Japanese pledge stabilize the Euro for now

*European Market Update:* Peripherals rhetoric and Japanese pledge
stabilize the Euro for now

!! Economic Data !!
*- (FR) Bank of France Business Sentiment:* 108 v 107 prior
*- (CZ) Czech Nov Retail Sales Y/Y:* 5.0% v 2.5%e
*- (TU) Turkey Nov Current Account (TRY):* -5.9B v -5.8Be
*- (SW) Sweden Nov Service Production M/M: 0.2% v 0.5% prior; Y/Y:*
5.8% v 4.5% prior
*- (SW) Sweden Dec Budget Balance (SEK):* -97.7B v 13.7B prior
*- American Banking Assoc (ABA): Q3 Loan Delinquencies Q/Q:* 3.01% v
3.00% prior
*- (GR) Greece Dec Consumer Price Index Y/Y: 5.2% v 4.9% prior; CPI EU
Harmonized:* 5.2% v 4.8% prior
*Fixed income*
*- (NE) Netherlands Debt Agency (DSTA) sold €3.25B vs €2.5-3.5B
Indicated Range in 1% 2014 Bonds; Avg Yield:* 1.297 % v 0.861% prior
- (DE) *Denmark* sold approx DKK5B vs DKK5B indicated in 3% 2021
Bonds; avg yield 3.14%
*- (IT) Italy Debt Agency(Tesoro) sold €7.0B vs. €7B Indicated in
1-year Bills ; Avg Yield: 2.067% v 2.041% prior; Bid-to-cover:* 1.6 x
v 2.0x prior
*- (GR) Greece Debt Agency (PDMA) sold € 1.95Bin 26-week Bills vs.
€1.5B Indicated; Avg Yield: 4.90% v 4.82% prior; Bid-to-cover:* 3.4
x v 5.15 prior
- (EU) ECB allots €180.1B in main 7-day Refi Operation at fixed
1.0%; Rec'd 169 bids
- (HU) Hungary Debt Agency (AKK) sells 45BHUF in 3-Month Bills; Avg
yield 5.71% v 5.72% prior
*- (UK) DMO sold £900M in 1.25% Index-Linked 2032 Gilts; Avg Yield
:0.748 % v 0.710% prior; Bid-to-cover:* 2.0x vs. 1.6x prior

!! SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM!!
*Notes/Observations:*
*- China Dec Foreign Exchange Reserves:* $2.85T v $2.76Te (record
level)
*- China Dec New Yuan Loans (CNY): 480.7B v 360.0Be v 564.0B prior; M2
Money Supply:* 19.7% v 19.0%e
- Alcoa [AA] kicks off earnings season
- Japan announced support for Euro's ESFS bonds
- Greece Debt Agency gets the job done for now
*Equities:*
FTSE 100 +1% at 6,015, DAX +0.50% at 6890, CAC +0.66% at 3827, IBEX
+0.50% at 9,484, FTSE MIB +0.40% at 20,141, SMI +0.55% at 6481

*- European shares rose after yesterday's losses.* Eurozone debt
concerns continue to weigh on markets as investors are continuously
comparing the events happening in Portugal to what happened in Greece
and Ireland. Once again, the Portuguese Finance Minister reiterated
that the country will do anything to avoid bailout while reserving
some harsh rhetoric for the European Union as he accused the EU of not
doing its job. However, risk appetite returned to the market as Japan
joined China in easing European debt concerns and pledged to buy EU
bonds. The markets were also lifted by Alcoa's earnings which beat
estimates, albeit modestly and gave an optimistic forecast on aluminum
global growth. The best performers were European banks bouncing from
yesterday's losses following an upgrade to Overweight by Societe
Generale. UK banks were leading the rally in the FTSE after a London
Times report noted that domestic banks would not face windfall taxes
or bonus curbs as government will not impose tough regulations on its
banks.

*- Major European retailers reported today. Metro* [MEO.GE] reported
its fourth quarter sales which almost came flat with estimates due to
harsh weather conditions. However the company reiterated its FY10
guidance. *Marks and Spencer* [MKS.UK] was lower by 1.6% following its
trading update. Despite an increase in total group sales and UK
like-for-like sales, company reiterated its bleak outlook of
challenging trading conditions due to spending cuts and increased
commodity prices. German maker of Nivea cream Beiersdorf [BEI.GE] fell
by over 1% after net missed estimates while revenue came in line with
expectations. Company noted that the drop in profit was due to a
writedown related to Chinese unit and plans to scale back its product
lineup. The company had already reported in December that due to
repackaging measures, it was expecting €120M in costs in 2010.

*Speakers:*
*- Finland Fin Min Katainen* commented that Portugal needed to take
decisive political steps to calm international markets. He added that
Ireland might not be the last country to seek financial aid from the
EU and IMF.
*- Portugal Fin Min dos Santos* comments that the country did not need
financial bailout and would do everything possible to avoid such a
scenario. He stressed that Portugal was doing the required work (but
added that Europe as a whole was not). Ahead of Wed pivotal bond
auction the minister expressed a high degree of confidence that it
would encounter 'good demand'. He stated that Portugal continued to
pay relatively low average rates. And would not confirm speculation
whether China had purchased bonds directly
- Spanish press reported that Spain was considering a syndicated debt
sale of up to €6B to banks. However, Spain Treasury official stated
that it had NOT set either an amount nor date for sovereign syndicated
sale. He did add that the Treasury was always in the market for a
potential sovereign syndicate bond deal but no visibility for a sale
in the near future

*- Former PBoC Advisor Fan Gang* commented that he saw continued yuan
currency appreciation and reiterated estimate for China GDP around
8-9% in 2011. Fan Gang noted that there would be no sudden one-off
appreciation in the Chinese currency and that China would be able to
achieve a great deal even with such a gradual approach. He noted that
China must be wary of Eurobond investment risks but bonds backed by
European stability fund was safer than national debt. He added that
the Euro currency was on safe ground, while the USD would weaken

*- Ireland's Debt Agency* (NTMA) Chief Corrigan reiterated that it is
possible the country might return to the markets next year. The
official noted that there were a lot of stresses within the euro zone
and would have to wait for those events to play out before returning
to the market.

*- Poland Central Bank's* Rzonca wrote in the Polish press that the
Zloty was undervalued and thus saw a risk to FX and lending if
interest rate increase was delayed. An undervalued currency presented
inflationary risks and that central banks needed to react early to
inflationary signals. The bankers forecasted stronger Zloty currency
and lower credit supply with an interest rate increase.

*- German HDB Construction Federation* released its 2011 Outlook and
stated that German construction sales expected to decline by 1% y/y.
it noted that German builders were lagging the economic recovery.

*Currencies/Fixed income:*
- The economic calendar was light in the session but debt -related
rhetoric was plentiful (see above speaker section). Dealers continued
to place the euro-area debt problems in focus as sovereign funding
results were the highlight in the session. Dealers noted that the
Asian session high of 1.2990 was used as an opportunity by some to
establish fresh short positions. The EUR/USD stabilized after reports
on Monday that the ECB was again buying peripheral debt. Japan's
pledge to purchase ESFS bonds helped to instill a small degree of
confidence. Dealers are watching the 1.2860 to 1.3070 range as to the
directional move in the pair. The Portuguese bond auction on Wed
should provid greater clarity to the medium term picture.
- the USD/CHF continues to hold below the pivotal 0.9730 area (it
seven-month downtrend line) but dealers are noting that real money
names are selling CHF in the last few session.
- The Queensland floods continued to take its toll on the Aussy with
AUD/USD off a big figure from the Asian open and trading in the lower
half of the 0.98 handle.
- Bund and Gilt futures regained opening losses as safe-haven flows
remained predominant. The 10-year Belgium/German Gov't bond spread was
approaching 140bps and wider by over 5bps in session. The Greek
26-week action sold more than indicated but overall dealers were not
'overly impressed' with the results.

*Geo-Political/ In the Papers:*
- The former Chief Economist of the ECB Issing warned the euro's
existence may be threatened lest European governments impose spending
curbs on each other in the New York Times. By failing to render
individual states' fiscal policies consistent with the conditions for
a single currency area, it has weakened and even threatened the
existence of the euro. He expressed concerns that politics have failed
to take the crisis as an opportunity to strengthen the current
framework.

- According to the Portuguese press, ratings agency Fitch stated that
it will not change Portugal's sovereign rating as a result of reports
that the country was being pressured to seek external assistance.

- The Telegraph reported that the UK services sector presents downside
risks for economic growth. Citing the British Chambers of Commerce,
fourth quarter GDP growth may have slowed to 0.4%-0.5% compared to the
0.7% in the prior third quarter. Note that the services sector makes
up about 75% of the UK's GDP.

- The Telegraph's Ambrose Evans-Pritchard commented on renewed fears
of the European debt crisis. Citing the former IMF official Stephen
Jen, Greece, Ireland and Portugal are insolvent. Bailouts, for the
purpose of saving the euro, are causing the spread of the crisis by
contaminating the stronger states instead of sorting out the balance
sheets. If the size of the bailout is increased to €700 billion, one
of the AAA-rated states, such as France, Germany, may be downgraded.

!! Looking Ahead !!
*- (PE) Peru Nov Trade Balance:* No est v $439.0M prior
*- 6:00 (SA) South Africa Nov Manufacturing Production M/M: 0.7%e v
1.2% prior; Y/Y:* 2.7%e v 2.5% prior
- 6:30 (CL) Chile Central Bank Economist Survey
*- 7:00 (EU) ECB to drain €74.0B in 7-day term deposit tender*
*- 7:30 (US) Dec NFIB Small Business Optimism:* 94.3e v 93.2 prior
- 7:30 (GE) (GE) Germany Chancellor Merkel Briefs Press Briefing
- 7:45 (US) Weekly ICSC Chain Store Sales
*- 8:15 (CA) Canada Dec Housing Starts: 180.0Ke v 188.1K Prior
(revised from 187.2K)*
- 8:30 (US) Fed's Plosser speaks on Economic Outlook
- 8:55 (US) Redbook Weekly Retail Sales
*- 9:00 (MX) Mexico Oct Gross Fixed Investment:* 6.0%e v 6.8% prior
*- 9:00 (MX) Mexico Nov Industrial Production Y/Y:* 3.8%e v 3.7% prior
*- 10:00 (US) Jan IBD/TIPP Economic Optimism:* 46.9e v 45.8 prior
*- 10:00 (US) Nov JOLTs Job Openings:* No est v 3.4K prior
*- 10:00 (US) Nov Wholesale Inventories: 1.0%e v 1.9% prior*
*- 10:15 (MX) Mexico Dec Vehicle Production: No est v 207.6K prior;
Domestic Sales: No est v 75.6K prior; Vehicle Exports:* No est v
168.2K prior
- 11:00 (US) Fed to Purchase $7-9B in Notes/Bonds
- 11:30 (US) Treasury to sell 4-Week Bills and $22B in 52-week Bills
- 13:00 (US) Treasury to sell $32B in 3-Year Notes
- 14:00 (US) Fed's Kocherlakota speaks in Wisconsin
- 16:30 (US) API Weekly Energy Inventories
*- 17:00 (US) ABC Consumer Confidence w/e Jan 9th:* No est v -45 prior
Source: Fxstreet.com