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European Market Update

Markets Look to Looming Earnings Reports for Direction

Wed, Jul 16 2008, 12:09 GMT
by John J. Phillips IV

TradeTheNews.com

ECONOMIC DATA

• ·GE June Final CPI: M/M 0.3% v 0.3%e || Y/Y 3.3% v 3.3%e
• ·GE June Final CPI Harmonized: M/M 0.4% v 0.4%e || Y/Y 3.4% v 3.4%e
• ·FR June CPI: M/M 0.4% v 0.4%e; Y/Y 3.6% v 3.6%e
• ·FR June CPI Harmonized: M/M 0.4% v 0.4%e || Y/Y 4.0% v 4.0%e
• ·FR June CPI Ex-Tobacco Index: 118.95 v 118.50 prior
• ·SZ May Adjusted Real Retail Sales Y/Y: 7.4% v 3.8%e
• ·UK June Claimant Count Rate: 2.6% v 2.6%e || Prior revised from 2.5% to 2.6%
• ·UK June Jobless Claims Change: 15.5K v 10.0Ke || Prior revised from 9.0K to 14.3K
• ·UK May Avg. Earnings Inc. Bonus: 3.8% v 3.7%e || Prior revised from 3.8% to 3. 9%
• ·UK May Avg. Earnings Ex. Bonus: 3.8% v 3.9%e
• ·UK May ILO Unemployment Rate: 5.2% v 5.3%e
• ·EU June CPI: M/M 0.4% v 0.4%e || Y/Y 4.0% v 4.0%e || Core Y/Y 1.8% v 1.8%e

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

·In equity news overnight Wolseley [WOS.UK] reported overnight that 11-month trading profit was -28% y/y, while pretax profit was -35% y/y. The company suspended its dividend and announced the sale of three business units for £18M. Continental [CON.GE] confirmed overnight that it rejected Schaeffler's offer, noting that the bid undervalued the company. Continental noted that they supported Schaeffler taking a 20% stake in the company, bus said that Shaeffler insisted on a sake of 30% or more. Shares of Natixis [KN.FP] were trading lower on chatter of that the bank will need a capital increase. The Bank declined to comment on the rumor.

·In energy news overnight the Saudi King said in a newspaper interview that speculation is the primary factor behind high oil prices. Adding that markets did not respond to the recent output increases. A Norwegian ship was reportedly attacked of the coast of Nigeria. No further details were available.

·There was no new supply in Europe overnight. According to the Wall Street Journal the Euro-zone could face a recession. The article mentions that a "hard landing" is a possibility citing problems with the Spanish economy and the country's property market. The article also looks at the recent Germany investor sentiment data. Elsewhere, Barclays now sees the Fed on hold at 2. 00% in 2008. Barclays had previously forecasted 2 rate hikes.

·The USD was mixed in European trading as global equity markets retained some composure to the recent wave of jitters, aided by steady oil prices. Dealers noted that geopolitical concerns and financial sector unease could easily return to drive trading sentiment. The EUR/USD is around 1.5930, pretty much unchanged from opening levels seen in Tokyo. The JPY was broadly firmer against the majors, despite cautious comments from the BOJ's monthly report. JPY price movement appears to be more technical as the EUR/JPY continues to retreat from recent all-time highs made earlier in the week. Dealers noted that additional downside momentum in JPY related pairs (stronger JPY) appears highly probable with some chatter of ripening conditions for central bank to increase verbal intervention (or more). The EUR/JPY is around 165.75, lower by about 100 pips and the USD/JPY near its 100-day moving average of 103.95.

·On the speaker front French Finance Minister Lagarde said overnight that she has not lowered her 2008 growth forecast. Lagarde said that she sees 2008 growth closer to 1.7% than 2.0%, adding that she expects inflation to ease during Q3 of 2008. In the minutes from the July 3rd policy-setting meeting Riksbank said that the MPC voted unanimously to raise rates to 4.50%. Three of the central bank members were split on future path of interest rates, noting that slower growth is expected to dampen future inflation expectations. Furthermore Riksbank Governor Nyberg said that he is far from certain that two more rate hikes are needed to bring inflation back to its target, adding that he would not be surprised if weaker growth and jobs became the focus of future policy decisions.

NOTES

·In was a relatively quite night in Europe, with little to report on the energy, fixed income, and equity fronts. The European indices opened modestly higher in the session, but drifted lower, weighed down by bank and carmakers as the session slowly progressed. Economic data was dry; Euro-Zone CPI remained elevated as was widely expected. Following yesterday's declines as well as the pessimism hovering over the financial sector like a gray cloud, the chatter currently circulating is that “we have to make it though the week” essentially implying that we have to stabilize by Friday. If we do not stabilize some market participants speculate that we could “take a turn for the worse”. Focus is likely to rest upon earnings results as heavy hitters Blackrock (BLK), Coca-Cola (KO), Ford (F), JP Morgan (JPM), Textron (TXT), United Technologies (UTX), Google (GOOG), IBM (IBM), Honeywell (HON), and Slumberger (SLB) are all due to release earnings before the week is over. ("Everything has been figured out except how to live." - Jean-Paul Sartre)

Published on  Wed, Jul 16 2008, 12:10 GMT

Archive

• Euro Sinks as IFO Falls Below Expectations
  Published On Wed, Aug 27 2008, 07:02 GMT
• French Sentiment Data Loewst in Over Five Years
  Published On Mon, Aug 18 2008, 13:23 GMT
• Commodites slides as USD continues to recover
  Published On Fri, Aug 15 2008, 12:18 GMT
• Inflation hawks remain on front burner
  Published On Mon, Aug 11 2008, 12:54 GMT
• Let the Games Begin!
  Published On Fri, Aug 8 2008, 10:49 GMT

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