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European Market Update

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ECB Reiterates Hawkish Stance Ahead of Today's FOMC Decision

Wed, Jun 25 2008, 12:10 GMT
by John J. Phillips IV

TradeTheNews.com

ECONOMIC DATA

• ·SP May Producer Prices: M/M 1.2% v 0.8%e || Y/Y 7. 9% v 7.5%e
• ·SW June Manufacturing Confidence: -10 v -1e
• ·SW June Consumer Confidence: -10.2 v -2.0e
• ·SW June Economic Tendency Survey: 93.8 v 97.7e || Prior revised from 98.5 to 97.9
• ·SW June Trade Balance [sek]: 10.3B v 12.3Be || Prior revised from 11.8B to 10. 9B
• ·IT Apr Retail Sales: M/M 0.0% v 0.3%e || Prior revised from -0. 5% to -0.6% |||| Y/Y -2.3% v 0.2%e
• ·EC Apr Industrial New Orders: M/M 2.5% v -0.5%e || Prior revised from -1.0% to -1.2% |||| Y/Y 11.7% v 2. 7% || Prior revised from -2.5% to -3.7%

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

·Pier 1 (PIR) Imports announced overnight the withdrawal of its proposal to acquire Cost Plus (CPWM) noting that it is unlikely that they would be able to acquire a majority interest in Cost Plus at a price that would make sense for their shareholders. GalxoSmithKline [GSK.UK] announced overnight that the FDA has approved KINRIX, a vaccine that offers protection against diphtheria, tetanus, pertussis and polio diseases in one shot. Barclays [BARC.UK] confirmed overnight that it will raise £4.5B via the sale of 1.58B new ordinary shares. StatoilHydro [STL.NO] noted upon completion of drilling at Wildcat Well 30/9-21a that the well cannot be put into production.

·In the newspapers, according to an article in the Wall Street Journal the possibility of higher fuel prices is seen lowering demand for planes. A third of Boeing (BA) and Airbus' [EAD.FR] orders could be delayed or canceled due to higher fuel prices. According to a Business Week article, at a few recent meetings executives at GM (GM) talked about the prospects of a merger with Ford (FR). The article notes that talks went no further than some internal chatter at GM.

·In energy news overnight, Chevron (CVX) Resumed production at one of its crude units at the El Segundo Refinery. The unit can process 70K bpd. According to Nigeria's Punch Kaduna Refining and PetroChemical Company has stopped production due to the inability of the plant to procure crude due to geopolitical tensions. The Wall Street Journal reported that Congressional Democrats have proposed mandating margin requirements as high as 50% for oil contracts. Goldman Sachs reportedly raised its 2008 WTI crude oil average price forecast to $118/barrel from its previous forecast of $108/barrel. The UAE Oil Minister said overnight that he expects demand for oil to rise despite the "unusual prices". The minister said that speculators are driving up oil prices, adding that the UAE will not agree to any output hike unless OPEC does.

·In new supply overnight Italy sold €2.5B in April 2010 Zero-Coupon bonds with an average yield of 4.797% and a bid-to-cover of 1.55x.

·In currencies the USD maintained its recent range despite a barrage of hawkish ECB talk ahead of next week's ECB policy meeting. The EUR/USD held below the 1.56-level. The USD did see some initial strength at the European open as dealers noted that some Eastern European supply was helping an early push towards the 1.5540-level. Echoes of some USD verbal intervention emerged as the ECB's Trichet reiterated that the US favors a strong USD. Elsewhere, the Russian President added that a weak USD is an international problem. The Canadian Finance Minister said overnight that gains in the CAD have helped keep inflation tame. According an analyst note from Goldman overnight, the Rupee may still fall despite the recent rate hike because of the country's high current account deficit.

·On the speaker front, the ECB's Tumpel-Gugerell reiterated overnight that the ECB is ready to raise rates if needed and remains in state of heightened alertness. Tumpel-Gugerell sees a temporary slowdown in Euro Zone, but no sustained economic slowdown. The ECB's Wellink said overnight that real economic growth in US has become stagnant adding that the US housing market has not calmed down at this point. The ECB's Trichet reiterated in his testimony to the European Parliament's economic and monetary affairs committee that the ECB is in a state of "heightened alertness," adding that the ECB is concerned that current high inflation may become entrenched. Trichet noted that high inflation is due to energy and food prices, and asserted that wage growth may be stronger than previously expected. Trichet added that the ECB must keep longer term inflation expectations anchored, and said that Q1 growth reflects temporary factors noting that the ECB views Q1 and Q2 together. Trichet added in his speech that verbal discipline on the Euro is important, reiterating that the US favors a strong Dollar. Trichet noted however that the ECB does not campaign for the Euro to have an international role. The ECB's Noyer pointed out overnight that the US economy is growing slower, noting that he does not see a recession. Noyer asserted that inflation justifies the ECB's extreme vigilance, adding that he sees upward risks to price stability. Noyer also said that currency rates are not an objective of the monetary policy of developed countries. The German HDB Construction Group raised its 2008 industry growth forecast to 4% from 3%, noting that 2009 sales are expected to be relatively flat in real terms.

NOTES

·Norges bank is due out with their interest rate decision at 8:00 ET this morning. The market consensus is split with 45% of economists surveyed forecasting a 25bps interest rate hike, and 55% forecasting that Norges bank will hold rates at 5.50%. Given the recent data this is a tough call. Recall however that at the May policy meeting the bank held rates due to market turbulence and global growth risks. Central bank members said that the high inflation outlook suggested further tightening.

·Despite the numerous ECB speakers on the wires overnight there was nothing new in speakers' respective tones. As things stand right now the ECB is sticking to its price stability mandate, and is ready to forge ahead at full speed in the fight against rising inflation.

Published on  Wed, Jun 25 2008, 12:11 GMT




Archive

• Spain June Services PMI: 41.2 v 39.1 prior
  Published On Fri, Jul 3 2009, 12:32 GMT
• Euro-Zone unemployment rises to 10-year high at 9.5%
  Published On Thu, Jul 2 2009, 12:29 GMT
• Euro-Zone PMI Manufacturing data continues trend of improvemnt
  Published On Wed, Jul 1 2009, 12:34 GMT
• Euro-Zone June Consumer Prices recorded its first annual decline
  Published On Tue, Jun 30 2009, 12:28 GMT
• IEA lowers its medium-term global oil demand due to recession
  Published On Mon, Jun 29 2009, 12:44 GMT

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