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European Market Update

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Commodites slides as USD continues to recover

Fri, Aug 15 2008, 12:18 GMT
by John J. Phillips IV

TradeTheNews.com

ECONOMIC DATA

• - (SW) Jun Activity Index Level: 123.4 v 123.6 prior
• - (NO) Jul Trade Balance (NOK): 37.4B v 38.5Be
• - (HK) Q2 GDP Q/Q: -1.4% v 1.2%e; Y/Y: 4.2% v 5.9%e
• - (UK) Q2 Mortgage Possession claims Q/Q: 0.0%; Y/Y +17%; Possession orders Q/Q: +4.0%; Y/Y: +24.0%

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

In equities news overnight Swatch [UHR.SZ] reported H1 Net CHF418M just above the CHF411M consensus estimates. Revenues were CHF2.97B compared to estimates of CHF2.87B. The company sees higher revenue and stronger sales growth in H2 of 2008. The CEO stated that he saw double digit growth in August sales; Marine Harvest [MHG.NO] reported Q2 Pretax -NOK16M better than the loss NOK40M expected; Rev NOK3.19B againstv NOK3.09B estimate. The company stated that it saw substantially lower Chile forecast and was considering a write-down for that unit. Vestas Wind System [VWS.DC] reported Q2 Net €65M below the €70M estimate. Rev €1.09B were slightly above the €1.05B consensus. The company reaffirmed it FY outlook.Sweden's Meda [MEDAA.SW] purchased rights for four product portfolio from Switzerland's Roche [ROG. SZ] for €120M. Goldman Sachs amended its outlook for a number of European sectors. The European Oil Services was raised to "Attractive" from "Neutral" at Goldman Sachs, while the European Auto stocks were cut to "Underweight". UBS analyst lowered their 2008 FTSE 100 price target to 6, 100 from 6.500 prior view.

- On the Macro front: TheCzech Central Bank unexpectedly cut their interest rates by 25bps to 3.50%; the Czech CB cited lower oil prices and recent currency appreciation had tamed CPI expectations. ECB's Stark stated economic situation is not as bad as it appears and there is no need to talk about recession at this time. Recall theat German GDP came in at -0.5% on Thursday for its first negative reading in 4 years. Stark noted that the ECB will continue to do do whatever is necessary to fight inflation. Stark reaffirmed that the June rate increase was the proper decision. He maintained his hawkish stance noting that it is not certain that inflation will have a major decline. IFO Sinn noted in a magazine interview that it saw German GDP growth in around the 2.0% area against a prior view of v 2.4%. The IFO now predicts German 2009 GDP at 1.0%.The PBoC stated that it it will keep Yuan currency basically stable at a reasonable balanced level. The Chinese central bank state it sought stable growth and low inflation by fine tuning its monetary policy. The Hong Kong Government maintains 2008 GDP forecast in a range of 4% to5%; and raised their 2008 CPI outlook to 4.2% v 3.4% prior view. UBS analyst amended its ECB interest rate forecast and now declared an end to the ECB rate hike cycle. Deutsche Bank analyst forecasted Euro Zone 2008 GDP growth at 1.2% and 2009 GDP at 0.1%.

- In the papers: FT reported that Merrill Lynch [MER] charged $29B of US subprime-writedowns to one of its UK units and this allowed the firm to delay paying taxes in the UK, perhaps for decades.

Notes: Gold plunged below $800 an ounce for the first time since late December 2007 and spot silver prices were off as much as 12% during the early European hours. Other commodities exhibited weakness as oil, copper and corn slumped on the back of the USD's continued rebound. Analysts note that the USD's recovery is reducing the “appeal” of commodities at this time and suggest that perhaps the six-year bull market has ceased at this time. The European session seem characterized by a reshuffling of assets away from commodities. Spot gold tested $772 before rebounding while spot silver hit $12.40/oz. The USD recent wave of upside momentum spurred by comments by Goldman Sachs on Thursday that perhaps that the dollar may have 'bottomed'. The break of EUR/USD level of 1.4850 (where sovereign bids were said to be lurking) unleashed a domino effect of lower commodity prices and higher greenback. Goldman cited that the revision of the USD forecast was due to weakening global growth, declining oil prices and an improved U.S. trade balance. EUR/USD tested below the 1.47 level and GBP approached the 1.86 handle.

Published on  Fri, Aug 15 2008, 12:20 GMT