European Market Update: Renewed concerns over financial sector weighs on stocks; risk aversion continues to have USD, JPY firm against other majors


ECONOMIC DATA

- (SZ) UBS Consumption Indicator: 0.985 v 0.887 prior

- (FR) French Consumer Confidence Indicator: -41 v -43e

- (FR) French March Housing Starts: -33.8% v -22.1% prior; Housing Permits: -17.6% v -14.8% prior

- (FR) French Apr Business Survey of Overall Demand: -60 v -49 prior

- (KS) South Korean Central Bank Minutes: Apr 8th decision to hold rates steady at 2.0% was made by consensus. One member sought 25bps cut

- (SP) Spanish Feb Mortgages on Houses Y/Y: -36.7% v -43.5% prior; Mortgages - Capital Loaned Y/Y: -37.2% v -42.4% prior

- (HU) Hungarian March Unemployment Rate: 9.7% v 9.5%e

- (IT) Italian Apr Business Confidence: 64.2 v 61.2e;

- (IT) Italian Retailers' Confidence: 95.4 v 91.7 prior; Services Survey: -19 v -27 prior

- (SW) Swedish March PPI M/M: 1.0% v 0.3%e; Y/Y: 4.8% v 4.0%e

- (SW) Swedish March Retail Sales M/M: -0.1% v-0.2%e, Y/Y: -1.7% v -1.7%e

- (GE) German Apr CPI - Saxony M/M: 0.1% v -0.2% prior; Y/Y: 0.7% v 0.4% prior

- (GE) German Apr CPI- Brandenburg M/M: 0.1% v -0.3% prior; Y/Y: 0.5% v 0.2% prior

- (GE) German Apr CPI - Hesse M/M: -0.1% v -0.2% prior; Y/Y: 0.3% v 0.2% prior

- (GE) German Apr CPI - North Rhine Westhpalia M/M: 0.2% v -0.1% prior; Y/Y: 0.8% v 0.3% prior

- (GE) German Apr CPI - Bavaria M/M: 0.1% v -0.2% prior Y/Y; 1.0% v 0.8% prior

- (IT) Italian Retail Sales M/M: -0.7% v -0.2%e; Y/Y: -3.1% v -1.3%e

- (IT) Italian Trade Balance Non-EU:€176.0M v -€733M prior

- (UK) Apr CBI Distributive Trades: +3 v -44 prior; Expected Sales: -15 v -42 prior


SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

- European equity markets opened to the downside following heavy weight in the pre-market session, continuing losses posted on Monday. Better than expected financial sector earnings out of Deutsche Bank [DBK.GE] and Spanish BBVA [BBVA.SP] could not shake two key broad sheet articles in the FT (stating that UK tier 1 banks would be forced to hold a larger than industry average cap reserve) and the WSJ (stating that following stress test studies, Bank of America [BAC] and Citi [C] will need to raise further capital). Additional concerns regarding the second break up attempt of Fortis [FORB.BE] added further weight to the underperforming financial sector. Swine flu related fears continued across the board affecting shippers, hospitality, airlines and hotels to the downside while pharma's again posted gains (muted gains in comparison to yesterday's moves). By 3:45EST, weakness in the energy complex and strong USD moves confirmed the risk aversion trend as all three major exchanges traded below the -2% mark. Disappointing earnings out of US Steel [X] in the NY afternoon followed through into Asia and the European session with ArcelorMital [MT.NV] and ThyssenKrupp [TKA.GE] trading lower. German state CPI data for the month of April coming in above m/m levels across the board did little to lift markets and Daimlers [DAI.GE] disappointing earnings past 4:30EST further increased the equity slide.

- In specific stocks, Deutsche Bank [DBK.GE] Reports Q1 Net €1.18Bv €824.4Me, Rev €7.21B v €6.05Be, ROE 22.6% v -2.7% y/y, Tier 1 cap ratio 10.2% v 10.1% q/q, Loan loss provisions €526M v €402Me, CDO subprime exposure (Trading) €428M v €485M q/q, Corporate and Investment Bank Rev €4.2B v €1.5B y/y. ||Daimler [DAI.GE] Reports Q1 net loss -€1.29B v loss -€584Me, Rev €18.7B v €18.46Be; Says Q2 earnings will be "significantly negative," Q1 EBIT loss €1.43B v loss €1.08Be, Q1 Mercedes unit EBIT loss €1.12B, Q1 Trucks unit EBIT loss €142M, Q1 Financial services unit EBIT loss €167M, Q1 unit sales -34% y/y at 332K units. ||BP [BP.UK] Reports Q1 Net $2.56B v $2.21Be, Rev $48.1B v $47.2B, declares quarterly dividend of $0.14/shr v 0.1396/shr previous, Q1 Financing costs stood at $368M v $246M y/y, Q1 net cash held from continued operations at $5.6B v $10.9B, Corporate debt at $26.7B. ||Vestas Wind Systems [VWS.DC] Reports Q1 Net profit €56M v €49.7Me, EBIT €76M v €65Me, Rev €1.05B v €1.03Be to offer up to 18.5M new shares (about 10% of shares outstanding). Reaffirms FY09 Rev €7.2B, op profit margin of 11-13%, to cut capacity in Northern Europe while it continues to expand in US and China, cutting 1,900 jobs mainly in UK and Denmark (about 9% of workforce). ||Air Liquide[AI.FR] Reports Q1 Rev €2.99B v €3.09Be; Guides FY09 net income and rev to be close to year-ago levels, Q1 Gas and services rev at €2.55B v €2.66B y/y. || Carrefour [CA.FR] Planning to sell stakes in its property unit; seeks to raise €1B from sale - La Tribune. To sell property stakes to institutions, to sell property tranches of €200-500M.

- In speakers, the ECB's Wellink commented that China's move to diversify into gold was a positive development. He noted that he was not surprised by Chinese purchases of gold|| UK Treasury Official reiterated the view that a significant depreciation of GBP would benefit the UK GDP pickup from its doldrums. He expected significant rebalancing of UK economy. He noted that recent UK data was sending out mixed messages. The sharp decline in Q1 output was expected but pleased by the increase in retail sales. The official noted that the pace of economic decline would slow after Q1 || France Fin Min Lagarde: World at "bottom of recession", deflation risk may have passed || Philippine Central Bank: To consider additional measures to ease monetary policy to stimulate economy || Bank of Korea Minutes: Apr 8th Decision to leave rates unchanged at 2.0% made by consensus, one member dissented || Czech Central Banker Singer commented that its 2009 GDP was seen contracting by at least 2%. He noted that at this time he was undecided on upcoming vote on interest rates but that the Central bank outlook would view darker side of economy. Czech debt refinancing sentiment is improving ||

- In Currencies: Continued risk aversion theme strengthening USD, JPY against major currencies for the second straight session. First was the concern over the economic impact of a potential swine flu pandemic. Today dealers cited press reports that banks need more capital for the renewed aversion. EUR/USD tested below the 1.30 handle in Asia and hovered near that level for the majority of the European morning. Key support seen at the 1.2900, which was where Far East central banks bought Euros last week. The USD/JPY moved back to a 95 handle, which has been a historical pivot area. EUR/JPY broke below key support of 126.00 to gain downside technical momentum. The pair tested 124.36 before consolidating.

- Commodity-related currencies were heavy in the session as renewed financial market concerns weighed upon the demand for energy-related products. NYMEX crude oil was off almost $1.50 in its electronic session to test $48.70 level. AUD/USD tested below the 0.70 for the first time in a week. USD/CAD was grinding back above the 1.22 handle.

-In fixed income: Despite the onset of supply fixed income remains well bid in a climate of risk aversion, with investors spooked by the spread of swine flu and concerned over financial institutions on both sides of the atlantic. The Netherlands sold €1.3B in 2010, 2018 and 2029 DSL's Italy sold €1.9B in 2019 and 2023 inflation linked bonds and Sweden set the side on its upcoming Euro denominated issue at €4B. Gilts have been buoyed by a strong auction result, with the DMO selling £3B in 2022 Gilts in an auction covered over 2 times.


NOTES

- Risk aversion maintaining a foothold of dominant trading themes.

- WSJ: Fed regulators advise Citi and Bank of America to raise more capital based on early "stress test" results (see our 00:01 headline)

- UK's largest banks may have to hold more capital than the sector average under a plan that Chancellor Darling is expected to disclose in May - FT (see our 21:43 headline)

- Deutsche Bank [DBK.GE] beats estimates helped by trading revenues; returns to profit; Q2 earnings will be "significantly negative"

- British Petroleum again cuts its 2009 CAPEX by $2B to $20B

- Germany's Daimler endures its first back-to-back quarterly losses in a decade

- IMF says China 2009 GDP target of 8% is possible as the country's stimulus package "had been implemented very successfully

- The question is whether mexico would tap its $47B credit line with the IMF after the swine flu outbreak

- Looking Ahead: Key US earnings continue to stream in: Before the open today we expect Bristoal Myers [BMY]; Coventry [CVH]; Fresh Del Monte [FDP]; Jacobs Engineering [JEC]; Mcgraw Hill [MHP]; Office Depot [ODP]; Pfizer [PFE]; Valero Energy [VLO]

- 9:00 (US) Feb S&P/CS Home Price Index (last 146.4) Composite-20 y/y (last -18.97%)

- 10:00 (US) April Consumer Confidence (last 26), April Richmond Fed Manufacturing Index (last -20)

- (GE) German Apr CPI - Baden-Wuettemburg M/M: No estimate v -0.3% prior; Y/Y: No estimate v 0.5% prior

- (GE) German Apr Prelim CPI M/M: 0.1% expected v -0.1% prior; Y/Y: 0.8% expected v 0.5% prior

- (GE) German Apr Prelim CPI - EU Harmonized M/M: 0.1% expected v -0.1% prior; Y/Y: 0.8% expected v 0.4% prior

- 13:00 (US) Treasury to sell $35B 5y Notes