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European Market Update

European Market Update

Thu, Apr 24 2008, 09:55 GMT
by John J. Phillips IV

TradeTheNews.com

ECONOMIC DATA

• FR Apr Business Confidence Indicator: 106 v 108e || Prior revised from 109 to 108
• FR Apr Production Outlook Indicator: -9 v –13e || Prior revised from –11 to –5
• FR Apr Own-Company Production Outlook: 13 v 12e || Prior revised from 14 to 15
• SP Mar Producer Prices: M/M 0.9% v 0.7%e || Y/Y 6.9% v 6.7%e
• IT Apr Consumer Confidence Indicator: 99.8 v 99.6e
• SW Mar PPI: M/M –0.1% v 0.5%e || Y/Y 3.1% v 3.7%e
• EU Feb Current Account: €4.3B v -€10.6B prior || Prior revised from -€10.6B tp -€7.9B
• EU Feb Current Account nsa: €5.0B v -€19.1B prior || Prior revised from -€19.1B to -€17.9B
• GE Apr IFO Business Climate: 102.4 v 104.3e
• GE Apr IFO Current Assessment: 108.4 v 111.0e
• GE Apr IFO Expectations: 96.8 v 98.0e
• UK Mar Retail Sales: -0.4% v –0.3%e || Prior revised from 1.0% to 1.1% |||| Y/Y 4.6% v 4.3%e || Prior revised from 5.5% to 6.3%

SPEAKERS/FIXED INCOME/COMMODITIES/FX/ERRATUM

• Amongst a slew of European earnings reports from a series of notables overnight the following is a non-exhaustive summary of stand out reports. German drug-maker Bayer (BAY) reported first-quarter results overnight. Revenues were in line with expectations, while net income came in at €762M, exceeding estimates of €659M. Bayer reiterated its FY08 revenue growth forecast of 5% ex-currencies.  Credit Suisse (CS) posted a first-quarter net loss of CHF2.14B overnight. Additionally Credit Suisse announced CHF5.3B in writedowns on leveraged finance and structured products. The company’s CEO later said that it would be hard to predict further writedowns. Persimmon [PSN.UK] reported year-to-date revenues of £1.37B overnight, down from £1.8B a year ago. The company noted that cancellations have accelerated, and reported yead-to-date volumes down 18%.
• In the newspapers overnight the Wall Street Journal wrote that the head of Siemen's (SI) medical equipment unit plans to leave the company. The departure follows new evidence of misconduct at the business. The Wall Street Journal reported overnight that Wendy’s (WEN) has reached a transaction pact with investor Nelson Peltz, however details were said to be unavailable at this time.  The Independent wrote overnight that more jobs are expected to go at UBS (UBS) as invested vent their frustration. Deutsche Bank (DB) is planning to sell billions of dollars of European leveraged loans the Financial Times wrote overnight. The article notes that the deal is expected to be announced along with the banks earnings release next week, and speculated that this would be the 3rd large sale of leveraged loans by a bank this month.
• In energy news overnight, according to wire reports overnight the regional Vice President of Aramco says that the rising crude prices are not mainly driven by Chinese demand. ENI’s (E) Norwegian unit announced that it made a gas discovery at the North Sea, Kvitebjoern gas field overnight, and said that it will analyze well test results before deciding whether or not to move ahead with development. According to wire reports overnight, workers at one of Exxon’s (XOM) Nigerian facilities comments a partial strike overnight. The spokesperson said that production has not been affected by the partial strike. An Ineos spokesperson said overnight that it is a long way through refinery shutdown process, but noted that the Grangemouth refinery shutdown to be completed on Saturday.  Russian paper Vedomosti wrote overnight that Gazprom [GAZP.RU] plans to buy control of its TNK-BP with British Petroleum (BP) for $20B by the end of 2008. Ahead of the market open source reports indicated that Gazprom is not in fact in talks to acquire BP’s share of the joint venture. The Wall Street Journal wrote overnight that according to recently released data, Iraq's government will receive a larger than expected windfall for 2008, which may total as much as $70B. In The Independent famed economic journalist Hamish McRae wrote that a permanently high oil price might not be a bad thing if it forces conservation. McRae argues that the advantage of current prices is that they force conservation. Previous oil price shocks, he said, had a temporary effect: the world cut oil use but then forgot about conservation when the price came back down. You should say that what we need is a permanently high oil price, McRae argues, so that after this shock we do not return to our bad old ways. McRae said that he sees this happening, and notes that it is reasonable to expect some reaction in the next few months.
• In new supply overnight Japan sold ¥1.56T in 2-year notes with an average yield of 0.712% and a bid-to-cover of 3.10x. The cover compares to the 2.82x seen at the previous auction.  Italy sold €3.5B in 2010 zero-coupon bonds with an average yield of 4.099% and a bid-to-cover of 1.29x. Over in the UK the DMO sold £675Min 0.75% index-linked 2047 gilts, with an average yield of 0.719% and a bid-to-cover of 2.28x. The cover compares to the 2.06x seen at the previous auction. Elsewhere, China's sovereign wealth fund, according to the Financial Times, has as much as $90B to spend on assets abroad, +30% vs. the original allocation.
• There was a lot to be said by central bank officials overnight. Starting in Asia, the Royal Bank of New Zealand’s Bollard said following the central bank’s rate decision that New Zealand’s rates needs to be at 8.25% for some time. Bollard said that he sees upside risks to inflation, adding that the NZD is persistently strong. According to the South China Morning Post, the People’s Bank of China Governor Zhou said that further monetary tightening is needed, adding that the PBoC would step up measures to cope with economic uncertainties at home and abroad. Moving on to Europe,  The OECD's Gurria said overnight that the drop in the US economy is seen lasting longer than previously expected, noting that he sees a slight pick-up in 2009. Following the release of the April IFO data, IFO economist Abberger said that negative forces from the high Euro, elevated oil prices, and the financial crisis are starting to have an effect on the real economy. Abberger asserted that the ECB should keep interest rates steady despite high inflation rates. IFO economist Nerb said following the data release that the German economy will continue to do well in coming months, adding that he hardly sees hardly any room for ECB to cut interest rates. Nerb forecasted 2008 German GDP growth of 1.8%, which is in line with recent government forecasts, and added that Euro overvaluation may continue for some time.  Maltan ECB representative Bonello departed slightly from the ECB’s recent hawkish rhetoric overnight saying that it is difficult to make case for higher interest rates. Bonello added that he does not thing that any of the ECB members are thinking of higher interest rates, and asserted that current interest rates will contribute to meeting medium term inflation target.  Bonello said that there is a risk that higher inflation limits monetary policy’s ability to address growth concerns. In line with other ECB member’s comments Bonello said that there is a risk that international commodity prices, including oil will not come down. Bank of England executive director Jenkinson said overnight that the liquidity crisis can be very hard to stop, noting that he sees some signs slower lending starting to have significant impact on economy.  Finally, the EU's Juncker said that he would not like global FX reserve holders to shift currencies, adding that the status quo is good. Junker reiterated that he does not like excessive FX volatility and sharp moves.
• On the data front, German IFO data was in the spotlight today as all three components posted declines and fell below expectations, with the headline business climate reading declining to its lowest level since January of 2006. The data added significant upside momentum to the European fixed-income futures, as did some of the comments hailing from IFO economists following the data release. Elsewhere, March retail sales in the UK capped all upside momentum in the gilts, which were moving in conjunction with the bunds after the IFO data. The y/y retail sales reading exceeded estimates of 4.3% coming in at 4.6%, but focus fell on the back-month y/y reading, which was revised up to 6.3% from 5.5% making it the second highest reading since September of 2004. There wasn’t anything too notable anywhere else in terms of European data, however I’ll point out that French sentiment figures were mixed for April, while Spanish producer prices were slightly ahead of expectations for March.  In Asia overnight the Royal Bank of New Zealand left interest rates unchanged at 8.25% as expected, while the Philippine central bank held rates at 5.00%, also as expected.
• In currencies, the EUR/USD retreated following the German IFO data, which came in below consensus. Dealers took note of the comments from IFO's Abberger who noted that the negative forces from high Euro currency rate and oil prices are starting to have an effect on real economy. The EUR/USD was approaching the 1.57-level during the mid-European morning, and is now off 300 pips from its all-time highs set on April 22nd. Verbal intervention has recently capped the upside momentum in the Euro over the last 48 hours. The Euro was vulnerable heading into the IFO after comments from ECB member Bonello. His comments have deviated from other members of the ECB.  The GBP was mixed against the major currencies. The GBP was firmer against the Euro as the EUR/GBP cross tested the 0.7965-area. The GBP was aided by some upward revisions to its retail sales data.
• Looking ahead, March durable goods data is due out in the US at 8:30 ET, along with initial jobless claims, and will be followed at 10:00 ET by the release of March new home sales, and the March help wanted index. In new supply the Treasury is due to sell $19B in 5-year notes. In central bank speak the ECB’s Weber and Trichet are both due to speak in Frankfurt at 8:30 ET, while the Fed’s general counsel Alvarez is due to testify on sovereign wealth funds.  Earnings are heavy today, and creating a exhaustive list of expected notable would simply make my fingers bleed. With that in mind, the following companies with revenues in the $5+ billion range are due in the pre-market this morning: Aetna Incorporated (AET), Astrazeneca (AZN), Bunge Limited (BG), Dow Chemical Company (DOW), Ford Motor Corp (F), 3M (MMM), Motorola (MOT), Northorp Grumman Corp (NOC), Raytheon (RTN), and Safeway (SWY).
• Conculsion: The German sentiment data seems to indicate the perhaps the Euro-Zone’s growth engine is starting to feel the pressure of a combination of different elements including the elevated Euro level, and the overall slowing of the global economic environment. Despite the decline, the IFO data still remains within range of its recent highs; continued declines in the coming months would point to declining German economic growth. The elevated retail sales results in the UK seem to compliment comments form the ECB’s Besley who pointed out a few days ago that inflation expectations are likely to remain high for sometime, adding that the mortgage-swap scheme allows the Bank of England to remain focused on its CPI target. While a rate hike isn’t in the cards at the moment, for the time being further BOE rate cuts are off of the table as well. Comments from the ECB’s Bonello stood out overnight. It’s unclear if Bonello has actually heard the rest of his colleagues speak over the past few months, or if he knows something that the rest of us do not, but I’ll point out once again that Bonello said that he does not think that anyone at the ECB is thinking of a rate hike at the moment. While that may be true, the recent hawkish tone seen from the ECB seems to lean more towards a rate hike than anything else. Despite this Bonello’s comments added some upside momentum in the fixed income market. I wonder what Trichet and Weber say in Frankfurt later today.

Published on  Thu, Apr 24 2008, 09:55 GMT

European Market Update

Tue, Apr 22 2008, 09:35 GMT
by John J. Phillips IV

TradeTheNews.com

ECONOMIC DATA

• SZ Mar Trade Balance: CHF1.25B v CHF700Me || Prior revised from CHF1.55B to CHF1.5B
• IT Mar Trade Balance Non-EU: -€1.21B v -€1.33B prior || Prior revised from -€1.33B to -€1.31B

SPEAKERS/COMMENTS

• SP Finance Minister: Sees inflation around 3% at the end of 2008 || Unemployment could reach 10%
• ECB’s Noyer: We have a surge in inflation, but impossible to believe that it will continue to grow at the present rate || Growth is holding up, not threatened by inflation || Sees 2008 French growth at 1.5% to 2.0%
• ECB's Mersch: Inflation in the EU will likely remain above 3% through late autumn || It is clear that the EU's inflation problem extends beyond factors from outside the region || Doubted whether it could be argued that the ECB policy lies in the restrictive area.
• ECB’s Garganas: Inflation risks have increased in the short-term || Inflation likely to fall sharply in 2009 || Interest rates decisions will depend on inflation || Timely action will prevent second round effects || Reiterates view that ECB is committed to achieving price stability || Sees further downside risk to Euro-Zone growth || Recession in US is very possible,  Impact on Euro-Zone is still limited

FIXED INCOME/FX/COMMODITIES/ERRATUM

• Taking a look at the equity-related news from overnight, in sector rotation overnight Merrill Lynch raised its ratings for both the European basic resources and European insurance sectors to overweight, cit its ratings on the European media and European technology sectors to neutral, and cut its rating for the European retail sector to underweight. The Royal Bank of Scotland [RBS.UK] officially announced overnight its £12B rights issues. RBS increased its targeted capital ratios to 7.5%-8.5% for Tier 1 capital and in excess of 6% for core Tier 1 capital. RBS noted that the overall underlying performance of the group has remained satisfactory with the exception of a slowdown in capital markets activity in global banking & markets. RBS also noted that the 2007 dividend payout ratio of around 45% remains sustainable over the medium-term Melrose [MRO.UK] agreed overnight to acquire UK-based manufacturing group FKI [FKI.UK] in a cash and stock deal valued at around £478M.
• In the newspapers overnight, according to the Wall Street Journal Tribune (TRB) is closing in on an agreement to sell Newsday to News Corp (NWS) for about $580M. Citing sources familiar with the matter the article said that both parties have informally agreed on price, structure and governance. In an interview with The Independent Teun Draaisma, Morgan Stanley's chief European strategist, predicted the end of the FTSE’s rally. Draaisma said that the recent rally will be short-lived, noting that his “all-important market timing indicators have given the warning that the rally is over". Furthermore the group is forecasting a 16% decline in European earnings in 2008.
• These headlines aren’t very surprising anymore, but crude oil reached new record highs during European trading, breaking through the $118-handle. In energy news overnight Unicredit raised its 2008 average Brent crude price forecast to $99/barrel overnight, and boosted its 2009 average price forecast to $95/barrel. The IEA Chief said overnight that there is a possibility that high oil price could tip world economy into recession. He added that high oil prices may dampen oil demand. According to a union official, UK Refinery workers will resume talks with Ineos on Tuesday. Recall that the 205K bpd refinery has already begun shutting down ahead of the looming strike. OPEC’s Secretary General said overnight that OPEC plans to invest $160B through 2012 to boost capacity. He added that the investment plan seen boosting capacity by 5M bpd. Royal Dutch Shell (RDSA) confirmed overnight two additional attacks on one of its oil pipelines. Shell said that no oil output was lost as a result of the additional attacks. In line with the action of many airlines as of late Air France [AF.FR] raised some of their fuel surcharges overnight. It is interesting to note that the airline said that it will withdraw half of fuel surcharges if the price oil falls below $100/barrel. The Wall Street Journal wrote about Saudi Arabia's oil production and the difficulties of drilling at the Khurais oil field. According to the article the country's Khurais complex is expected to add 1.2M bpd to oil markets, but in order to tap the field Aramco plans to spend up to $15B. The article noted that after Khurais, Saudi Arabia will have only one known mega-field left to fully develop, which is the Manifa field. According to the article, some are skeptical of Saudi Arabia's ability to turn the Khurais field into the 4th most productive oil field in the world.
• In new supply overnight Japan sold ¥730.6B in 20-year bonds with an average yield of 2.169% and a bid-to-cover of 3.89x. The cover compares to the 3.03x seen at the previous auction. The Greek PDMA sold €1.92B in 3.8% March 2011 GGBs with an average yield of 4.33%% and a bid-to-cover of 2.89x overnight. The cover compares to the 3.11x seen at the previous auction. In fixed-income related news, Germany's BdB banking association has reportedly taken control of property lender Duesseldorfer Hypothekenbank after the lender encountered financial problems related to the market crisis. BdB plans to sell the lender, which has approximately €27B in total assets. The lender is primarily focused on lending to government authorities and public-sector banks but also conducted large-volume lending for commercial real estate. A management board member from the lender was later quoted saying that the lender does not have any liquidity issues, and is still making a profit. The Financial Times wrote overnight that UK bankers agree the Bank of England’s mortgage plan will help to restore industry confidence. The Chairman of HSBC [HSBA.UK] said that the plan will help to ease some of the current market dislocations in the UK. The article noted that there is little indication that the plan will revive mortgage or housing markets, and that bankers believe that the plan is not likely to lead to a large reduction in mortgage rates. The Independent wrote overnight that banks and building societies will be urged at a crisis meeting with the Chancellor today to pass on cuts in interest rates and to give greater flexibility to customers in trouble with the mortgage repayments following the Bank of England’s mortgage-swap bailout scheme.           
•  The Euro started the European session on a soft note aided by continued concerns over problems in the financial market sector. The EUR/USD tested the 1.5830-area after Germany's BDB Banking Association stated that it took over property lender Duesseldorfer Hypothekenbank. This was the second ''bailout'' of a German bank this month. Also contributing to the Euro's soft opening tone was chatter of a large Japanese repatriation order due to Euro bond maturities. The EUR/JPY tested the 163.30-level.
• The Euro was able to regain composure as commodities continue to firm across the board and weigh upon USD sentiment.  The CAD is holding steady at 1.0080 ahead of the Bank of Canada’s monetary policy decision later today.
• Looking ahead, March home sales are due out in the US this morning along with the Richmond Fed manufacturing index. Results from Monday’s TAF auction are due out after the open this morning. Ahead of the US data Canadian data will take center stage as the Bank of Canada is due to announce its interest rate decision. The BOC is widely expected to cut rates by 50bps to 3.00%, however, 33% of economists in a recent survey predicted that the BOC will cut rates by 25bps in lieu of 50bps. That decision is due at 9:00 ET. In new supply today the treasury is scheduled to sell 5-year inflation index notes at 13:00 ET. On the earnings front US notables Countrywide Financial (CFC), EL Du Pont De Nemours (DD), Jetblue Airway Corp (JBLU), Kimberly Clark (KMB), Lockheed Martin (LMT), McDonlads (MCD), Smith International (SII), AT&T (T), United Health Group (UNH), and Wyeth (WYE) among others are due out in the US pre-market today.

Published on  Tue, Apr 22 2008, 09:35 GMT

European Market Update

Mon, Apr 21 2008, 09:15 GMT
by John J. Phillips IV

TradeTheNews.com

ECONOMIC DATA

• SZ Mar Producer Prices: M/M 0.6% v 0.3%e || Y/Y 3.9% v 3.5%e
• UK April Rightmove House Prices: M/M –0.1% v 0.9% prior || Y/Y 1.3% v 5.0% prior

SPEAKERS/COMMENTS

• GE VDMA: Growth in German engineering likely to slow after strong first quarter growth || Has not seen any impact of financial market crisis in machinery sector || Sees no credit crunch for companies
• EU ECB's Weber: Could need tighter monetary policy to counter big wage hikes || Staff 2008-09 inflation forecasts revised up considerably || No deep economic marks" on EMU from market turmoil || Sees sporadic signs that market turmoil is easing.
• German Finance Ministry: German Q1 growth may beat expectations || Growth likely to moderate later this year || Germany is experiencing robust domestic demand
• The Bank of England announced the official details for its mortgage swap scheme overnight. The BOE said that the asset swaps will be for 1-year and will be renewable for 3 years, noting that £50B will initially be available through the new facility. Banks will be able to enter into new asset swaps at any point during the 6-month period starting today. The BOE will accept AAA-rated MBS in new loan facility issued no later than December of 2007. Note that the £50B is half of the £100B of new home loans granted each year and even smaller in comparison with the outstanding mortgage market of about £300B. 
• GE IW Institute: Sees German GDP growth 1.7% in 2008 down from the previous forecast of 1.9% || Forecasts growth of 1.4% in 2009 || Cites high energy and commodity prices

FIXED INCOME/FX/COMMODITIES/ERRATUM

• In equity news overnight, Swiss-based drug-maker Novartis (NVS) reported results overnight. Both sales and earnings exceeded analysts’ estimates. The company also reaffirmed its outlook for the full-year 2008. Shares of Nestle [NESN.VX] traded lower at the open despite reporting that first-quarter revenues in line with analysts’ expectations. Nestle did note that pricing is seen declining in the second half. The Royal Bank of Scotland [RBS.UK] confirmed that it is considering a rights issue, and adding that a further announcement would be made in due course. According to source reports overnight Italy’s Enel [ENEL.IT] it mulling the sale of its natural gas network for €2.0B.
• Taking a look at the newspapers, the Financial Times wrote overnight that Bank of America (BAC) may seek to raise capital by selling part of its 9% stake in China Construction Bank [939.HK]. According to the Financial Times a group of mutual funds and hedge funds led by Corsair Capital may invest between $7B and $8B into National City  (NCC)  Merrill Lynch (MER), according to the Financial Times is expected to earn another large fee for helping RBS [RBS.UK]. Merrill is expected to help RBS refinance itself. The Wall Street Journal wrote in its Heard on the Street section that Citigroup (C) and Merrill Lynch (MER) may have reported larger write downs had it not been for their accounting practices. The article notes that writedowns reported were reduced by the way the companies account for different types of securities. Furthermore, the article asserted that $2.3B of additional writedowns did not hit the Citigroup’s income statement, while $3.1B in additional writedowns did not hit Merrill’s income statement. La Repubblica reported overnight that Italy’s Generali [G.IT] may consider buying France’s Axa [CS.FR] if the Axa’s market value declines by 10%.
• In energy news overnight NYMEX crude opened at a new record high of $117.05/barrel. In the UK, Ineos confirmed overnight that it has started to shutdown its 205K bpd Grangemouth refinery doe a union strike. The strike is expected to keep the plant closed for at least one month. The Iranian President said that oil prices at $115/bbl are too low OPEC's President said that the cartel should not increase output now because the market is well balanced.  In an interview with the Financial Times the CEO of Royal Dutch Shell [RDSA.UK] said that he is looking to calm concerns about the company's declining oil reserves. The CEO said that the company's existing resource base will provide 55 years of production at current production levels. The Financial Times wrote an article about Russian oil output overnight. The article discusses how Russian politicians and energy executives fear that Russia may see its first decline in oil exports in 10 years as the result of changes in the government’s tax regime, as well as the government’s takeover of privagely held assets in 2004.  The Wall Street Journal noted overnight that some analysts continue to warn that oil prices are close to a steep drop. The article pointed out that some believe that oil prices may move back to near $80/barrel. A Venezuelan energy minister forecasted an oil price floor of $90/barrel. 
• Things were relatively quiet on the fixed income front overnight. According to source reports overnight, Finland opened the book on its new 11-year benchmark issue, and set the guidance at +34-37bps vs. the 10-year bund. In corporate issuance, the UK’s Diageo [DGE.UK] said overnight that the plan to sell an additional €300M in 5-year fixed-rate euro-denominated bonds in addition to the €850M sold last month.  In fixed-income related news overnight, according to German newspaper Der Spiegel the German government expects unemployment to fall below 3M in September. Most recently, in March, German unemployment was at 3.5M. The Wall Street Journal wrote overnight that two-year treasury notes may see more short-term selling due to the shifting interest rate outlook, and the rise in the need to hedge against increasing short-term funding costs. Additional selling may come as the result of the two-year and five-year treasury auctions this week, however, investors’ attention is soon expected to return to issues such as declining hours prices, the labor market, and high energy prices, all of which are good for short-term government debt.  The Wall Street Journal reported overnight that a sharp and unexpected rise in LIBOR rates threatens to add billions of dollars to the interest bills of homeowners, companies, and other borrowers. In Japan, the Asahi Shimbun newspaper wrote overnight that, with business confidence sliding to its lowest level in five years the Bank of Japan will leave its short-term interest rate unchanged at 0.50%, and is expected to cut its 2008 growth forecast to 1.5% from 2.1%. The report cites an unidentified central bank source.  Stephen King, managing director of economics at HSBC, argues in The Independent that food protection is the greatest threat to the world economy. King ultimately argues that higher food prices themselves are not causing inflation, but rater that overly loose monetary conditions are causing higher food prices. King also points out that food export caps are being implemented so that local production can be used to feed growing populations.  King concludes that there is no substitute for higher food production, noting that producers will not produce any more if governments make any moves that keep them from receiving the right price. King speculates that the situation has the potential to turn into an economic shock on par with the oil price increases seen in the western world in the 1970s.
• Looking at the economic data from overnight, in the UK Rightmove house prices for the month of April declined to –0.1% M/M and to 1.3% y/y from 0.8% and 5.0% in March respectively. Along with the data release Rightmove said that immediate action is needed to improve mortgage liquidity, adding that a lack of mortgage funds could trigger a price crash. Swiss producer & import prices for the month of March exceeded expectations, with the y/y reading rising to 3.9%, the highest reading on record since records began in January of 1990.
• In currencies, the commodity markets continued to maintain a form tone, thus keeping the USD under pressure. The EUR/USD is holding above the 1.5860-level after NYMEX front month crude hit fresh all-time highs at $117.35 during the European morning. The USD/CHF is at 1.0124 and the USD/JPY trading in the mid-103s. The GBP was broadly softer after the BOE confirmed earlier speculation that it would swap assets of mortgage debt. The GBP/USD off 100 pips from its opening levels in Tokyo and is currently trading around the 1.9880-level. The GBP/JPY off 150 pips at 206.00.  The AUD has maintained earlier session gains following firm PPI data for the first-quarter. The AUD/USD up 75 pips at 0.9410.
• In central bank speak overnight the PBOC's Zhou said overnight that rates will remain on hold until inflation studied. The ECB's Liikanen said in an interview with the Wall Street Journal overnight that inflation risks are real. Liikanen added that he has not seen broad evidence of price spillovers, and noted that wage rounds are very much national. The ECB's Weber said overnight that the ECB may need tighter monetary policy to counter big wage hikes. Furthermore Weber said that there have been no deep economic marks" on EMU from market turmoil.
• Looking ahead, there is no economic data scheduled in the US today. Despite the lack of any economic data in the US today, there will be some action this morning as there are a series of anticipated earnings reports due out. Bank of America (BAC), Halliburton (HAL), Eli Lilly (LLY), Merck (MRK), and Weatherford International (WFT) are all scheduled to report earnings in the pre-market today. In central bank speak the Fed’s Krozner is due to speak on community development in Minnesota this afternoon. 

Published on  Mon, Apr 21 2008, 09:15 GMT

European Market Update

Fri, Apr 18 2008, 09:45 GMT
by John J. Phillips IV

TradeTheNews.com

ECONOMIC DATA

• GE Mar Producer Prices: M/M 0.7% v 0.5%e || Y/Y 4.2% v 4.0%e
• IT Feb Industrial Orders: M/M 2.0% v –1.0%e || Prior revised from 2.6% to 2.8%e |||| Y/Y 14.3% v 5.8%e
• IT Industrial Sales: M/M 0.8% v –1.0%e || Prior revised from 4.6% to 4.7% |||| Y/Y 9.0% v 6.1% prior
• UK Mar Public Finances: £12.7B v £18.0Be || Prior revised from £2.9B to £2.6B
• UK Mar Net Borrowing: £10.2B v £7.8Be || Prior revised from £2.7B to £200M
• UK Mar Preliminary M4 Money Supply: M/M 0.8% v 0.5%e || Y/Y 12.0% v 11.6%e
• UK Mar Preliminary M4 Sterling Lending: £17.7B v £15.0B

SPEAKERS/COMMENTS

• ECB's Weber: Sees average inflation rate of 3.0% in 2008; must act if second round inflationary effect emerge
• SP Housing Ministry: Sees housing prices stabilizing around the inflation rate

FIXED INCOME/FX/COMMODITIES/ERRATUM

• The overnight session was quiet all around, especially on the European equity front. After the close in the US, Baxter (BAX) announced after the close that GAMMAGARD S/D and GAMMAGARD LIQUID met its primary and secondary endpoints in patients with mild-to-moderate Alzheimer's disease. Elsewhere, JP Morgan’s European small/mid-cap strategy team cut the utilities to underweight from overweight.
• Looking at the newspapers, according to the Financial Times the Royal Bank of Scotland [RBS.UK] is mulling a rights issue. The report cites people familiar with the matter. The Wall Street Journal reported overnight that regulators are expected to settle with ex-Fannie Mae (FNM) executives. The reported settlement would involve 3 former Fannie senior executives (Franklin Raines, Timothy Howard and Leanne Spencer) over their alleged roles in an accounting scandal in 2004.  The terms of the settlement were not disclosed. The Financial Times reported overnight that Deutsche Bank [DBK.GE] and other investment banks may develop a clearing house for the credit derivatives market. The plan specifically involves developing a scheme that would only allow institutions with strong capital bases and credible trading histories to clear trades in the CDS markets with a central counter-party. The goal of the proposal is to ensure that members of this clearing house would be more protected from the risk of a trader or investor failing to meet their obligations. The Times wrote overnight that, according to Morgan Stanley, home prices will fall by 15% over the next 2 years and push 1/10 of homeowners into negative equity
• Action in the energy markets was quiet overnight as crude oil came off of its recent highs. The Wall Street Journal noted overnight that the Brazilian government may increase its royalty rates for oil companies. The government is studying how to change the rules for the oil sector and some officials say there is a consensus that the government needs to raise its take from the industry, but what is unresolved is how. The change is expected to impact Petrobras (BPR), StatoilHydro (STO), Exxon Mobile (XOM), BG Group [BG.UK] and Galp Energia.
• In fixed income the Financial Times wrote overnight that the U.K. will probably issue tens of billions of pounds in bonds to fund the Bank of England's plan to help U.K. banks raise cash. The central bank is working on a program to accept mortgage-backed securities as collateral for government bonds for up to three years, the newspaper said. The bailout plan could be worth as much as £50B though details are still being worked out according to the article. LandSource Communities Development, according to the Wall Street Journal is negotiating the possible restructuring of $1.24B in loans followings its failure to make required payments. The partnership involves the California Public Employees' Retirement System, which is one of the nation's largest pension funds, and Lennar Corp (LEN) Moodys overnight cut certain sub-prime RMBS issued by Nomura (NMR). In total 91 tranches were cut. BNP Paribas updated its ECB interest rate action forecast overnight, and now sees an ECB rate cut in December. BNP Paribas previously saw a rate cut in June.
• Comments from Central Bank officials and the like slowed from earlier in the week. In Asia the Bank of Japan cut its view on the overall economy for the second consecutive month in its monthly economic assessment, while the government lefts its view unchanged for the second consecutive month. Bank of Japan Governor Shirakawa said that Japan's economic growth is slowing on higher energy costs, adding that he expects financial market stability to continue. Shirakawa also said that CPI will continue to follow a positive trend. In New Zealand, Finance Minister Cullen, said overnight that the outlook for NZ economy in 2008 is "challenging" Elsewhere the ECB's Weber said overnight that he sees average inflation rate of 3.0% in 2008; must act if second round inflationary effect emerge. A Spanish Housing Ministry official said overnight that he sees housing prices stabilizing around the inflation rate
• In currencies, the USD was mixed against the majors in a session that lacked any impetus. The EUR/USD consolidated within the 1.5870 to 1.5950 range despite continued hawkish speak from ECB members. Recent verbal intervention continues to cap the EUR from testing the 1.60 handle.  The JPY is softer as Dealers note that the degree of risk aversion appears to be waning.  Dealers are citing the recent corporate earnings from several US banks and brokerages over the past few session as one factor. Dealers are also noting good demand for the $1B in real estate bonds issued by LEH and UBS as a possible sign of stabilization.
• Looking ahead, the US session is void of economic data. There are however a number of notables expected to report earnings in the pre-market, including Citigroup (C), Caterpillar (CAT), Honeywell (HON), Manpower (MAN), Schlumberger (SLB), and Xerox (XRX).

Published on  Fri, Apr 18 2008, 09:45 GMT

European Market Update

Thu, Apr 17 2008, 09:54 GMT
by John J. Phillips IV

TradeTheNews.com

ECONOMIC DATA

• SZ Feb Adjusted Real Retail Sales Y/Y: 3.3% v 1.6%e
• EU Feb Trade Balance: €800M v -€3.5Be || Prior revised from -€10.7B to -€11.0B
• EU Feb Trade Balance sa: €2.1B v -€2.1Be || Prior revised from -€2.0B to -€1.0B
• SZ Apr ZEW Expectations: -71.4 v -60.0e

SPEAKERS/COMMENTS

• ECB April Monthly Report: Economic fundamentals are sound || Sees protracted temporary period of high inflation || Market tensions may last longer than initially expected || Sees upside risks in the medium-term || Uncertainty is unusually high || Maintaining price stability is the ECB's primary goal || Current rates will help to achieve the ECB's inflation goal
• German Economic Institutes lower 2008 GDP outlook to 1.8% from 2.2% || See shocks from Euro currency, oil and food prices and sub-prime fallout || German economic indicators still at high levels || Sees 'high risk' that inflation will drive wage demands || Assumes ECB will hold rates at 4.00% in 2008 || Assumes EUR/USD averaging $1.58 through 2009

FIXED INCOME/FX/COMMODITIES/ERRATUM

• In equity news American Campus Communities (ACC) announced after the close a 4.5M shares secondary offering representing 16.7% of shares outstanding. Ulticom (ULCM) said in a filing overnight that it is mulling strategic alternatives, including sale of company. ViroPharma (VPHM) and Wyeth (WYE) announced overnight the discontinuation of HCV-796 development.  The companies cited the previously announced safety issue that emerged in the ongoing Phase 2 trial in patients with hepatitis C. ViroPharma also announced that ViroPharma and Wyeth do not expect to continue to collaborate on future development of hepatitis C treatment candidates. Expro International [EXR.UK] agreed to be acquired by a Candover Investment-led consortium for 1,435p/share in cash representing an 8.5% premium to yesterday’s closing price. The total value of the deal is £1.61B. Roche [ROG.SZ] Reported first-quarter revenues of CHF10.8B overnight, below estimates of CHF11.2Be. Munich Re’s [MUV2.GE] CEO guided the company’s FY08 net in line with analyst estimates, but noted that first quarter results would not be as good as they were in 2007.
• Looking at the newspapers, according to the Times RWE [RWE.GE] and Vattenfall may partner to bid for British Energy [BGY.UK]. Recall that on 4/9the Financial Times reported that RWE has made an indicative all-cash offer for British Energy worth close to 700p/share. The Wall Street Journal wrote overnight that Freddie Mac (FRE) is set to unveil an agreement with 3 major mortgage lenders aimed at making more funds available for large home loans. The agreement is reportedly with Wells Fargo (WFC), JP Morgan (JPM) and Citigroup (C) The Guardian wrote overnight that Orange Orange plans to bid for Tiscali [TIS.IT] According to an article in Seuddeutsche Zeitung Volkswagen (VOW.GE) supervisory board chairman Piech foresees a good chance of acquiring and successfully integrating the Italian motorcycle maker Ducati. In an interview with L’Hebdo UBS’s [UBSN.SZ] CEO Marcel Rohner said that UBS will not need another capital injection, adding that circulating projections about pending job cuts are exaggerated.
• In energy news overnight the Financial Times wrote overnight that Nigeria is at risk of losing 1/3 of its oil output by 2015. According to the article Nigeria needs to find ways to raise investment in joint ventures. The article cites an internal report by President Adua's energy adviser. According to the Ministry of Land and Resources, China added 1.21B tons of oil reserves in 2007.  On the whole, the well that is energy news seems to have dried up for the time being, while crude continues to push higher.
• In new supply overnight the Agence France Trésor sold €1.095B in 4.00% September 2009 BTANs with an average yield of 3.94% and a bid-to-cover of 5.17x. The AFT also sold €1.56B in 2.50% July 2010 BTAN with an average yield of 3.78%% and a bid-to-cover of 3.26x, as well as €2.075B in 3.75% January 2013 BTAN with an average yield of 3.97% and a bid-to-cover of 2.48x. Over in the UK the DMO sold £2.25Bin 4.50% December 2042 gilts with a bid-to-cover of 1.69x, and a yield tail of 0.9bps. In price action, according to source reports, the Belgian Agence de la Dette prices the 4.00% 2014 issue at re-offer 87.872. Elsewhere, Moodys announced that 20 downgraded Washington Mutual (WM) tranches are on review for possible cuts due to higher foreseen delinquency rates. According to wire reports overnight Moodys downgraded some of Morgan Stanley sub-prime RMBS. The Wall Street Journal has a positive piece on inflation-linked savings bonds, which points out that, due to the March CPI report, the new annualized inflation adjustment on inflation-linked bonds is 4.83%, the second highest adjustment since these types of bonds were introduced in 1998. According to the article the yields on inflation-linked savings bonds are likely to rise to over 5% from the current 4.28%.Results from General Electric’s (GE) bond auction showed that the company raised an aggregate of $8.5B in 5-year, 10-year, and 30-year bonds in its biggest bond sale since 2002. According to an article in Diario de Noticias, the Portuguese government plans to cut its economic growth forecast to 1.7%-1.8% from the existing forecast of 2.0%. The article did not cite any sources. The group of four German economic institutes cuts its 2008 GDP outlook to 1.8% from 2.2%, and forecasted 2009 growth at 1.4% assuming ECB rates at 4.00% until the end of 2009. 
• On the data front, the Brazilian central bank raised interested rates by 50bps to 11.75% in a unanimous vote during Asian trading. The overall market consensus was for a 25bps rate hike. The rate hike is the first in nearly three years, and was executed in an attempt to help “contain inflation” according to the central bank. In its April monthly report, the ECB reiterated most of its recent rhetoric, noting that economic fundamentals remain sound. The ECB reiterated that they see a protracted temporary period of high inflation, and added that upside risks are seen in the medium-term. Finally, the ECB reiterated once again that it’s primary goal is maintaining price stability. The Euro-Zone trade balance for the month of February exceeded estimates by a wide margin on both a normal and a seasonally adjusted basis. Exports to the US were flat from January’s reading.
• In currencies the EUR/USD eked out a fresh all-time high of 1.5983 but basically consolidated its recent gains throughout the European session as oil and gold maintain their firm tone. Dealers note that good two-way transaction flow continuing at the 1.5970/90 level. Dealers also note that Euro buy stops orders building above the 1.6030-area.  The JPY maintained a soft tone following the US, Japanese equity rallies as EUR/JPY broke above the 162 area. Dealers have noted that a decent quantity of USD/JPY 102 option strikes expire on Friday.
• Looking ahead, earnings season is beginning to kick in with heavy earnings flows before the open and after the close. Of note this morning will be Baxter International (BAX), the Bank of New York Mellon Corp. (BK), Continental Airlines (CAL), Harley-Davidson (HOG), Southwest Airlines (LUV), Marriott International (MAR), Merrill Lynch (MER), Pfizer (PFE), Supervalu (SVU), and of course United Technologies (UTX). Data is light in the US today, with initial jobless claims and continuing claims due at 8:30 ET, followed by March leading indicators, and the April Philadelphia Fed index at 10:00 ET. There are a series of Fed speakers peppered here and about today, including Kohn, Prescott, Fisher, and Lacker.

Published on  Thu, Apr 17 2008, 09:54 GMT

European Market Update

Wed, Apr 16 2008, 09:53 GMT
by John J. Phillips IV

TradeTheNews.com

ECONOMIC DATA

• GE Mar Final CPI: M/M 0.5% v 0.5%e || Y/Y 3.1% v 3.1%e
• GE Mar Final Harmonized CPI: M/M 0.5% v 0.5%e || Y/Y 3.3% v 3.2%e
• CH Q1 GDP: 10.6% v 10.4%e
• CH Mar PPI Y/Y: 8.0% v 6.8%e [Highest since November 2004]
• CH Mar CPI Y/Y: 8.3% v 8.2%e
• CH Mar Retail Sales Y/Y: 21.5% v 19.8%e [Highest since revised in January 1999]
• CH Mar Industrial Production Y/Y: 17.8% v 16.5%e
• IT Feb Total Trade Balance: -€408M v -€1.45Be || Prior revised from -€4.22B to -€4.11B
• IT Feb Trade Balance EU: €905M v €125M prior || Prior revised from €125M to €239M
• UK Mar Claimant Count Rate: 2.5% v 2.5%e
• UK Mar Jobless Claims Change: -1.2K v –1.8Ke || Prior revised from –2.8K to 0.6K
• UK Feb Average Earnings inc. Bonus: 3.7% v 3.6%e || Prior revised from 3.7% to 3.9%
• UK Feb Average Earnings ex. Bonus: 3.8% v 3.7%e
• UK Feb ILO Unemployment Rate: 5.2% v 5.2%e
• EU Mar CPI: M/M 1.0% v 0.9%e || Y/Y 3.6% v 3.5%e || Core Y/Y 2.0% v 1.9%e
• CH PBOC Raises reserve requirement ratio by 50bps to 16.00% effective April 25th

SPEAKERS/COMMENTS

• ECB's Garganas: Euro-Zone inflation outlook is not satisfactory || Inflation to fall to 2.0% very gradually || Euro-Zone economic fundamentals are sound || ECB's market operations have not changed its monetary policy stance || Turmoil's impact on the Euro-Zone economy is not sizeable || US economy likely to have more serious slowdown; US could post negative GDP growth in Q1 and Q2
• Norges Gov: Sees key rate in range of 5.0%-6.0% range until June 25th || Considered raising rates at last policy meeting || Inflation has been increasing despite currency appreciation || Inflation seen rising over the next one to two years || GDP remains strong but is seen slowing in 2008 || Key rate may be raised in the period to the summer
• Former ECB Chief Economist Issing: Some signs that financial markets are stabilizing || Euro will cement itself as a world currency || Euro's success based on price stability || Euro-region inflation is intolerable || Euro-region growth will moderate, but there are no signs of a recession
• Spanish Finance Minister Solbes: It is difficult to judge the duration of the credit market turmoil || Sees Q1 GDP growth of much less than 3.5% || Sees correction in Spanish economy

FIXED INCOME/FX/COMMODITIES/ERRATUM

• In equity news overnight Valassis Communications (VCI) guided its first-quarter earnings ahead of consensus expectations after the close. Infinity Pharmaceuticals (INFI) reported that its Hedgehog Antagonist delayed tumor growth following chemotherapy in a pre-clinical model of small cell lung cancer. Data showed that the treatment led to a statistically significant delay in tumor growth compared to vehicle control. Wells Fargo (WFC) agreed overnight to acquire Citibank (C) Customer Relationships in Northern Nevada’s, Sierra Foothills. Wells Fargo will acquire the account relationships of Citibank's customer households in six northern Nevada and two California Sierra Foothills communities, including approximately $500M in deposits and $60M in loans. Washington Mutual (WM) said in their conference call overnight that they see 2008 credit card losses of 9.5%-10.5%, adding that 2008 will be a peak year for loan loss provisions. Washington Mutual raised its forecast for 2008 non-interest expense to $8.4B-$8.6B, citing higher foreclosure expenses. Pozen (POZN), along with Galaxosmithkline (GSK), announced overnight that Treximet tablets have been approved by the FDA for the treatment of acute migraines. The product is expected to be available in U.S. pharmacies by mid-May. In Paris, Thomson (TMS) reported an 11% y/y decline in first-quarter sales, but still managed to edge out consensus estimates. The company halted its €0.33/share dividend, and guided second-quarter sales down 6%-8%.  ArcelorMittal (MT) is reportedly mulling plans to increase prices on some contracted steel shipments in the US by $250/ton according to a wire report.
• In the newspapers overnight the Financial Times reported overnight that a group of leading European banks may seek to establish a European debit card payment network. The network would rival MasterCard (MA) and Visa (V). Chatter about this matter was circulating during US trading hours on Tuesday. The Wall Street Journal speculated overnight that the option market is implying that Citigroup (C) may reduce its dividend again. The article comments on research from Credit Suisse, which notes that Citigroup's options are trading at prices that imply the bank may cut its dividend to $0.175 from $0.32. Merrill Lynch (MER), the Wall Street Journal said citing people familiar with the matter, will report writedowns of $6B-$8B when it reports first-quarter earnings on Thursday.  According to Finansavisen, Kaupthing Bank [KAUP.IR], Iceland’s largest bank, will have all of next year's funding needs covered by August. The articles cites the bank’s chairman, and comes after much speculation that Icelandic banks would require major borrowing.  Without citing any sources Il Sole reported overnight that British Sky Broadcasting (BSY) is the leading candidate to acquire Italian telecom services company Tiscali [TIS.IT].
• In early European trading shares of Experian Group [EXPN.UK] were higher after the company reported that total sales in the second-half were +21% y/y, and reiterated FY double-digit EBIT growth guidance. Shares of L’oreal [OR.FR] dropped at the open after the company’s first fist-quarter revenue failed to meet expectations. JJB Sports’[JJB.UK] shares declined sharply at the open after the company said that it will cut jobs, and noted that it sees difficult short-term market conditions.  JJB did however say that it sees full-year results in line with expectations. Also lower at the open were shares of Arques Industries [AQU.GE], on word that the board is considering no dividend for the current year.
• In energy news overnight Royal Dutch Shell (RDSA) reported an operational upset at its 333K bpd Deer Park refinery in Texas. The upset, which occurred on Monday, resulted in flaring from a hydro-processing unit. PetroChina (PTR) announced that it has entered into an agreement with Hong Kong’s Chengye Petroleum Group have agreed to jointly develop the Dina block 1 in the Tarim Basin in Northwestern China.  According to a newswire report overnight, Brazilian regulators will probe the claim made by the Brazilian National Oil Agency’s director, Haroldo Lima, that Petrobras’ (PBR) oil exploration block may hold up to 33B boe.  Mexico’s Pemex has reopened all of its Gulf of Mexico oil export terminals; the 320K bpd Salinas Cruz terminal on the Pacific Coast remains closed.  According to wire reports overnight, Nigeria has backed down on its threat to impose a deadline and sanctions to stop gas flaring The Iranian Oil Minister said overnight that he questions the need for OPEC to rein in oil prices despites US and UK calls for more crude. An Iraqi Oil Ministry Official denied overnight that a deal has been reached to back oil contracts signed by Kurdish regional authorities. Prime Minister of Iraq announced overnight that Iraq will explore closer cooperation with the EU.
• In new supply overnight Germany sold €5.63B in 3.00% March 2010 Schatz with an average yield of 3.52%, and a bid-to-cover of 1.2x. The cover compares to the 1.4x seen at the last auction, which sold in the amount of €6.59B. According to source reports overnight the Belgian Agence de la Dette has set the guidance on the upcoming March 2014 OLO issue at bunds +32-35bps. In fixed income news, according to a report issued by Citigroup on Monday, the $340B US auction rate market will disappear. According to the report brokerages and asset managers may see their earnings fall by 1% to 2% as clients take their business elsewhere because they are stuck with auction rate securities.  The Wall Street Journals reported overnight that the UK government may ask the Bank of England to relax the terms of the loans that it makes to banks. Citing people familiar with the matter, the article said that Prime Minister Brown left the impression that he favors widening the range of collateral that the central bank would accept on a variety of loans and the collateral could possibly include mortgage-backed securities. According to FT Deutschland the leading research institutes in Germany expect that the German economy will grow by 1.8% in 2008, and expect further weakening in 2009 as a result of inflationary pressures from food and oil prices. According to the Wall Street Journal bankers and traders are expressing concerns that Libor rates are becoming unreliable, as growing suspicions Libor's veracity amid the financial market crisis suggests that banks' troubles could be worse than they're willing to admit. The concern, according to the WSJ, is that some banks don't want to report the high rates they're paying for short-term loans because they don't want to tip off the market that they're desperate for cash.
• On the data front, final readings on German CPI for March were unchanged with the exception of the y/y harmonized reading, which was revised up to 3.3% from 3.2%. The Italian trade balance was better than expected at a deficit of €408M, above estimate for a deficit of €1.45B. Jobs data in the UK was relatively mundane, while the average earnings data was a little more interesting, edging out expectations on the upside. Euro-Zone CPI data for the month of March beat out expectations across all readings, with the y/y reading at its highest level since June of 1992. The relatively high CPI data seems to confirm much of the ECB’s relentless price stability and inflation outlook rhetoric. A series of Chinese economic data was released during the European hours. First-quarter GDP was at 10.6% y/y, above estimates of 10.4%. Consumer prices declined by less than expected in March to 8.3% from 8.7% in February. Retail Sales y/y rose by more than expected to a multi-year high of 21.5%, while industrial production y/y rose to a multi-year high of 17.8%.
• In the currencies commodities continued have an impact on the weak USD scenario throughout the European session as Crude hit fresh all-time highs above $114.35 and gold tested the $935-level.  The EUR/USD tested the 1.5940-level following the March CPI data in the Euro-Zone. Dealers are noting that in the post G7 environment, no mention of the USD situation from US officials has taken place, despite the acceleration of its losses against the Euro. ECB members continued with their verbal assault in regards to hawkish comments on Euro-zone inflation. Both CAD and AUD were firmer on the rise in commodities. The USD/CAD is currently around 1.0080 and the AUD/USD is currently around 0.9320.
• Looking ahead, there are a series of notables expected report in the pre-market today, including Abbott Labs (ABT), AMR Corp. (AMR), Blackrock (BLK), Johnson Controls (JCI), JP Morgan (JPM), Coca-Cola Co. (KO), and Wells Fargo (WFC). There is a series of heavy data scheduled in the US today, starting with March consumer prices data at 8:30 ET, which will be accompanied by March housing starts. At 9:15 ET March industrial production, and capacity utilization will be released, and will be followed by the Fed’s Beige Book at 14:00 ET. Earnings expected after the close include E-Bay (EBAY), IBM (IBM), Gilead Sciences (GILD), and Rambus (RMBS). In Fed speak the Fed’s Yellen is scheduled to speak on the US outlook at 11:30 ET, while the Fed’s Plosser is scheduled to speak on education and economic prosperity at 12:30 ET.
• Taking a quick look at the previous Beige Book from March 5th, the Fed said that all districts saw slowing economic growth since the beginning of the year. The report indicated that wage and salary pressures were "modest," and that labor markets "loosened". The Fed said business’ abilities to pass along price increases varied by district. Finally, the report said that housing remained "weak."

Published on  Wed, Apr 16 2008, 09:53 GMT

European Market Update

Tue, Apr 15 2008, 09:46 GMT
by John J. Phillips IV

TradeTheNews.com

ECONOMIC DATA

• FR Mar CPI: M/M 0.8% v 0.6%e || Y/Y 3.2% v 3.0%e
• FR Mar CPI Harmonized: M/M 0.8% v 0.6%e || Y/Y 3.5% v 3.3%e
• FR Mar CPI Ex-Tobacco Index: 117.46 v 117.3e
• IT Mar Final CPI: M/M 0.5% v 0.5%e || Y/Y 3.3% v 3.3%e
• IT Mar Final CPI Harmonized: 1.6% v 1.6%e || Y/Y 3.6% v 3.6%e
• UK Mar CPI: M/M 0.4% v 0.6%e || Y/Y 2.5% v 2.6%e || Core Y/Y 1.2% v 1.3%e
• UK Mar RPI: M/M 0.3% v 0.5%e || Y/Y 3.8% v 3.9%e || Ex-Mort. Y/Y 3.5% v 3.6%e
• UK Mar Retail Price Index: 212.1 v 212.5e
• UK Feb DCLG UK House Prices Y/Y: 6.7% v 7.4%e
• SP Jan Current Account: -€11.9B v -€9.3B prior
• GE Apr ZEW Economic Sentiment: -40.7 v –30.0e
• GE Apr ZEW Current Situation: 33.2 v 32.8e
• EU Apr ZEW Economic Sentiment: -44.8 v –33.0e

SPEAKERS/COMMENTS

• ECB's Trichet: Swift implementation of G7 goals crucial || No effort being spared to tackle the crisis || Must prevent system from feeding on itself || Contagion from U.S. housing trouble has made clear how vulnerable the financial system is || We are in a period of high uncertainty where risks are hard to quantify || Shadow banking system rested on false perception of perpetually rising asset prices || Inflation is "certainly a problem" || Won't say anything new on monetary policy || Sticks to what he said at G7 about concerns about sharp currency fluctuations
• ECB's Ordonez: The ECB is always more concerned with inflation || Sees Spanish economy in a change of cycle || Sees Euro-Zone inflation approaching 2% in 2H of 2008
• ECB’s Stark: Cannot be sure if current interest rate stance is appropriate || Believes that it is appropriate for the moment || Upside risks to inflation prevail || No choice to accommodate first round effects, do not pose risks to price stability || ECB will act decisively on any spillover
• SW Finance Minister Borg: Forecasts 2008 GDP growth of 2.1%, and 2009 GDP growth of 1.8% ||Sees repo rate steady through 2009 at 4.25%
• ZEW Economist: Inflationary pressures dampened German sentiment || German GDP growth of 1.7% is still realistic in 2008 || ECB might switch course to cut rates || 50% of respondents see 2008 ECB rate cut, down from 60% last month
• Icelandic Finance Minister Thorgeirsson: Icelandic banks’ problems are more image than substance

FIXED INCOME/FX/COMMODITIES/ERRATUM

• In equity news overnight, Genentech (DNA) and Biogen Idec (BIIB) announced that results from a phase II/III clinical trial of Rituxan in primary-progressive multiple sclerosis did not meet their primary endpoint. The companies will continue to analyze the study results and will submit the data for presentation at an upcoming medical meeting. Delta Airlines (DAL) and Northwest Airlines (NWA) agreed to merge in an all-stock transaction valued at $17.7B. Under the terms Northwest holders will receive 1.25 Delta shares/share, representing a 16.8% premium based on yesterday’s closing price.
• On the earnings front, Burberry (BRBY.UK) reported 2H revenues slightly ahead of expectations, and 2H same-store-sales growth of 6% y/y. UK retailer Tesco (TSCO.UK) beat out analyst expectations for 2007 with Revenues of £47.3B, and net income of £2.12B. UK retailer Debenhams (DEB.UK) reported a y/y decline for its 1H net income, as well as a 20bps decline in gross margins, and a 0.7% decline in same-store-sales. Skyepharma (SKP.UK) reported overnight that a study in pediatric Flutiform in asthma met its primary endpoint.
• In the newspapers, the WSJ’s Heard on the Street is Cautious on shares of Nintendo (NTDOY) noting that some analysts believe that Nintendo's best years of growth have passed, adding that results may also be impacted by the US economic slowdown. The FT followed up on the previously reported plan by Citigroup (C) to sell $12B in leveraged loans noting that the bank is allowing private equity groups bidding for the assets to cherry pick from a wide range of assets with different prices and credit ratings. According to the Telegraph, a Chinese sovereign wealth fund has built up a stake of about £1B in British Petroleum (BP). The stake represents less than 1% of shares outstanding According to the WSJ, the Government of Singapore Investment Corp is "very seriously considering" participating in UBS's (UBS) $15B rights offering. The sovereign wealth fund bought a 9% stake in UBS in December. In an article that cites the company’s Chief Medical Office, the Seattle Post Intelligence reported that: Dendreon (DNDN) will progress with Neuvenge in breast cancer therapy later in 2008. The article also notes that that the company expects to release positive data about its lead prostate cancer treatment, Provenge, later in 2008. According to the FT, Deutsche Bank (DB) has sped up the sale of €36B worth of leveraged debt. The FT noted that Deutsche Bank has been steadily selling some of its leveraged loans since August, and that the sale process was accelerated last month as the price of many of the loans increased following the bailout of Bear Stearns. [Remember that on 4/13 the WSJ said that DB is looking to sell as much as $20B of LBO related debt to a group of investors] According to the Telegraph, one of Barclay's (BCS) SIVs fell into receivership after the value of its assets declined. Accounting firm Deloitte & Touche was hired as a receiver for the fund.
• In fixed income Italy sold €1.95B in 4.25% August 2013 bonds with an average yield of 3.99% and a bid-to-cover of 1.5x, as well as €2.0B in 4.25% August 2014 bonds with an average yield of 4.05%, and a bid-to-cover of 1.64x. The WSJ is running an article about the performance of government-sponsored enterprises [Fannie Mae (FNM) and Freddie Mac (FRE)] could have a direct impact on the US economy and the US' credit standing. The article notes that, according to an S&P report, government-sponsored enterprises enjoy implicit government guarantees and could cause the US to lose its sterling triple-A rating if the government were forced to come to their rescue.  The WSJ is also running an interesting article by Harvard professor Martin Feldstein about the recent Fed interest rate cuts. Feldstein ultimately argues that the benefits of recent rate cuts are likely to be small when compared to the potential damage. Japanese insurer Nippon Life Insurance announced overnight that, in an attempt to boost returns, it plans to buy ¥400B corporate debt, asset backed securities, and government bonds.  JP Morgan asset’s Donohue said overnight that he sees an ECB rate cut this year. Donohue added that JP Morgan Assets may sell treasuries and buy European debt.
• In currencies overnight, the GBP was under pressure throughout the European session after the release of RICS House Prices during Asian hours. The -78.5 reading for March was the lowest ever for this data series in its 30 year history. Additional downside momentum for GBP was enacted after the March CPI and RPI data , which came in below consensus. The EUR/GBP proceeded to hit all-time highs of 0.8065 before retracing 15 pips. The EUR/USD continued to hover near its all-tie highs against the USD as continued hawkish ECB overshadowed the economic releases. Aside from the GBP, the USD maintaining a soft tone as new highs in crude futures continue to be made and firmer metal prices. The JPY is mixed ahead of the dealer note that the S&P equity index is moving into that part of the quarter where bank earnings are announced. Thus concerns over the health of the financial sector will influence the risk aversion currency plays.
• As we stand now the European indices are currently mixed, with the FTSE 100 outperforming. The slightly weaker than expected reading on CPI data in the UK added some upside momentum to long-gilt and short-sterling futures which are outperforming their European counterparts. The weaker than expected German Zew expectations hit the European indices and the S&P futures (SPY) pretty hard, initially pushing both the Dax and the Euro-Stoxx 50 into negative territory. The data took European fixed income futures off of session lows, but was not enough to push them into positive territory.
• Looking ahead, early focus will fall upon earnings results from Johnson & Johnson (JNJ), Forest Laboratories (FRX), Regions Financial (RF), State Street (STT), and US Bankcorp (USB)¸ all of which are expected to report in the pre-market. On the data front March PPI data is due in the US at 8:30 ET along with April empire manufacturing, and will be followed by February net TIC flows data at 9:00 ET. The NAHB housing market index for April is due out at 13:00 ET today. In central bank speak the ECB’s Trichet and Weber are scheduled to speak in Frankfurt at 11:00 ET. After the close earnings reports are expected from Washington Mutual (WM), CSX Corp. (CSX), and Intel (INTC).

Published on  Tue, Apr 15 2008, 09:46 GMT

European Market Update

Fri, Apr 11 2008, 09:28 GMT
by John J. Phillips IV

TradeTheNews.com

ECONOMIC DATA

• GE Mar Wholesale Price Index: M/M 1.6% v 0.5%e || Y/Y 7.1% v 6.0%e
• SP Mar CPI: M/M 0.9 % v 0.9%e || Y/Y 4.5% v 4.6%e
• SP Mar Core CPI: M/M 0.7% v 0.7%e || Y/Y 3.4% v 3.4%e
• SP Mar Harmonized CPI: M/M 0.9% v 0.9%e || Y/Y 4.6% v 4.6%e
• SW Feb Activity Index Level: 123.7 v 122.9 prior || Prior revised from 122.9 to 123.1

SPEAKERS/COMMENTS

• IEA: Cuts 2008 world oil demand growth forecast by 310K bpd to 87.23M BPD || China may cut tax on crude oil imports to 4% from 17% || China may cut tax to pare refiners' losses || Sees US oil demand declining by 2% in 2008 || Sees Chinese oil demand rising by 4.7% in 2008 || Sees Middle Eastern oil demand rising by 5.7% in 2008 || Cuts 2008 demand forecast for OPEC crude by 200K bpd
• EU President: Foreign exchange rates must reflect economic fundamentals || EMU economy is doing well, but 2008 growth will slow slightly || EMU inflation is absolutely a matter of concern || FX volatility is not conducive to growth

FIXED INCOME/FX/COMMODITIES/ERRATUM

• In energy news overnight the IEA cut its 2008 oil demand growth forecast for the third consecutive month, making the largest cut in seven years. The IEA reduced its 2008 oil demand growth forecast by 310K bpd, and cut its 2008 OPEC oil demand forecast by 200K bpd. The IEA also said that China may cut its oil import tax to 4% from 17% in order to help pare refiners’ losses. The IEA sees US demand declining by 2% in 2008, and expected Chinese and Middle Eastern demand to rise by 4.7% and 5.7% respectively. JP Morgan raised its average 2008 Brent and WTI oil price forecasts to $89/barrel and $90/barrel respectively.
• European government bonds opened lower in the session, and have remained in the red faced with little economic data.  One interesting view circulating amongst analysts centers around the slow rise in M&A activity seen around the world over the past few weeks. This has, perhaps, helped to chip away at the markets’ recent “flight to safety” mentality.  There was no new supply overnight, however Germany did make a €16B cash payment. Going into the weekend focus is likely to rest upon G7, which is widely expected to be a non-event.
• The European indices are currently trading in positive territory in the session, led by the basic resources, and industrial goods and services sectors. There was little in the way of significant equity related news overnight. According to wire reports EDF plans to bid for British Energy, but the bid is expected to be help below 700p/share. Looking ahead, Dow component GE is due to report earnings results ahead of the open today.
•  In currencies, the market maintained a subdued tone ahead of the weekend’s G7 meeting in Washington DC. Dealers suspect that G7 will try to show a clear determination to ensure financial stability as global markets remain in a turbulent mode. FX dealers will see if members of G7 are serious regarding the recent USD weakness and EUR strength. However, it is more likely that G7 will agree that China's CNY will need to rise.  In the event of any surprise at G7, any statement along the lines of EU protests against too strong Euro could increase the short term volatility, although the G7 states that disorderly, excessive FX moves are certainly not welcomed The EUR/USD at 1.5830 and exhibited some softness in the session after Harvard economist Feldstein stated that currency intervention to support USD would be wrong. The is JPY softer across the board with equities in positive territories. Dealers citing the continued financial sector relief rally after the recent Wamu cash infusion deal earlier this week. The USD/JPY at 101.85 and EUR/JPY higher by 10 pips at 161.20.

Published on  Fri, Apr 11 2008, 09:28 GMT

European Market Update

Wed, Apr 9 2008, 09:48 GMT
by John J. Phillips IV

TradeTheNews.com

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ECONOMIC DATA

• GE Feb Trade Balance: €16.9B v €15.7Be
• GE Feb Current Account: €15.4Bv €13.1Be || Prior revised from €15.0B to €14.7B
• GE Feb Imports: -0.8% v –0.8%e || Prior revised from 4.2% to 4.0%
• GE Feb Exports: 0.0% v 0.3%e || Prior revised from 3.8% to 3.6%
• UK Feb Industrial Production: M/M 0.3% v 0.1%e || Y/Y 1.3% v 1.2%e
• UK Feb Manufacturing Production: M/M 0.4% v 0.0%e || Prior revised from 0.4% to 0.5% |||| Y/Y 1.9% v 1.5%e || Prior revised from 0.6% to 0.7%
• EU Q4 Final GDP: Q/Q 0.4% v 0.4%e || Y/Y 2.2% v 2.2%e
• EU Q4 Final Gross Fixed Capital Formation: 0.8% v 0.8%e
• EU Q4 Final Government Expenditures: -0.1% v –0.1%e
• EU Q4 Final Household Consumption: -0.1% v –0.1%e

SPEAKERS/COMMENTS

• UK Former Chancellor of the Exchequer Lawson: BOE can afford to make further rate cuts || BOE needs to cut rates by 25bps to boost confidence || BOE should maintain its inflation focus || Recession will be gentle and more prolonged || It is likely that a further, small interest rate cut will come

FIXED INCOME/FX/COMMODITIES/ERRATUM

• Front month crude oil futures are currently trading in positive territory after moving lower during early European trading on global recession fears after UBS cut its earnings guidance after the close last night. Citgo's Corpus Christi refinery (157K bpd) disclosed an upset at a sulfur unit. The problem occurred during the restart of the plant. The Financial Times commented on Colombia's oil reserves, noting that Colombia's heavy oil area could hold 20B barrels of recoverable resources. Further more the article noted that the Colombian government is looking to raise oil production to 1M barrels/day in the next 10 yrs from the current level of 550K/bpd. Japan’s Nippon Oil said that it expects to suspend crude refining at its 60K bpd Toyama refinery by March 2009. On the commodity front, a Rio Tinto spokesperson said overnight that a US slowdown would have less of an impact on commodities than in the past, adding that commodity prices may move higher. Furthermore the spokesperson said that 4% y/y copper demand growth may last a generation. Gold, silver, and copper are currently trading lower in the session.
• The European indices opened lower in the session prompted by declines in Asia after UPS cut its earnings forecast following the close in the US.  Amongst the declines in Europe the telecommunications sector has outperformed. According to the Times, Dow component Boeing is expected to announce that its 787 Dreamliner has been delayed by 18 months. Delays are expected to cost the company billions of Dollars as was the case when Airbus delayed the A380 in 2006.  The Financial Times ran an article saying that Citigroup is closing in on a deal to sell $12B in leveraged loans at a discount to a group of leading private equity firms including the Blackstone Group, TPG, and Apollo Group. According to the article, the loans are expected to be sold at an average price of slightly below $0.90 on the Dollar. In Germany, although not tradable, it is worth mentioning that the relatively small German bank known as Weserbank has been order to stop trading by the German watchdog after becoming over-indebted. The bank had total assets of approximately €120M at the end of 2007. Shares of TNT were lower overnight after wages talks with unions broke down. Elsewhere Lehman forecasted that UBS’ second-quarter net profit could be close to zero. In Germany Conergy reported results that fell just below the market consensus. Looking ahead to the US pre-market, earnings are expected from US notables Circuit City, Progressive Corp., and Shaw Group.
• In Europe, the German trade balance unexpectedly widened in February seeming to indicate that record Euro levels have not impacted activity in the German marketplace, however some analysts have argued that volatility in the economic data has not yet allowed the impact of Euro strength and the financial market turmoil to show itself. Government bonds opened higher in the session, and posted further gains after the equity markets opened lower. Long gilt futures in the UK took a slight hit following stronger than expected industrial and manufacturing production data for the month of February, and continued to follow a downward trend thereafter, but have been able to maintain their position in positive territory. As expected, there were no revisions to the final fourth-quarter GDP readings in the Euro-Zone overnight, which came in at 0.4% Q/Q, and 2.2% Y/Y.  Two and ten-year European government bond spreads have widened against Germany overnight. Overall the European yield curves are relatively flat, but have a steepening bias. Swap spreads have risen from closing levels seen yesterday, while interest rate futures seem are pricing in greater expectations of lower rates along their respective curves. There was no new supply in the Euro-Zone or the UK overnight, however source reports indicated that Italy will sell its new 15-year bond at +16bps vs. the 3.75% August 2021 BTP. Looking ahead, with little activity scheduled in the US today focus for the European government bonds and fixed income futures alike will rest upon the ECB, BOE, and to a much lesser degree Sedlabanki interest rate decisions scheduled tomorrow.  Most expect that the ECB will do more of the same… namely the ECB is expected to hold rates, while the ECB’s Trichet will reiterate once again the ECB’s price stability mantra. The BOE decision could be interesting. While the general consensus is for a 25bps rate cut, there have been calls for a 50bps rate cut, especially in the wake of yesterday’s Halifax house prices, which posted their biggest slide in 16 years. There are few opinions about what the Sedlabanki will do, however there are many possibilities. Recall that the Sedlabanki raised rates by one whole point in an inter-meeting move near the end of March. Between the unscheduled rate hike, which was aimed at high inflation, and now we’ve seen Icelandic CPI at a 6-year high. The question for tomorrow is, hold, +25bps, +50bps, +75bps, or +100bps? All remain possibilities.
• Treasury yields have declined overnight following the FOMC minutes, which said that a severe economic downturn was possible, and described recent inflation data as disappointing. May fed fund futures are currently pricing in a 40% chance of a 50bps rate cut a the next policy-setting meeting. Looking ahead, there is only one economic number scheduled in today’s session, February wholesale inventories. In central bank speak the Fed’s Kroszner is due to testify on housing legislation, the Fed’s Bernanke is scheduled to speak on financial literacy, and the Fed’s Krozner is due to speak about the US economy. Additionally, the Treasury’s McCormick is scheduled to hold a pre-G7 briefing.
• Overall the currency market maintained a relatively quiet tone ahead of the European central bank rate decisions on Thursday, and G7 on Friday. The JPY was a touch firmer in pre-European trading after the Asian equities turn turned lower during the last hour of trading. The JPY was also benefiting from some risk aversion after an IMF report warned of much bigger writedowns to come.  The GBP was off session lows following better than expected industrial and manufacturing production data for the month of February. The EUR/GBP had a brief encounter with the 0.80-level before retreating toward 0.7970-area.  The EUR/USD is holding steady at 1.5730 as dealers anticipate a hawkish ECB press conference on Thursday. Far eastern names continued to bid for Euros below the 1.5700-level and some minor Euro sell stops have built below 1.5660.

Published on  Wed, Apr 9 2008, 09:48 GMT

European Market Update

Tue, Apr 8 2008, 10:20 GMT
by John J. Phillips IV

TradeTheNews.com

ECONOMIC DATA

• UK Mar HBOS House Prices: M/M –2.5% v –0.3%e || Prior revised from –0.3% to –0.4% |||| Y/Y 1.1% v 2.4%e (M/M lowest since September 1992; Y/Y lowest since December 2002)

SPEAKERS/COMMENTS

• BOF's Landau: Attempts to spread risk through the financial market have been less effective than foreseen
• RU Russian Central Bank: Forecasts inflation below 10% in 2008 || May increase interest rates further
• EU Banking supervisor says significant stress continues within financial market sector || Method of disclosing illiquid assets may exacerbate market uncertainty
• EU Monster Employment Index Europe shows moderate rise in March to 170 from 165 in February.
• HSBC Updates its BOE Forecast; Sees a 25bps cut at the April 10th meeting; Previously forecasted no change

FIXED INCOME/FX/COMMODITIES/ERRATUM

• There is very little that can be said about today’s session other than it was like watching paint dry. Faced with a lack of economy data and central bank speakers the one economic release seen overnight, HBOS house prices in the UK, was pretty interesting as the M/M reading slid to its lowest level since September of 1992. That said, fixed income futures are currently trading in positive territory in the session on the back of a decline in the equity markets as a stream of poor earnings related news in the US has ushered in the beginning of earnings season. Thursday’s rate decisions, and post rate decision press conferences remain in focus this week. HSBC jumped on the band wagon overnight updating its BOE rate forecast to include a 25bps cut at this weeks meeting; HSBC had previously forecasted no change. In new supply overnight the Dutch DSTA sold €2.75B in 4.00% January 2011 DSL with an average yield of 3.762%, while the UK DMO sold £1.2B in 1.25% November 2017 I/L gilts with an real yield of 1.196% and a bid-to-cover of 1.64x. The cover on the DMO’s auction compares to the 2.07x seen at the previous auction.
• The European indices are currently trading lower in the session. The downward trend started late in the US after Alcoa’s earnings results failed to meet market expectations, while Advance Micro Devices lowered its first-quarter guidance. The negative news weighted down on Asian trading, which fed into European trading as well. The downward trend in European indices cannot be attributed solely to US news, as there was some bad news in the European pre-market today. TomTom cut its first-quarter guidance rather drastically, which brought shares down immediately at the open. 
• In energy news overnight OPEC’s President made a series of comments overnight, most of which were inline with recent OPEC rhetoric. The OPEC president said that the Oil price level is not due to a lack of supply, adding that high oil prices are with us to stay. He reiterated that the declining Dollar and a US slowdown remain amongst OPEC’s concerns.  The OPEC president also reiterated that supply and stocks are at very reasonable levels. On another note the OPEC president said that he sees USD falling more in value, will impact oil prices, and forecasted an oil price range of $80-$110/barrel for 2008. In other oil related news overnight Kazakhstan's Prime Minister has signed into law an oil export duty of $109.91/ton, which will be effective in May. The Chinese Academy of Social Sciences said overnight that China's 2010 oil consumption is expected to be 407M tons, up 17.4% from 2006 levels.  On the geopolitical front the Iranian president said overnight that Iran has started to set up 6K advanced enrichment centrifuges at a key complex. Front month crude has spent time in both positive and negative territory overnight, and currently sits around session lows. Looking at the metals spot gold is currently trading higher, while spot silver and copper futures are in negative territory in the session. Rio-Tinto’s CEO said overnight that emerging market demand is seen sustaining the recent rally in metals prices. Elsewhere, Citigroup raised its 2008 nickel, zinc, and lead price forecasts.
• In currencies the GBP was the focus in trading on Tuesdays as the March HBOS data yielded speculation that the BOE could take an aggressive stance in lowering rates at Thursday's MPC meeting. The GBP/USD was off over 100 pips at 1.9770, while EUR/GBP was retesting its all-time highs of 0.7983. The soft housing data giving credence to the Times article noting that the Director of the British Retail Consortium (BRC) urged the BOE to cut rates by up to 50bps this week or face a potential wave of job cuts.  The EUR/USD maintain a steady footing above the 1.57 level-where strong demand from far eastern names keeping the USD on the defensive. Adding to the USD woes were comments from the OPEC President who continues to see the USD declining in value, thus impacting oil prices.  The JPY was firmer as equity markets were broadly lower in both Tokyo and Europe. Concerns over the upcoming US earning season deflating the recent optimism found on Monday in which financial sector credit crisis was suggested to have passed its ''worst point'' by a major US brokerage firm.

Published on  Tue, Apr 8 2008, 10:20 GMT

European Market Update

Mon, Apr 7 2008, 10:11 GMT
by John J. Phillips IV

TradeTheNews.com

EUROPEAN ECONOMIC DATA

• SZ Mar Unemployment Rate: 2.6% v 2.5%e
• SZ Mar Unemployment Rate sa: 2.5% v 2.5%e
• FR Feb Trade Balance: -€2.8B v -€3.7Be || Prior revised from -€3.4B to -€3.2B
• SW Mar Budget Balance [sek]: 10.2B v 56.2B prior
• EU Apr Sentix Investor Confidence: 4.1 v 0.2e
• GE Feb Industrial Production: M/M 0.4% v –0.4%e || Prior revised from 1.8% to 1.4% |||| Y/Y 6.1% v 5.3%e || Prior revised from 6.9% to 6.5%

SPEAKERS/COMMENTS

• ECB Bonello: All data seems to suggest that Euro Zone fundamentals are sound
• ECB Quaden: Recent Belgian inflation has been bad
• ECB's Liebscher: There is a danger of a wage-price spiral
• ECB Hurley: Risks to European growth are clearly on the downside || Sees stable or low nominal Irish house prices over the next year
• ECB Bini Smaghi: Deflationary impact of Asian growth on Euro-Zone economy is falling || Can only insist on FX appreciation until emerging Asia sees it is its own interest
• BIS Knight: Sees no need for central banks to act in lock-step on all liquidity measures
• GE German Government Advisor Ruerup: Reiterates that forex intervention is no the right measure || Germany economy to post good Q1 || Germany economy seen slowing in 2H || Sees US economy sliding into a recession
• SNB Roth says inflation should be lower in Q2 if oil prices stabilize around $100/barrel || SNB has adopted a wait and see stance

FIXED INCOME/FX/COMMODITIES/ERRATUM

• The European indices are currently trading in positive territory across the board, led by a sharp rise in the construction and material sector, and aided by a notable rise in the banking sector. According to wire reports overnight savings banks in Bavaria are still debating a planned €4.8B guarantee fund for state-owned BayerLB’s asset-backed portfolio. Some of the banks are reportedly concerned that the guarantee fund will damage their creditworthiness. Shares of Geodis skyrocketed at the open after state-owned railway operator SCNF announced that it would make a €1.1B for the company. The offer was set at €135/share, representing a 32.8% premium to Thursday’s closing price (recall that shares were suspended on Friday). Novartis announced overnight a deal to acquire a 25% stake in the US-based Alcon from Nestle valued at $11B. The deal also include the option for Novartis to acquire Nestle’s remaining 52% stake in Alcon between January 2010 and July 2011 at a fixed price of $181/share. Shares of British Energy were higher overnight on word that perhaps Electricite de France, Centrica, and RWE seek to take a stake in the company.  Elsewhere shares of German bank IKB were higher at the open on word that WestLB is planning to offer €500M for the bank’s small and medium enterprise financing units. In sector rotation overnight Goldman Sachs raised the European mining sector to an Attractive rating from a Neutral rating, while Merrill Lynch raised the European Banking Sector to a Neutral from a Cautious rating. In the press, the Financial Times reported that some UK retailers are being forced to ask for their rental payments to be delayed due to the worsening of conditions on High Street. The Financial Times ran an interesting opinion piece overnight focused on why Barclays would be the perfect candidate to take out UBS.
• Action in the European fixed income market has been relatively dry overnight due to a lack of significant economic data and central bank speakers. Fixed income futures are trading lower on the back of a rise in the European equities, which are higher on M&A news and speculation.  There has been a general flattening across the European yield curves overnight, while swap spreads have moved lower. There has also been a general narrowing of cross country spreads, with Spanish, Italian, Belgian, and Greek bond yield spreads against German benchmarks narrowing. There were however some comments overnight; the ECB's Quaden said that recent Belgian inflation has been bad, while the ECB's Liebscher said that there is danger of a wag-price spiral. The Bank of International Sentiment's Knight also chimed in overnight noting that he does not see a need for central banks to act in lock-step on all liquidity measures. The press was beaming with stories ahead of this week's rate decisions in the UK and the Euro-Zone. According to the Sunday Times, the CBI is pressing the Bank of England for a rate cut at this week's meeting, noting that the Bank’s monetary policy committee should be ready for further rate reductions to head off a sharp economic slowdown. The Times “shadow” MPC voted 6-3 for a 25bps rate cut at the April 10th meeting, with one of its members, Patrick Minford, argued that the BOE should cut rates by a half a point in response to the rise in money market interest rates. According to the Independent, billionaire financier George Soros said that the city of London faces a severe recession