European Market Update: Risk aversion moves back into focus on continued global recession fears; JPY currency firms on repatriation flows ahead of fiscal-year end


ECONOMIC DATA

- (RU) Russian Central Bank: Gold/FX reserves at $380.5B v $384.3B w/w

- (FR) French Q4 Final Non Farm Payrolls: -0.7% v -0.6% prior

- (FR) French Feb Consumer Price Index: M/M: 0.4% v 0.2%e; Y/Y: 0.9% v 0.8%e; CPI Ex Tobacco Index: 117.59 v 117.51e

- (SP) Spain Feb CPI M/M: 0.0% v 0.1e; Y/Y: 0.7% v 0.7%e

- (SP) Spain Feb CPI Core: -0.1% v 0.1%e; Y/Y: 1.6% v 1.8%e

- (SP) Spain Feb CPI (EU Harmonized): 0.0% v 0.1%e; Y/Y: 0.7% v 0.7%e

- (HU) Hungarian Jan Preliminary Trade Balance: -€192M v -€80.0Me

- (SW) Swedish Feb CPI- Headline Rate M/M: 0.0% v -0.2%e;Y/Y: 0.9% v 0.7%e

- (SW) Swedish Feb CPI - Underlying Inflation M/M: 0.5% v 0.4%e; Y/Y: 1.9% v 1.8%e; CPI Level: 297.95 v 297.6e

- (IT) Italian Q4 Final GDP Q/Q: -1.9% v -1.8%e; Y/Y: -2.9% v -2.6%e

- ECB Mar Monthly Report: Economic risks are 'more balanced' but outlook remains uncertain.

- (UK) BOE Quarterly Inflation Survey: 1-year CPI expectations: 2.1% v 2.8% prior; lowest reading since May 2005

- (EU) Euro-Zone Jan PPI M/M: -0.5% v 0.5%e; Y/Y: -0.8% v -0.2%e


SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

- In equities, Roche [ROG.SZ] and Genentech [DNA] have reached a merger agreement at $95/shr, in a deal valued at $46.9B. Roche's Chairman commented that he was confident that most or all of Genentech's senior management will stay on after the merger and added that financing the deal was not an issue. || Carrefour [CA.FR] reported a 2008 net profit of €1.26B, well below estimates of €1.82B. Revenues were inline at €87B. The company said it is focusing on organic growth and expansion into growth markets, although it will limit its FY09 CAPEX spending at €2.5B. Net debts stood at €6.65B versus €7.36B y/y, with no refinancing needed until May 2010. The firm's CEO commented on the conference call that the company would seek to reinvent its hypermarket operations and would review non-profitable markets. || BMW [BMW.GE] reported a 2008 EBIT of €921M, below the €1.6B estimates, with a net profit of €330M only a fraction of estimates for €1.30B.
Revenues came in at €53.2B compared to €53.6B estimates. || Volkswagen [VOW.GE] reported a Q4 net profit of €955M, below consensus estimates of €996Me. Revenues were above forecasts at €28.4B. It raised the dividend to €1.90/share from €1.80/share y/y. The company's CEO reiterated that vehicle sales, revenue and earnings would decline in 2009 and that the year would be one of the most difficult in the company's history. || K+S [SDF.GE] reported a Q4 net of €226.4M, a bit ahead of expectations, but missed on revenues at €955.5M. It forecasted 2009 sales and earnings "significantly" below 2008 levels, but said it still expected to be profitable in 2010. || Swatch [UHR.SZ] reported final FY08 figures, with a net CHF838M inline with expectations. It maintained its dividend at CHF0.85/shr. The firm expects to see improvement in sales during the second part of the year. It remained cautious on the outlook for first 9 months of 2009. || Enel [ENEL.IT] Reported FY08 Net €5.29B in inline with estimates of €5.3B. revenues beat consensus with €61.2B above the €58.3B estimates. It confirmed it would raise €8.0B in capital under a rights issue, which is fully subscribed.
Expects 2009 results to be ahead of 2008. || Gea Group [G1A.GE] Reported Q4 Net profit of €23.4M below consensus of €28.5M. Revenues were slightly better at €1.44B versus €1.42B estimate. It did not see recovery in current economic environment but noted its Q2 current year order backlog supported earnings as a result of good margins on orders already received. Order intake in the first two months of 2009 was significantly better than the German mechanical engineering industry. || EDF Energiers Nouveles [EEN.FR] Announced new turbine acquisitions in North America and reached an Agreement with SkyPower to purchase the rights to 180 GE Turbines for Delivery in 2009. || William Morrison [MRW.UK] reported a FY08 net of £460M, slightly better than estimates. Revenues were in line at £14.5B. Like-for-like sales ex fuel were up 7.9%. It planned on building nine new stores in 2008-09, adding 350K feet of new retail space. || Cadbury [CBRY.UK] confirmed it would sell Schweppes Beverages business in Australia to Asahi Breweries for £550M in cash. Asahi says plan to complete the Schweppes deal by the end of April.

- In speakers, German Fin Min Steinbrueck commented in a newspaper interview that the EU is stable and that he does not expect any members to leave the union. || Germany's IFW Institute lowered its 2009 GDP forecast to -3.7% from -2.7% prior. It expects the ECB to lower interest rates to 0.5% from the current level of 1.50% by the summer 2009. || BoJ Gov Shirakawa said the BoJ was currently taking the most appropriate policy actions possible, calling the 0.1% rate the best policy path available at this time. Shirakawa insisted that maintaining market stability remains very important. || HKMA's Yam commented that the global financial market crisis was "far from over." He noted that the central bank has completed its review of special liquidity measures and would make an announcement on review by end of March. || The ECB's March Monthly Report mirrored the ECB press conference from last week. It noted that economic risks were more balanced but the outlook remained uncertain. The Inflation would remain well below the 2% ECB target for both 2009 and 2010 period and could go negative temporarily. The slower inflation reflected the severe economic slowdown taking place.

- In currencies, the focus has been on the yen-related pairs in the session. The JPY was firmer against major currency pairs as dealers noted that its strength was attributed to Japanese Fiscal year-end flows, which ends March 31st. Dealers reported over 10 yards of crosses being executed over the last 24-hours with 'more to go'. This repatriation process has weighed down the European components against the USD for the most part. EUR/USD tested the 1.2735 area after testing 1.2870 level in Asia while the GBP/USD pair retraced from its 1.39 session highs towards 1.3730. European currencies also hampered by recessionary affects. Italian Q4 GDP was revised down to -1.9% q/q from-1.8% prior and the German Labor ministry commented that it was possible for 3.7M jobless figure in 2009 if German GDP contracted by 3.5%.

- In fixed income, yield curves are back in bull flattening mode this morning with Government bonds firming up against a backdrop of weaker equities and renewed risk aversion. Traders are paying attention to the narrowing spreads between Bunds, Gilts and the 10y T-Note, with Bunds and 10y Gilts within a whisker of parity throughout the session, and the spread between the Bund and the 10y Note down to just 15bps. Italian debt has been under notable pressure after the weakest Y/Y GDP reading on record, and ahead of supply tomorrow. The Yield on the Italian 10y widened out to a record 276bps over the Bund. Focus now shifts to supply, after two successive weak long dated auctions the UK will look to sell £1.1B in 2032 linkers, followed later in the New York afternoon by the US Treasury's $11B 30y re-opening.

- In Energy, an Exxon [XOM] Senior VP said the company remains committed to its investment strategy and continues to see long-term demand growth. || Shell [RDSA.UK] named Simon Henry as new CFO, effective May 1st, 2009

- Credit Crisis: Dubai Governor commented that he was 'Comfortable' with discussions over April loan refinancing. Dubai need to refinance $3.2B next month with $2.2B on DEWA (Electricity & Water Authority) and $1B on Dubai Airport


NOTES

- Risk aversion moving back into focus again as European auto makers issued cautious comments ahead of the NY morning.

- UK press noted that its house prices could fall another 55% and commented that there was a high probability the UK could be bankrupt.

- The World Bank's Zoellick confirmed speculation that the global economy to contract between 1-2% in 2009. and noted that trade would exhibit its largest decline in 80 years.

- Note that yesterday a newswire erroneously released a statement noting that the Swiss National Bank had cut by 25 bps, prompting dealers to wonder whether the decision had been leaked early in some way. Consensus is still for a 25 bp cut from the 0.50% target, with growth revised downward and some mention of policy alternatives to counter unwarranted CHF strength.

- Looking Ahead:

- 7:00 (GE) German Jan Industrial Production M/M: -3.0% expected v -4.6% prior; Y/Y: -15.5% expected v -12.0% prior

- 8:30 (US) Feb Advance Retail Sales: -0.5% expected v 1.0% prior; Retail Sales Less Autos : -0.1% expected v 0.9% prior

- 8:30 (US) Initial Jobless Claims w/e Mar 7th: 644k expected v 639k prior; Continuing Claims w/e Feb 28th: 5.14M expected v 5.106M prior

- 9:00 (SZ) Swiss National Bank Interest Rate Decision: 25bps cut to 0.25% expected; current 3-month CHF-Libor Target is 0.50%

- 10:00 (US) Jan Business Inventories: -1.0% expected v -1.3% prior

- 13:00 (US) Treasury to sell $11B 30 Year Bonds in re-opening