ECONOMIC DATA

- (TH) Thai Central bank leaves interest rates at 1.0%; Not expected; The Central bank was expected to cut by 25bps

expected v -4.0% prior

- (GE) German Producer Prices M/M: -1.4% v 0.0%e; Y/Y: -2.7% v -1.3%e; sharpest decline in 22 years

- (JP) Japan Apr Convenience Store Sales Y/Y: 4.3% v 4.2% prior

- (SP) Spain Q1 Final GDP Q/Q: -1.9% v -1.8% preliminary, Y/Y: -3.0% v -2.9% preliminary

- (DE) Danish May Consumer Confidence Indicator: -4.7v -2.5e

- (NE) Netherlands Apr Unemployment Rate: 4.4% v 4.4%e

- (NE) Netherlands May Consumer Confidence: -23 v -25e

- (IT) Italian Mar Industrial Orders M/M:-2.7% v -2.5%e; Y/Y: -26.0% v -30.3%e

- (IT) Italian Industrial Sales M/M: -0.8% v -1.6%e; Y/Y: -22.6% v -23.9% prior

- (UK) BoE Minutes: MPV voted unanimously to keep rates at 0.50% and raise quantitative easing by £50B

- (SP) Spain Mar Trade Balance: -€3.7B v -€5.87B prior

- (IT) Italian Mar Current Account: -€2.3B v -€3.84B prior

- (SZ) Swiss ZEW Survey Expectations: -3.9 v -27.7 prior

- (UK) May CBI Industrial Trends Total Orders: -56 v -57 prior


SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

- European equity markets opened to the downside following choppy trading out of Asia. Asian bourses oscillating in and out of negative territory sent a mixed theme into the European morning. Pre-market trading remained mixed with futures effectively flat on the open. First crosses on the CAC, DAX and FTSE were all in negative territory but losses were quickly pared. The DAX moved off its lows, turned pos and rallied to as high at +0.50% by 3:15EST on strength out of the Automotive sector [DAI.GE], [BMW.GE] following comments out of VW [VOW.GE] and Porsche [PAH3.GE] that talks may be back on. The CAC rallied out of negative territory in line with a recovery of shares of Air France [AF.FR] which indicated neg in the pre-market before rallying to over +11% by 3:20EST. The FTSE under performed its continental peers holding within negative territory. Confirmation out of Lloyds [LLOY.UK] that it was placing £4B in shares to pay back Treasury shares drove the stock down over 20p (-20%) in early trades. Through the 3:00EST hour, equity markets continued their light tone accelerating post 3:40EST to new trading level highs. Airlines continued to outperform with BA [BAY.UK], Lufthansa [LHA.GE] and Air France [AF.FR] all trading above +3%, materials, mining and mixed industrial names also demonstrated broad strength. Markets trended off their 4:00EST highs for the remainder of the European morning, better than expected Italian March industrial orders, Spanish March trade data and a significant recovery in the Swiss Zew survey maintained the equity rally within continental bourses. The FTSE returned to the unchanged point by 5:00EST on the back of continued weakness in Lloyds and broad sector weakness in insurance names with Legal and General [LGEN.UK] Prudential [PRU.UK] and Aviva [AV.UK] under performing.

- Experian [EXPN.UK] Reported FY09 Net $486M v $550Me, Rev $3.9B v $3.9Be, Increased interim dividend to $0.1325/shr ||LSE [LSE.UK] Reported FY09 Adj Op Profit £338.6M v £307Me. Rev £671.4Me v £666.5Me, final dividend 24.4p v 24p y/y.
SETS volumes continued to grow, increasing 15% to 740,000 trades per day, SETS average daily value traded declined 24%, in line with an average 22% fall in the FTSE 100d || Air France [AF.FR] Reports Q4 Net -€505M v loss €619Me, Rev €5B v €7.9Be; proposes no dividend for 2009. Plans 3,000 job cuts in 2009 (approx 3% of global workforce). Expect will likely post a loss this year. || VW [VOW.GE] Reportedly Porsche is reviving merger talks with VOW after chairmen of the two companies reach a deal. The chairmen of the two companies have pledged to work together constructively. || Fiat [GM] RHJ International, Fiat and Magna are all expected to make formal offers for a stake the company's European operations on Wed - FT. The bidders will be asked to come up with about $887M || Volvo [VOLVB.SW] Reported April Truck deliveries 9.2K v 11.2K (-18% m/m)

- In speakers, the IMF commented on Japan, stating that the country's stimulus program and monetary policy should assist economic growth. The IMF did note that Japan's economic outlook remained uncertain but believes that a sustained recovery might take hold in 2010. Inflation projected mildly negative until 2011. The IMF commented that monetary policy needs to remain 'accommodative' but fiscal policy should remain flexible. Additional stimulus might be provided if recession continues || The BoE Minutes revealed that the MPV voted unanimously to keep rates at 0.50% and raise quantitative easing by £50B. Outlook warranted £50B extension in quantitative easing (QE); Failure to extend asset purchases could reduce public confidence. QE to be reviewed every month and the BOE could seek permission to increase QE above the current £150B level. It did note that the precise amount of QE needed was uncertain, and that it could be revised either up or down depending on circumstances. The BOE saw persistent degree of slack in the economy and that there were less risk from stimulating too much than stimulating too little || German MOF stated that its leading indicators hinted that growth would remain weak and that Germany was encountering its worst economy in 60 years. The Q2 contraction would likely slow compared to Q1 but export sector to remain weak (but declining at a slower rate). The Ministry noted that Q1 Private consumption did rise and was helped by car scraping scheme. It noted that the German Cabinet would debate the second supplementary budget on May 27 || Poland Fin Min Rostowski expects budget deficit to hold around PLN16B until July || BoJ's Shirakawa commented that there were no current plans to revise Japan's growth forecasts or the BoJ's economic outlook. He noted that exports and output were bottoming out globally due to inventory adjustments. He expected consumption and investment to remain weak. Prolonged low interest rates generally leads to lower currency || Japan Fin Min Yosano commented that the drop in exports and domestic demand were the reasons for the GDP decline. He added that the Government stimulus alone cannot fully offset economic decline || World Bank Official commented that China's economic recovery enthusiasm was "premature" but noted that the Chinese did not need to introduce new stimulus at this time. It did suggest that China raise the ceiling on deposit rates to encourage consumption. || U.K.'s Chancellor Darling stated in a press interview that he maintained his growth forecasts with U.K. economy to start expanding by the end of the year and to show a pick-up in 2010 || Russian Central Bank Dep Chief Ulyukayev commented that it was working on a scheme to refinance bank by taking gold as collateral. He also noted that the Central Bank had purchased over $20B in the currency markets since February || Australian PM Rudd noted that he expected further job cuts in the domestic economy || Germany's Bundesbank commented that the German deficit could rise to 6% of GDP next year. They are against further credit financed tax cuts and spending increase. The Buba noted that crude oil futures suggest medium term price pressures could occur. Euro money market situation noticeably better than last fall and that covered bond purchases to improve banking sector financial conditions

- In currencies, overall dealers noted that it as a fairly muted session but there were some concerns during Asia over the China recovery. World Bank labeled any optimism over a potential World Bank: China recovery as premature. Nonetheless the USD and JPY currencies price movement continued to sentiment swings between recovery hopes and the reality of still weak hard data and falling inflation. EUR/USD ending the European morning at 1.3640, little changed from its opening levels in Asia. GBP maintained a steady tone and managed to back above the 1.55 level against the USD and closer towards its 200-day moving avg of 1.5545. The 200-day moving avg was last breeched back in July 2008. GBP/EUR holding around the 0.8800 area.

- In fixed income, a relatively weak auction by the Agence France Tresor sold just under €8B in 2011 and 2014 BTAN's.
Germany, however sold €5.6B in a new Bund with better than expected results. The auction drew a cover ratio of 1.8, above the average of 1.5 in the preceding 3 Bund auctions, and the Bundesbank retained 20% of the total offering, slightly below previous levels. As a consequence, Bund futures have moved back into positive territory and strength has returned to longer parts of the German yield curve, which is undergoing some corrective flattening after yesterday's new steepening highs. One and six month Euribor registered increases for the first time in over a month, both fixing higher by about 1bps.
One week Euribor jumped up 10bps to 0.80% for its biggest daily increase since December 2008. Gilt futures spiked higher after BoE minustes revealed the Bank could seek permission to expand its QE program even further, but have surrendered these gains to trade around 50 ticks lower at the time of writing, at 120.30. There has been modest selling of Treasuries in European hours, with the yield on the 10y Note higher by just over 1bps at 3.254%

- In energy, NYMEX crude front month contract hit fresh 6-month highs at $60.70 during its electronic session.


NOTES

- California voters on Tuesday rejected a series of special ballot measures aimed at curbing the state's widening budget deficit

- World Bank: China recovery optimism premature. Early pipeline sales and power consumption data looking like last few months was a false start.

- Dealers noting that Credit requirements on what Fed will take on in TALF are tighter than some originally thought.

- Trading conditions could thin out later this week. Monday U.S. Memorial Day holiday and U.K. bank holiday. This has been keeping many on the sidelines this week. Additionally, sparse data calendar sparse much of the week.

- Looking Ahead: Several key US earnings this morning. BJs Wholesale [BJ]; Deere & Co. [DE] and target [TGT]

- 7:00 (CA) Canadian April CPI M/M: 0.2% expected v 0.2% prior, Y/Y: 0.6% expected v 1.2% prior

- 7:00 (CA) Bank of Canada CPI Core M/M: 0.1% expected v 0.3% prior, Y/Y: 1.8% expected v 2.0% prior

- 7:00 (US) MBA Mortgage Applications w/e May 15th: No estimates v -8.6% prior

- 8:30 (CA) Canadian Apr Leading Indicators M/M: -1.0% expected v -1.3% prior

- 9:15 (UK) BoE's Bailey in UK parliament

- 9:30 (US) Treasury's Geithner testifies before Senate on TARP

- (RU) Russian Apr Unemployment Rate: 10.2% expected v 9.5% prior

- (RU) Russian Apr Retail Sales M/M: No expectations v 5.6% prior, Y/Y: -5.2%