European Market Update: G8 summit begins without China's leader; German Industrial production exceeds expectations


ECONOMIC DATA

- (SZ) Swiss June Unemployment Rate: 3.6% v 3.5%e; Unemployment Rate SA: 3.8% v 3.6%e

- (FR) June Bank of France Business Sentiment: 84 v 84e

- (TU) Turkish May Industrial Production Y/Y:-17.4% v -15.8%e

- (SW) Swedish May Industrial Production M/M: -2.7% v 0.5%e; Y/Y: -21.9% v -20.0%e

- (SW) Swedish May Industrial Orders M/M: 3.8% v 0.4% prior, Y/Y: -30.1% v -30.0% prior

- (CZ) Czech June International Reserves: $38.4B v $38.5B prior

- (UK) Halifax House Prices M/M: -0.5% v +0.3%e; 3M/Y: -15.0% v -14.4%e

- (EU) Euro-zone Q1 Final GDP Q/Q: -2.5% v -2.5%e;Y/Y: -4.9% v - 4.8%e

- (GE) German May Industrial Production M/M: 3.7% v 0.5%e; Y/Y: -17.5% v -20.0%e


SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

- European equity markets opened with a heavy tone but signs of an inclination to recover quickly emerged. This was in spite of a broadly negative trend in Asian equity markets, shown in the sharp downtrend in Indian markets following yesterday's slight rebound. Within 30 min of the open, the DAX recovered its losses, pushing to as high as +0.25% before falling back into negative territory and then bouncing around the unchanged mark. Pre-market comments out of the Bank of France, which revised its Q2 GDP view higher, along with reports out of China that industrial names had settled ore negotiations drove the fleeting interest in equities. Analyst upgrades out of Citi, RBS and BoA on basic resource names pushed that sector on the open, specifically within the FTSE100. In other sector moves, Infineon's [IFX.GE] announced unit sale moved that name and other Germany listed techs higher, accounting for much of the strength seen on the DAX. Markets resumed their negative trend ahead for the 4:00EST release of the UK Halifax house prices. Those figures, reading below expectation, unexpectedly deflected the equity trend and led to a marginal rebound. Markets again bounced in and around the unchanged to marginally negative range before turning pronouncedly negative ahead of the 5:00EST release of Euro-zone Q1 final GDP. That figure was inline with expectations at -2.5%, once again causing markets to bounce. Tech and basic resources have continued to serve as primary drivers of equity strength while energy and financial names have been the main larger on bourses. Volumes in today's trading session have been mixed with the CAC significantly outperforming its average with high volume in tech names. DAX and FTSE volumes remain inline with averages.

- In individual equities: E.on [EOAN.GE] and GDF Suez have been fined €553M each by EU for a cartel in gas market (total fine €1.1B). Note: Both firms have stated their intention to appeal any fines in case. Reminder: On June 27, it was reported E.On may be fined by European Commission for colluding with Gaz de France by dividing natural gas markets - Der Spiegel. Rio Tinto [RIO.UK] 4 Staff members from firms Shanghai office have been detained by Chinese authorities -Guardian. Staff members from iron ore sales and marketing arm based in China. Have been detained since Sunday. One of those arrested is AU passport holder, the other 3 Chinese passport holders. And -China has agreed to a 33% price cut for iron ore - China Business News- Also, China has agreed to biannual iron ore talks. The price cut is effective from April through Oct. The report cites unidentified sources. 3i [III.UK] Provides interim trading statement: Registers £2.0B debt shelf. Focus in the Q1 was on strengthening the balance sheet. Successful rights issue, receipt of the proceeds from 3i QPE, and other operational cash in-flow resulted in a reduction of net debt to £961M at 30 June 2009 from £1.91B at 31 March 2009. Evraz [EVR.UK] Launches $600M convertible bond and $300M in new share offering (total of 12% of market cap). Proceeds from the Offerings are intended to be used to refinance existing debt and for general corporate purposes. Carillion [CLLN.UK] Provides interim statement: Sees strong growth in H1, net borrowings lowered by £150M. Remains on track to achieve our objective of delivering materially enhanced earnings in the full year. Order book at £19.7B with potiential additional pipeline of £2.9B. M&S [MKS.UK] Up to half of the company's shareholders are expected to call for Sir Stuart Rose to step down early as executive chairman - London Times. Reminder: Group to hold AGM today in London. Heidelbergcement [HEI.GE] Reports 5-month sales at €4.3B, have disposed of €324M in assets in H1. Bayer [BAY.GE] Submits filing for Estradiol-based oral contraceptive to US FSA. Infineion [IFX.GE] To sell wireline communications business to Golden Gate Capital for €250M. Holcim [HOLN.SZ] Placing 50M shares at CHF42/shr in a CHF2.1B equity offering (13% of market cap). Share subscription period to run July 10-16. Banesto [BTO.SP] Reports H1 Net profit €409.5M v €403.2Me. Bad loans rate 2.3% at end of June v 1.97% at end of March. Tata Steel [TATA.IN] Steel demand to remain strong in India; Have raised some steel spot prices by INR500/ton for July delivery. Continues to expect to achieve 20-25% increase in sales volumes for 2009.

- In speakers: the ECB's Gonzales-Paramo commented that there was no need for new policy steps. The member noted that some Euro-Zone economies would return to growth next year. IMF commented that it might not need to extend current loan to Hungary but was prepared to discuss a 'cautionary' loan. ECB stated no purchases were made in the covered bond program as of July 7, 2009. S&P commented on the recently proposed 2009/10 Indian budget and noted that the announcement leaves the country's "BBB-" sovereign ratings view open. S&P reiterated that high levels of state debts are not sustainable in the medium term. S&P noted that the budget speech did not provide details on divestiture of state owned firms or of a road map for fiscal reform. If India achieves fiscal consolidation in the next two to three years, the sovereign ratings on India could be maintained. ECB stated no purchases were made in its €60B covered bond program as of July 7, 2009. It noted that purchases would only show up in its regular liquidity supply updates when they were settled | Canadian PM Harper: Too soon to begin talk of additional stimulus plans|| German Chemical group VCI reiterated its 2009 forecast of a 10% decline in production and a 12% fall in sales. It noted that companies were finding it increasingly more difficult to finance big deals. White House commented that it saw no differences among G8 over stimulus exit strategies. Japan Opposition Lawmaker commented that were studying ways to increase the return on its currency reserves.

- In currencies: The USD and JPY began the European morning on a firm note as continued risk aversion. The EUR/USD moved below the 1.39 level and USD/JPY probing towards the lower end of the 94 handle. The lower Asian equities were cited for the continued risk aversion tone. The CHF moved above the 1.09 level following its worse-than-expected unemployment data. The USD retreated back into negative territory against the European pairs as the NY morning approached following the price action of the equity markets, which recovered from opening level lows with the FTSE and DAX pushing into positive territory for the session. German Industrial Orders for may beat expectations and provided some additional upside momentum for the Euro as it tested 1.3940. Dealers do note that the overall price actions seems to be mirroring yesterday. The G8 summit begin in Italy today and the draft statement was in-line with various leaks from sources over the last 24-hours. The G8 Draft statement sees substantial risks remain to economic and financial stability. The draft had no direct mention of currencies.

- In energy: OPEC Provided its medium term outlook. OPEC now expects 2013 crude demand to be below 2008 levels, now seen at 87.9M b/d (down 5.7M b/d from previous target). A NY Times article notes that Federal regulators are considering restrictions on speculative traders in oil, natural gas and other energy products. The article noted that the move is a big departure from the hands-off approach to market regulation of the last two decades. It also highlights a broader shift toward tougher government oversight under the Obama Administration. In the case of oil and gas trading, regulators made it clear that they were willing to move, without waiting for Congress to act on Mr. Obama's overhaul, invoking their existing powers. . CFTC consider imposing volume limits on trading of energy futures by purely financial investors and that it already has adopted tougher information requirements aimed at identifying the role of hedge funds and traders who swap contracts outside of regulated exchanges

- In Fixed Income Supply: Having opened bid government bonds have managed to hold onto gains in Europe this morning with yield curves gyrating in and out of flattening mode, as the unwinding of leveraged steepener trades contrasts with intermittent short end buying on bouts of risk aversion. The UK sold £1B in 2027 linkers with acceptable results whilst Portugal sold €1B in 10y Bonds at just over 100bps over Bunds. Three mnth euribor continued its decline, fixing at 1.029%

- G8 Summit: Reportedly G8 Draft statement Substantial risks remain to economic and financial stability. The draft had no direct mention of currencies. The G8 was committed to ensuring fiscal sustainability in the medium term. The members saw signs of economic stabilization including recovery in equity markets. The statement noted that stable and sustainable long term growth needs smooth unwinding of current account imbalances. Economic stimulus that is provided will be in line with price and fiscal stability goals. The statement noted that countries need to prepare an exit strategies once recovery is assured, and noted that strategies would vary depending on economic conditions and public finances. The G8 sought a quick commitment on tax havens, and added that it could not tolerate tax evasion


NOTES

- The G8 summit begin in Italy without China's PM (who went back home to deal with ethnic unrest)

- G8 Draft reportedly does not mention currencies and suggests planning for exit strategies

- Switzerland might seize UBS. data to prevent US DOJ from pursuing court order seeking account holder identities

- OPEC revises lower its medium term global demand; now sees 2013 demand below 2008 levels

- German Industrial Production beats expectations (similar to yesterday's factory orders)


Looking Ahead

- 7:00 (US) MBA Mortgage Applications w/d Jul 2nd: No estimates versus -18.9% prior

- 8:00 (BR) Brazil June Inflation IPCA M/M: 0.3%e v 0.5% prior, Y/Y: 4.8%e v 5.2% prior

- 10:00 (UK) BoE reverse auction

- 10:30 DOE petroleum inventory data expected (consensus expectations: Crude: -2.5Me; Gasoline: +800Ke; Distillate: +1.7Me; Utilization: 86.8%e

- 13:00 (US) Treasury to reopen $19B in 10y Notes

- 15:00 (US) May Consumer Credit: -$8.8B expected versus -%15.7B prior