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European Market Update

French Sentiment Data Loewst in Over Five Years

Mon, Aug 18 2008, 13:23 GMT
by John J. Phillips IV

TradeTheNews.com

ECONOMIC DATA

• UK Aug Rightmove House Prices: M/M -2.3% v -1.8% prior || Y/Y -4.8% v -2.0% prior
• FR July Bank of France Business Sentiment: 92 v 94e
• SZ June Retail Sales Y/Y: 0.7% v 3.3%e
• EU June Trade Balance: -€100M v €1.2Be || Prior revised from -€4.6B to -€3.9B
• EU June Trade Balance sa: -€3.0B v €500Me || Prior revised from -€1.5B to -€1. 0B

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

In equity news overnight Michael Page International [MPI.UK] reported 1H net income of £58.9M, up from the £41.4M a year ago. Pretax rose to £84.1M from £69.2M a year ago, while revenue rose to £500M from £398.0M. [Shares were - 0.2% in early trading]. Bradford & Bingley [BB.UK] reported the results of its rights issue noting that 27.84% of rights issue was accepted. Underwriters will be able to sell the remaining 597.2M shares until 4:30pm on August 22nd. Shares will be sold for at least 55p/share. The company noted that there has been no material change in the current trading and outlook of the Company since the Company released its trading statement in respect of the first four months of 2008 on 2 June 2008. The company also announced the appointment of Richard Pym as CEO effective immediately. [Shares were -3.2% in early trading]. BHP Billiton [BLT.UK] reported FY08 net income of $15.4B, just below the $15.7B consensus, and revenue of $59. 47B, just below the $54.7B consensus. BHP expects short-term economic growth to slow, adding that they see long-term demand for commodities remaining strong. [Shares were +1.4% in early trading].

In the newspapers, the Times wrote that Royal Bank of Scotland [RBS.UK] may cancel the sale of its Direct Line and Churchill insurance units. The article adds that RBS raised about £6B by selling risky loans. A related report said that RBS is in talks to sell some of its smaller units. The Sunday Express wrote overnight that the UK Treasury has forced British Energy [BGY.UK] back into negotiations with EDF [EDF.FR]. The Mail on Sunday noted overnight that Persimmon [PSN.UK] may seek to enter into a sale and leaseback agreement for its 24 regional offices. The move could reportedly help the company raise £30M.

On the energy front, citing the Iranian OPEC governor, the Wall Street Journal wrote that OPEC could decide to roll over or cut crude oil production when the group meets in September. The article noted that the Iranian OPEC governor believes that the market is oversupplied by at least 1M barrels per day. Goldman Sachs reportedly cut its US gas price estimate by 23% due to increased production. Goldman expects that US gas futures will trade at $10.30/million BTU during the winter.

On the economic front the Times wrote that the British Chamber of Commerce is expected to predict a recession in the UK. The group is expected to say that the UK is nearing a technical recession over the next 6-9 months. The BCC believes that the BOE should start cutting rates because they believe growth is a bigger risk than inflation. The BCC believes that the BOE will cut rates to 4.75% by the end of 2008 and that there will be scope for an added cut in 2009. According to an article in the Telegraph the value of residential building land in the UK fell by 20% during the first half of 2008. The article speculated that the values of residential land may fall by up to 50% in the future.

There weren't any live speakers overnight, however, in an interview with Efe Spanish Finance Minister Solbes said that annual inflation in Aug is expected to slow and should end the year below 4%. Solbes added that Spain's unemployment could close 2008 above the government's 10.4% estimate.

In currencies the USD consolidated its recent gains among the majors in a quiet, listless session. Higher oil and gold prices helped weigh sentiment on the USD. There were some calls that perhaps OPEC should cut back on output when it next meets in September. Dealers noted of some light Euro Buy stops building above the 1.4790-level, but added that resistance is seen at 1.4850-area. Commodity related currencies were also modestly firmer. Dealer chatter centered on the UK Home data which saw biggest annual price drop since survey began in 2002. The data prompted some economists to warn inflation could drop below 1% due to slowing growth outlook.

*** NOTES ***

I, the guy that usually writes this, just got back from vacation and am set to wind down my final two weeks here at TTN. After over 10 days without a chart in sight I must applaud the Dollar. All was quiet overnight, and with no major data scheduled in the US this morning things are likely to remain that way for a little while. The US session will not however be void of data as the NAHB housing market index for August is due out in the early afternoon. Looking ahead, focus in the near-term is likely to fall upon the German ZEW economic survey due out during tomorrow's session, as well as the Bank of England minutes, which are due on Wednesday.

Of note overnight was the weak Bank of France business sentiment, which was the lowest since May of 2003. Following a negative GDP reading last week the Bank of France forecasted Q3 GDP growth of 0.1%. This of course does not come as a surprise, but it is notable considering that, next to Germany, France is the second biggest engine in the Euro-Zone economy.

"What a peculiar privilege has this little agitation of the brain which we call 'thought'." - David Hume

Published on  Mon, Aug 18 2008, 13:23 GMT