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European Market Update

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Equity and currency volatility seen fueled by continued concerns

Wed, Oct 22 2008, 12:55 GMT
by Trade The News Staff

TradeTheNews.com

ECONOMIC DATA

- (JN) Japan Sept Supermarket Sales: -2.2% v-1. 0% prior

- (IT) Italian Aug Retail Sales M/M: -0.5% v 0.0%e; Y/Y: - 1.3% v -0.7%

- (UK) Bank of England Minutes: Voted 9-0 for 50bps interest rate cut on oct 8th

- (EU) Euro-zone Deficit/GDP Ratio: - 0.6% v -0.6%; Government Debt/GDP Ratio: 66.3% v 66.3% prior

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

- In equities: HOME.UK: Reported H1 Pretax £121M v £150M y/y, Rev £2.73B v £2.73B y/y sees FY profits at lower end of expectations. The co. noted that the backdrop of a difficult trading environment the challenging conditions look set to remain for some time, and indeed have worsened in the turbulent recent weeks.|| Nicox [COX.FR] Reported 9M Pretax -€49.7 versus -€13.7M, Revenues at €.2.9M v €18.4M year ago. It cited that Pfizer, Merck payments caused drop in revenue. It added that it was in discussions for potential partnershipwith 6 or 7 companies over Naproxcinod || Wavecom [WVCM] Reported Q3 Net -€4.0M v €3.3M y/y, Rev €27.5M v €50.4M y/y . Its Q3 2008 Financial Results weakened by global economic slowdown. However, management remained confident over long term. Board reiterated that it considerd Gemalto's offer inadequate, as it "fails to deliver sufficient value to merit support". Additonally the company noted that its financial results reflect the global economic slowdown that continues to decrease revenues particularly in two key vertical markets - automobiles and alarms. || Tele2 [TEL2B.SW] Reported Q3 SEK848M compared to -SEK1.23B y/y; Revenues were SEK9.89B versus expectations of SEK10B. The company added 127K Swedish users in Q3. The CEO stated that the co. was now about to exit the phase of realignment, and to enter a new phase of transformation. || Groupe Danone BN.FR] Reported Q3 Rev €3.85B v €3.84Be and reaffirmed its 2008 targets with its SSS rising by 8 to 10 percent year/year. It sees its FY08 underlying EPS to rise at least 15% and EBIT margins rising by 40bps to 50bps.
|| Schneider Electric [SU.FR]Reported Q3 Revenues of €4.65B; confirms meeting 15% minimum EBITDA margin || Alfa Laval [ALFA.SW] Reports Q3 Rev SEK6.63B versus SEKSEK6.39B y/y; Its Q3 order intake came in at SEK6.78B VS SEK6.80Be. the company guided Q4 demand to be in line with or somewhat lower than comparable y/y period. || Svenska Handelsbanken [SHBA.SW] Reported Q3 Reports Q3 Net Income SEK2. 81B versus estimates of SEK2.36B and Net Interest Income SEK4.86B above analyst estimates of SEK4.61Be. the bank's Q3 loan losses SEK231M came in better that the SEK338M estimates.
Lastly, the market value of liquidity portfolio SEK65B and its teir 1 capitol ratio 10.0% || KPN [KPN.NV] Reported Q3 Net €353M v €365Me, Rev €3.65B v €3.61B y/y, The company announceed €1B share buyback program and reaffirmed its FY10 targets. Q3 EBIT €701M, EBITDA €1.28B. The company noted that liquidity remains solid

- Has not seen impact from economic slowdown so far but have measures ready to protect cash flow || Hochschild Mining [HOC.UK] Reported Q3 production results with silver production at 4.89M oz v 3.56M oz y/y and Gold production at 45.98M oz v 50.59M oz y/y. It noted that it remain on track to achieve full year production target of 26 million attributable silver equivalent ounces in 2008. || TomTom [TOM2.NV] To enter the Russian market with full range of products || Wavelight [WLT.GE] targeted its EBIT margin above 10% in medium term . FY Rev €90.9M v €70.4M y/y and EBIT €6. 3M v €660K y/y. it noted that its strategic and operative realignment has been completed

- Speakers: The BOE voted 9-0 to cut its interest rates by 50bps back on oct 8th in the coordinated central bank action. -The panel noted that the supply of credit has tightened further and that interest rate cut alone would not solve financial market crisis. It did welcomes UK Govt capital infusion for banking system. The MPC members noted that the slowing labor market would keep wage growth subdued. The risks of deflation had increased and inflation targets are now to the downside. The MPC added that continued economic weakness likely to move along into H2 2008. The recent GBP depreciation should support exporters, but export markets have worsened. Lastly the output growth weakness to open margin of spare capacity || ECB's Nowotny: Notes a change in trend in the financial markets || Russian Pres Medvedev's Aide stated that there was no sign of any systemic risk in the Russian banking sector || Australia Treasury Sec Swan: Fiscal stimulus impact will be seen in 2008-2009 period || India PM: Current financial market crisis needs a global response || ECB Paramo- Gonzales: International markets are still volatile as deleveraging continues

and that participants must learn lessons from recent events in the financial market turmoil

- In Currencies: The session continued to see some sharp moves in all types of pairs from USD related, commodity related, European-related and carry-related.
Tough to gauge who was leading this volatility but the comments from BOE's King's comments on Tuesday that the UK would likely enter a recession was the latest 'trigger pint' GBP/USD hit fresh 5-year lows in Europe as it approached the 1.6200 handle. The Asian moves were reportedly on 'light volume'. One chief dealer noted that 'does one trust super exaggerated Asian time zone moves or is it the next region to come to grips with economic reality". EUR/JPY tested below the 127 level before consolidating back above 128. EUR/CHF tested 1. 4850 and is regaining a foothold above 1.50 as the US morning approached.

NameLastNetchgOpenHighLow

EUR/USD 1.292 -0.0083 1.3003 1.3034 1.2738

USD/CHF 1.1608 0.0055 1. 1555 1.1695 1.153

GBP/USD 1.6395 -0.0124 1.6519 1.6601 1.6203

USD/JPY 99.09 -1.09 100. 19 100.45 98.89

EUR/GBP 0.7881 0.0014 0.7869 0.7913 0.784

CHF/JPY 85.36 -1.34 86.69 87.02 84.61

EUR/JPY 128.05 -2.23 130. 29 130.83 126.93

EUR/CHF 1.4997 -0.003 1. 5025 1.5047 1.4849

USD/CAD 1.2326 0.0173 1. 2151 1.2367 1.2142

AUD/USD 0.6749 0.0002 0. 6751 0.6825 0.6631

GBP/JPY 162.45 -3.08 165.55 166.65 160.85

AUD/JPY 66.87 -0.74 67.61 68.46 65.75

-In Fixed Income: Itraxx Crossover Index opened up in European at an all-time high level of 790bps. This was 20bps from levels seen on Tuesday || Dealers noting the rise in Turkish bond yields moving above 22.35% || The GBP yield curve continued its steepening tone, with the 2yr - 10r spread in gilts as wide as 128 bps, a 1 year high. In EUR governments, Germany sold €5B 4% 2013 BOBL's, with a better than expected bid to cover of 1.91. The resumption in flight to quality was reinforced with the Benchmark 10yr Bund yielding 3.89% ( down 5bps) and spreads over comparable € peripherals widening , in the case of French 10 yr OAT's by as much as 2.5bps. The Dec Bund contact rallied by over 80 ticks to 116.01, its highest level since Sept 10.|| Barclays Bank announced it will issue 3 year € denominated bonds, priced at 25bps over swaps. It will be the first new issue after the UK government accounted its guarantee for all bank paper back on Oct 13.

- In Energy: Reportedly OPEC will not ask Russia to cut output production. But recall earlier this week that both Russia and Norway noted that neither would be reducing output. This was confirmed by OPEC's Gen Sec Al-Badri || Russian Dep PM Sechin stated that the country was considering creating an oil reserve ||IEA Tanaka stated that he was concerned with the level of investments in oil producing countries like Russia and expects production to slow further

*** NOTES ***

The Asian session saw some extreme moves in currencies as dealers continue to note that dysfunctional mentality remains the norm in this current environment. In Europe, the data was light but price action was heavy. The equity and commodity sell-off are seen fueled by continued concerns that defaults on commodity contracts as prices collapse. The global recession fears are instigating a circle in which lower corporate guidance and hence weaker equity indices as a result. Various basic industries are trying to reduce output in light of the global economic slowdown among them are steel producers. The Argentine markets are near 'collapse' following the government plans to nationalize the pension system as a bailout made necessary. The emerging markets continue to move into the front burner on the global radar. The Hungary Central bank raised its key rate by 300bps to 11.5% in an unscheduled policy move. Russian banks and companies have applied for $100B of loans from the state development bank to refinance foreign debt. The recent volatility in currencies suggests that perhaps more scenarios like the FX losses at Citic Pacific are looming out there.

Looking ahead:

US corporate earnings continue with Boeing [BA], ConocoPhillips [COP], General Dynamics [GD], Kimberly Clark [KMD], McDonalds [MCD], Merck [MRK], Northrop [NOC], Philip Morris [PM], Reynolds America [RAI], AT&T [T], Wachovia [WB] and Wyeth [WYE] all expected before the US equity open today

- 7:00 (US) MBA Mortgage applications w/e Oct 17. There are no consensus expectations; The prior number was 5.1%

- 8:30 (CA) Canadian Sept Leading Indicators. Consensus expectations are 0.0%; the prior number was 0.2%

- 8:30 (CA) Canadian Aug Retail Sales. M/M consensus expectations are -0.3%; The prior number was 0.1%. Y/Y Consensus expectations are 0.0%; The prior number was 0.4%

- 8:30 (CA) Canadian Retail Sales Less Autos. M/M consensus expectations are 0.0%; The prior number was 0.4%.

Published on  Wed, Oct 22 2008, 13:23 GMT