European Market Update: UK Construction PMI viewed as a "harbinger of doom"; Euro option barrier seen at 1.25 to 1.30


ECONOMIC DATA

- (NO) Norway Q1 Consumer Confidence: -11.1 v -13.3 prior

- (SZ) Swiss Q4 GDP Q/Q: -0.3% v -0.8%e; Y/Y: -0.6 v -0.1%e

- (GE) German Jan Wholesale Price Index M/M: -0.45 v -2.0%e; Y/Y: -5.9% v -6.4%e; The Y/Y decline was largest since at the 1989 reunification

- (NO) Norway Feb PMI: 36.4 v 40.2e

- (SP) Spain Feb Unemployment Rate: 154.1K v 198.8K prior

- (SP) Spain Consumer Confidence: 48.6 v 50.1 prior

- (UK) Feb PMI Construction: 27.8 v 34.2e; lowest reading on record

- (GE) German Feb New Car Registrations at 277.7K, up 21% y/y - VDIK


SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

- In equities, Standard and Charter [STAN.UK] reported a 2008 net of $3.41B, beating expectations. Operating income was $14B, compared to $11B year on year. Standard's ROE declined slightly to 15.2% versus 16.2% a year ago. The firm's tier 1 capital ratio stands at 7.6%, above last year's level of 6.6%, with total assets at $435B, up from $330B in 2007. Additionally the firm noted that it is continuing to de-risk its asset book. || Munich Re [MUV2.GE] reported a Q4 net profit of €133M and an operating profit of €844M, both better than expected. Gross premiums written were €9.71B. The company withdrew its FY09 and FY10 guidance. || Kuehn & Nagel [KNIN.SZ] reported a FY08 net of CHF585M, slightly below estimates of CHF596M. Revenues came in slight better at CHF21.6B, ahead of the consensus estimate of CHF20.3B. The company expects volume reductions at all units moving forward, leading it to implement rigorous cost management plans. || Bayer [BAY.GE] reported a Q4 net profit of €106M, below consensus estimates of €192.M, while revenues were €7.92B, slightly above forecasts. It guided 2009 revenues of €32B, a hair below expectations. Adjusted EBITDA margin should decline by 5% versus prior expectations of an increase, given the slump in demand for plastics and foams, which will likely overshadow growth at its drugs unit. Bayer guided 2009 CAPEX at €1.5B. || CRH [CRH] reported a 2009 pretax profit of €1.63B, slightly above €1.60B estimates. Revenues were €20.89B, in line with forecasts. It announced a 2 for 7 discounted rights issue of 152M ordinary shares at €8.40/shr. It stated that its outlook for 2009 was extremely challenging. || A US court ruled that Groupe Danone [BN.FR] may pursue claims against Hangzhou Wahaha Group in China. || Galenica [GALN.SZ] acquired the Sun Store pharmacy chain. Financial terms of the transaction were not disclosed. Sun Store operates 100 shops throughout Switzerland. || UCB [UCB.BE] reported a 2008 net profit of €314M after items, above estimates of €259.9M. The company's revenues were €3.6B, also better than forecast. Its 2009 forecast sees net profit exceeding €130M versus current consensus of €234M, with revenues at €3.3B compared to estimates of €2.93B. The company noted that it has won an intellectual property settlement offsetting the loss of patent protection for key drugs. || A Gartner reporte stated that cellphone inventories held 17M fewer phones in Q4 and predicted that demand would not stabilize in 2009. The report noted that Samsung and LG took market share in Q4. || Barry Callebaut [BARN.SZ] signed an MoU with Natra to combine European consumer chocolate businesses and would transfer its Stollwerck unit to Natra.
It would now focus on core industrial business and expected to sell at least 85K tons/yr chocolate to Natra. Deal expected to close by summer of 2009, subject to long-term funding and Financial terms not disclosed || Meggitt [MGGT.UK] Reported FY08 Pretax £243.3Mabv £212.7Me, Rev £1.16B above estimates of £1.08B. it would reduce 15% of civil sector workforce and expected 2009 revenues to be close with 2008 levels || Wood group [WG.UK] Reported FY08 Pretax $384.1M slight below the $397M consensus. Revenues were $5.24B above $5.18B forecast. It noted that its Group EBITA margin came in at 8.4% compared to 7.2% y/y with margin improvements in all three divisions. Its final dividend was raised by 29% to $0.09/shr || The CEO of Volkswagen's [VOW.GE] Audi unit said February global cars sales were at 63K, down 11% y/y. Audi unit production cuts reflected expectation of 10% sales decline in 2009. Remember that Volkswagen reported 2008 results during yesterday's session, with revenues at €113.8B, beating expectations. || BMW [BMW.GE] disclosed that it cut 4K positions in 2008 and expected another 1K in job cuts in 2009 via natural attrition. BMW reaffirmed that it is holding discussions with Fiat [F.IT]. Firm noted that it saw a savings of €500M due to lower labor costs in 2009. || Hypo real estate's [HRX.GE] DEPFA funding IV LP said it would not pay the next coupon on €500M worth of preferred securities, scheduled for March 21.

- In speakers, the EU's Almunia said the EU could launch a second stimulus package if the first package did not have the desired effect. He noted that it was too soon to estimate impact of first stimulus. || China's PBoC Vice Governor reiterated his confidence in achieving China's 8% GDP growth target in 2009. The official pledged to watch the economy before deciding whether to cut interest rates further. He noted that purchasing US Treasuries remained an option for China. He also said that fighting deflation is an essential worldwide task and a growing concern at this time, but warned both inflationary and deflationary pressures must be fought. || China's Commerce Ministry stated that there was no recovery in February exports and that the drop in exports and imports were worse than in January. A ministry official insisted that a stable yuan allows for small fluctuations in its rate and added that he did not see any trend of modest yuan depreciation. || BoJ Gov Shirakawa reiterated that Japan's economic situation was severe and deteriorating faster than previously expected. || French PM Fillon said it is impossible to predict when the global crisis will end, predicting that the downturn would be long and the recovery difficult. He reiterated his view that 2009 French GDP could contract in a range of -1.0% to -1.5% (Note: This position is consistent with French Economy Minister Lagarde's forecast of -1.5% given on March 3rd). The PM stated that no stimulus can avert economic crisis and that the government cannot manage companies. Any strategy must take into account public debt, according to Fillon, who sees public deficit above 5% of GDP this year.
He hopes to return to a 3% deficit beyond 2012. || The OECD's chief economist said that Eastern Europe may be confronting economic havoc comparable to the Asian crisis in the late 1990s. He noted it is hard to accelerate euro accession plan for the East but a "fast track" to the euro could be devised once the crisis ends. He insisted that the current quarter might likely be the worst yet, reiterating the view that the economic crisis was getting worse.

- In currencies, the session witnessed a spat of risk appetite briefly. Some desks saw the Australian Central Bank's decision to hold interest rates steady as a "buy carry trade" signal that helped weaken the USD and JPY pairs and propel European equities higher. EUR/USD tested the 1.2680 level before retreating. Currency dealers initially suggested that the RBA decision to leave its cash rate unchanged at 3.25% may have helped stiffen Trichet's backbone ahead of the ECB rate decision later this week. There is also chatter of a 1.2500 to 1.3000 option barrier in effect with expiration set for March 10. Dealers are noting that the inability of EUR/USD to break below the 1.25 on Sunday during the Wellington open cemented this option viewpoint. || USD/CAD was around the 1.29 level for fresh three-month highs ahead of the BoC interest rate decision. The market looking for a 50bps rate cut to 0.50% ||

- In fixed income, tensions in credit markets have perhaps been best exemplified by the iTraxx crossover index, which touched an all time high above 1,125bps this morning. Government bonds pared early losses as a sell off in equities quickly took hold. In the UK, the DMO tapped £3.75B of the 3.25% 2011 Gilts with strong results , however with continued short end out performance in the UK yield curve, traders will be looking to tomorrow's 2039 auction for a better indication of appetite for UK debt . Ahead of tomorrow's interest rate decisions, and with unfunded Gilt purchases by the BoE now largely seen as inevitable, dealers have focused on unconfirmed reports suggesting the ECB is considering enacting its own asset purchase program and quantitative easing. In peripheral markets Austria announced plans to sell €1.65B in a new 5 year issue and Greece confirmed plans to issue a new 10y bond as speculated, with supply pushing yields spreads wider. In corporate supply, Deutcshe Bahn announced plans to offer €500B - €1B in a new benchmark 10y offering, with pricing indicated at 160bps over swaps.

- In energy, Iran's oil minister said that OPEC would propose a solution to improve oil prices at its March 15th meeting. The minister also reiterated that OPEC members must remain committed to prior output cuts. || Gazprom [GAZP.RU] reported a Q3 net of RUB131.7B, below the single forecast of RUB149B. Revenues were RUB829.7B, below estimate of RUB989.4B. || Ukraine's Naftogaz says it has funds to pay for February gas imports from Russia.

- In credit crisis news, UK Chancellor Darling said he may use quantitative easing measures and anticipates more financial institutions will use the government's Asset Protection Scheme, which insures against losses arising from toxic assets. || China Feb New bank loans M/M: CNY1.10T v CNY1.62T prior month.


NOTES

- The equity markets were mildly higher during the European morning. Some desks saw the Australian central bank decision to hold interest rates steady as a “buy carry trade” signal which help weaken the USD and JPY pairs and boost equities. However, the UK Construction PMI data reminded traders tat the global economic scenario remains fragile. iTraxx Crossover spreads continue to hit fresh all-time Wide Levels throughout the course of the day. Note that the Bank of Canada will have its interest rate decision this morning. Consensus expectation is for a 50bps cut from 1.0% to 0.50%. Also, Treasury Sec Geithner testifies today, Wed and Thu. Some bank bailout details are expected.

- Looking Ahead:

- 8:00 (US) Fed's Lockhart speaks in Tampa

- 9:00 (CA) Bank of Canada Interest Rate Decision: 0.50% expected v 1.00% prior

- 10:00 (US) Jan Pending Homes Sales: -3.5% expected v 6.3% prior

- 10:00 (US) Fed Chairman Bernanke testifies before Senate Budget committee in Washington

- 10:00 (TU) Turkey Feb Consumer prices: M/M: 0.3% expected v 0.3% prior; Y/Y: 8.4% expected v 9.5% prior

- 10:00 (TU) Turkey Feb Producer prices: M/M: 0.4% expected v 0.2% prior; Y/Y: 5.7% expected v 7.9% prior