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European Market Update

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German IFO comes in below expectations; US financial bailout testimony continues

Thu, Sep 25 2008, 10:40 GMT
by Trade The News Staff

TradeTheNews.com

ECONOMIC DATA

- (FR) Sept Business Confidence Indicator: 92 v 97e; Production Outlook Indicator: -42 v -32e; Own-company Production Outlook: -10 v -1e

- (SW) Sept Manufacturing Confidence: -14 v -14e; Consumer Confidence: -14.4 v -17.0e; Economic Tendency Survey: 86.0 v 84e.

- (IT) Sept Business Confidence: 82. 7 v 83.2e (Lowest reading since Oct 2001)

- (GE) Sept IFO - Business Climate: 92.9 v 94.3e; Current Assessment: 99.8 v 101.9e; Expectations: 86.5 v 87.3e

- (IT) July Retail Sales M/M: % v 0.1%e; Y/Y: % v -0.8%e

- (NO) July Unemployment Rate (AKU): 2.4% v 2.6%e

- (EC) July ECB Euro-Zone Current Account: -€1.7B v -€6.1B prior; Current Account (NSA): €1.1B v -€1.0B prior

- (IC) Sept CPI M/M: 0. 9% v 1.0%e; Y/Y: 14.0% v 14.2%e

- (UK) UK CBI Sept Distributive Trades Report -27 v -46 prior

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

In equities news overnight: Valora [VALN.SW] Reaffirmed its FY08 guidance and noted that its; CFO would leave the company at the end of the month. It now targeted EBIT margin of 3-4% by 2012 with sales growth of 3-5% annually. || British Energy [BGY.UK] EDF confirmed its acquisition for the company at774p/shr in cash, valuing deal at £12.5B.
British Energy's boards recommend the offer to shareholders. || Morphosys [MOR.GE] excercised its option to pre-develop therapeutic antibody with Novartis. Novartis will fund the companies' joint efforts until the program reaches formal pre-clinical development. MorphoSys would recognize its share of the funding as additional revenues. || Imperial Tobacco [IMT.UK] Issued a trading statement in which performance remained in line with prior expectations. The company added that it did not require additional financing after raising the £1.2B in two bond sales earlier this month. || SAP [SAP.GE] reaffirmed its 2008 guidance and targeted Adj. Op Margin at 28.5-29% range. || Topps Tile [TPT.UK] reported 8-week SSS -13.1%. It Guided FY08 Revenue around £208M compared to £207.9M in 2007. It sees like-for-like sales around -0.5% versus +4.7% a year ago. || Smiths Group [SMIN.UK] was awarded a US communications contracts valued at £225M. Company also reports FY Net of £268.5M along with Pretax £380M (ex-item) compared to £362.5Me. The revenue of £2.32B was just above analyst estimates of £2.28Be. || BASF [BAS.GE] Announced price increases for Isophorone Diamine by €0.20/kilogram || Deutsche Post bank [DPB.GE] Stated that it saw further impact in Q3 due to market volatility. Also, reportedly the German Cabinet has agreed to remove Deutsche Post's tax privilege from 2010 onwards.

- Speakers: (JP) Japan Bank Lobby Chairman Sugiyama stated that Japan was most likely in recession. He added that the impact of Lehman bankruptcy on Japanese banks was small. || Finnish PM: Economy cannot sustain the level of prior wage increases. He added that the global economic outlook remained uncertain, but remains confident in Finnish economy. || IFO's Nerb stated that he expected Q3 GDP to be 'relatively weak' and that Q4 would not be any silver lining. The ECB should lower rates adding that the recent decline in oil prices should facilitate ECB rate cut and help improved German sentiment. On the economy he noted that manufacturers are more reserved about export outlook and would not hire much in terms of any additional staff. The sentiment has been weighed down both the Retail and Industry sectors, but that the services sector was a positive. || IFO's Abberger commented that the German economy was losing speed 'significantly' but added that no recession seen at this time. He also noted that the ECB should act now to lower the interest rates. Abberger noted that there was no need for any banking rescue package in Germany. He also stated that there were no improvements in retail sector and a slowdown taking place in the export sector. Lastly he noted that 60% of survey responses came prior to the renewed concerns over the financial market sector intensified ( before LEH and AIG situation). || Swisscom[SCMN.SZ] SCMN.SZ: Swiss R Regulator says company must lower unbundling rates it charges competitors for the "last mile" to CHF18.18 from the current level of CHF23.5. The regulator also stated that the company must also lower interconnection fees.

- In Currencies: The USD was mildly mixed during the lackluster European morning as the market participants focused on the German IFO data release. The EUR/USD stayed below the 1.47 handle for the most part as dealers expected a weaker IFO reading (citing the weaker Belgium business sentiment data on Tuesday). The IFO did not fail to disappint with a 92.9 reading in the Business Climate Index, which was below the 94.3 consensus estimate. The carry- related pairs were firmer as risk aversion eased somewhat due the warren Buffett's backing of Goldman Sachs. EUR/JPY up 70 pips at 155.80 and EUR/CHF up 25 pips at 1.5960. Commodity related currencies were a tiuch firmer with USD/CAD trading at 1.0344 and AUD/USD at 0.8380. The GBP was firmer despite calls from BOE ultra dov for stated that the time for inaction is over and that interest rate need to be cut now.

- In Energy: Nov NYMEX futures wer up over a $1.30 in the electronic session to trade above $108 per contract. Kinder Morgan [KMP] reported an oil tank explosion at its facility near Houston, TX. Stating that a fire hits a manifold where two pipeline met.|| China and Venezuela to double joint investment to $12B || Malaysia To Cut Gasoline Pump Price By 10 Sen/Liter || Kuwait Oil Min Al-Olaim stated that Kuwait plans to build 615K bpd oil refinery in Al-Zour.

- In Fixed Income Supply: Germany sold EUR5.62B in the Oct 2013 BOBL auction. The average rate was 3.99% and a bid-to-cover of 1.20 times.

- In the papers: The FT reported that the Council of Mortgage Lenders, whose house price forecasts have been among the UK's most optimistic, on Tuesday threw in the towel, saying conditions were too difficult to make predictions, and that no improvement was likely until 2010.

Credit Crisis: Fed Set up additional swap lines with four additional central bank. The Fed added lines with Australia, Norway, Sweden and Denmark. The Fed cited that additional the currency swaps were created to address the `elevated pressures' in USD funding in markets. The new lines were in the amount of $5B for Norway and Denmark and in the amount of $10B for Australia and Sweden. Recall that last week the Fed expanded its temporary swap lines with the European Central Bank and Swiss National Bank by $70B, and created $110B in new facilities with central banks in Japan, England and Canada.

*** NOTES ***

The FED continues to add tem members in the global liquidity scheme. The weaker German IFO data continues to show the uncertain path that central banks face with slower growth and creeping inflationary expectations. || US equity futures firmer aided by Goldman Sachs [GS] in which Warren Buffet announced that he would invest $5B in perpetual preferred stock with a 10%dividend. This help offset the erosion set off following Fed's Bernanke and Treasury's Paulson testimony to Congress in persuading swift action on the financial market bailout package. They will again give testimony about the U.S. bailout || The end of September is the fiscal half-year end for Japan and dealer noting that "significant amount of money positioned for repatriation flows in the JPY related pairs.

Looking ahead:

- (US) Sept 19 MBA Mortgage Applications: There are no consensus expectations; The prior number is 33.4%.

- (NO) Norwegian Central bank decision on interest rates: Consensus expectations are for deposit rates to remain at 5.75%.

- (US) Aug Existing Home Sales: Consensus expectations are 4. 94M; The prior number is 5.00M. Existing Home Sales M/M: Consensus expectations are -1.2%; The prior number is 3.1%.

Published on  Thu, Sep 25 2008, 10:46 GMT