ECONOMIC DATA

  • SP Nov Services Sector Turnover: 5.8% v 9.3% prior
  • SZ Nov Adjusted Retail Sales Y/Y: 2.9% v 4.0%e

SPEAKERS/COMMENTS

  • ECB Weber: No Germany credit crunch, but need transparency; Financing conditions and FX moves are not big problems for firms || Monetary policy not the cause of financial market turbulence.
  • ECB Stark: That financial markets are nervous, should not exaggerate current moves || Should have a better idea of where we stand by the end of this quarter when banks report || Must expect a clear weakening of the US economy || ECB will continue to provide liquidity if needed
  • ECB Gonzalez-Paramo: Risks to inflation remain on the upside || Must avoid second round effects
  • FR Economic Minister Lagarde: No threat of recession in Europe
  • GE Economic Minister: Sees no reason to amend 2008 GDP growth forecast of 1.8% at this time || No need for economic stimulus || Orders are still good

FIXED INCOME/FX/COMMODITIES/ERRATUM

  • European fixed income futures opened higher in the session today and continued to rise as the European indices opened down between 4% and 5% across the board. Profit taking set in as rumors about possible coordinated central bank action set in once again. The German yield curve has been whipped around throughout the session, with the 2/10-year spread widening to May 2006 highs just over 68bps, and then falling back down to 61bps. Also in focus overnight were the iTraxx indicies, particularly the iTraxx crossover, which took out the record 530 level early on before simmering back down to the 500/505 range.
  • The European indices opened sharply lower in the session following significant declines across Asia. Rumors of possible coordinated central bank action set to take place at 7:00 ET today quickly brought the indices off of their lows, pushing the FTSE and the CAC into positive territory. Thus far the rumors have not been strong enough to hold any of the indices in positive territory for any notable amount of time, however, despite falling back into negative territory the indices are well off of their worst/opening levels.  Elsewhere Roche announced overnight a deal to acquire Ventana Medical Systems for $89.50/share, for a total value of $3.4B. The offer compares to Roche’s previous offer of $75/share. There have been some vague rumors circulating overnight about Citigroup filing for chapter 11 bankruptcy protection in conjunction with rumors that investor ADIA will withdraw its $7.5B investment. In futures trading the March S&P contract was halted following the European equity open where it was down 70 handles at its lowest level since July of 2006. Trading was reopened following the rebound in the European equity market, however the S&P futures remained lower. 
  • In the commodity market front month crude oil futures are currently in the middle of the $85-$90 range, declining to a 6-week low on speculation that the US economy will fall into a recession. Crude trading is also a little rough today as the April contract is set to expire. Spot gold is in negative territory but off of its worst levels as liquidation and margin calls added to downside momentum. Credit Suisse raised its 2008 gold price forecast to $950/oz from $700/oz overnight, and raised its 2009 gold price forecast to $1035/oz from $750/oz.
  • In currencies risk aversion remained the prevalent theme as equity markets continued their downside momentum prior to the European open. Rumors circulated that Middle Eastern names would rescind promises of capital infusion for certain US financials sent equities markets steeply lower. EUR/JPY dipped towards the 152 level and USD/JPY tested the 105.50 support. The EUR/USD tested 1.4370 area as unwinding of carry trades weighed upon various European pairs. A rumor of a potential FED, ECB and BOJ coordinated interest rate cut helped to rally the European bourses and soften the JPY and CHF carry trade components.