Netherlands Oct Consumer Spending Y/Y: 1.1% v 1.0%e
- (HK) Hong Kong Nov CPI Composite Y/Y: 2.9% v 2.9%e
- (UK) Nov Public Finances (PSNCR): £16.8B v £12.3B; Net Borrowing:£22.8 v £16.8Be; PSNB ex Interventions: £23.3 v £17.0Be (highest on record)
- (IT) Italy Q3 Unemployment Rate: 8.3% v 8.3%e
- (SP) Spain Oct Trade Balance: -€3.7B v -€4.4B prior
Fixed income:
- (SP) Spain Debt Agency (Tesoro) sold approx €3.9B in 3-month and 6-month Bills vs. €3-4B Indicated
- Sold €3.0B in 3-month Bills; avg yield 1.804% v 1.743% prior; Bid-to-cover: 2.1x v 2.34x prior
- Sold €877M in 6-month Bills; avg yield 2.597% v 2.111% prior; Bid-to-cover: 5.2x v 2.65x prior
- (EU) ECB allotted €193.5B in its Main 7-Day Refi Tender at fixed 1.0%
- (HU) Hungary Debt Agency (AKK) sells HUF40B in 3-Month Bills; avg yield 5.81% v 5.69% prior Bills
SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM
Notes/Observations:
- Risk appetite finds its footing after North Korea has taken a more "pragmatic" stance in the conflict and would allow IAEA inspectors to tour nuclear facilities.
- Vice Premier Wang noted Beijing will support EU measures to ensure financial stability
- RBA policy meeting minutes retained the dovish tone seen in the Dec 7th statement as it suggested policy was on the "restrictive" side
- PBoC sells 1-yr bills at 2.3437%, unchanged for 6th consecutive week
- Moody's places Portugal sovereign on watch for possible downgrade
- UK public borrowing figures jump in Nov
- Lunar eclipse on the winter solstice (last happened in the year 1638 when Charles I was King of England)
Equities:
FTSE 100 +0.74% 5,935, DAX +0.60% at 7058, CAC 40 +60% at 3907, FTSE MIB +0.90% at 20.558, IBEX 35 +1.2% at 10,115
- European shares were up on thin volume led by miners . Equities were supported by China which backed the efforts of the EU to approach and contain the debt problems. Furthermore, the Korean tension was eased as North Korea accepted to allow UN inspectors. Markets shrugged off the news that Moody was placing Portugal's A1sovereign rating on review for possible downgrade.
- In M&A news, vitamin maker DSM [DSM.NV] rallied over 2% after acquiring Martek. The acquisition is immediately EPS accretive for DSM by 15 to 20 euro cents per ordinary share on a full year basis. Safran [SAF.FR] traded higher by 3.3% after DeutscheBank upgraded the recommendation to Buy from Hold. Rolls-Royce [RR.UK] also rose by 1.5% following an upgrade to Buy from Hold at Citi. Axelion [AXN.UK] traded down by 20% following its trading update. Company announced that year-to-date like-for-like sales had declined by 4.7% and expected this to impact profit expectations for the year ending 29 January 2011 by up to £1.5m.
Speakers:
- Moody's placed Portugal's "A1"sovereign rating review for possible downgrade. It cited three main triggers for the review that included (1) Uncertainties about Portugal's longer-term economic vitality, which would be exacerbated by the impact of fiscal austerity;(2) Concerns about Portugal's ability to access the capital markets at a sustainable price; and (3) Concerns about the possible impact on the government's debt metrics of further support for the banking sector, which might be needed for the banks to regain access to the private capital markets. Moody's noted that the sovereign rating could be adjusted downwards by a notch or two but added that the country's solvency was not in question. It review would focus first on the economy's growth prospects
- Sweden NIER Think Tank raised its 2011 GDP forecast to 3.8% from 3.4% prior added that growth to level off going forward. Swedish economy was in an upward spiral, where rising demand led to increased output and higher employment, which in turn gave demand a further boost
- BOJ Gov Shirakawa commented in his post rate decision press conference that the BOJ was watching currencies closely. He noted that the JPY currency stability might reflect rising US Long Term Rates but he would not comment on outlook for JPY-related pairs. He noted that the USD rebound reflected optimism on US economic recovery and an overall lower risk aversion sentiment. He stressed that the central bank would watch for effects of higher long term interest rates on the Japanese economy.
- France Debt Agency (AFT) forecasted its 2011 funding requirement at €187B
Currencies:
- The EUR/USD entered the European session just off its best level and probing the 1.32 neighborhood. Optimism over receding tension on the Korean Peninsula and comments out of China Trade Minister that it was hopeful the Euro region would survive the debt crisis provided the seeds for risk appetite. However, comments from Moody's helped the EUR/USD pull back below 1.3150 areas after the rating agency placed Portugal sovereign rating on review for a possible ratings downgrade. Moody's cited uncertainties about economic growth after the austerity budget. EUR/CHF again hit fresh all-time lows at 1.2610
- The GBP saw all of its earlier gains evaporate after its Nov public sector borrowing figures deteriorated. Net borrowing jumped to £23.3B excluding the financial sector intervention, which was the highest level since records began in January 1993. GBP/USD dipped below the 1.55 handle in the aftermath of the data release.
- The USD/JPY was steady in the session around the 83.70 area.
- The FX price action was steady heading into the NY morning.
- On the fixed income scene Spain sold the upper end of its indicated amount in its 3-month and 6-month Bills auction. The yields were higher compared to its last auction back in late Nov for the same maturities by a mixed bid-to-cover for the two tranches. Portugal 5-year Credit Default Swap moved above 490bps; wider by over 10bps in session as Moody's placed the country's A1 sovereign rating on review for a possible downgrade.
Geo-Political/ In the Papers:
- The winter weather continued to disrupt many parts of Europe, resulting in travel delays, flight cancellations, though there are some signs of normality returning. Out of the UK, British Airways provided its travel updates reporting that severe weather conditions continue to disrupt and delay travel conditions. Many of the major European travel centres have also reported delays including Germany and France. Businesses also showed signs of concern as retailers may issue profit warnings prior to Christmas according to British media sources citing analysts.
- The Telegraph's Evans-Pritchard recapped some cautious comments about the European Union made by PIMCO's Bosomworth. According to Bosomworth the euro crisis is not over by a long shot. The addition of a stability mechanism to the Lisbon Treaty was too little too late. Last week's summit was a step in the right direction, but European politicians can no longer close their eyes to the possibility of a state bankruptcy within the European Union. He believes that investors will only return to the troubled European countries once confidence in their long-term growth has returned.
- Following up on yesterday's live fire exercises off the Korean peninsula by the South Korean military, there were some signs of diplomatic resolve, as North Korea declined to follow up on threats of military retaliation. US diplomat Richardson reported that North Korea will allow IAEA inspectors to tour their facility to ensure the nation is not processing enriched uranium. In addition, he said that North Korea is more pragmatic in recognizing it has gone too far.
Looking Ahead:
- (RU) Russia Nov Real Retail Sales Y/Y: 4.4%e v 4.3% prior
- (GR) Greece Oct Current Account: No est v -€1.3B prior
- 6:00 (BR) Brazil Dec IBGE CPI IPCA-15 M/M: 0.8%e v 0.9% prior
- 7:00 (CA) Canada Nov Consumer Price Index M/M: 0.3%e v 0.4% prior; Y/Y: 2.2%e v 2.4% prior
- 7:00 (CA) Canada Nov Core CPI M/M: 0.2%e v 0.4% prior; Y/Y: 1.6%e v 1.8% prior
- 7:30 (BR) Brazil Nov Current Account: -$4.6B e v -$3.7B prior; Foreign Direct Investment: $2.8Be v $6.8B prior
- 7:45 (US) ICSC Weekly Chain Store sales
- 8:00 (PD) Poland Nov Core Inflation M/M: 0.0%e v 0.2% prior; Y/Y: 1.2%e v 1.2% prior
- 8:30 (CA) Canada Oct Retail Sales M/M: 0.5%e v 0.6% prior; Retail Sales Less Autos M/M: 0.7%e v 0.4% prior
- 8:55 (US) Weekly Redbook Retail Sales
- 9:30 (EU) ECB Calls for Bids in 3-Month Tender
- 10:00 (MX) Mexico Q3 Aggregate Supply & Demand: 9.0%e v 12.8% prior
- 11:00 (US) Fed to Purchase $7-9B in Notes/Bonds
- 11:30 (US) Treasury to Sell 4-Week Bills
- 14:00 (US) Fed to Purchase $1-2B TIPS
- 16:30 (US) Weekly API Energy Inventories
- 17:00 (US) ABC Consumer Confidence w/e Dec 19th: No est v -43 prior
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