European Market Update: Bond yields rise sharply in session; German Fin Min noted that there could be a crowding out effect due to increased gov't borrowing


ECONOMIC DATA

- (IC) Icelandic Central Bank cuts by 250bps to 13.00%; More than the 150bps expected

- (FR) French Mar Trade Balance: -€4.9B v -€3.9Be

- (CZ) Czech Mar Trade Balance: CZK23.4B v CZK7.0Be

- (HU) Hungary Mar Preliminary Industrial Output M/M: 4.3% v -4.1% prior; Y/Y: -19.6% v -23.2%e

- (HU) Hungary Trade Balance: HUF492.8M v HUF285.0Me

- (SZ) CPI Apr CPI M/M: 0.9% v 0.6%e, Y/Y: -0.3% v -0.6%e

- (SW) Swedish Mar Industrial Production M/M: % v -2.0%e, Y/Y: % v -21.8%e

- (SW) Swedish Mar Industrial Orders M/M: 0.4% v -3.4%e, Y/Y: -20.0% v -30.0%e

- (UK) New car registrations for April Y/Y -24% v -30.5 prior -SMMT

- (RU) Russia Gold and Forex Reserves w/e May 1st: $385.9B v $380.6B prior

- (GE) German Factory Orders M/M: 3.3% v -1.0%e, Y/Y: -26.7% v -35.8%e


SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

- In a heavy corporate news day, European equities took their momentum from a strong NY session that saw continued leaks regarding stress test results and potential cap raises in US banks. Strength moved through the Asian session and mixed earnings reports out of Europe could not subdue a strong pre-market with futures trading well in the green. Earnings out of Europe included disappointing figures from SocGen [GLE.FR] with a net negative figure, Deutsche Telecom [DTE.GE] and Unilever [UNA.NV] reporting below expectations. Trading statements out of Barclays [BARC.UK], Anheuser-Busch InBev [ABI.BE], Old Mutual [OML.UK], Bilfinger Berger [GBF.GE] and SwissRe [RUKN.VX] ahead of expectations buoyed markets with all three main exchanges opening in positive territory. Within 30min of trading, the FTSE, CAC and DAX broke the +1% level as secondary European markets all hit multi-month highs (Russian MICEX above 1,00 for first time since Oct 2, 2008). Strength in markets was meet with equal strength in oil in its electronic trading, moving well above the $57/bbl level. Past 4:00EST, market continued to trek higher, Unilever, shaking off Western European sales declines, led strength in the consumer/retail sector while market chatter that Commerzbank [CBK.GE] would receive EU approval for its second round of German aide pushed DAX listed financials higher. Just before 5:00EST Iceland kicked off the first of four European rate decisions cutting its prime rate more than expected to 13% (cut by 250BPS). Markets slowed their accelerations by 5:30EST and set themselves for rate decisions out of the ECB, BoE and Czech Central Bank. At the time of writing, equity markets were all well within their top 1/3 of the trading range up over 1.5% to the positive side.

- In individual stocks, Soc Gen [GLE.FR] Reports Q1 Net loss €278M v profit €381Me, Rev €4.91B v €5.6Be, Tier 1 ratio 8.7%, Core Teir 1 ratio 6.5%, Q1 loan growth +7.3% y/y, Q1 Writedowns -€1.51B, incl monolines and CDO/CLO writedowns of -€866M, Provision for losses €1.35B v €598M y/y. || Barclays [BARC.UK] Provides interim management statement: Q1 Net £826M v £736M (+12%) y/y, Q1 Gross writedowns £2.6B. Including the sale of iShares, Barclays would have reported an estimated Equity Tier 1 ratio of 7.2% and an estimated Tier 1 ratio of 10.3% on a pro forma basis as at 31st December 2008. ||Unilever [UNA.NV] Reports Q1 Net €731M v €840.6Me, R €9.5B v €9.6Be, Asia Africa CEE +9.5% y/y, Americas +7.2% y/y, Western Europe -2.8% y/y. || Old Mutual [OML.UK] Provides interim trading statement: Have seen UK mutual fund sales decline, Q1 had net outflows £2.9B. Long-term savings sales down 14% to £315 million. Unit trust sales down 14% to £1,458 million. Have seen sales growth in South Africa and Nordic, but reductions in UK and International. || Deutsche Telecom [DTE.GE] Reports Q1 Net €655M (ex items) v €679.4Me, EBITDA €4.94B v €4.8Be, R €15.9Bv €15.7Be, Q1 Broadband net losses -301K y/y, Q1 Europe Mobile net adds +7.1K y/y, Q1 Fixed network net losses -897K y/y. || Bilfinger Berger [GBF.GE] Reports Q1 Net €23.0M v €20.0Me, EBIT €43.0M v €37.0Me, Rev €2.42B v €2.1Be, Q1 order backlog at end of March €11.0B v €10.8B, Q1 orders €2.73B v €2.25B y/y, FY09 financing remains 'solid.'|| Anheuser-Busch InBev [ABI.BE] Reports Q1 Net $716M v $617.9Me, R $8.20B v $8.9Be. Have agreed to divest Korean unit to KKR for $1.8B, will use proceeds to repay outstanding debts. Sees deal with KKR closing in Q3, Q1 total volumes +0.9% y/y, Q1 beer volumes +0.5% y/y. ||

- In speakers, German Fin Min Steinbrueck commented that tax evasion has cost Germany over €100B and stress the need for stricter tax regime of German Banks || German Fin Min commented that its economy remained heavily exposed to global economic downturn. He saw Sees net new borrowing exceeding €80B in 2009 and a shortfall in tax revenues of between €300B and €350B was likely until 2013. || UK Treasury Minister commented that credit was beginning to flow once again and he was confident that banking system has been stabilized. The signs from UK businesses are encouraging.

- In currencies, two key interest rate decisions to take place during the NY morning. The BOE is expected to maintains its interest rate at the historic low level of 0.50% but could expand its quantitative easing measures from the current level of £75B as it is around 70% through that operation. The ECB is expected to cut its key refi rate by 25bps to 1.00% and make a long-awaited announcement on 'non-standard' measures to be implemented.

- The EUR/USD has held above the week low of 1.3210 and dealers noting some Middle Eastern bids at 1.3250 in today's session. The pair climbed back above the 1.33 handle ahead of the NY morning and central bank rate decisions. EUR/GBP broke below the 0.88 level. FX chartists eyeing key neckline in cross below the 0.8800 level that corresponds to a Head and Shoulder pattern developing since the low of 0.8634 made back on Feb 10th and the 0.8783 low from Apr 15th. Measured move objective seen around 800 pips to 0.8200.

- In fixed income, Government bonds have been under significant pressure in Europe this morning , suffering under the weight of supply and strong equities. Gilts underperformed after reports surfaced in the UK press stating that the vicious cycle of supply and increased yields could increase goverment-borrowing costs to the tune of £16B. Better selling in longer parts of the UK yield curve sent 2s10s into their widest level since 1992 above 248bps. In Germany, supply, technical related selling and anitipted increases in Government borrowing have sent Bund futures into their worst levels in months.
France sold €8B in OAT's and Spain sold just under €4B short dated bono's with reasonably strong results however Bund futures hit sell stops around 121.60 and moved sharply lower into their lowest levels in terms of price since Dec 2008. The German Finance minister also announced that German borrowing could total €80B in 2009. ahead of the Treasury's $14B long bond re-opening, the 10y Note and long Bond hit 2009 highs in terms of yield at 3.255% and 4.174% respectively || European government debt futures are sharply lower, with Gilts under performing ahead of today's rate decisions. Dealers noting that rotation into equities are also weighing upon bond futures sentiment. June Bunds made fresh year lows and elected some significant stops below the 121.55 level.

- In Energy: NYMEX Front Month Crude futures probing towards $58.00 level; Highest since mid-Nov || Baker Hughes [BHI] Reported April 2009 US rig count 995 v 1,105 m/m ||


NOTES

- Risk appetite continues to rise and the rotation of out fixed income was bumped a gear during the European morning. German Fin Min noted that there could be a crowding out effect due to increased gov't borrowing

- Australian employment data comes in positive at 27K v loss of 25K expected. Dealers pondering if the data was aberration.

- The week's activity moves into high gear as Corporate earnings, Official stress test results and central bank decisions should make the NY session quite eventful.

- Looking Ahead:

- (CZ) Czech Central Bank is expected to keep its repo rate steady at 1.75%

- 7:00 (UK) BoE Interest Rate Decision: No change to current bank rate of 0.50% is expected

- 7:30 (BR) Brazil Central Bank Minutes

- 7:45 (EU) ECB Interest Rate Decision: 25bps cut to 1.00% expected, current Refi Rate is 1.00%

- 8:30(US) Q1 Preliminary Non-farm Productivity: 0.6% expected v -0.4% prior

- 8:30 (US) Unit Labor Costs: 2.7% expected v 5.7% prior

- 8:30 (US) Initial Jobless Claims w/e May 2nd: 635k expected v 631k prior

- 8:30 (US) Continuing Claims w/e Apr 25th: 6.35M expected v 6.271M prior

- 8:30 (EU) ECB's Trichet speaks at Monthly news conference

- 9:15 (US) Fed's Evans speaks at Banking conference

- 9:30 (US) Fed's Bernanke speaks in Chicago

- 10:00 (MX) Mexican Apr Consumer Prices M/M: 0.35% expected v 0.58%, Y/Y: 6.17% expected v 6.04% prior, Core M/M: 0.40% expected v 0.55% prior

- 13:00 (US) Treasury to sell $14B in 30y Bonds