Tuesday, January 4, 2011

European Market Update

European Market Update: Late Dec safe-haven flows unwind in first full trading day of 2011
Economic Data
* (GE) Germany Dec ILO Unemployment Rate: 6.7% v 6.7% prior
* (FR) France Dec Consumer Confidence: -36 v -31e
* (NO) Norway Dec PMI 54.4 v 55.7 prior
* (SP) Spain Dec Net Unemployment M/M: -10.2K v +24.3K prior (first monthly decline since July '10)
* (GE) Germany Dec Unemployment Change: +3K v -15Ke (first positive reading in 18 months); Unemployment Rate: 7.5% v 7.5%e
* (UK) Dec PMI Manufacturing: 58.3 v 57.2e
* (UK) Nov Net Consumer Credit: -�100M v +�200Me; Net Lending: �800M v �700Me
* (UK) Nov Mortgage Approvals: 48.0K v 46.5Ke
* (UK) Nov M4 Money Supply M/M: -0.8% v +0.7% prior; Y/Y: -1.4% v -0.7% prior (lowest year-on-year rate on record); M4 Ex OFCs 3M Annualized: 3.5% v 2.7% prior
* - (EU) Euro-Zone Dec CPI Estimate Y/Y: 2.2% v 2.0%e ; First reading above ECB target since Nov 2008
* (IT) Italy Dec Preliminary CPI (NIC incl. tobacco) M/M: 0.4% v 0.2%e; Y/Y: 1.9% v 1.7%e
* (IT) Italy Dec Preliminary EU Harmonized CPI M/M: 0.3% v 0.2%e; Y/Y: 2.0% v 1.9%e
* Fixed Income
* Sweden Debt Agency sold a total of SEK13.5B in 103 and 159-day bills
* (EU) ECB allotted ?195.7B in Main 7-day Refi Operation at fixed 1.0%
* (HU) Hungary Debt Agency (AKK) sold HUF in 3-Month Bills; Avg Yield: 5.72% v 5.74% prior
* (BE) Belgium Debt Agency sells approx ?2.64B vs. ?2.6B Indicated in 3-month and 6-month Bills
* Sold ?1.01B in 3-month Bills; Avg yield 0.661% v 0.884%; Bid-to-cover: 3.61x v 3.80x prior
* Sold ?1.635B in 6-month Bills; Avg yield 0.722% v 1.00%; Bid-to-cover:1.93 x v 1.54x prior
SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM
Notes/Observations:
* ECB Dec CPI data above the central bank target of 2.0%
* German unemployment rises for the first time in 18 months; cold weather blamed
* UK Mortgage approvals hover at 8-month lows
Equities:
FTSE 100 +2.00 at 6,015, DAX +0.10% at 6,998, CAC 40 +0.51% at 3,920, IBEX .40% at 9,931, FTSE MIB +0.80% at 20,596, SMI +0.30% at 6515
European shares traded higher supported by Wall Street gains and overall favorable economic data out of US, Europe and China. Industry analysts remain positive over equities for 2011 as current valuations are cheap. Investors are also positively anticipating US job report on Friday which may help fuel current optimism. FTSE100 was the biggest gainer rallying almost 2% opening today for the first time in 2011 and catching up with Monday's gains. Optimism over 2011 economic performance pushed up crude oil and copper prices. Antofagasta [ANTO.UK] and Xstrata [XTA.UK] gained 3% and approx 4% respectively in London trading.
In energy news BP [BP.UK] gained over 3.5% following an article in Daily Mail which reported that Shell had been interested in a merger with BP during the company's battle with Gulf of Mexico spill controversy. Article noted that Shell may still be interested in pursuing the merger. Meanwhile a leaner Fiat [F.IT] traded higher by almost 2% following its demerger from Fiat Industrial [FI.IT] and after Morgan Stanley initiated the company with an Overweight rating as a result. French retailer Carrefour [CA.FR] rallied over 2% after an upgrade to a Buy recommendation at Tier-1 bank. Greek banks fell in the European session, however its European peers were trading higher. RBS [RBS.UK] was up by 5% after Exane BNP upgraded the stock to Outperform on cheap valuation.
Speakers:
UK Chancellor Osborne commented in a radio interview that he did not rule out possibilities of further tax increases including VAT. He noted that VAT hikes were the least damaging with regards to tax increases
France Budget Min Baroin commented that economic growth was fragile but Gov'twais adhering to forecasts. France would maintain its 2011 GDP forecast of 2.0%. he reiterated 2011 Gov't target for public deficit to GDP ratio to 6.0% from 7.7% y/y. The 2012 and 2013 deficit to GDP targets were also maintained at 4.6% and 3.0% respectively. The minister noted the delicate balance between making savings and safeguarding growth. He added that to lower public deficit to 6%, the government would need to make savings of around ?40B and cutting the deficit to 4.6% would require another ?30B in savings
S&P commented on the Australia flooding. The rating agency noted that the flooding would not have a downward impact on Queensland's state rating. It did add that any return to AAA rating for the State might be impacting from flooding
Iran foreign min spokesperson confirmed an invitation for IAEA ambassadors to visits its nuclear facilities like in mid-Jan
Germany Labor Official Weise commented that he expected unemployment to rise in Jan and Feb period
German DIW economic research institute forecasted a sustained though moderate recovery for the German economy with 2011 GDP seen at +2.2% compared to +3.7% registered in 2010. It noted that the biggest factor in the euro zone's continued recovery was how officials handle the debt crisis and believed European leaders missed an opportunity in Dec when officials outlined plans to create a permanent crisis fund.
South Korea Central Bank member commented that the impact on South Korean economy from Chinese inflation was more serious than expected. The banker added that tensions with the North had abated significantly.
Currencies/Fixed income:
The first full trading day with complete global participation tested the resolve of the late Dec currency moves. The CHF and JPY currencies were broadly weaker as rising risk appetite was aiding an unwinding of safe-haven flows. EUR/CHF was higher by over 150 pips ahead of the NY morning at 1.2630 while USD/CHF approached the 0.9450 level. The USD/JPY tested a key hourly resistance area of 82.30 while EUR/JPY moved back above the 110 handle.
The GBP/USD was firmer by over 125 pips to test above the 1.56 handle. The UK Dec PMI manufacturing data exceeded expectations. Dealers also noted that potential M&A flows helping the GBP. Daily Mail article that Royal Dutch Shell/BP could again purser a merger thus generate large sterling demand.
The EUR/USD shrugged off the rise in German unemployment and some widening of peripheral spreads to test above the 1.34 handle. Dealers concluded that underlying trend on the labor market was still improving in Germany
Geo-Political/ In the Papers:
The Financial Times reported that a majority of economists polled believed Britain's austerity measures will be effective, and do not consider the planned budget cuts will have a significant impact on growth. The largest concerns were the high levels of inflation, and the possibility that the EU debt crisis could worsen.
In an article in the Irish Independent, more than ?70 billion in deposits have left Irish banks in 2010. Monthly central bank data indicate Irish banks lost more than ?69 billion in deposits from the Jan-Nov period. Additional December outflows placed total deposits lost at over ?70 billion. Note the data includes 20 domestic institutions.
According to the Spanish press, Spain may seek to takeover savings banks if public loans are not repaid. The article noted that the Bank of Spain implemented a technicality which allows a bank to be taken control of if they default on their public loans.
Looking Ahead
* (SP) Spain Dec Consumer Confidence: v 70.0 prior
* 6:00 (NV) Netherlands Debt Agency (DSTA) to sell 3-month, 6-month and 1-year Bills
* 7:00 (EU) ECB to drain ?73.5B in 7-day Term Deposit Facility
* 7:45 (US) Weekly ICSC Chain Store Sales
* 8:30 (SI) Singapore Dec Purchasing Managers Index: No est v 51.4 prior; Electronics Sector Index: No est v 53.2 prior
* 8:55 (US) Weekly Redbook Retail sales
* 10:00 (US) Nov Factory Orders: -0.1%e v -0.9% prior
* 11:00 (US) Fed to purchase $1-2B in TIPS
* 11:30 (US) Treasury to sell 4-Week Bills
* 14:00 (US) Minutes of FOMC Meeting
* 16:30 (US) Weekly API
* (CO) Colombia Dec Producer Price Index M/M: No est v 1.2% prior; Y/Y: No est v 3.7% prior
* 17:00 (US) ABC Consumer Confidence w/ Jan 2nd: No est -44 prior
* 17:00 (US) Dec Domestic Vehicle Sales: 9.20Me v 9.27M prior; Total Vehicle Sales: 12.30Me v 12.26M prior
* 21:30 (CH) China Dec HSBC Services PMI
* 00:00 (IN) India Dec Markit Services PMI

Source: ActionForex.Com

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