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European Market Update

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Risk aversion continues to simmer over health of global financial sector

Tue, Nov 3 2009, 11:05 GMT
by Trade The News Staff

TradeTheNews.com

European Market Update: Risk aversion continues to simmer over health of global financial sector; UK Gov't provides more aid to Lloyds, RBS; EU Commission sees more banking sector losses in region

ECONOMIC DATA

- (IN) India Sept Trade balance: -$7.8B v -$8.4B prior

- (SP) Spanish Oct Net Unemployment M/M: 98.9K v 80.4K prior

- (NO) Norwegian Oct PMI: 45.8 v 49.0e

- (SP) Spanish Oct Consumer Confidence: 69.2 v 70.3 prior

- (UK) Oct PMI Construction: 46.2 v 47.2e

- (EU) EU Commission releases forecasts: Euro-zone 2010 GDP 0.7% v +0.4% prior, Unemployment to hit 10.9% in 2011; Outlook For EU, Euro-Zone remain "Highly Uncertain"

- (GE) German VDIK Oct New Car Registrations at 312K, +24% y/y; YTD registrations +26%

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

- Equities: European equity markets have traded under pressure since before the open. Corporate earnings news out of BMW [BMW.GE], Commerzbank [CBK.GE], UBS [UBSN.SZ] (all of which were disappointing) and Swiss Re [RUKN.SZ] were all put on the side burner following updated Lloyds [LLOY.UK] and RBS [RBS.UK] APS updates. In a massive and highly detailed series of releases, Lloyds announced that it would avoid the Asset Protection Scheme, raise £21B in new capital and divest a series of assets. RBS announced that it would participate in the APS (at a lower level) and take a massive £25.5B cash injection from the UK along with wide asset sales. Financial names traded broadly lower (ex Lloyds) on this news and led the negative pressure on the EuroStoxx50. EU Commission forecasts at 4:45EST calling for further 2009/10 banking sector losses pushed markets to new lows. Trading volumes have been high with all major bourses trading above their moving averages. Leading lagers by sectors included financials, industrials and consumer names.

In individual equities: RBS [RBS.UK] Agrees to participate in UK Asset Protection Scheme (APS), banks first loss exposure raised to £60B from £42B, UK stake to rise to 84%. ||Lloyds [LLOY.UK] Will not participate in UK Asset Protection Scheme (APS), will instead raise £21B (90% of market cap) in private sector capital and pay a fee to the taxpayer for the implicit protection provided to date. || UBS [UBSN.SZ] Reports Q3 Net loss CHF 564M v loss CHF267Me, Rev CHF 5.8B v CHF6.5Be.
|| BMW [BMW.GE] Reports Q3 Net €78M v €115Me, Rev €11.8B v €12.2Be; FY09 earnings likely to be positive. || Metro [MEO.GE] Reports Q3 Net €72M v €99Me, Rev €15.6B v €15.6Be. || Commerzbank [CBK.GE] Reports prelim Q3 Op profit at €120M v loss €170Me, Net loss €1B v loss €745Me; Continue to see FY09 Net loss, No 2009 Dividend. || Swiss Re [RUKN.SZ] Reports Q3 Net CHF334M v CHF150Me, Rev CHF11.05B v CHF6.2B y/y. ||

- Speakers: EU Commission releases forecasts: Euro-zone 2010 GDP 0.7% v +0.4% prior, Unemployment to hit 10.9% in 2011; Outlook For EU, Euro-Zone remain "Highly Uncertain". The report forecasted further bank sector losses between €200B to €400B in 2009/10 period ||EU's Alumunia commented that he believed the economic situation was improving in the Euro-Zone but credit flows were close to zero possibly even negative ||ECB's Bini Smaghi commented that margins for growth and deficit cuts were limited in a Newspaper interview || French Presidential Advisor Devedjian commented that France had completed 75% of its economic stimulus plan as it had injected €25.2B into economy . he noted that the stimulus has created or saved 400,000 jobs || India Ministry of Commerce and Industry Gov't advisor believes the declining trend in India's exports might reverse by December or January period. || German Chemical Assoc VCI commented that it saw Demand stabilized further in Q3 and that the worst was over for industry at this time. It guided 2009 Chemical sales decline of 12% y/y and Chemical Production seen down 10% y/y. Upward trend in chemical sector aided by demand from Asia and Latin America but that the situation remained difficult despite demand up tick. Production to stay below pre-crisis level for some time || Czech Constitutional Court rejected challenges to the European Union's Lisbon Treaty (as expected). Ruling bring accord to the verge of adoption with Czech President Klaus yet to sign ||

- In Currencies: The USD firmed during the session against the European currencies as concerns over the health of the financial sector continued to simmer. The session began with UK banks of RBS and Lloyds receiving an additional £31.3B from UK Gov't in what dealers label a 'second bailout'. Swiss banking giant UBS reported its fourth straight quarterly loss.
The EU noted that it saw further bank sector losses between €200B to €400B in 2009/10 period for the region. The EUR/USD saw a steady erosion as the session progressed and tested below the 1.4680 level tested during the thin hours on Sunday prior to the Tokyo open for the week. Risk aversion helping both the USD and JPY firm up against the European pairs. The dollar also benefited as commodity prices moved lower. NYMEX Dec crude futures were off about $1.00 barrel to approach $77/barrel while spot gold retreated to move back below the 1,058/oz level.

- The AUD/USD retreated following its decision to raise interest rate for the second straight month by 25bps to 3.50%.
Dealers quickly pointed out that the RBA in its history had never lifted interest rates for three consecutive meetings, thus a holding pattern likely to ensue at this time.

- Fixed income: With a number of developments re-igniting uneasiness over the global financial sector, money has flowed into government bonds this morning in Europe. Yields are lower across the curve on both sides of the Atlantic with investors happy to get hold of paper of any duration. Treasuries are outperforming Gilts and Bunds on a relative basis and the 10-year Note yield is back below 3.40%. Supply has been well received with the UK selling £4.75B in new 5 Gilts with healthy results, alongside Austria's €500M in 2037 RAGB's and Spain's sale of €2.3B in floating rate notes. Orders are said to be in excess of €9B on Greece's new 15-year syndicated benchmark, while Italy's ratings were affirmed at Aa2 by fitch, and as a result pephiperal spreads are steady against the core.

NOTES

- RBA raised its cash rate target by +25bps to 3.50%. Statement suggested that central bank policy could now be put on hold for a while

- Another round of capital infusions to U.K. banks

- EU Commission: Forecasts further European bank sector losses between €200B to €400B in 2009/10 period

- China regulator: plans to review debt levels at some real-estate developers

Looking Ahead:

- Major US earnings expected before the opening bell include: ABC, ADM, COL, HNT, MHS,

- (RU) Russian Oct CPI M/M: % v 0.0%e, Y/Y: % v 9.7%e, Core M/M: % v 0.4%e

- 6:00 (BR) Brazil Sept Industrial production M/M: % v 1.7%e; Y/Y: % v -6.4%e

- 7:00 (BR) Brazil Oct PMI Manufacturing: No est v 52.3 prior

- 7:35 ICSC/UBSW Chain Store Sales No estimate versus +0.1% prior

- 8:00 (BR) Brazil Oct Trade Balance: $1.6Be v $1.3B prior

- 8:30 (SI) Singapore Oct PMI: 51.8e v 50.6 prior; Electronic Sector: 52.8e v 52.4 prior

- 8:55 (US) Redbook Retail Sales: No estimate versus +0.6% prior

- 9:00 (EU) ECB's Mersch and Weber speak in Luxembourg

-10:00 (US) Sept Factory Orders: 0.8%e v -0.8% prior

- 10:00 (TU) Turkish Oct Consumer Prices M/M:2.0%e v 0.4% prior, Y/Y: 4.6%e v 5.3% prior

- 10:00 (TU) Turkish Oct Producer Prices M/M: 1.0%e v 0.6% prior, Y/Y: 0.9%e v 0.5% prior

- 13:00 (MX) Oct IMEF Manufacturing Index: 52.0e v 51.6 prior; IMEF Non-Manufacturing Index: 52.1e v 51.8 prior

- 16:30 (US) API Crude Oil/Gasoline/Distillate Inventories

Published on  Tue, Nov 3 2009, 11:09 GMT