European Market Update: Safe Haven theme unfolds; World Bank sees global 2009 GDP and trade to contract for first time since World War II (1945)


ECONOMIC DATA

- (JP) Japan Feb Corporate Bankruptcies y/y: 10.3% v 15.8% prior

- (JP) Feb Eco Watchers Current: 19.4 v 17.3e; Outlook: 26.5 v 22.1 prior

- (SZ) Feb Swiss Unemployment rate: 3.4% v 3.4%e; Unemployment Rate SA: 3.1% v 3.1%e

- (FR) Feb Bank of France Business Sentiment: 70 v 68e

- (CZ) Feb Czech Trade Balance (CZK): 3.5B v 3.5Be

- (CZ) Feb Czech Unemployment Rate: 7.4% v 7.0%e

- (CZ) Feb Czech CPI M/M: 0.1% v 0.2%e; Y/Y: 2.0% v 2.1%e

- (TU) Jan Turkish Industrial Production Y/Y: -21.3% v -19.0%e

- (EU) Mar Euro-Zone Sentix Investor Confidence: -42.7 v -38.0e


SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

- In equities, Swiss Re [RUKN.SZ] Chairman Peter Forstmoser plans to resign, effective May 1. || Credit Suisse [CSGN.SZ] appointed Hans-Ulrich Doerig as its new chairman and president, effective April 24. || Arch Coal announced it would purchase Rio Tinto [RIO.UK] Jacobs Ranch unit in Wyoming for $761M. The deal includes 381M tons of coal reserves. || Lloyds [LLOY.UK] has confirmed that it will participate in the UK's asset protection program. The banks says it will insure about £260B worth of assets via the APS, disclosing that 83% of assets come from the HBOS legacy book and the rest are from Lloyd's TSB book. In addition, it will replace £4B of government preference shares with new ordinary shares to be offered to existing shareholders. If shareholders do not buy any shares, the UK will own about 65% of the bank, while in the event of full conversion of "B" shares government would own up to 77% of bank. Lloyds will pay a £15.6B fee to the UK Treasury in order to participate in the APS, which should boost its core tier 1 ratio to 14.6% from 6.4% and reduce risk weighted assets by £194B, or about 39%. It has also promised to increase lending by £14B in next 12 months. || Barclays [BARC.UK] has begun talks with the UK Treasury about possibly participating in the APS.
According to the Sunday Times, the talks are expected to begin this week in a more formal setting. A related report in the Sunday Express said that Barclays is initially looking to place assets worth up to £60B into the asset-protection plan. The Telegraph added that Barclays was expected to hold talks with the FSA over the stress-testing of a number of loan portfolios to determine if the bank needs to participate in the asset protection plan. || Cookson Group [CKSN.UK] reported a 2008 pretax of £176.2M, ahead of expectations. Revenues came in at £2.2B, in line with expectations of £2.19B. The company said 2008 trading profits were £216.3M, up 11% y/y. Additionally Cookson announced that it would be suspending "top-ups" in expanding CAPEX and dividend plans (seeking to save £40M). || Petrofac [PFC.UK] reported a 2008 net of $265M, in line with analysts' expectations, an EBITDA of $419.0M, ahead of the expected $381.7M, and revenues of $3.3B, in line with expectations. Petrofac noted that it is well-positioned to extend its strong growth in 2009 and beyond. It set its full year dividend at 16.66p/shr, up 55% y/y. || The FT reported that EADS [EAD.FR] may report 2008 revenues of €43B, just ahead of the consensus view of €41.4B. || BNP confirmed that it has revised its agreement to buy Fortis [FORB.BE] from the Belgian government. According to BNP, the deal will be accretive by as early as 2010 and that a segregation of riskiest structured loan assets will take place. BNP stated that its Tier 1 rato will remain stable after the transaction. Following the deal, the merged group will have a deposit base of more than €540B. The merged entity will have a loan to deposit ratio of 120%, AUM of more than €660B. The government will retain a 25% stake in Fortis Bank and Fortis Holding will maintain 75% of the insurance unit. BNP will pay €2.88B in stock for Fortis bank and an additional €1.38B of the insurance unit share. Also under the new agreement, the Belgian government will provide €740M of equity funding to a company created to split off €11.4B of risk assets into a separate entity, BNP will contribute €200M to the entity and Fortis will provide €760M and €9.7B in debt funding. Also as part of the agreement to split off Fortis' risky assets, Belgium will provide a €4.4B guarantee and BNP obtained a €1.5B state guarantee on losses exceeding €3.5B on the structured credit holdings. According to the Belgian Central Bank the structured credit investments that will be held in the separate entity have been marked down to about 58% of par value. || Swedbank [SWEDA.SW] cut is dividend to zero from a previous dividend proposal of SEK4.50/shr. In addition, the bank will not pay a dividend on ordinary or preference shares. It sees decision adding 0.4% to its capital ratio (15.2% from 14.8%) and save SEK2.9B. It also announced that Folsam to take 90M share stake in firm (14.6%) and that AB Svensk to take 25.2M share stake in firm (3.3%).

- In speakers, the ECB's Stark admitted he is unable to predict when the global economic crisis will end, noting that the Euro Zone would likely experience negative growth during all quarters of 2009 in what amounts to the deepest downturn since the end of World War II. Unemployment could get worse in Europe, according to Stark, who also noted that the size and pace of interest rate cuts enacted since October has been unprecedented. || The ECB's Nowotny stated that the ECB was discussing non-standard measures but nothing final has been decided at this time but said it was too soon to predict potential action at the ECB's April policy meeting. Nowotny said there is no need for to undertake additional Eastern European liquidity measures, accept collateral in Eastern European currency markets or speed up ERM II entry. Nowotny observed that the GDP rate in many Eastern European countries exceeds the Euro Zone's growth rate. || In China, PBoC Vice Chairman Yi commented that the bank's foreign reserve policy remains unchanged, and is still focused on safety and liquidity. He reiterated his position that the current fiscal stimulus package is sufficient, sound and effective. Yi said February loan growth was still strong, although exports were slowing. He noted that China has to focus on developing domestic demand. || The Argentine Central Bank Governor said they are observing massive capital outflows from emerging markets, including Latin America.
There are big strains on Eastern European banking balance sheets. || The SNB Chief Economist stated that the Swiss economy had deteriorated dramatically over the last year but there were no evidence of a credit crunch in Switzerland. || A Polish Central Bank Governor reiterated his view that the zloty is substantially undervalued. The official said the central bank would expand its repo operations to six months and insisted he still expects positive economic growth in Poland in 2009. || Japanese Finance Minister Sugimoto stated that the government would continue observing stock and FX markets closely. He added that the Japanese economy was facing a rapid slowdown. In remarks to reporters later in the session, Japanese PM Aso commented that the government would not intervene in equity markets.

- In currencies, risk aversion and safe-haven buying helped the dollar firm up against the major pairs while equities got pummeled by yet another shot of fear about the global economic outlook.
This time around the bad news came from the World Bank, which published a forecast over the weekend that sees the global economy and the volume of global trade contracting in 2009 for the first time since World War II. Sterling saw broad-based selling pressure as its 10-year Gilt fell below the 3.0% level for fresh all-time lows. GBP/USD tested below 1.40 while EUR/GBP was back above the 0.90handle. EUR/USD was off a 100 pips from its Tokyo open to test 1.2600. || Dealers noting of possible 'intervention threat" by Hungarian Central Bank was very possible. The Hungarian Central Bank stated over the weekend planned to start converting Euros on open market and added it was "ready to use all monetary tools"

- Fixed income: Gilts have again outperformed Bunds and UST's, with the June Contact currently at fresh highs above the 125 handle, and the 10y cash yield moving below 3.00% for all time lows. June Bunds have also tested new contract highs at 125.64. Traders are paying attention to narrowing spreads with Bunds just 6bps cheaper than the 10y Note, and the 10y Gilt just 5bps cheaper than the Bund, the latter spread at its lowest level since October 2002. In corporates, GE Capital will reportedly look to price a USD denominated benchmark offering this week, backed by the US's Temporary Liquidity Guarantee Program

- In Energy: OPEC Sec General El Badri: stated that OPEC might need to cut an additional 800K bpd from it production and noted that such cuts would depend on compliance rates. He expected to continue to see downward pressure on oil prices and added that the current price level was not acceptable but is at least stable || Statoil [STL.NO] Announced oil and gas discovery in North Sea wildcat well || Chevron [CVX] FT article noted that company would commence a testing production technique to unlock more Middle East reserves. Article noted that the technique, designed to produce heavy oil that cannot be extracted using conventional methods, will be used in the “partitioned neutral zone” between Saudi Arabia and Kuwait.


NOTES

US clocks moved ahead one hour over the weekend

- World Bank predicts that the global economy to contract for first time since WW2. Thus risk aversion and safe haven play weighing upon equities. Nikkei 225 Index closes at its lowest level since Q4 1982. Japan registered its first current account deficit in 13 years,

- The theme of protectionism is gaining ground. The FT reported that Bank of America is to cancel job offers to foreign graduates of US business schools.

-Senator McCain and Shelby commented that large banks can be allowed to fail.

- - Looking Ahead:

- 7:00 (BR) Brazil Feb FGV Inflation IGP-DI: % v 0.09%e

- 8:15 (CA) Feb Canada Housing Starts: K v 145.0Ke

- 11:00 (MX) Feb Mexico Consumer Prices M/M: % v 0.22%e; Y/Y: % v 6.20%e; CPI Core M/M: % v 0.46%e