European Market Update

*Risk appetite quelled for the time being after China PBoC raised
Reserve Requirement for the seventh time in current cycle*

!! Economic Data !!
(CH) China Central Bank (PBoC) raises Reserve Requirement Ratio (RRR)
by 50bps to 19.00% (7th hike since Jan 2010)
(PH) Philippines Nov Bank Lending Y/Y: 9.0 v 9.1% prior; M3 Money
Supply Y/Y: 7.5% v 7.7% prior
(IN) India Dec Wholesale Prices Y/Y: 8.4% v 8.4%e
(FI) CPI M/M: 0.5% v 0.2%e; Y/Y: 2.9% v 2.7%e
(GE) Germany Dec Final Consumer Price Index M/M: 1.0% v 1.0%e; Y/Y:
1.7% v 1.7%e
(GE) Germany Dec Final CPI EU Harmonized M/M: 1.2% v 1.2%e; Y/Y: 1.9%
v 1.9%e
(EU) Euro Zone Dec EU 25 New Car Registrations -3.2% v -7.1% prior
(FI) Finland Nov Current Account: €0.5B v €2.0B prior
(HU) Hungary Dec Consumer Prices M/M: % v 0.3%e; Y/Y: 5 v 4.4%e
(HU) Hungary Nov Final Industrial Output M/M: % v % prior; Y/Y: % v %
prior
(SP) Spain Dec Consumer Price Index M/M: 0.6% v 0.6%e; Y/Y: 3.0% v
2.9%e
(SP) Spain Dec CPI EU Harmonized M/M: 0.6% v 0.6%e; Y/Y: 2.9% v 2.9%e
(SP) Spain Dec CPI Core M/M: 0.3% v 0.5% prior; Y/Y:1.5 % v 1.2% prior
(SZ) Swiss Dec Producer & Import Prices M/M: 0.3% v 0.1%e; Y/Y: 0.3% v
0.1%e
(AS) Austria Dec Consumer Price Index M/M: 0.6% v -0.1% prior; Y/Y:
2.3% v 1.9% prior
(IT) Italy Nov Total Trade Balance: -€3.4B v -€2.0B prior; Trade
Balance EU: -€1.4B v -€1.0B prior
(UK) Dec PPI Input M/M: 3.4% v 1.7%e; Y/Y: 12.5% v 10.2%e
(UK) Dec PPI Output M/M: 0.5% v 0.4%e; Y/Y: 4.2% v 3.9%e
(UK) Dec PPI Output Core M/M: 0.2% v 0.3%e; Y/Y: 2.9% v 3.0%e
(EU) Euro-Zone Dec CPI M/M:0.6% v 0.6%e; Y/Y: 2.2% v 2.2%e; Core Y/Y:
1.1% v 1.1%e
(EU) Euro-Zone Nov Trade Balance: -€400M v +€3.3Be; Trade Balance
Seasonally Adj: -€1.9B v 1.7Be
(IT) Italy Dec Final CPI (NIC incl. Tobacco) M/M: 0.4% v 0.4% prelim;
Y/Y: 0.9% v 0.9% prelim
(IT) Italy Dec Final CPI EU Harmonized M/M: 0.4% v 0.3% prelim; Y/Y:
2.1% v 2.0% prelim

*SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM*
*Notes/Observations:*
China Central Bank (PBoC) raises Reserve Requirement (RRR) by 50bps
(7th hike in cycle)
India Sensex declines another 1.7% to close below 19,000 level - UK
PPI data above expectations
Euro Zone Trade Balance registers a deficit as imports grow
IMF: EU failed to clear skepticism on debt crisis.
INTC beats. JPM today pre NY open
Italy PM Berlusconi Investigated In Prostitution Case

*Equities:*
FTSE 100 -0.8% at 5,973, DAX -0.3% at 7,056, CAC -0.3% at 3,964, IBEX
-0.4% at 10,336
European major bourses traded in the red today dragged down by miners.
Mining stocks were already trading down in the US session due to soft
economic data despite well -received peripherals' auctions. Rumors
over a Chinese monetary policy tightening persisted and China raised
its reserve requirement ratio which weighed even further on the
basic-materials stocks. On the other hand, tech stocks rallied lifted
by Intel's strong numbers injecting a positive augur for US earnings
season. The better-than-expected quarter supported European tech names
such as Infineon [IFX.GE] and ASML [ASML.NV]. The best performer was
UK tech name ARM Holdings [ARM.UK] which rose over 10%, a 10-year
high. The company had been subject of M&A speculation with Intel being
a potential suitor.

There was little newsflow on individual names as European earnings
season is yet to take its full swing. Thyssenkrupp [TKA.GE] traded
down by 2.6% after German press reports noted that its CFO may resign
earlier. Beavis Home [BVS.UK] was up by 2% after its trading update
noting that FY10 profit was ahead of consensus and the company planned
to resume dividend. However, the CEO remained cautious over mortgage
availability outlook.

Traders will be awaiting JP Morgan results due out early NY morning
which kicks off the banks' reporting season in the US.

*Speakers:*
China PBoC Advisor Xia Bin commented that China should have enough
gold for the preparation of an international yuan. The advisor added
that any increase in reserve requirement ratio (RRR) did not
necessarily mean tightening. He advisor commented after the RRR hike
that it was aimed at controlling the excess levels of the money
supply.

China PBOC Adviser Zhou Quiren commented that China Central Bank
needed to be cautious on money growth and added that the central bank
faced increasing challenges in adjusting the reserve requirement ratio
(RRR). He noted that he had not heard of plans to set annual loan
quota. China should increase exchange rate flexibility and strive to
reform exchange rate mechanism over the next five years. PBoC should
rely less on using money supply to maintain CNY currency stability. He
noted that a fast CNY currency appreciation would hurt exporters but
noted that aslow CNY currency rise might fuel further appreciation
expectations
China NDRC Researcher commented that China likely needs only $600-800B
in fx reserves (compared to current levels of $2.85T). The researcher
added that the remainder of fx assets could be invested elsewhere.

ECB's Liikanen reiterated that the ECB bond buying program was
"ongoing". He noted that the amount of EFSF capital should be raised
and that the fund should be more flexible to use funds easily
ECB's Weber maintained the ECB view when he commented that risks to
medium-term inflation outlook remained broadly balance in the Euro
region. He noted that the EMU inflation was due energy factors. He
added that the economic recovery in the Euro region should continue
but stressed that the financial crisis was not yet over.

Spain's Economy Secretary Campa stated that he did not expect second
round effects from domestic inflation
France Fin Min Lagarde reiterated that she would not allow for lax
policy regarding the country's public finances. She stressed that the
G20 was seeking ways of strengthening the role of the IMF and that
France needed to work with Germany on macro policy.
Ireland Central Bank released funding data for the Irish banking
industry and noted that it would offer €51B in special liquidity
assistance to Irish banks

*Currencies/Fixed income:*
The EUR/USD began the session hitting its best level for 2010 above
1.3450 in followed through buying after the 'hawkish' ECB comments on
short-term inflation. Dealers noted that the buying was 'broad-based'
with hedge funds, real money and Asian sovereigns are amongst the
buyers. The Euro drifted off its best levels after noted hawk Weber
commented that inflation risks were "so far still broadly balanced .

However, cracks in the BRIC wall took notice among dealers with both
the China's Shanghai Composite and India Sensex indices moving over on
rate hike concerns. The formal announcement by the PBoC of yet another
RRR increase presented some risk aversion flows. EUR/USD saw its
earlier gains evaporate and fell over 100pips towards 1.3350 but was
off its worst levels as the NY morning approached. The AID and CAD
pairs reflected to rate hike concerns and were over 80 softer from
their Asian opening levels.

*Geo-Political/ In the Papers:*
In local British election news, the Labour party decisively won the
first by-elections since the general elections last year. Labour's
Debbie Abrahams won with nearly 15,000 votes, a margin of more than a
3,500 in the Oldham and Saddleworth by-election in north England.
Various political commentators have noted that the early test may
indicate a shift in political momentum, particularly even a change of
government. The results also likely indicate displeasure of the
performance of the junior coalition Liberal Democrats. The Lib Dems
have continued to suffer support as evidenced through various polling
data.

According to the Head of Germany's Debt Management Agency, Carl Daube
expects demand for bunds to remain strong. The demand for bunds is
expected to stay strong despite competing debt sales from bail-out
funds and concerns that Germany will have to pay most of the EU's
bailout costs. This week, the cost of insuring German debt against
default (CDS) rose to levels not seen since the peak of the global
financial crisis in 2009.

A report released by the World Economic Forum suggested that countries
including the UK and US would be insolvent if they used proper
accounting practices for their pension and healthcare liabilities. In
the British press, it expected the size of the future liabilities of
these countries to require additional austerity measures in the years
ahead. As noted in the report, the cost of the Britain's age-related
spending is about 3.5X the size of the economy, which equates to
approximately £5 trillion.

In the Telegraph, Evans-Pritchard noted there were concerns in Europe
that China is only purchasing EU bonds in order to help Chinese
exporters gain trade advantages. There are concerns in the EU that
China's purpose may be to push up the value of the Euro against the
yuan. In terms of Portugal's most recent bond auctions, the article
states that China recently bought Portugal's debt in a private
placement of €1.1B last week, while the ECB, according to traders,
had called about 20 dealers to buy Portugal's debt on the secondary
market. As a reminder, the EU is now China's largest trading partner,
as the EU buys about 25% of all the goods made in China.

*Looking Ahead*
(EU) EU General Affairs Ministers Meet in Budapest, Turkey
(RU) Russia Nov Trade Balance: $11.0Be v $10.5B prior
7:00 (IC) Dec Unemployment Rate: No est v 7.7% prior
7:00 (IS) Israel Dec Consumer Prices M/M: No est v 0.1% prior; Y/Y: No
est v 2.3% prior
8:30 (GE) German Finance Minister Schaeuble speaks
8:30 (US) Dec Consumer Price Index M/M: 0.4%e v 0.1% prior; CPI Ex
Food & Energy M/M: 0.1%e v 0.1% prior; CPI NSA: No est v 218.803 prior
8:30 (US) Dec Advance Retail Sales: 0.8%e v 0.8% prior; Retail Sales
Less Autos: 0.7%e v 1.2% prior; Retail Sales Ex Auto & Gas: 0.2%e v
0.8% prior
9:15 (US) Dec Industrial Production: 0.4%e v 0.4% prior; Capacity
Utilization: 75.5%e v 75.2% prior
9:55 (US) Jan Preliminary University of Michigan Confidence: 75.4e v
74.5 prior
10:00 (US) Nov Business Inventories: 0.7%e v 0.7% prior
12:45 (US) Richmond Fed's Lacker speaks on U.S. Outlook
13:15 (US) Fed's Rosengren speaks in Connecticut
14:00 (AR) Argentina Dec Consumer Price Index M/M: No est v 0.7%
prior; Y/Y: No est v 11.0% prior
14:00 (AR) Argentina Dec Wholesale Price Index M/M: No est v 0.9%
prior; Y/Y: No est v 14.9% prior
Source: ActionForex.Com