European Market Update: Euro-Zone unemployment rises to 10-year high at 9.5%; Swedish Central bank unexpectedly cuts rates to counter recession; USD remains vulnerable on the reserve currency issue ahead of next week's G8


ECONOMIC DATA

- (SW) Swedish Riksbank cuts its interest rate by 25bps to 0.25%; not expected

- (IC) Iceland Sedlabanki left interest rate unchanged at 12.00%; as expected

- (FI) Finland Apr Final Trade Balance: € v €745M3

- (NO) Norway June PMI: 48.7 v 43.0e

- (SP) Spain June Net Unemployment: -55.3K v +31.0Ke

- (DE) Danish Unemployment Rate 3.5% v 3.5%e

- (NO) Norway Unemployment Rate: 2.7% v 2.7%e

- (IT) Italian Q1 Deficit to GDP: 9.3% v 2.70% prior

- (SP) Spain Consumer Confidence: 66.4 v 63.8 prior

- (RU) Russian Gold & Forex Reserves w/e Jun 26th: $410.5B v $407.1B prior

- (HK) Hong Kong May Retail Sales - Value Y/Y: -6.2% v -8.5%e; Volume Y/Y: -6.4% v -7.2%e

- (UK) June PMI Construction: 44.5 v 46.0Ke

- (UK) BoE Quarterly Credit Conditions Survey: Lenders saw increase in credit available to both households and businesses

- (EU) Euro-zone Unemployment Rate: 9.5% v 9.4%e; highest level in 10 years

- (EU) Euro-zone PPI Data M/M: -0.2% v 0.1%e; Y/Y: -5.8% v -5.6%e


SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

- In equities news overnight: European bourses took their opening negative tone following mixed trends out of Asia regarding USD sentiment, ongoing resource contracts and the health of the automotive industry (following US June sales data). Equity trading in today's European session is set to be dominated by interest rate decisions (EU, Sweden, Iceland) and unemployment figures (US, EU). Anticipation of these figure has overshadowed some positive second tier earnings out of UK and German firms. On the open, sector downgrades out of Credit Suisse on European Auto moved pan-European auto names lower with Peugeot [UG.FR] and Volkswagen [VOW.GE] leading their respective exchanges lower. Basic materials and industrials faced the brunt of the downward trend in early trading, specifically those with exposure to Automotive names. Equity markets quickly pushed to the -1% mark by 3.15-3.20EST. The Swedbank's unexpected decision to cut rates 25bps at 3:30EST drove equities lower with the DAX leading the downtrend moving to -1.75% by 3:45EST. This post rate cut action proved to a be a trading session lows as comments out of SNB's Jordan, that the SNB is ready to continue interventions to defend the CHF rallied equities sharply following large currency cross movements. BOE comments at 4:30EST along with credit conditions report furthered a lightening in the equity tone. EU unemployment, seen in line with expectations at 9.5% allowed a further paring of equity losses past 5:00EST. This upward trend has been most personified by the FTSE, recovered to the -0.5% level while the CAC and DAX remained closer to -1.0% on the session. Trading volumes remained strong ahead of the US market holiday on Friday with both the DAX and FTSE ahead of their average volumes. Traders and markets by the 5:00EST hr were anxiously awaiting an ECB rate decision and US employment and factory orders expected in the NY morning. In this atmosphere, North Korea has reportedly preemptively provided its 4th of July gift by test-firing 2 short range SSM's off its east coast.

- In specific stocks: Greene King [GNK.UK] Reports FY Pretax profit £139.4M v £116.5Me, Rev £954.6M v £938Me.
Like-for-like sales up 1.7% y/y. ||Game Group [GMG.UK] Provides AGM Statement: Reports YTD Group Sales -9.1% y/y. LFL sales -15.4% y/y, UK and Ireland LFL sales -12.4% y/y. ||Petrofac [PFC.UK] Awarded contract valued at over $350M from Gov't of Oman for gas compression project. || Standard Charter [STAN.UK] Confirms appointment of John Peace as Chairman, effective immediately. || Air France [AF.FR] The company is facing more revenue declines in Q1; May cut 4,480 jobs (4.2% of workforce) between 2009 and 2011 vs prior expectation of 2,467 job cuts - La Tribune. || Areva [CEI.FR] Update: Firm is part of JV contracted for €120M operation from Indonesian Public Electricity Utility. || EDF [EDF.FR] Reportedly closes bond sale to public early, raising more than €2.5B. || SocGen [GLE.FR] Update: Asset Management arm TCW has purchased natural gas pipeline in network for $200M. || Hornbach [HBH3.GE] Reports Q1 Net €37.1M v €23Me, EBIT €49.6M v €58.6Me, Rev €774.8M v €790Me ; Confirms guidance. || [BMW.GE] Reports June US sales 20,849, -20.3% y/y. || [DAI.GE] Reports US June Sales 16,271; -26.4% y/y. || [PAH3.GE] Reports June US auto sales 902 v 2,650 y/y, -65% y/y, 2,796 units in May. || [DB1.GE] Reports June metrics; Turnover at €89B -49% y/y for Xetra System. || [VOW.GE] Reports June US Sales 19,027, -18% y/y. || Lufthansa [LHA.GE] Follow up: EU Commission extends anti-trust review for Austrian Airlines deal. || Clarian [CLN.SZ] Launches CHF225M senior unsecured convertible bonds due 2014 (14% of market cap). Shares convertible into approx 29M shares. || Telefonica [TEF.SP] Considering a bid for Deutsche Telekom AG's U.K. mobile unit T-Mobile UK - FT. ||

- Speakers: Japan MOF official reiterated their view that USD remained the key reserve currency and would continue investing most of their reserves into the dollar. The official noted that such investments would serve as potential future intervention tool. Japan seeks to maintain Yen stability ||| Japanese Gov Official commented that no request for a G8 debate on currencies was received from from China. Japan noted that it was unlikely that currencies would be a major topic at next week's G8 ||| Russian Finance Ministry 'source' also noted that it had not seen a Chinese request for debate on global reserve currency issue at G-8 summit |||Japan's New Econ Min Hayashi commented that the Japanese economy and society are both in a 'state of crisis'. He noted that the country continued to face difficult times and that the current Japanese economy was at a 'very low level'. The BoJ would need to continue its extraordinary actions through September and that the US economy remained its biggest concern. The worst of economic crisis for Japan might be over at this time.
However, he noted that the export sector still remained weak. He was unsure whether the US economy has hit a bottom in its recession. ||| China's PBoC stated that it would encourage banks to offer settlement services in CNY currency and that China would control the scale of such settlement services. It noted that Yuan settlement services by cos. to be effective today and that such settlement trade could enjoy export tax rebates ||| Spain PM Zapatero commented after decent Spanish unemployment data that Gov't measures are working to ease the jobless front. He noted that he saw signs Q2 economic performance would be better than Q1 ||| Indian Gov't released an economic survey and forecasted 2010 GDP could hit 7.75%; growth but noted that its outlook depended on an US economic revival. It conceded that 2010 GDP could slow to 6.2% if US economic recovery was delayed. India stated that it must cut budget deficit to 3% of GDP as soon as possible and roll back prior interest rate cuts as economic revives. Farm output and rural job program has lifted local demand ||| SNB's Jordan reiterated the view that the central bank remained ready to continue intervening in the market to fight Swiss franc (CHF) appreciation. He noted that the markets appeared to have understood its intentions . SNB in a position of strength as it pursues massive quantitative easing. He noted that SNB was not aiming at a particular level in CHF and that intervention would continue on ad hoc basis || BoE's Besley commented that it was too early to judge whether £125B quantitative easing program was increasing growth and helping avoid deflation , fear of QE inevitably causing inflation is a "knee-jerk" reaction. Little point in speculating on when policy tightening would take place but BoE would need to tighten at some point. He noted that tightening process would involve rate hikes and sale of corporate bonds and Gilts.
The BOE's APF program was targeting "middle" of UK yield curve to avoid hoarding of cash. ||| BoE's Miles commented that it was risky to abandon the central bank's 2.0% inflation target. He stated that there was considerable slack in UK labor market and hoped the recent rapid rise in unemployment were over. He added that the BOE interest rate cuts and QE program were helping the employment front. He did concede that some parts of UK GDP loss is permanent but trend growth might not have changed much. Miles commented that currency adjustment wass natural way to achieve rebalancing (which the UK does need). Any GBP appreciation would short circuit rebalancing of economy. He noted there has been a substantial drop in trade-weighted GBP currency and a weaker GBP would have substantial impact if sustained A quick return to economic growth was unlikely but could see a "V" shape rebound over the next few quarters. However, a rapid and sustained growth outlook was viewed as unlikely. ||| Swedish Central Bank commented after its surprise interest rate cut that recent data pointed to deeper economic downturn this year and that overseas weak economic activity has had an adverse impact on Swedish economy. The Riksbank lowered its 2009 GDP outlook to -5.4% from -4.5% prior view but saw 2010 GDP rising 1.4% from its +1.3% prior view. Swedish Riksbank to offer banks SEK100B in 12 month loans at fixed rate. It noted that supplementary measures were required to ensure monetary policy could have desired effect || Poland signed second €1B policy loan with the World Bank || EU Commission noted that a second Latvian aid installment is scheduled to be paid in July. It noted that Latvia must bring its deficit to below 3% of GDP and curb its deficits

- In Currencies: The USD recovered some ground it lost during the NY afternoon on Wednesday as the reserve currency issues continues to plague its overall sentiment. The upcoming G8 will only provide more fuel for member nations possibly mulling a new 'super-reserve' currency at some future point. For the time being the dollar is subject to headline roulette on the topic. The USD off its lows after a Chinese official commented that it was "not aware" of a plan to discuss a new reserve currency at upcoming G8. A Japanese official and a Russian Finance Ministry official echoed that view and added that currencies would not likely be a major topic at the G8 summit. EUR/USD entering the NY morning just below the 1.41 handle.

- The Swedish Kroner was broadly weaker following the surprise interest rate cut out of the Riksbank. USD/SEK approached the 7.70 level before consolidating while EUR/SEK surged to test 10.84 from the 10.73 area before the surprise rate cut.

Dealers will now focus on the ECB interest rate decision where no surprises are expected in either the level of rates or in the press conference thereafter. The US employment picture will be the focus of the next leg of the dollar's price action

- In Energy: FT Deutscheland article noted that a London-based oil brokerage PVM Oil Associates was understood to have parted company with one of its senior long-standing derivatives brokers after allegedly detecting a large unauthorized Brent ICE position on his book. The wayward trade is thought to have involved anywhere between 1,800 and 9,000 lots of Brent ICE futures, which at the top end would be equal to as much as $630m or 9m barrels of oil ||Russian June Oil Output M/M: 9.89M bpd v 9.84M prior, Natural Gas Output M/M: 1.21 bcm/day v 1.29 prior || China's end of May gasoline inventories held by major domestic oil companies was 22M bbls (flat m/m). Crude stocks 38.8M tons (+0.4% m/m)

- In Fixed Income Supply: The UK sold £2.5B in 2039 Gilts with a deceptively strong cover of 1.75 times. The auction drew a yield tail of 2.5bps, below average for the particular issue but still extremely high by historical standards. France sold €6.4B in 2016 and 2019 OAT's whilst Spain sold €4.4B in 2014s. Despite all of the supply, weakness in risk markets has kept government bonds in positive territory in all main markets for most of the session. Bunds are leading the way up, consistent with recommendation from JP Morgan analysts, who expressed a preference for Bunds over Treasuries, citing the relative lack of supply

- Geo-Political: North Korea has reportedly preemptively provided its 4th of July gift by test-firing 2 short range SSM's off its east coast. North and South Korea held talks earlier today regarding a joint industrial complex at Gaeseong that ended with no agreement


NOTES

- Chinese official: "not aware" of a plan to discuss a new reserve currency at upcoming G8. A Japanese official echos that view.

- IMF's Lipsky confirms speculation that it would revise economic forecasts higher at its July 7th meeting and that advanced economies would recover in 2010

- North Korea fires two short range missile

- Euro-Zone Unemployment rises to decade high at 9.5%


Looking Ahead

US payroll and claims data will be the highlight

- 7:45 (EU) ECB Rate Decision: No change expected, current rate is 1.00%

- 8:00 (BR) Brazil May Industrial Production M/M:0.8%e v 1.1% prior, Y/Y: -12.0%e v -14.8% prior

- 8:00 (BE) Belgian Unemployment Rate: No expectations v 7.5% prior

- 8:30 (US) June Change in Non-farm payrolls: -365Ke -345K prior

- 8:30 (US) June Change in Manufacturing Payrolls: -150Ke v -156K prior

- 8:30 (US) June Unemployment Rate: 9.6%e v 9.4% prior

- 8:30 (US) June Average Hourly Earnings M/M: 0.1%e v 0.1% prior, Y/Y: 2.9%e v 3.1% prior, Average Weekly Hours: 33.1e v 33.1 prior

- 8:30 (US) Initial Jobless Claims w/e Jun 27th: 615Ke v 627K prior, Continuing Claims w/e Jun 20th: 6.74Me v 6.738M prior

- 9:00 (BE) Belgium May Unemployment Rate: No estimate versus 7.5% prior

- 9:30 (SI) Singapore PMI: 53.4 expected versus 52.9 prior

- 10:00 (US) May Factory Orders: 0.9%e v 0.7% prior