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European Market Update

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, 09:54 GMT

Archive

• BOE Befuddled; European Carmakers' Earnings Take a Bow
  Published On Wed, Jul 23 2008, 12:32 GMT
• Market Sentiment Shaky in the Wake of Poor Earnings Results
  Published On Tue, Jul 22 2008, 13:18 GMT
• The Lull Before the Storm
  Published On Mon, Jul 21 2008, 12:12 GMT
• ECB's Wellink Maintains Hawkish Position
  Published On Thu, Jul 17 2008, 12:13 GMT
• Markets Look to Looming Earnings Reports for Direction
  Published On Wed, Jul 16 2008, 12:09 GMT

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