European Market Update: Service PMI's data maintains pressure on ECB; Possible second Chinese stimulus package and FX reserve adjustment buoys stocks, oil and hits US Treasury futures


ECONOMIC DATA

- (IR) Irish Feb Services PMI M/M: 31.8 v 33.9 prior (record low)

- (SP) Spain Feb Services PMI: 31.7 v 31.8 prior

- (IT) Italian Feb PMI Services: 37.9 v 39.6e; lowest reading on record

- (FR) French PMI Services:40.2 v 40.1e; lowest reading on record

- (GE) German Feb PMI Services; 41.3 v 41.6e; lowest reading on record

- (EU) Feb Final PMI Services: 39.2 v 38.9e; PMI Composite: 36.2 v 36.2e; lowest readings on record

- (UK) Feb PMI Services: 43.2 v 41.9e

- (UK) Feb Official Reserves: -$6M v -$166M prior

- (GE) German VDMA January Plant and Equipment orders Y/Y: -42%

- (UK) Feb BRC Shop Price Index M/M: 1.2% v -2.0% prior; Y/Y: 1.9% v 1.1% prior

- (IR) Irish Feb Unemployment Rate: 10.4% v 9.2% prior


SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

- In equities, Costco [COST] reported Q2 figures, EPS below expectations at $0.55 and revenue in line at $16.8B . For the quarter, same-store sales were down 3% on a y/y basis. Costco put its US same-store sales at -1% and international same-store sales at -11% (both including fuel sales). || UBS [UBSN.SZ] Peter Kurer will not stand for re-election as board's chairman; to be succeeded by Kaspar Villige. || Holcim [HOLN.SZ] reported a 2008 net of CHF2.23B above the expected CHF1.93B and revenues slightly missing forecasts at CHF25.16B compared CHF25.6B expected. Holcim declined to provide any 2009 forecast and left the dividend unchanged. || Old Mutual [OML.UK] reported preliminary 2008 results. Adjusted profit came in at £999M, lower than last year's £1.62B, while pretax came in at £595M, also lower than the £1.75B reported last year. Old Mutual announced that it would not be paying a final dividend. For 2008, ROE stood at 9% down from 13.2% y/y, and AUM fell to £264.8B from £278.9M y/y. The CEO also noted that insurer was considering combining all long-term deposits into single unit and that Old Mutual's Wealth Management JV with Ned Bank may be fully bought out by Ned Bank. (Note that OML currently holds 50% stake in the South African Bank). || USG People [USG.NV] reported a Q4 net profit of €18M, missing expectations. Revenues were €952M, slightly below the consensus view. USG said it would pay a final dividend of €0.58/shr payable in shares, but refrained from providing outlook for 2009. The negative turnover trend in January is expected to continue for the sometime as company implements further cost cutting initiatives. Adidas [ADS.GE] reported a Q4 net profit of €54M, better than €44Me forecast. Revenues were €2.57B, above forecasts for €2.48B. the company maintained its €0.50/shr dividend. It guided group ex FX sales to decline at a low- to mid-single digit rate in 2009. || France Telecom [FTE.FR] reported a FY08 net profit of €4.07B, well below consensus estimates. Revenues were roughly in line at €53.5B with forecasts. It raised its dividend to €1.40 from €1.30/shr prior. The company stated it would reduce debt in 2009 to 2X EBITDA and guided FY09 CAPEX 12-13% of revenues. || Credit Agricole [ACA.FR] reported a Q4 net loss of €309M, less than expected. Revenues were €4.60B, above the €3.84B forecasted. The company's Tier 1 ratio was 9.1% versus 8.5% q/q. The CEO commented that he believed the financial market crisis would last into the second half of 2010. || Carillion [CLLN.UK] reported a 2008 pretax net of£115.9M, above estimates. Revenues were also better than expected. The company was named a preferred bidder in a £1.6B PPP hospital development. || British TV producer ITV [ITV.UK] reported a 2008 adjusted pretax of £167M and revenues of £2.03B, both above forecasts. The company will pay a final dividend of 67.5p/shr. It announced it would cut 600 positions (about 12% of total staff). It also reported included £2.7B impairment charge on operating costs and an additional impairment of £1.1B in FY09. It recommended suspending dividend program in 2009. || Skandinaviska Enskilda [SEBA.SW] announced a rights issue of 11 A-shares for every five held at SEK10/shr. The initiative is projected to raise SEK15.0B. || Prosieben SAT.1 [PSM.GE] reported a Q4 net loss of €170M and revenues of €876.8M. It noted that its Q4 international operations weighed by economic downturn and saw a difficult environment in 2009, too early to provide guidance for the year || Property management firm Segro [SGRO.UK] Reported FY08 Pretax loss £932.2M below a gain £122M expected. Its adjusted net £123.9M slightly better than the £113.4M forecast. It announced that it would sell shares in 12-for-1 rights issue seeking to raise £500.6M || For Lloyd's [LLOY.UK], was reported in the Telegraph that the company is in disagreement with the government about the terms of the asset protection scheme (APS). This disagreement has led to the delay of a final decision the market has been expecting since last Friday regarding a £250M placement in the fund. Article notes Lloyds is strongly resisting the conversion of the government's preferred stock into common shares, a move that would push the UK's stake above 50% from 43%. The article adds that Lloyd's CEO may quit over the issue. ||Swiss Telecom reported [SCMN.SZ] its FY08 figures. FY08 net came in at CHF1.75B, this was slightly above the CHF1.73B expected. Revenues were reported at CHF12.2B, inline with the CHF12.15B expected. Additionaly, the firm guided its FY09 Rev (ex Fastnet) between CHF9.2-9.3B and expected its FY09 Fastweb rev around €1.8B (estimates for FY09 CHF12.19Be). Swiss Telecom put its FY09 CAPEX at around CHF1.35B with a FY08 Dividend of CHF18/share v CHF19/share y/y.
The CEO noted that the company is well positioned to grow faster than the market in 2009 while expecting that the first half of 2009 will be weaker than that of H1 2008. || The Swiss National Bank [SNBN.SZ] reported a 2008 net loss CHF4.7B compared to a profit of CHF8B y/y. Additionally the SNB commented that the UBS stabilization fund had no impact on results despite having to 'revalue' nearly $996M in UBS assets.

- In speakers, Australian PM Rudd commented that Australia was not immune to the worldwide economic slowdown although it was among the top global performers. In addition, he said the stimulus program has curbed the economic slowdown. || Australian Finance Minister expects most of the stimulus impact to occur in Q1. He noted that the run down in inventory levels cannot continue and that consumer demand was holding up relatively well. || BoJ's Suda said the central bank has not ruled out any policy options but quantitative easing was not needed at this time. A zero interest rate policy was also not necessary for now. The BoJ must be aware and must examine the side effects of additional steps. The BoJ's intervention in the stock market could negatively affect market functioning. || The German Steel Federation reiterated that 2009 would be a difficult year for steel but saw a moderate chance for recovery starting in H2. It expected German crude steel output to fall under 40M tons this year for first time since 1993. || A Chinese PBoC Official commented that the yuan should trend higher in the long-term and that low interest rates are needed to fight deflation, but zero interest rates was a last resort. || The Swedish Debt Office guided the projected budget deficit for 2009-2010 of SEK135B and SEK65B, respectively, with its 2009 bond funding at SEK106B, approx SEK32B over original target. It expected to see considerably lower tax revenues.
Interestingly, it commented about the SEK and the Baltic region. It noted that the SEK currency was a an unrealistic level due to perceptions regarding crisis in Baltics. Fears over markets in the Baltic are exaggerated and added that the Poland was not in crisis and that the fundamentals of Poland remain strong. The zloty should strengthen in the medium term. || Ireland's PM commented that February unemployment was seen at 10.4% compared 9.2% in January.

- In currencies, the EUR/USD tested below the 1.25 level in late Asia for fresh 3-month lows but the pair was off its worst level a dealers covered euro short positioning ahead of the ECB policy meeting later this week. The break below 1.2500 overnight has potential downside momentum to test the 1.2330 Oct 2008 lows. || USD/JPY hit fresh 4-month highs above the 99 level. Dealers noting that the 100.00 area is where exporter offers and option congestion are slated to provide some initial resistance. The 200-day moving average at currently pegged around the 100.20 level. GBP/JPY was back testing its 100-day mvg avg at 139.79 and made a brief surge over 140.

- In fixed income, US Treasuries future prices fell, extending the worst losses in five years, on speculation the U.S. will announce plans tomorrow to sell $60B of debt next week as it borrows record amounts to spur the economy. Hampering the sentiment was an earlier Far east press report that China might use its reserves to buy oil in order to diversify away from treasuries. Bear steepening has pushed the German 2-10y yield spread to 192bps, its widest level since Feb 10th.
Eurozone perhiperals have outperformed Bunds, with the Italian 10y firming up to 155bps over Bunds, and the Spanish 10y at just 114pbs over Bunds. In the UK, a 30y weak auction has highlighted the pressure on longer parts of the UK yield curve. The short end continues to hold up in comparison, driving the UK yield curve towards its steepest levels on record. The UK sold £2.25B in new 30y Gilts, with the yield tail of 6.5 basis points higher than the average of 0.7bps in the previous three auctions of a similar maturity, and the largest tail at a UK auction since September 1995. In corporates, supply from a host of major European names is on the way with new issues from Cadbury, Roche and StatoilHydro in the works

- In energy, strength in NYMEX Crude futures overnight attributed to possible China stimulus package and reserve diversify. Earlier in Asia, the Japanese press reported that China might use its reserves to buy oil in order to diversify away from treasuries || PetroChina [PTR] Company official commented that it cut its2009 production targets by 10-20% at several fields but did not include Daqing or Changqing ||WSJ reporte that Venezuela planed to renegotiate contracts with oil-service companies. According to the country's Oil Minister and President of PDVSA, the company planned to cut its spending on oil-service contracts by 40%.

- Credit Crisis: Chinese Premier Wen may announce new stimulus measures tomorrow, adding to a CNY 4T spending plan as the government tries to revive growth in the world's third-biggest economy || Lloyds [ LLOY.UK] Reaffirmed that conversations regarding the APS with the UK government are proceeding


NOTES

- Dealers are noting that a "leadership crisis" seems to be brewing all around the globe, hampering confidence and translating into lower equity prices, although Chinese PM Wen's pending speech is keeping hope alive. Also China PMI manufacturing has surprised people, moving closer to the magic 50 level (suggesting growth). Australian GDP registered its first contraction since late 2000 and the outlook suggests some more short-term weakness. China's sovereign wealth fund investment chances in energy and commodities and possible at the expense of US Treasuries. BoJ Suda talks down Japan economic future, but puts positive outlook on China.

- Looking Ahead:

- 7:00 (US) MBA Mortgage Applications w/e Feb 27th: No expectations v -15.1 % prior

- 7:30 (US) Feb Challenger Job Cuts Y/Y: No expectations v 222.4%

- 8:15 (US) ADP Employment Change: -630k expected v -522k prior

- 9:00 (US) Dec PRX Composite 28dy Index: No expectations v 199.39 prior; Y/Y: No expectations v -21.59% prior

- 9:00 (US) Fed's Fisher speaks in Texas

- 10:00 (US) ISM Non-Manuf. Composite: 41.0 expected v 42.9 prior

- (UK) Feb HBOS House Prices M/M: -2.0% expected v 1.9% prior; 3M/Y: -17.8% expected v -17.2% prior

- 10:00 (US) Treasury Sec Geithner testifies before Senate panel