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European Market Update

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Markets cast thier vote as to the ECB "single compass" mandate

Fri, Sep 5 2008, 11:55 GMT
by Trade The News Staff

TradeTheNews.com

Data

- (FR) July Central Govt. Balance: -51.4B v -€33.

- (SP) July Industrial Output WDA Y/Y: -4.4% v -6.5%e; NSA Y/Y: - 3.0% v -9.7% prior

- (SW) August Budget Balance: SEK0.0B (Flat) v SEK51.5B prior

- (IT) June Trade Balance (Total): -1.0B -€1.0Be, Trade balance EU: 1.3B v 1.69B prior

- (NO) July Industrial Production: M/M 1.2% v -0.7% prior; Y/Y 1.9% v 5.9% prior

- (NO) July Industrial Prod Manufacturing: M/M 0.1% v -0.2%e 3.7% v 4.0%e

- (GE) Jul Industrial Production M/M -1.8% v 0.8%e; Y/Y -0.6% v -0.5%e

- (RU) Russian Aug CPI M/M: 0.4% v 0.2%e, Y/Y: 15.0% v 14.9%e, YTD: 9.7% v 9.6%e

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

- GDF Suez [GSZ.FR] announced that it in exclusive talks with Nam regarding Dutch Continental shelf assets in a deal potentially valued €1.07B || J.D. Wetherspoon [JDW.UK] Reported FY Net £35.2M compared to £46. 8M y/y, Rev 907.5M v €888.5M y/y, Company Remained confident of achieving its FY targets. || Bombardier [BBDB.GE] was awarded an order from Danish State Railways valued at $118M, with a foreseeable option of 30 additional trains.

- ECB Trichet stated that the central bank only ever signals interest rate actions a month ahead of time if warranted. Trichet noted that recent correction of prior market excesses are welcome, even though painful. Trichit reiterated that the ECB never recommits to the interest rate path and will do what is necessary for price stability

- ECB's Stark also reiterated that price stability mandate is clear and the top prioty for the ECB. Strak noted that the past year was the most challenging in the banks 10-year history. Stark added that commodity price shocks threaten to unhinge inflation expectations and that the July rate hike was a clear signal for wage setters. Stark noted that 3Q Euro-Zone Economic growth "Very Likely" Weak and that inflation Will clearly ease in months ahead.

- ECB's Nowotny (replaced Leibscher) stated there is a strong chance that inflation has peaked and that wage demands should consider the CPI peak. He added that the ECB has no target for currency exchange rates.

- Russian Central Bank stated that there are no plans to widen the Ruble trading band over next few months and that the recent RUB decline is not critical; He added that the Central Bank will increase amount available at daily repos auction.Russia Central Bank Deputy Chairman Yukayev stated that he Expected zero inflation in September. He added that Russia is likely to see no capital inflows during September (YTD capital inflows at $24.5B).

- (JP) Japan Fin Ministry stated that Japan may sell new construction bonds worth ¥500M

- In Energy: EU Commissioner Piebalgs: OPEC output cut would be a wrong step; ECB Trichet says that it is unclear if inverted oil futures curve is due to risk premium or spot price outlook. Goldman Sach oil analyst maintained his Q4 and 2009 price target for WTI at $130 and $140 per barrel respectively. The analyst did note that short term factors could send oil below $100 per barrel.

- In the papers: The NY Times article suggested that Main Bank of China is in Need of Capital after a seven year buying spree of around $1 trillion worth of Treasury bonds and mortgage-backed debt issued. The article noted that these investments have been declining sharply in value when converted from dollars into the strong CNY, casting a spotlight on the central bank's tiny capital base. The bank's capital, just $3.2 billion, has not grown during the buying spree, despite private warnings from the IMF

·*** NOTES ***

- the session was marked by some volatility price movements. The current them of softer equities, lower commodities and stronger USD continued into the European session. Risk aversion fears continue to mount. Gold Sachs downgrading of Merrill Lynch [MER} and its additions to the "Conviction Buy List" added to concerns over the financial sector.

Dealers noting that comments from various ECB member touted the price stability mandate and that inflation remains a concern.

European equity markets were off almost 2% at one point added by the usual concerns of "hedge fund liquidations".
Thus the market has voted on what it thinks of the single needle compass of the ECB and implying that the central bank should expand the mandate. Dealers will focus on the US payroll data later today.

- Looking ahead at the rest of the session:

7:00 (CA) Aug Net Change in Employment expected at 10.0K v -55.2K prior

7:00 (CA) Aug Unemployment rate expected at 6.2% v 6.1% prior

8:30 (US) Aug Change in Nonfarm Payroll expected at -75K v -51K prior

8:30 (US) Aug Unemployment Rate: expected at 5. 7% v 5.7% prior

8:30 (US) Aug Change in manufact payrolls expected at -35K v -35K prior

8:30 (US) Aug Avg Hourly earnings MoM expected at 0.3% v 0.3% prior

8:30 (US) Aug Avg Weekly Hours MoM expected at 33.6 v 33.6 prior

10:00 (CA) Aug Ivey Purchasing Managers Index expected at 61.8 v 65.5 prior

10:00 (US) Q2 Mortgage Delinquencies: No estimate v 6.35% prior

Published on  Fri, Sep 5 2008, 12:06 GMT