European Market Update: IMF's Lipsky confirmedthat the IMF would modestly raise 2010 growth forecast; EU Summit draftstatement noted that the Euro-Zone economy was on course for'sustainable' recovery without need for more fiscal stimulus


ECONOMIC DATA

- (GE) German Producer Prices M/M: 0.0% v 0.0%e; Y/Y:-3.6% v -3.6%

- (FR) French Q1 Final Wages Q/Q: 0.8% v 0.8%e

- (HU) Avg Gross Wages Y/Y: 3.6%e v 4.3% prior

- (NE) Netherlands Jun Consumer Confidence: -24 v -24e

- (IT) Italian Q1 Unemployment Rate: 7.3% v 7.3%e

- (UK) May Car Production -43% y/y, Commercial Vehicle Production -73.5% y/y - SMMT


SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

- European equity markets opened positive following muted pre-markettrading. News flow from the Asian session again remained mixed withcontinued GDP upgrades for China but bearish/cautious central bankspeak. On the open, in sector performance utilities outperformed withE.on [EOAN.GE] and ENEL[ENEL.IT] leading the way following a sectorupgrade out of UBS. UBS downgrade of pan-European retailers addedfurther weight to that sector following yesterdays disappointing UKretail sales number. UK listed names including Kingfisher [KGF.UK] andHome Retail [HOME.UK] led this sector underperformance. Interim tradingreports out of UK home builder Talyor Wimpey [TW.UK] proved morebullish than expected noting signs of recovery in UK and US marketslifted sector names including Bovis [BVS.UK] and Bellway [BWY.UK].Equity bourses turned negative by 3:15EST but rallied and moved throughthe unchanged mark at 3:30EST. With limited European data to affect thedirection of equity trade, markets decoupled past 3:45EST with the CACand FTSE pushing higher with strength in industrials as EAD's [EAD.FR]continued to announce new orders, mixed financials and earnings basedequity strength (Carnival [CCL.Uk]). German equity markets continued tobe weighed by automotive names [VOW.GE] and the approach of an equityweight rebalance set to come into effect on Monday. On the back ofthese forces the DAX underperformed and remained negative through4:00EST. Trading remained subdued through the 4:00EST hour with heavyattention given to Iran's Khamenei Friday prayer speech (downplayingdivisions, seeing continuity of Islamic Republic). Decoupling of equitymarkets continued as the DAX labored near the unchanged level, aboveand below zero on continued auto sector weight while the CAC and FTSEprinted highs of +0.75% and +1.00% at 4:45EST before paring gains.Euribor fixings, coming in at 5:10EST at new lows provided comfort toconcerns regarding BBA alterations over Libor structuring and equitymarkets quickly caught a bid. The DAX recovered its losses and moved to+0.25% while the FTSE printed +1.44% and the CAC +0.75%.

- In individual equities: the WSJ writes that Standard Charter[STAN.UK] is considering further listings in Asia. Standard's CEOstated that the group is always looking for further listing locations,with India as a primary candidate. Taylor Wimpey [TW.UK] Providestrading update: Severe downside scenarios previously foreseen are nowless likely to materialize. Net debt at £1.01B v £1.68B y/y, Order bookat £971M v £562M y/y, Operate 337 outlets v 386 y/y. According to theLondon Times, British Land [BLND.UK] is holding talks with Israel'sProperty & Building to take a £100M stake in Broadgate. Propertyand Building, controlled by Billionaire Nochi Dankner, stated that itwas in the initial stages of buying a stake in Broadgate for £100M. Thearticle noted that under the deal being proposed, the pair would alsotake on a sizeable part of the £2B of debt that is secured onBroadgate, which - along with the cash they are putting in - could givethem a half-share in the 32-acre office development. Air France:[AF.FR] CEO: Considering all options to face crisis; can not confirmspeculation of partial employee unemployment plans. Outlook to remaindifficult through Dec 2009, could cut up to additional 3K employees.Daimler [DAI.GE] S&P lowers rating one notch to BBB+ from A-.Porsche [PAH3.GE] Reports 9-month (August-April) sales €4.64B v €5.46By/y, will not reach 2008 level sales in 2009. Delivered 53.6K units v74K units y/y. BMW [BMW.GE] Reportedly Chinese JV partner trading loweron the back of reports that Chinese gov does not plan to purchase BMWvehicles. Fortis [FORB.BE] Update: Files court order asking Dutch stateto force nationalized Fortis Capital Company to pay preferred stockholders €362.5M. Strabag STR.AS: [CEO] To see flat revenue growth inFY09; Expect continued painful economic consolidation. To attempt todiversify operations outside of Europe. See coming construction crisisin Europe in 2012-2013. Russian markets remain a long way from fullrecovery.

- Speakers: IMF's Lipsky confirmed that the IMF would modestly raise2010 growth forecast for global economy from its +1.9% view from April.IMF to unveil its new forecasts in early July but G8 sources put the2010 GDP outlook at 2.4%. ECB's Gonzalez-Paramo noted that economicrecovery was less certain without reforms as financial regulators havefailed without doubt. ECB's Bini Smaghi commented that one must resistnationalism in push for financial oversight reforms. He noted thatthere were signs of stabilization in financial markets.. BBA statedthat it had no targets for number of additional banks that could joinLIBOR panels. Polish Central Banker Skrzypek commented that thatcentral bank remained towards an easing bias and that inflation was nota significant problem. He did note that the central bank might not useits monetary policy tools over commodity-led inflation. He expected apositive GDP reading for 2009. The central banker noted that the IMFcredit line was an 'insurance policy' and was not expecting to use theline. EU Summit draft statement noted that the Euro-Zone economy was oncourse for 'sustainable' recovery and to reject further calls foradditional stimulus measures. The EU seeks a for 'credible' exitstrategy. EU applauded Latvia planned budget cuts and calls for'rigorous implementation' of such cuts. It urged swift payment of nextaid installment for Latvia. Lastly the EU to call Pan-European riskboard and watchdogs in 2010. (HU) Hungary Central Banker Chief Simornoted that the market environment remained uncertain. World SteelAssociation: May Global output 95.6M tons v 89M tons m/m.

- In currencies: EUR/USD continues to consolidate within a 200 piprange of 1.38 to 1.40 with reported sovereign names on either end. Theeuro was initially firmer after the EU draft statement noted there is a"sustainable recovery" in the Euro Zone. Dealers were still trying tounderstand the implications of the LIBOR changes announced on Thursday.A UBS analyst noted that the USD FX rate might be supported by theincrease in LIBOR panels and the ECB refi tender. The JPY was softeragainst its major pairs as the IMF and EU Summit comments fueled riskappetite. CAD and AUD are firmer as well on the back of higher crudeoil prices. Aussy has also been aided by an analyst call that the RBAcould raise interest rates before year's end.

- In energy: Royal Dutch Shell [RDSA.UK] announced a natural gasdiscovery in Norwegian Sea, with the find made at a record depth. Thenew resource is estimated between 10 to 100 billion standard cubicmeters. The FT reported that PetroChina [PTR] has been negotiatingpossible investment in Ineos' refinery in Grangemouth, Scotland. Apurchase by PTR would be its first move into refining in Europe. NYMEXJuly crude is up over 50 cents, just under the $72 mark.

- In fixed income: the boost to risk appetite stemming from IMF and EUcomments has put government bond markets under pressure this morning.Gilts have lead the way down on a cross markets basis, and yield curveson both sides of the Atlantic are exhibiting bear steepening biases.Ten year Gilts are yielding 3.875% at the time of writing, with the 10yNote yielding 3.84% and the Bund at 3.576%. To avoid the wrath of thebond vigilantes, the French debt agency announced it would sell up to€4B in 30y OAT's via a syndicate of banks next week, a trend that isgathering steam following the UK's 25y Gilt auction earier this week.Three month Euribor fixed at a new record low of 1.22%, whilst Usd swapspreads narrowed back below 50bps following clarification on changes toLibor from the BBA. The BBA noted that allowing additional banks tojoin the panel which calculates Libor "will not affect the way in whichcurrent contributors formulate their rate submissions."

- In credit crisis news: S&P reduced its risk assessment onJapanese banks to 2 from 3 as it noted that risks have moderated.S&P commented that Japanese banks could withstand cyclical downturnand absorb credit losses of nonperforming assets as their loanportfolios have improved in the past few years. Irish press articlethat the IMF's projections on the Irish budget deficit and medium-termrecovery are worse than Gov't estimates. IMF is believed to havecalculated that the "structural" deficit could be as much as 10% of GDPor €18B versus Irish Govt estimate of 8%. Article noted that the IMFbelieves correcting this would require very difficult choices on publicspending and would endorse the widespread view that most of thecorrection must now come on the spending side, rather than through moretax rises.

- On the geopolitical front: Iran's Supreme Leader Khamenei ruled out fraud behind President's Ahmadinejad victory.


NOTES

- Quiet European session on the data front but some supportive economiccomments providing some momentum on the green shoot scenario.

-EU Summit- draft statement: Economy on course for 'sustainable'recovery; reject further stimulus measures. Calls for 'credible' exitstrategy

- IMF to modestly raise 2010 growth forecast for global economy to +2.4% from its Apr view of +1.7%

Looking Ahead

- Today is Triple Witching expiry of stock index futures, stock index options and single stock options.

- 8:00 (PD) Polish May Producer M/M: 0.1%e v -0.6% prior, Y/Y: -6.6%e v -12.4% prior

- 8:30 (CA) Canadian Apr Retail Sales M/M: 0.1%e v 0.3% prior, Retail Sales less Autos M/M: -0.1% v -0.2% prior

- (RU) Russian May Unemployment Rate: 10.3%e v 10.2% prior

- (RU) Russian May Retail Sales M/M: No expectations v -0.2% prior, Y/Y: -6.2%e v -5.3% prior