European market Update: German IFO business confidence at 26 year low; financial sector continues to be the focus


ECONOMIC DATA

- (MA) Malaysia Central bank cuts interest rates by 50bps to 2.00%; was expected to keep unchanged at 2.50%

- (TT) Taiwan Jan Export Orders Y/Y: -41.67% v -38%e

- (SZ) Swiss UBS Consumption Indicator: 0.985 v 1.184 prior

- (FR) French Consumer Spending M/M: 1.8% v 0.3%e; Y/Y: 1.8% v 0.3%e

- (FR) French Jan Housing Starts 3M/Y: -20.2% v -16.0% prior; Housing Permits 3M/Y: -9.1% v -11.1%

- (FR) French Feb Consumer Confidence Indicator: -43 v -42e

- (HU) Hungary Dec Retail sales Y/Y: -3.9% v -2.8%e

- (SZ) Swiss Q4 Employment Level: 3.963M v 3.956M prior; Y/Y: 1.6% v 2.0% prior

- (IT) Italian Feb Consumer Confidence: 104.1 v 101.5e

- 3:30 (NV) Dutch Producer Confidence: -22.9 v -19.5e

- (GE) German Feb IFO - Business Climate: 82.6 v 83.0e; Current Assessment: 84.3 v 84.9e; Expectations: 80.9 v 81.1e; confidence reading was the lowest since Nov 1982

- (PD) Polish Jan Retail Sales M/M: -22.9% v -24.0%e; Y/Y: 1.3% v 0.5%e

- (PD) Polish Jan Unemployment Rate: 10.5% v 10.3%e

- (EU) ECB Euro Zone Dec Current Account: -€7.3 v -€13.9B prior; Current Account nsa: €1.4B v -€11.8B prior;

- (UK) Q4 Prelim Total Business Investment Q/Q: -3.9% v -4.3%e; Y/Y: -7.7% v -5.5%e

- (UK) Jan BBA Loans for House Purchase: 23,376 v 22,416 prior

- (SA) South African Q4 GDP Annualized: -1.8% v -1.5%e; GDP NSA Y/Y: 1.0%v 1.4%e; largest quarterly contraction since 1992

- (EU) Euro Zone Dec industrial orders M/M: -5.2% v-4.9%e; Y/Y: -22.3% v -21.7%e

- (UK) UK CBI Feb Distributive Trades: -25 v -47 prior


SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

- In equities, Q-cells [QCE.GE] reported FY08 Net of €140.2M (ex items) compared to consensus of €181.0M. Its EBIT was €205.1M versus €204.8M expectations, with revenues at €1.25B slightly better than the €1.24B forecast. It guided FY09 revenues in a range of €1.7B to 2.1B above expectations of €1.58B and production at 800 MW to 1 GW. Its prior 2009 revenue guidance was €1.75-2.25B. || Tom Tom [TOM2.NV] reported Q4 Net loss of €989M compared to a profit forecast of €47.2M (which included a non-cash goodwill impairment cost of €1.05B as it wrote down its Tele Atlas unit). Its EBITDA was €82M versus estimates of €100.5M and revenues came in at €528M in line with consensus of €527M. It guided FY09 revenues €1.4-1.6B, which is in line with expectations. It sees continuing challenges throughout 2009, making it difficult to provide specific guidance for the year. || Akzo Nobel [AKZA.NV] reported a Q4 net profit of €121M that was below expectations of €135M.
Revenues were €3.56B, slightly above forecasts. It announced the suspension of its share buyback program and guided FY11 EBITDA margin 14%. It noted that its Q4 slowdown had impacted all operations across the globe and expected 2009 to be very challenging. || Maurel [MAU.FR] is holding discussions to sell its Colombian production assets || WMH Walter Meier Holding [WMHN.SZ] Reported FY08 Net profit of CHF5.9M compared to CHF6.5M estimates. Revenues were CHF782.7M above expectations of CHF766M. Sees trading remaining stable throughout H1 in climate tech sector but guided manufacturing tech revenues down 30% in Q1. || Redrow [RDW.UK] reported an H1 net loss of £21.2M, compared to expectations for a profit of £35.8M y/y. Revenues were £149.5M, above expectations of £132.0M. The company noted it was ahead of plan to achieve debt objectives and significantly reduced land payments mean well placed to reduce debt to below £225M at June 2009 with further reduction anticipated in 2009/10. || Volvo [VOLVB.SW] reported January truck deliveries of 10.2K units, down 51% y/y || Aker Solutions [AKSO.NO] reported a Q4 net loss of NOK336M, better expectations for a NOK508M loss. Revenues were above consensus at NOK15.5B. Volvo's order backlog at the end of FY08 stood at NOK58B, with its FY08 EBITDA margin coming in at 5.8% compared to year-ago level of 6.8% . It reaffirmed its prior FY guidance, and also noted that it sees 2009 EBITDA in excess of NOK4.5B.

- In speakers, the BoE's Sentence commented that there was good ground to expect an economic recovery in 2010 in Britain, but warned that the economy needs more stimulus. He noted that a chance of protracted deflation was an outside risk with interest rates near zero. Sentence noted that quantitative easing was a step into unknown. He added that the economy would receive a boost from the low interest rates environment and softer sterling FX rates. || IFO's Nerb commented that recent economic data do not signal a cyclical turning point, although the situation is improving slightly. He warned that IFO may cut its current 2009 GDP forecast of -2.2% further, noting that German business was worsening but there was a chance of a possible bottom in coming months. He did not see any risk of inflation. || The India finance minister stated that the Indian economy would continue to feel impact from global economic crisis in coming months. || The Polish president reiterated that ERM entry could hurt growth and the recent decline in zloty FX rates have been excessive. He reiterated the view that its Central Bank should intervene in the currency markets if necessary. He commented that euro entry in 2012 or 2013 period was not a realistic proposition. || Japanese Finance Minister Yosano commented that the decline in Japanese share prices was not desirable and would closely watch stock move after NY stock fall on Monday. He noted that Japan must consider steps on share markets. || IFO's Abberger noted that German industry continues to be weak although wth some stable development in construction and retail sectors. He noted that the ECB should cut rates further by 50bps to 1.5% level. Expected a stabilization in H2 of 2009 in case worldwide stimulus packages proved successful. || Moody's placed Ukraine's key sovereign ratings on review for possible downgrade.

- In currencies, a mixed picture has been developing, featuring a weaker JPY and a stronger CHF.
The Swiss Franc firmed against the major pairs with dealers citing risk aversion as one of the factors. Some dealers were also attributing the CHF strength to repatriation. Dealers are watching the EUR/CHF level of 1.47 to see if the SNB is concerned (and possible act) over the threat of deflation and a sharp fall in the country's exports, which will place greater emphasis on currency levels || The JPY was weaker as dealer chatter circulated that Japanese firms have scaled back their fiscal year-end JPY purchases as citing that the slump in corporate earnings abroad leading to a drop in yen repatriation. USD/JPY at 95.40, EUR/JPY above 122.50 area and GBP/JPY tested 139 before consolidating. || The GBP retreated from earlier session highs as data continued to highlight the severe growth contraction as business investment growth contracted both quarterly and annually. EUR/USD at back above the 1.28 level, up 150 pips from its opening level in Asia

- In fixed income, markets have struggled to digest a slew of supply. Holland sold just over €1B in 2011, 2013 and 2106's, Italy sold €2B in 2010 zero coupon bonds and the UK sold £950M in 2037 linkers, all with weak results. It was also revealed that Portugal plans to launch a new 10y via syndicate later in the day. European peripherals have remained under pressure but yield spreads are well over their widest levels against bunds. Despite the supply equity weakness has driven the yield on the 10y Bund back below 3.00% and the yield on the 10y Gilt is back below 3.45%.
Nonetheless nervousness still exists as highlighted by the German CDS spread, which touched record highs above 90bps. The supply story continues with focus now shifting to the Treasury's $40B 2y Note auction later in the New York afternoon

- In energy, the WSJ noted that according to a senior OPEC delegate, the group might pledge another production cut of as much as 1M barrels/day at its March 15 meeting || Dana Petroleum [DNX.UK] Discovered a third oil field in Rinnes structure in Block 210/24a in the UK Northern North Sea. anada's PM Harper commented that the US would have to import oil drilled from Canadian oil sands based on supply/demand, despite the carbon-print related political opposition

- In credit crisis news, the UK Telegraph commented that the ECB faces a possible mutiny from national bank governors as the recession deepens. The article notes a dovish sentiment is emerging among national governors in favor of quantitative easing. It suggests that the "ring leader" according to the report, was Cyprus' Orhpanides, who is notably supported by Finland's Liikanen and Italy's Draghi


NOTES

- The global equity market continues to have difficulty finding a bottom, with the financial sector continuing to be the focus of concern. WSJ reported that AIG quarterly loss will likely exceed $60B, requiring an added govt bailout beyond the current $150B. JPM cut its dividend by 87% as a precautionary measure. Traders and dealers are noting that many issues have not been resolved yet and the equity price action reflects this state of affairs. Perhaps the authorities are listening to too many voices, trying to cover too many bases.

- The European economic picture not suggesting any improvement. The German IFO is a bit weaker and unable to repeat the increase experienced in its January reading. Chatter of growing dissention within the ECB ranks ahead of its achedule policy meeting next week.

- The Far East was bubbling with tidbits as the Hong Kong GDP is reportedly contracting by up to 2%, which would be the first negative growth in 6 years. North Korea preparing to launch a satellite described as “test of its space program not be an act of military provocation”

Looking Ahead:

- 9:00 (US) Dec S&P Case Shiller Home Price Index : No expectations v 154.59; S&P/CS Composite 20 Y/Y: -18.30% v -18.18% prior; S&P CS HPI Y/Y: -17.2% expected v -16.6% prior

- 10:00 (US) Feb Consumer Confidence: 35.0 expected v 37.7 prior

- 10:00 (US) Feb Richmond Fed Manufacturing Index: -47 expected v -49 prior

- 10:00 (US) Q4 House Price Index M/M: -1.7% expected v -1.8% prior

- 10:00 (US) Q4 House Price Purchase Index Q/Q: -2.0% expected v -1.8% prior

- 10:00 (US) Fed Chairman Bernanke testifies before Senate

- 11:30 (US) Fed's Fisher speaks in Rhode Island

- 12:00 (US0 Fed's Duke speaks in Washington