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European Market Update

India Nov Wholesale Prices Y/Y: 4.8% v 4.2%e

Mon, Dec 14 2009, 10:59 GMT
by Trade The News Staff

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European Market Update: Austria 's nationalization of Hypo Alpe- Adria Bank eclipse the initial euphoria over the Dubai World debt restructuring; Reminding markets that effects from the financial crisis still lingers

ECONOMIC DATA

- (IN) India Nov Wholesale Prices Y/Y: 4.8% v 4.2%e

- (FI) Finland Nov CPI M/M: 0.1% v 0.1%e Y/Y: -0.9% v -0.9%e

- (FR) French Oct Current Account: -€4.5B v -€4.0Be

- (FR) France Q3 Final Wages Q/Q: 0.5% v 0.5%e

- (CZ) Czech Oct Retail Sales Y/Y: % v -4.6%e

- (CZ) Czech Oct Final Industrial Output: -7.2% v -7.3% prior, Construction Output: 0.1% v 3.4% prior

- (SP) Spain Oct House Transactions Y/Y: -21.3% v -17.2% prior

- (SZ) Swiss Nov Producer & Import Prices M/M: 0.0% v 0.1%e; Y/Y: -3.3% v -3.1%e

- (HK) Hong Kong Q3 Industrial Production Y/Y: -8.6% v -9.5% prior; Producer Prices Y/Y: -2.0% v -2.9% prior

- (EU) Euro-zone Q3 Employment: -0.5% v -0.5% prior, Y/Y: -2.1% v -1.8% prior

- (EU) Euro-zone Oct Industrial Production M/M: -0.6% v -0.7%e; Y/Y: -11/1% v -10.8%e

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

- Equities: European equity markets followed strength out of Asia as Abu Dhabi ended speculation by stepping in to bail out its oil free neighbor. In what is effectively at $10B gift to Dubai, Abu Dhabi has reiterated its position as head emirate and Dubai World has guaranteed a full repayment of its Nakaheel debt within 14-days. Banks and financials, specifically with global and Persian Gulf exposures rallied sharply on the news. Austrian nationalization of Hypo-Adria failed to dampen this sector strength. In M&A news, French based AXA [CS.FR] and AMP [AMP.AU] raised their offer for Axa Asia Pac Holdings and UK based Cadbury [CBRY.UK] raised its medium term gross margin guidance as part of its defense against Kraft [KFT]. UK bank Lloyds Banking Group [LLOY.UK] announced that existing holders took up 95.3% of the news share being placed in its £13.5B right offering portion of its £21B capital raise. Gartmore Group [GRT.UK] IPO'd on the LSE and quickly fell below its placement of price (that was at the low end of a lowered range) of 220p/share. In sector rotations, financials and tech led the upward trend on the EuroStoxx50 , every other sector traded in positive territory within the index. Trading volumes in the morning session have remained light across the board.

-Individual stocks: Lloyds [LLOY.UK]: Equity placement received 95.3% subscription. || Cadbury [CBRY.UK]: Issues Defence Document- Board unanimously rejects Kraft's wholly inadequate offer as it substantially undervalues Cadbury and recommends shareholders reject the Offer. || Whitbread [WTB.UK]: Provides interim management statement: Premier Inn 39-week Like-for-like -1.7%. || BP [BP.UK]: Divests Lukarco Tengiz oilfield stake to Lukoil for $1.6B in cash. || Metro [MEO.GE]: Acquisition and integration of former Arcandor department stores may lead to 25K job cuts -WirtschaftsWoche.
|| Heidelbergcement [HEI.GE]: Targeting acquisitions by the end of 2010 -Euro am Sonntag. ||

- Speakers: (FR) French Pres Sarkozy commenyted that the employment situation continued to deteriorate ||Polish Central Bank's Noga commented that Dec inflation could be around 3.7-3.8% level***India Fin Min Mukherjee commented that rising inflation remained a concern in India and stated that it was particularly evident in food items*** India Fin Sec Chawla stated that the Gov't was concerned over inflation outlook but no need for emergency action at this time ***World Bank official observed that the Dubai debt situation indicates the ripple of economic crisis is still alarming || HKMA's Chief Chan stated that Asia should focus more on risks of asset bubbles but hard to assess if such bubbles were forming. Capital influx of HK$640B since October of last year has boosted local asset prices as property prices have recovered to levels before the worldwide financial crisis hit last year *** Philippines Finance Sec Teves commented that the 2009 budget deficit to be below PHP300B (in line with recent revisions) but might raise 2010 deficit target from PHP233.4B level

- Currencies: The USD entered the European morning on a soft one after the Dubai World debt restructuring announcement. The GBP benefited the most on the initial news regarding Dubai World. GBP/USD jump around 100 pips to test 1.6325 as the debt structuring news as dealers speculated that UK banks would limit their exposure to the situation.
However, GBP sentiment also weighted down by the lingering sovereign rating. The UK Mail online article noted that the world was losing faith in the debt laden UK with the BOE concerned about the vast quantity of gov't bonds that would have to be sold over the coming years. Some dealers also attributed that GBP was also softer on receding M&A flows after Cadbury issues defiance document to the Kraft merger offer. The nationalization of an Austrian bank reminded the market that the effects of the financial crisis still lingers

- Fixed Income: Government bonds are modestly bid in thin volumes this morning in Europe, despite an improvement in risk appetite stemming from Abu Dhabi's $10B worth of support for Dubai. Yield curves have flattened with the long end subject to better buying on both sides of the pond. Euro-zone peripheral markets are broadly firmer against the core with Ireland and Spain notable standouts, both narrower by 2.5bps. Greece remains the exception,7bps wider at Bunds +215bps. French President Sarkozy launched a new €35B national investment program, of which €22B is to be funded via debt issuance. Sarkozy remarked that he was open to debate on deficit reduction, but that he believed taxes could not be raised further and that increased tax receipts from the recovery would be used to pay off debt. 10 y OAT's are unmoved at Bunds+25bps. Treasuries are firmer in the overnight session. The 10y Note has outperformed the rest of the curve, with the yield -3bps at 3.52%.

- Energy: Kuwaiti Oil Minister stated that he was not concerned about oil prices falling below $70/bbl and it would not affect decision at upcoming OPEC meeting later this month *** Russia halted gas supplies to Armenia with the move came after a bomb was found close to a pipeline in southern Russia. According to the report, supplies to Georgia had not been affected.
*** Analysts at Goldman Sachs comment on WTI prices into 2010; See the benchmark at $82/bbl in Q1

- Commodities: Brazilian Agriculture Min commented that its country's 2009 sugar output levels seen at 34M, up 10% y/y. Sugar prices to stay at high levels due to India and that Brazil mills to produce more to offset lower India output

- In the papers: UK Mail online article noted that the world was losing faith in the debt laden UK with the BOE concerned about the vast quantity of gov't bonds that would have to be sold over the coming years: ***Nobel Laureate Mundell commented in a press interview that the Euro was adequately priced between 1.20 to 1.60 area. Article noted that the range should be narrowed to $1.30 to $1.50 over time to make it easier for businesses to plan foreign trade and that the FED and ECB should agree to defend the range. Mundell noted that currency fluctuations were a source of the financial crises *** WSJ "Heard on the Street" article note that future oil production increases by Iraq could hurt prices. Article noted that increased supplies could be a risk for the outlook of oil prices as according to IHS Cambridge Energy Research Associates the avg size of oil discoveries in 2009 has risen by 35% y/y. Iraq was one country that could seek to raise production in the future. Foreign oil companies sought to increase Iraq's output from 5 fields by 12-fold to 8.5M bpd. The article noted that even if Iraq only rose by 1.5M bpd by 2015, it could hurt oil prices.

Notes:

- Risk appetite gets a boost after Abu Dhabi bailed out Dubai World with $10B pledge

- Austria agrees to nationalization of Hypo Alpe-Adria; reminding markets that the effects of the global crisis lingers

- Japan's Tankan headline better than expected but Capex component throws caution into the wind

- NYMEX crude lower in the electronic session for the ninth consecutive day

Looking Ahead:

- (GE) Bundesbank to release monthly report expected

- 8:30 (CA) Canadian Q3 Capacity Utilization Rate: 66.9%e v 67.4% prior

- 15:30 (MX) Mexico Oct Industrial Production Y/Y: -4.6%e v -5.7% prior

Published on  Mon, Dec 14 2009, 11:02 GMT

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