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European Market Update

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Markets Quiet as Rate Decisions are on the Horizon

Thu, Aug 7 2008, 13:43 GMT
by John J. Phillips IV

TradeTheNews.com

ECONOMIC DATA

• ·GE June Trade Balance: €19.7B v €15.5Be || Prior revised from €14.4B to €14. 3B

• ·GE June Current Account: €18.5B v €12.0Be || Prior revised from €7.5B to €7.7B

• ·GE June Imports: -0.1%v 1.8%e || Prior revised from 0.7% to 0.5%

• ·GE June Exports: 4.2% v 1.8%e || Prior revised from -3. 2% to -3.4%

• ·FR June Trade Balance: -€5.6B v -€4.6Be

• ·SW July CPI: M/M -0.1% v -0.1%e || Y/Y 4.4% v 4.4%e

• ·SW July Underlying CPI: -0.3% v -0.2%e || Y/Y 3.2% v 3.3%e

• ·SW July CPI Level: 302.11 v 301. 92e

• ·SW July Budget Balance (sek): 51.5B v 13.8B prior

• ·NO June Industrial Production Manufacturing: M/M -1.2% v -1.3%e || Y/Y 4.7% v 5.3%e

• ·IT June Industrial Production: M/M 0.1% v 0.3%e || Y/Y -1.8% v -2.0%e || Prior y/y revised from -4.1% to -4.0%

• ·IT June Industrial Production Y/Y nsa: -4.4% v -4.5%e || Prior revised from -6.6% v -6.5%e

• ·UK July HBOS House Prices: M/M -1.7% v -1.5%e || Y/Y -8.8% v -8.6%e

• ·GE June Industrial Production: M/M 0.2% v 0.8%e || Prior revised from -2.4% to -1.8% |||| Y/Y 1.7% v 1.5%e || Prior revised from 0. 8% to 1.1%

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

• ·In equity news overnight Lufthansa [LHA.GE] reiterated FY08 guidance for operating profit of €1.4B overnight, above the €1.3B consensus. Lufthansa also noted that they are willing to expand an existing partnership with Austrian Airlines [AUA.AS]. Furthermore Lufthansa said that they would be interested in an intensive dialogue if approached by the Austrian Government. (Shares were -0.75% in early trading). Deutsche Telecom [DTE.GE] reported Q2 adjusted net income of €633M, below the €770M consensus, while EBITDA of €4.85B edged out the €4.78B expectation. Revenue came in at €15.13B in line with consensus expectations. DT noted that the strong Euro had a €1.2B negative impact on sales results in Q2. DT also reiterated its FY08 financial goals. (Shares were 0.3% in early trading). Axa [CS.FR] reported 1H net income of €2.16B, above the €1.93B consensus. Axa reported its solvency level at 148%, down from the 154% at the end of 2007. Axa noted that it is well positioned to benefit from any upturn, adding that its underlying earnings should be in line with 2007's levels. (Shares were 5.1% in early trading). Fraport [FRA.GE] reported Q2 net income of €68.5M, above the €56.4M consensus, EBITDA of €166M, above the €162M expected, and revenue of €516.3M, just above the €513M consensus. Fraport said that, excluding items, FY08 sales are expected to rise. (Shares were -0.9% in early trading). Nestle [NESN.SZ] reported 1H net income of CHF5.2B, just above the CHF5.01B consensus, EBIT of CHF7.3B roughly in line with the CHF7.26B consensus, and revenue of CHF53.1B in line with estimates. Nestle said that FY08 organic growth is expected to, at least, be around FY07 levels, adding that they expect an improvement in their EBIT margin in FY08. (Shares were -2.0% in early trading). Veolia Environnement [VIE.FR] reported 1H net income of €500.5M, just below the €503.5M consensus, and revenue of €18.1B, above the €17.8B consensus. Veolia guided FY08 revenue growth of 12% excluding currencies, implying revenue of €36.54B, which would be just above the €36.45B consensus. (Shares were +3.75% in early trading). Hannover Rueckversicheru [HNR1.GE] reported Q2 net income of €100.8M, well below the €142M consensus. Net premiums were €1.74B, below the €1.9B consensus, and gross written premiums of €1.87B, below the €2.02B consensus. Hannover said that FY08 return on equity of 15.0% remains realistic, but added that financial market volatility makes achieving the company's EPS targets difficult. (Shares were -3.0% in early trading). Barclays [BARC.UK] reported 1H net income of £1.72B, above the £1.5B consensus, on pretax income of £2.75B, above the £2.55B consensus. Barclays posted a 1H writedown of £2.45B, which was slightly larger than the £2.28B expected. Barclays said that the outlook remains tough, but noted that they planned to maintain their interim cash dividend. (Shares were -0.3% in early trading). Altana [ALT.GE] Reported Q2 net income of €33.8M, just below the €34.4M consensus, EBIT of €52.5M, just below the €53.3M consensus, and revenue of €359.2M, below the €366M consensus. Altana said that they expect to post a decline in FY08 pretax profit. The company also guided FY08 revenue of €1.41-€1.45B, in line with the €1.43B consensus, and EBITDA of €260-€280M, in line with the €274M consensus. (Shares were -2.7% in early trading). RSA Insurance [RSA.UK] reported 1H net income of £292M, above the £245M consensus. Pretax came in at £395M, beating out the £345M consensus estimate, while operating profit of £440M exceeded the £416M consensus. RSA reported 1H net premiums +12% y/y, and boosted its dividend by 10% y/y. (Shares were +1.6% in early trading). Rhoen-Klinikum [RHK.GE] reported 1H net income of €61.9M, just above the €60M consensus, and revenue of €1.05B, in line with consensus estimates. Rhoen reaffirmed its FY08 forecasts, and noted that it will continue to pursue organic and acquisitive growth. (Shares were -0.6% in early trading). Costco (COST) kicked off same store sales for the day reporting July total SSS +10%, above the +7.6% consensus. Costco noted that SSS in the US were +10%, while international SSS were +11%. However, the company noted that, excluding gas, US SSS were only +6%.

• ·In the newspapers the Telegraph wrote that Dubai World Trade Centre may seek to join Providence and Carlyle's bid for Informa [INF.UK]. According to Het Financieele Dagblad Fortis [FORB.BE] expects approval for its Chinese joint venture this year. Kommersant wrote overnight that JC Decaux [DEC.FR] is in talks to acquired News Corp.'s (NEWS.A) Russian outdoor advertising unit. Il Sole 24 Ore reported overnight that Banca Monde dei Paschi di Siena [BMPS.IT] may raise up to €1.0B selling branches in order to comply with an anti-trust ruling.

• ·On the economic front UBS raised its 2008 US GDP growth estimate to 1.3% from 1.1%, and cut its 2009 GDP growth estimate to 1.1% from 1.8%. UBS also cut its 2009 global growth estimate to 2.9% from 3. 1%, noting that the said global economy may come close to recession in 2009.

• ·In currencies the USD retraced its recent gains against the European pairs ahead of the BOE and ECB interest rate decisions. The USD was also hampered by NYMEX crude re-approaching the $120-level due to supply concerns following the fire on the BP pipeline carrying Azeri oil from Baku to Ceyhan. The USD/CAD continued to probe its 6-year downtrend line at the 1.05-area. The JPY was steady after the Japanese Government downgraded its economic assessment. The EUR/JPY hovered above the 169- handle and within striking distance of hitting fresh all-time highs and tackling the 170-level.

NOTES

• ·While today will be clustered with earnings releases, and same store sales releases, European interest rate decisions will occupy a greater part of the general marketplace this morning. The Bank of England is widely expected to hold rates at 5.00% at today's meeting. A recent survey of over 50 economists showed that each and every one of the economists surveyed expected the BOE to hold rates at today's meeting. While the general consensus has been fixed on a vote to hold rates, the shadow MPC was split 5-4 in favor of holding rates over the weekend. The European Central Bank is also due with its interest rate decision today. The ECB is widely expected to hold rates unchanged at 4.25%, with all analysts in a recent survey of over 50 analysts forecasting no change. As usually the focus is likely to rest upon the post rate decisions press conference hosted by the ECB's Trichet. Market participants will look for any change in Trichet's tone regarding the policy outlook for the remainder of 2008. Data aside focus this morning will rest upon earnings reports from AES Corp. (AES), Alliant Techsystems (ATK), Blockbuster Inc. (BBI), Cardinal Health (CAH), Consolidated Edison (ED), Progress Energy (PGN), and Williams Cos inc (WMB).

·"Art is much less important than life, but what a poor life without it" - Robert Motherwell

Published on  Thu, Aug 7 2008, 13:47 GMT