ECONOMIC DATA

- (GE) German March Import Price Index: -0.4% v -0.1%e; Y/Y: -7.1% v -6.5%e

- (GE) German May GFK Consumer Confidence Survey: 2.5 v 2.3e

- (CZ) Czech Apr Consumer & Business Confidence: -9.9 v -14.1 prior

- (IT) Italian Consumer Confidence: 104.9 v 99.8e; highest reading since Dec 2007

- (SW) Swedish Trade Balance: SEK8.1B v SEK9.5B prior

- (TT) Taiwan Mar Leading Indicator M/M: 1.5% v -0.5% prior; Coincident M/M: 0.7% v -3.6% prior

- (PD) Polish March Retail Sales M/M: 11.8% v 11.5%e, Y/Y:-0.8% v -0.8%e

- (PD) Polish March Unemployment Rate: 11.2% v 11.2%e

- (HK) Hong Kong March Trade Balance (HKD): -18.2B v -19.7Be; Exports Y/Y: -21.1% v -18.7%e; Imports Y/Y: -22.7% v -19.5%e

- (UK) March BBA Loans for House Purchase: 26.1K v 28.0K prior; off 25% y/y

- (UK) BOE Quarterly APF Report: Purchases £15.1B as of Mar 26th; Might take some time to observe full effects of Quantitative Easing (QE) purchases


SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

- European equity markets opened sharply to the downside as indicated by heavy pre-market weight. Exchanges opened low and quickly accelerated to losses of over 1% across the board.
Continuing the trend out of Asia, the fear of or willingness to use the Swine flu outbreak as a reason to sell led to heavy withdrawls from the airlines, travel, hospitality and hotel sectors. Leading movers to the downside on the FTSE100, CAC40 and DAX30 has been dominated by national flag carriers (BAY.UK, LHA.GE, and AF.FR) with British Airways trading as lows as 11% in early crosses. The sole outperforming sector in Europe was the broader pharma sector being led by Tamiflu maker, Roche (ROG.SZ) which traded as high at 6% to the positive side before paring those gains. Consistently dismal numbers out of European automaker Scania (SCVB.SW) just after the Euro open pushed that sector and its related suppliers to their session lows as the indexes continued their decline. By 3:30 markets had hit their collective lows and began a ninety minute rise off their lows. The FTSE100 recovered the best, trading as high as -50% by 5:00EST. Travel and Airlines remained on their lows but industrial and financials moved off their lows, while still trading broadly negative. Despite continued easing in the 3-month LIBOR, markets sharply paired their upward trend past 5:00EST following weak auction results out of Italy and further German leaks regarding the establishment of a 2-part bad bank model.

- Aviva [AV.UK] reported Q1 worldwide sales £10.3 (+5% y/y), IGD solvency surplus €2.5B, Q1 Net funded inflows of £1.9B. ||Merck [MRK.GE] Reports Q1 Net €56.7M v €186.8Me, Op profit €198M v €217Me, Rev €1.9B v €1.82Be, expects FY09 sales to flat to +5% y/y (implies €7.56-9.94B v €7.6Be) Core ROS +15% to 210% y/y. States: That while Merck's Pharmaceuticals business sector remains strong, the economic slowdown is having a considerable negative impact on the Chemicals business sector. || Siemens [SIE.GE] Firm is set to lower profit guidance on back of deeper than expected global slowdown -FT. Article notes that firm seeking to lower previous guidance of €8-8.5B target (€6B current analyst estimate). || Fortis [FORB.BE] Holder Ping An to reportedly vote against combination with BNP Paribas; wants return to original operating structure. Notes that any break up of company could destroy shareholder value. ||

- In speakers, the ECB's Noyer commented over the weekend that "big problems" exist in IMF estimates for banking losses. He noted that recent stress tests on French banks build confidence. || ECB's Liikanen commented that there were signs of global economic stabilization (from low levels).
He was cautious on any economic rebound for 2010, saying sluggish growth was likely due to continued deleveraging. Falling trade and Industrial Production coupled with rising unemployment having an adverse effect on global economy. He did note that International discussions in recent weeks have been 'encouraging' || France's Fin Min Lagarde reiterates that gov't did not share IMF's pessimism on global growth outlook. Governments are cautiously optimistic that the global economy has stopped worsening and entered a phase of stabilization. However, she stated that French Mar jobless rose around 60K to 70K || ECB, SNB's noted that their 1-week currency swap operations would continue until at least the end of July || BOE: Might take some time to observe full effects of Quantitative Easing (QE) purchases || Reportedly German Gov't reaches preliminary agreement on 2 bad bank models

- In currencies, risk aversion set in as the fragile global economic growth scenario could be adversely impacted by any flu pandemic. The swine flu that originated in Mexico last week has spread to other continents by early Monday. World Bank estimated back in 2008 that any potential flu pandemic could cost $3T and result in a nearly 5% drop in world gross domestic product. The World Bank has estimated that more than 70M people could die worldwide in a severe pandemic. The USD and JPY were the main benefactors on the risk aversion theme as equities and energy sold off in the session. EUR/USD hovered around the 1.3150 area for the majority of the session, down from the 1.3250 close seen in NY last Friday. EUR/JPY cross probing below the 127 handle, off over 80 pips from the Tokyo open. USD/JPY testing the 96.50 neighborhood, off 20 pips from its Asian opening levels. The EUR/CHF cross-tested its lowest level of 1.5039 since the SNB intervened in the pair back on Mar 12th. CAD and AUD were softer as NYMEX June Crude futures fell by over $2.50/barrel to probe below the $49

- In fixed income, trading has benefited from the risk averse sentiment amongst investors. In the first auctions of a supply heavy week, Germany sold €4.75B in 12 month Bubills and Italy sold €3B in 2011 Zero Coupon Bonds, with results for both slightly weaker than in preceding auctions . On top of this, Sweden announced a euro denominated 5y benchmark offering and Greece confirmed it would tap its 4.3% 3y Bonds later this week. Despite all of the Euro denominated supply, Bunds have outperformed Gilts and Treasuries ahead of an eventful afternoon, with the BoE looking to buy £3.5B in Gilts, followed by another round of NY Fed coupon purchases and the Treasury's $40B 2y Note Auction.

- In Energy: EU's Solana: Reiterates view that Iran's nuclear program is a grave concern. Expected Iran reply in coming days on nuclear issue. Comments that President Obama's approach to Iran as a "window of opportunity."


 NOTES

- Risk aversion and the potential impact of a global flu pandemic are the topic of conversation this morning. Oil was off almost $3/barrel on economic impact.

- Last week most government officials noted that the global economy was "getting worse more slowly" thus signs of stabilization. The Mexican flu situation (and the era of globalization) just reiterates how fragile any recovery would be. Thus risk aversion back on the front burner, as one believes it is premature to start pricing in an immediate economic recovery

- Various ECB members continue to talk rate cut in May and mull other non-standard measures. The question is where does the ECB see the floor on rates?

- Dealers noting that liquidity would be an issue as week winds on ahead of with May Day holidays in UK and Europe; coupled with the start of the Japanese Golden Week.

- Looking Ahead: US Corp earnings continue to roll out. Enterprise [EPD]; Corning [GLW]; Humana [HUM]; Qualcomm [QCOM]; and Verizon [VZ] expected before the NY equity open today

- (CL) Chile Central bank minutes

- 10:30 (US) Dallas Fed Manufacturing Activity: -46.0% expected v -49.0% prior

- 10:30 (IS) Israeli Base Rate Announcement: No change expected, current Base Rate is 0.50%

- 13:00 (US) Treasury's $40B 2y Note Auction