European Market Update: USD receives verbal support as the key reserve currency from European, Japanese officials; BOE says Q1 GDP contraction could equals Q4 decline of 1.6%


ECONOMIC DATA

- (SP) Reportedly Spain Q1 Existing Home prices Y/Y declined by around 5% v -3.0%e (official release set for mar 31st)

- (GE) German Import Price Index M/M: -0.5% v -0.4%e; Y/Y: -5.4% v -6.0%e

- (FR) French Q4 Final GDP Q/Q: -1.1% v -1.2%e; Y/Y: -0.9% v -1.0%e

- (IT) Italian March Retailers Confidence General: 91.7 v 94.7 prior; Services Survey: -27 v -32 prior

- (SW) Swedish Feb Retail Sales M/M: -0.6% v -0.3%e; Y/Y: -1.3% v 0.0%e

- (GE) March CPI- Hesse M/M: -0.2 v 0.6%e; Y/Y: 0.2% v 0.9% prior

- (GE) March CPI - Brandenburg M/M: -0.3% v 0.6% prior; Y/Y: 0.2% v 0.8% prior

- (IT) Jan Industrial Orders M/M: -2.1% v -4.5%e; Y/Y: -31.3% v -21.8%e

- (IT) Jan Industrial Sales M/M: -2.1% v -2.0% prior; Y/Y: -19.9% v -10.3% prior

- (UK) Q4 Final GDP Q/Q: -1.6% v -1.5%e; Y/Y: -2.0% v -1.9%e

- (UK) Q4 Current Account: -£7.6B v -£5.6Be

- (EU) Jan Industrial New Orders M/M:-3.4% v -5.6%e; Y/Y: -34.1% v -28.4%e (largest YoY decline on record)

- (GE) March CPI- Saxony M/M: -0.2% v 0.5% prior; Y/Y; 0.4% v 1.1% prior


SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

- In equities, there were reports that the UK's FSA is satisfied Barclays [BARC.UK] does not need new capital following stress testing. || BAE Systems [BA.UK] has been awarded a £300M contract to build 60 armored earth moving vehicles for Royal engineers. The London Times reported that the route-clearing vehicles, called Terriers, will be built at BAE's Newcastle factory. || Dairy Crest [DCG.UK] provided a trading statement: Sold 49% stake in Yoplait for £63.5M. The dairy/food company stated that the joint venture agreement with the Yoplait group contained provisions for termination in February 2012. || Scottish and Southern [SSE.UK] confirmed that it expected a modest increase in Adj Pretax affirms dividend "at least" at 66p/shr. Note analysts are looking for a final dividend of 46.20p/share. ||Air France [AF.FR] confirmed it expects a FY operating loss of €200M v profit €142.9Me and that it saw FY revenue down 6% in constant currency. The carrier expects further operating losses in FY2009/2010 and stated that it has seen continued reductions in cargo and passenger numbers since the beginning of 2009. Air France expects further declines in March activity Note: Current analyst estimates for FY09 are for a Net Loss of €159M, Rev €24.4B. || Retirement home operator Korian [KORI.FR] reported its Final FY08 Net €18M v €27.7Me, Op profit €67.7M v €75.3Me, and EBITDA €93.5M v €92.6Me. Reminder: On Feb 10, Reports Q4 Rev €211.0M v €185.1M y/y, FY08 Rev €781.8M v €782.3Me. || The CEO of Siemens [SIE.GE] reaffirmed the group's FY09 Op Profit guidance at €8.0-8.5B v €6.4Be (initial guidance given on Nov 27, 2008). He commented that Q2 operating profit at its three main sectors will grow in a double-digit-percentage range y/y and that Q2 orders are down significantly from €23.4B in 2008. Further, Siemens expects margins in the company's energy sector to double an operating profit y/y with the Healthcare sector showing some weakness especially in the U.S., which could spill over to Europe. || For Daimler [DAI.GE], there were reports that a Mercedes facility in South Africa would be shut for eight weeks. The plant to be closed for four weeks in April and May. These comments were reported to come from spokesperson Van der Laan cited in business report. || Commerzbank [CBK.GE] reiterated that no dividend will be paid in 2009 and 2010 on SOFFIN, German bank will seek to raise funds totaling €20B this year. The bank stated that the acquisition of Dresdner to aide in banks expansion projects and that its current business model remains viable despite market turmoil. CBK sees loan loss provision will rising in 2009 and expects higher operating expenses in FY09. CBK also stated that it sees margins in banking industry to continue to come under threat. || Jenoptik [JEN.GE] reports its Q4 Net profit at €6.4M v €4.9M expected and rev at €150.9M v €149.0M expected. Jenoptik also provided its FY08 Rev at €548.3M v the €521.7M reported y/y. The firm expects Net and Rev to decline in 2009 y/y. ||Banca Monte Paschi [BMPS.IT] reported its FY08 Net at €953M v €985M expected and confirmed the banking group will apply for €1.9B govt aid. The Italian bank seeks to repay the Treasury by 2013 and see its FY08 8 Tier 1 ratio at 7.1% following govt bond purchase. Banca Monte Paschi proposed a FY08 div of €0.013/shr v €0.02e. || For OZ Minerals [OZL.AU], Australia's Treasurer Swan stated that he would reject China's Minmetals bid for OZ Minerals if it includes Prominent Hill mine and that talks between FIRB and Minmetals continue on other assets. Swan noted the govt is willing to consider alternative proposals and has informed Minmetals of bid restriction. Swan cites national security grounds as Prominent Hill copper and gold mine is in weapons testing range. Note: Both Rio Tinto and Fortescue Metals are awaiting decisions from Australia's FIRB (Foreign Investment Review Board) on Chinese Foreign investment.

- Speakers: German Fin Min Steinbruek stated that too much debt could have a negative impact on capital markets and that Germany has big interest in the credibility of marinating stability and growth pact. The Euro would be threatened if stability pact was not taken seriously. He also reiterated that heavy public borrowing could cause crowding out ||China SAFE increases overseas short-term FX debt quota for financial companies to$32.9B (+12% from prior)|| Swedish finance minister: Economic crisis is problem for trade oriented nations. He noted that over 20 European states could break the 3% limit under Maastricht pact during the 2010 period. || Japan Senior Fin Min Official commented that he did not expect the upcoming G-20 summit to discuss USD as key currency. He noted that G20 would rather discuss the global economy, financial markets, financial regulation, IMF reform, and protectionism|| BOE Dale commented that the process of quantitative easing would not work unless banks begin to lend again. BoE's Dale saw Q1 GDP similar to the Q4 contraction of 1.6%, Near term prospects are bleak but substantial economc stimulus is on the way, BoE considering entering additional corporate credit markets || Polish Central banker Filar: Should pause the rate cuts in April and May period || Russian Central Banker Ulyukayev noted that the 2009 Russian Economy could contract by more than the 2.2% forecast. He also noted that the central bank was not planning to officially narrow ruble band but may intervene to limit volatility. The Ruble was likely to strengthen against the basket. He also expected 2008 Net capital outflows less than $83B v prior $100B to $110B range provided by the Gov't || German Q1 new car market increased by double digit rate - VDIK || India Government borrowing needs to put pressure on interest rates - Chandrasekh || Riksbank's Wickman-Parak commented that the Swedish Central bank would use all tools necessary; Bank has more than just interest rates on hand || China's SAFE increased its overseas short-term FX debt quota for financial companies to $32.9B, which is 12% higher its from prior calculation. || BOE designate member Miles: Monetary and fiscal stance set to be highly stimulative.

- In currencies, the USD gained against the European pairs after several constructive comments from government officials. The OECD's stated that the USD remained the reserve currency “par excellence”. A senior Japanese MOF official stated that the USD reserve currency issue unlikely to be brought up at G20 summit ( Reportedly a Russian central banker made a similar comment). The EUR/USD moved from the 1.3590 level to break below an hourly support line at the 1.3480 area. It was reported earlier in the week that the 1.3400 level had some “large” euro sell stop orders building below. That 1.34 level was a pause point during the FED's quantitative easing last week.

- The CHF was softer throughout the European morning on chatter that the KOF leading indicator data would be weaker than current forecasts. USD/CHF above the 1.13 level ahead of the NY morning.
EUR/CHF retested the 1.53 handle.

- Fixed income: Month end buying and short covering in thin volumes has produced a modest rally in Bunds this morning, with the German yield curve experiencing some corrective steepening. Gilts gapped higher and have moved lower since whilst US treasuries have floated around the unchanged mark.

- In Energy: Venezuela stated that OPEC could request an additional production cut at the next meeting if necessary; Sees oil price floor at $30-40/barrel . A fresh round of OPEC production cuts could be needed by May || Gazprom [GAZP.RU] Reported Q4 Net loss RUB259.9B compared to a profit RUB147.2B q/q. the Loss for the quarter was attributed to sharp decline in shares of GazpromNeft ||

- Geopolitical: Dealers taking note of a fresh warning from US officials that Osama Bin Laden and Al Qaeda are reportedly planning new attacks on the US. || Reportedly Russian ministry advises North Korea to refrain from missile launch || Iran's Foreign Min stated it did not plans to meet US officials in Moscow.


NOTES

- As noted in the currency section, the USD received some verbal support from around the world as the reserve currency of choice.

- After China's PBoC declared that the 'worst' was over for its recession, Its Feb Industrial profits were down 37.3% y/y. Japan continues to display dismal data as its Feb Retail Sales declined by 5.8% worse than the 3.0% expected.

- Dealers taking note of a fresh warning from US officials that Osama Bin Laden and Al Qaeda are reportedly planning new attacks on the US.

- China VP Wang: China roadmap from upcoming G20 for economic coordination in times of hardship. He noted that China will purchase bonds issued from the IMF.

- ECB explores expansion of economic armory.

- Looking Ahead:

- 6:30 (SZ) March KOF Swiss Leading Indicator: -1.55 expected v -1.41 prior

- 7:00 (GE) March CPI- Bavaria M/M: 0.6% prior; Y/Y: 1.4% prior

- 7:45 (UK) BoE's Tucker speaks in London

- 8:30 (US) Feb Personal Income (last 0.4%), Feb Personal Spending (last 0.6%), Feb PCE Deflator y/y (last 0.7%), Feb PCE Core (last m/m 0.1%, y/y 1.6%)

10:00 (US) March Final U. of Michigan Confidence (last 56.6)

- (GE) March Preliminary CPI M/M: 0.1% expected v 0.6% prior; Y/Y; 0.7% expected v 1.0% prior; EU Harmonized M/M: 0.1% expected v 0.7% prior; Y/Y: expected v 1.0% prior

- (GE) March CPI - Baden Wuettemberg M/M: % v 0.7% prior, Y/Y: % v 1.3% prior