European Morning Update: Gold giltters as it approaches $1,000/oz; Europe seems vulnerable to C4


ECONOMIC DATA

- (JP) Japan Jan Final Machine Toll Orders -84.1% v -84.4% prior

- (FI) Finland Jan PPI M/M: -1.5% v -0.4%e; Y/Y: -3.7% v -1.4%e

- (CZ) Czech Dec Retail Sales Y/Y: -2.9% v -0.7%e

- (SZ) Swiss Dec Retail Sales: 3.6% v -1.4% prior

- (HK) Jan Hong Kong Unemployment Rate: 4.6% v 4.3%e

- (UK) Jan CPI M/M: -0.7% v -1.0%e; Y/Y: 3.0% v 2.7%e

- (UK) Jan CPI Core Y/Y: 1.3% v 1.0%e

- (UK) Jan Retail Price Index: 210.1 v 209.9e

- (UK) RPI M/M: -1.3% v -1.4%e; Y/Y: 0.1% v 0.0%e; RPI Ex Mortgage Payments: 2.4% v 2.3%e

- (UK) Dec DCLG UK House Prices: -10.2% v -10.1%e

- (GE) Feb ZEW Survey -Econ Sentiment: -5.8v -25.0e; Current Situation: -86.2 v -82.0e

- (IT) Italian Current Account: -€5.8 v €-4.66B prior

- (EU) Euro Zone Feb ZEW Survey: Econ Sentiment: -8.7 v -27.5e

- (EU) Euro Zone Dec Trade Balance:-€0.7 v -€6.7Be; Trade Balance sa: -€0.3 v €-5.3Be


SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

- In equities, Daimler [DAI.GE] Reported Q4 Net loss €1.53B worse than the loss €103M expected.
Revenues came in at €23.2B slightly better than the €22.1B consensus. For 2008 the firm reported a net profit of €1.4B worse than the €2.9B estimate with revenues of €95.9M versus €95.7M view.
Dailmer expected that global demand could decline by further 10% in 2009 and added that they saw a "substantial" burden on its EBIT || Volvo [VOLVB.SW] Awarded SEK1.3B Canadian order for 410 buses || Givaudan [GIVN.SZ] Reported FY08 Net CHF111M, below expecations of CHF157M. Revenues were CHF4.09B, slightly below the CHF4.15B consensus. The firm is confident is can outgrow the underlying market in 2009 based on its pipeline and new wins, as well as expected savings of CHF200M by 2010 || Teva [TEVA] Reported Q4 $0.76 v $0.73e, R $2.80B v $2.93Be, increases dividend to $0.147e/shr || Coca Cola Hellenic [EEEK.GA] Reported Q4 Net €3.0M below estimates of €45.2M. Revenues were €1.59B, slightly above the consensus of €1.55B. The company did not provide 2009 guidance due to uncertain economic environment. Its Q4 volume 492.1M cases versus 465M cases y/y || Aegon [AGN.NV] Reported Preliminary Q4 net loss €1.2B worse than the loss €317.7M expected. New life sales were €600M || L'Oreal [OR.FR] Reported 2008 net (ex-items) €2.06B slightly below estimates of €2.08B with an operating profit of €2.73B versus €2.81B expectations. Revenues came in at €17.54B, slightly below the consensus estimates of €17.66B. It remained confident that it can weather economic problems but noted that the economic environment would be tough. || Imtech [IM.NV] Reported a FY08 Net profit €113.3M, below estimates of €120.6M.
Revenues were €3.86B, in line with expectations of €3.85B, with organic growth of 8% y/y. It expects EBITA to rise this year via acquisitions and organic growth, while maintaining an EBITA margin of 6%. || Legal & General [LGEN.UK] noted that its IGD capital surplus was in excess of £1.6B and said it would double reserves against defaults to £1.2B. The changes reflect declines in equity markets to December 31, 2008. || InterContinental Hotels [IHG.UK] Reported FY08 operating profits of $535M in line with estimates of $534.7M. Revenues were $1.85B compared to consensus of $1.91B. It did note that it saw a sharp deterioration in Q4 trading demand in the Asia Pacific region.
Global constant currency RevPAR declined 6.5% in Q4 and 12.2% in January.

- In speakers, the ECB's Nowotny commented that zero interest rates would mean negative real rates, pledging not to support cutting rates to zero. He said there are ongoing discussions on the additional tools the ECB has at its disposal, as they must expect negative GDP for Euro Zone in 2009. || The ECB's Constancio commented that the most recent inflation and GDP data signaled the deteriorating situation. || The IMF's Strauss Kahn stated that the pace of clean up of bank toxic assets are not rapid enough as banks still holding too many toxic assets. IMF believes that a stronger stimulus packages are required among countries. It saw a possible end to current economic crisis from 2010 with 2009 remaining difficult to navigate. || EU's Almunia reiterated the growing view that it is likely for ECB to cut rates next month and added that the monetary policy should be expansionary || ZEW commented that the recent ECB interest rate cuts and fiscal measure have had a positive impact on the index. However, It noted that the downward economic trend likely to continue but expected the German economy to bottom within few months and to improve during H2 of 200. it noted that lower raw material and food prices would support consumptio. Lastly the ZEW stated that Q1 to be worst period for German economy. Latest data supports further ECB interest rate cut. || Polish Central Banker Slawinski noted that the zloty is weakening due to speculation, noting that central bank FX intervention could increase the risk of speculation and curb such appetite. Additionally, Polish banks may forgo dividends to increase capital. || Japan's Yosano to replace outgoing Finance Min Nakagawa. Yosano will also retain his current title as economic minister as well.

- In currencies, trade fixated on the growing concern over Eastern European countires and the possible impact on the Western European banking sector. Comments from Moody's earlier in the Asian session brought a potential Eastern European currency crisis into focus. Note that dealing desks have nicknamed the region C4, after the four explosive currencies in the region: the Polish Zloty (PLN), Czech Krona (CZK), Hungarian Forint (HUF) and Slovak Koruna (SKK). Moody's warned during the Asian session that weakness in East European banks could spill over to their Western financial parents. Dealer chatter is noting that banks balance sheets do not look healthy as they have both clients and bank books sitting on large structured losses. Dealers pointing out the extent of the amount of CHF denominated home and consumer loans. Back in late November 2006, the currency interbank took notice of comments from SNB's Roth over the 'carry trade' issue. Back then the SNB issued a blunt warning on such carry trades and called the short term focus on carry trades "troubling'. It was observed at the time that Switzerland had become the world's second biggest source of carry-trade credit after Japan with more than 80% of all new mortgages in Hungary are in Swiss Francs (CHF), with a similar pattern emerging in Poland, Croatia and Romania areas. The EUR/USD pair took out the chart support at 1.2720 level and the pair tested 1.2602 during the European morning before retracing. The better German ZEW data helped to limited the Euro's losses in the session. || (CH) Reportedly China Planning Official says CNY may weaken to CNY7 per USD from CNY6.95, gives no timeframe. The current level for the pair was at 6.84.

- In fixed income German government bonds have attracted bids this morning on renewed risk aversion. The yield on the 2y Schatz is currently at all time lows below 1.2%, whilst the 10y Bund has oscillated around the 3% level. European peripheral government bonds have been weaker after Moody's issued concerns on Eastern European banks. Ten-year debt of Austria and the Netherlands (considered most exposed to eastern Europe) as well as Portugal and Greece widened to record levels over the benchmark Bund in early trade. The UK DMO sold £1B in 2055 long gilts, with the bid-to cover of 1.45 weaker than the previous 1.86. In corporates, Tesco announced plans to issue a 3 part bond offering in sterling and euros. Traders are noting the iTraxx crossover index is back above the 1100bps level and approaching its Dec 2008 all time high of 1,125bps. Chatter also circulated noting 5y CDS spreads on US, Germany, France, Austria, and Ireland had all touched record highs.

- In Energy: China MOF stated that it would subsidize purchases of alternative energy vehicles || Russia signs an oil loan deal with China. The Russian firms Rosneft and Transneft have signed a $25B loan deal with China Development Bank || Statoil [STL.NO] Reported Q4 Net NOK2.0B v loss NOK52M expected. It operating income NOK37.8B below expectations of NOK40.2B. Revenues were NOK145.9B slightly better than the NOK141.1B. Its FY08 ROACE came in at 21.0% versus 17.7% y/y with production 1.93M bpd. The company noted that results was negatively affected by weaker oil prices. Furthermore, the significant strengthening of the US dollar compared to NOK had a material negative effect on net financial items and consequently, the result became subject to an unusually high effective tax rate. || Total [FP.FR] To deliver 25 Metric Tons of LNG to Japanese buyers between 2011 and 2020 period.


NOTES

- Safe-haven flows into USD and gold seemed to be the main trading theme on Tuesday as risk aversion over the banking sector weighed upon equities. Eastern European concerns (C4) have dominated the conversation among trading desks for a second straight session.

- Daimler failed to live up to chatter that it would beat expectations, but there were some bright spots buried in its reportas Smart sales up 35% andrecord sales and revenues numbers for its bus unit. Traders noted that the company's earning were generated in the first part of year to express concerns as 2009 commences.

- The German ZEW data beat expectations for the second month in a row with its -5.8 reading. ZEW noted that ECB rate cuts and government fiscal measures had a positive impact on the index but cautioned that the economic downward trend continues . ZEW was optimistic that German growth could rebound in H2 portion of 2009, but EU is not all Germany.

- As US traders return to their desk, it should be noted that G7 was all rhetoric but little details in how to handle the economic crisis, hence Gold has been firm as confidence wanes in paper and Governments at this time. Numerous sovereign 5-year credit default swaps hitting record highs with US, Germany, France, Austria, Ireland, Finland and Slovenia among them at record high levels.

- Looking Ahead:

- 7:00 (BZ) Brazil Retail Sales M/M: -0.5% expected v -0.7% prior; Y/Y: 3.4% expected v 5.1% prior

- 8:00 (UK) Business Secretary Mandelson to speak in New York

- 8:00 (PD) Polish Jan Avg Gross Wages M/M: -8.8% expected v 3.0% prior; Y/Y:

- 8:00 (PD) Polish Jan Employment M/M: 0.3% expected v -0.6% prior; Y/Y: 0.8% expected v 2.3% prior

- 8:30 (US) Feb Empire Manufacturing: -23.75 expected v -22.20 prior

- 9:00 (US) Net Long Term TIC Flows: $20.0b expected v -$21.7B prior

- 9:00 (US) Dec Total Net TIC Flows: No expectations v $56.8B prior