European Market Update: Slew of ECB speak yields little insight; IEA cuts its global oil demand for the 9th straight month; equity price action best described as either a case of "bull flu" or "bear flu," diagnosis pending...


ECONOMIC DATA

- (EU) Apr 25 New Car Registrations: -11.9% v -9.1% prior

- (SP) Spain GDP (Constant) Q/Q: -1.8% v -1.8%e; Y/Y: -2.9% v -2.9%e

- (CZ) Czech Mar Retail Sales Y/Y: -1.1% v -2.5%e

- (SZ) Swiss Apr Producer & Import Prices M/M: -0.2% v 0.8%e; Y/Y: -3.6% v -2.8%e

- (SW) Swedish Apr Average House Prices: SEK1.77M v SEK1.82M

- (RU) Russia Gold & Forex Reserves w/e May 8th: $385.2B v 385.9B prior

- (EU) ECB May Monthly Report: Comments were in line with recent ECB press conference. Lowers both GDP and inflation outlook for 2009

- (RU) Russia Apr Producer Prices M/M: 2.4% v 2.3%e; Y/Y: -4.1% v -4.3%e


SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

- European pre-market trading pointed towards a mix picture on the back of a wide range of corporate earnings data. DAX future proved the strongest following better than expected earnings reports from large cap German firms including Hotcheif [HOT.GE] and RWE [RWE.GE] while EuroStoxx and CAC futres pointed lower following blowout CDO losses at KBC [KBC.BE] and disappointing results at Credit Agricole [ACA.FR]. Markets opened mixed but tempted to find positive sentiment with all three main bourses briefly trading positive. Disappointing Swiss April producer and import prices at 3:15EST carrying the threat of a possible further SNB intervention sent markets lower, dropping to the -1% mark dominated by losses in financial, mining and heavy industrial names (steel [SZG.GE]). Equity markets bottomed at 3:30EST when financials began a slow rally. UK tier 1 names, including RBS [RBS.UK], Lloyds [LLOY.UK] and Barclay [BARC.UK] began a strong sector rally . FTSE100 turned positive by 4:00EST with the CAC following at 4:30EST and the DAX and 4:45EST. In the up-move, sectors pulled a full 180 with steel names, automotive firms and financials moving for underperformers to out performers. Comments out the ECB were in line with yesterdays press conference and provided little new momentum in equity markets. Bearish comments from the IEA, cutting its 2009 oil demand for the 9th consecutive month added weight to the energy sector with large cap oil [BP.UK], [FP.FR] trading lower. Continued threats of violence and instability out of Nigerian rebels added further downward momentum in shares of Royal Dutch [RDSA.UK] as they broadly underperformed in the sector. European markets have broadly sought for a theme and direction through the European morning following yesterdays sessions losses and disappointing retail numbers out of the US. Markets continue to anticipate earnings out of Wal-Mart which are expected in the NY morning.

- In individual equities BT [BT.UK] reports preliminary Q4 Net loss £977M v gain £41.2Me, Adj EBITDA £1.35B v £947.3Me, Rev £5.5B v £5.5Be, to cut an additional 15,000 positions. FY09 final dividend 1.1p/share, Q4 global services rev £2.6B, Q4 retail services rev £435.1M, Q4 wholesale services rev £1.1Me, Q4 free cash flow £1.13B, Q4 impairment charges £1.3B, Net debt at £10.36B. || KBC Bank [KBC.BE] Reports Q1 Underlying Net profit €465M v €347.5Me (unclear if comparable), Rev €2.1B v €2.1Be. Q1 CDO losses €3.8B (figure is well below the expected €1B loss). Q1 Tier 1 core capital 8.3%, Q1 Non performing loan loss ratio 2.5%. || Credit Agricole [ACA.FR] Reports Q1 Net €202M v €350Me, Rev €4.1B v €4.4Be, Q1 Lending €74.5B (+7.7% y/y), Q1 Core Tier 1 ratio 8.0% v 8.8% y.y, Q1 International retail banking Rev €701M v €752M y/y, Q1 Specialised financial services Rev €853M v €725M y/y. || Aegon [AGN.NV] Reports Q1 Net loss €173M v loss €326.8Me, Rev €8.6B v €8.4Be. - Q1 ROE -3.3% v -8.7% q/q, Q1 Solvency ratio 170% v 183% q/q, Q1 New business €201M v €186Me. || RWE [RWE.GE] Reports Q1 Net €1.5B v €1.4Be, Rev €14.5B v €13.7Be, Reaffirms 2009 earnings and sales targets. Sees 2009 EBITDA, Op Profit exceeding 2008 levels. Sees FY09 CAPEX +30% y/y. Reiterates €26B investment program through 2012. || SABMiller [SAB.UK] Reports FY09 Final EBITDA $4.1B v $4.5Be, Rev $25.3B v $20Be. Lager volumes up 2%(1) to 210 million hectolitres (hl); organic lager volumes level with prior year despite weakened consumer demand. Europe organic lager volumes level with prior year in either flat or declining markets. Africa organic lager volumes up 5%. South Africa lager volumes decline 2%. Organic soft drinks volumes up 5%. || Prudential [PRU.UK] Reports Q1 Annual Premium Equivalent Sales £697M v £732m (-5% )y/y, Asian APE £333M -11% y/y, US APE £184M +12% y/y, UK Total APE £180M -6% y/y, M&G Net Inflows £2.5B +356% y/y. || Salzgitter [SZG.GE] Reports Q1 Net loss €74.1M v loss €70Me, Rev €2.19B v €2.1Be. Q1 continued to be exposed to negative pressures. Have no reliable indications or sources that point towards at H2 recovery. May achieve a pre-tax break even in 2009. Outlook depends on recovery in steel demand to normalized levels. || Hochtief [HOT.GE] Reports Q1 Net €24.2M v €25.6Me, Rev €4.4B v €3.9Be. Q1 New Orders €4.38B v €5.27B y/y. Q1 Order backlog €31.4B v €29.1B y/y. || Raiffeisen [RIBH.AS] Reports Q1 Net €56M v €64Me, Net interest income €757M v €811Me, Rev €1.1B v É1.2Be. Tier 1 cap at 7.7% v 8.1% y/y, Q1 Trading profit €46M v €35Me, Q1 Provisions for impairments €445M v €93M y/y, Non-performing loan ratio rises to 4.8% from 2.5%, ROE 4.2% v 17.7% y/y.

- In speakers, the ECB's Nowotny stated that the global economic crisis presents tremendous challenge but there are signs of stabilization emerging in financial sector. He noted that the GDP forecasts have been severely dented by crisis || ECB's Papademos said an economic recovery could begin sooner that what is currently expected and commented that there were signs of stabilization emerging (in line with ECB). He noted that financial stability should be considered when formulating policy aimed at ensuring price stability. Exit strategies are important for non standard tools and depend on the inflation outlook. He believes the ECB's speacial measures could easily be unwound || ECB's Wellink reiterated that could be periods of disinflation and not entering deflation in the Euro-Zone. He cautioned about optimism over a 'few' green shoots and noted that it was too early to talk about economic recovery as many uncertainties remain. The central bank must asses the situation carefully. The ECB was not discussing further non-standard measures and commented that the central bank has taken appropriate decisions to date || The ECB monthly report reiterated that the Euro Zone would enter a Gradual recovery phase over the course of 2010. Recent data suggested tentative stabilization. It saw 2009 GDP contracting by 3.4% and up 0.2% in 2010. It cut its inflation view withs 2009 CPI at 0.5% versus 0.9% prior and 2010 CPI at 0.5% versus its 0.9% prior view. Its long term inflation seen below 2% target at 1. 9% || The SNB's Jordan commented that central banks must normalize monetary policy at the right time even if it is politically unpopular. Markets need better regulation, not necessarily more regulation. He noted that it was incorrect to assume market cycles could be avoided || Japanese Opposition Party's Nakagawa stated that it was important for Japan to diversify its Foreign reserves and should consider asking the US to issue Yen denominated bonds. He did back off ruling parties statements that Japan should not buy USD debts and commented that Japan should expand talks with China regarding FX operations || French PM Fillon reiterated the view that the job markets would continue to deteriorate. Believes that no European state can balance its budget in 2012 but added there are no plans to increase taxes. He noted that French 2009 GDP is forecasted to be around -3.0%. Fillon ststed that the US could see an economic recovery by Q4 but that Europe would experience a slow recovery in 2010 || French Fin Min Lagarde comment that France's Q1 GDP would be "bad" and that the overall 2009 GDP forecast to be revised lower || Indian Trade Secretary commented that it saw its export decline continuing until August || EU's Almunia stated that recent indicators provided some ground for optimism. He cited that some positive signs have appeared in export data. However, he cautioned that downside risks to growth lurk due to the fragile financial sector and that recovery in growth following crisis could be gradual. He seeks a "stress test" exercise for EU banks. Lastly he noted that the EU could implement further stimulus measures if needed || German Chemical Assoc VCI stated that Q1 Industry Sales -8% q/q, -17% y/y; It saw 2009 decline of -12% in sales, -10% in output y/y (previously saw -6% decline in sales, -3.5% in output)

- In currencies, overall the mood was quiet in the currencies during the European morning. The overall sentiment of potential moves continues to follow equity price movements and the risk appetite/aversion flows. The EUR/USD was drifting higher above the 1.36 level as the day progressed and Equity market moved into flat/positive territory. ECB speak from numerous members reiterated the possibility that the worst of the global crisis might be behind at this time. The market is awaiting to see if any rifts develop among the ECB members regarding the quantitative easing measures. Members Kranjec and Weber had different views as the amount the central bank could spend and the types of instruments that might be added to the program. JPY retraced from its gains experienced on Wednesday against the majors. USD.JPY remains below the 96 level and drifted towards 95.30 as the NY morning approached. EUR/JPY was firmer by 60 pips but remained below the 130 handle. Commodity currencies were little changed despite softer oil and lower metal prices, but the did loss about 200 pips on Wednesday. USD/CAD at 1.1725 and AUD/USD hovering above the 0.7520 area. Swiss Producer & Import prices gave the SNB more ammunition to intervene in the currency markets if they so wished. EUR/CHF at 1.5065 and a touch higher from its opening levels in Asia.

- In fixed income, Gilts have outperformed Bunds and treasuries in a somewhat directionless trade this morning, with Government bond markets moving in and out of positive territory inversely with equities. The UK sold £700M in 2047 linkers with a strong bid-to-cover of 2.5 times, well above the average of 1,6 in the preceding three auctions. Italy also comfortably sold around €7B in a range of BTP's. Ahead of jobless claims data, the benchmark 10y Note has maintained a bid in Europe and Asian trade, touching a intra session low yield of 3.083%, its lowest level since late March.

- In energy, in its May monthly report the IEA cut its forecast of global oil demand for 9th consecutive month. According to the IEA, 2009 world oil demand will fall by 200K bpd to 83.2M bpd. Data suggest that Q2 demand below expectations, especially in China and Russia. IEA noted that Apr Global oil supply increased by 230K to 83.6M bpd with Apr OPEC crude supply rising by 270K to 28.2M bpd. IEA noted that OPEC has made around 80% of planned output cuts or 3.2M bpd of the 4.5M planned production reduction since September. IEA noted that World old demand drop was near an overall bottom, but commented that recovery remained far off. It noted that fundamentals in market remain weak and no evidence of demand recovery despite pricing actions. Data suggested that Q2 demand remained below expectations, especially in China and Russia. ||Nigerian Militant group MEND declared 'no-fly zone' over delta as of May 16th and noted that oil workers should evacuate Delta region. Reportedly Nigerian militant group MEND seized ship in delta region with 20 foreign passengers


NOTES

- ECB showing signs of uncharacteristic discord about its €60B covered bond program may undermine investor confidence - WSJ. The focus is on weekly jobless claims today as a leading economic indicator. As the NY morning approached dealers were noting that risk appetite was waning a bit. One European dealer question the health of the recent equity price action as either a case of "bull flu" or "bear flu," diagnosis pending.

- Looking Ahead: Expected corporate earnings today: Walmart [WMT; Kohls [KSS]

- 6:30 (FR) French Pres Sarkozy meets with ECB's Trichet

- 8 :00 (BZ) Brazil Retail Sales M/M: 0.7% expected v 1.5% prior, Y/Y: 2.2% expected v 3.8% prior

- 8:00 (PD) Polish Apr CPI M/M: 0.5% expected v 0.7% prior, Y/Y: 3.8% expected v 3.6% prior

- 8:30 (PD) Polish Money Supply M3 M/M: 0.9% expected v 0.5% prior

- 8:30 (US) Apr Producer Price Index M/M: 0.2% expected v -1.2% prior, Y/Y: 3.4% expected v 3.8% prior

- 8:30 (US) Apr PPI Ex food & energy M/M: 0.1% expected v 0.0% prior, Y/Y: 3.4% expected 3.8% prior

- 8:30 (US) Initial Jobless Claims w/e May 9th: 610k expected v 601k prior, Continuing Claims w/e May 2nd: 6.4M expected v 6.35M prior

-11:00 (US) NY Fed to repurchase Notes maturing between 05/15/2010 - 02/28/2011

- 12:00 (TU) Turkish Base Rate Decision: 50bps cut to 9.25% expected (currently 9.75%)