European Market Update: UK PMI Services and production data exceeds expectations; Euro-Zone retail sales disappoint


ECONOMIC DATA

- (ID) Indonesia Central Bank cuts interest rate by 25bps to 6.50% as expected

- (UK) Jul Halifax House Price Index M/M: 1.1% v 0.6%e; 3M/Yr: -12.1% v -12.3%e

- (SP) Spain Jun Industrial Output NSA Y/Y: -14.5% v -15.0%e; Industrial Output WDA Y/Y: -16.2% v -18.6%e

- (SP) Spain Jul Services PMI: 40.8 v 41.2 prior

- (IT) Italy Jul PMI Services: 44.5 v 42.7e

- (FR) French July Final PMI Services: 45.5 v 45.5e

- (GE) German July Final PMI Services: 48.1 v 48.4e

- (EU) Euro-Zone July Final PMI Services: 45.7v 45.6e; PMI Composite: 47.0 v 46.8e

- (TT) Taiwan Jul CPI Y/Y: -2.3% v -2.2%e; WPI Y/Y: -14.1% v -14.0%e

- (UK) Jul PMI Services: 53.2 v 51.8e; highest reading since Mar 2008

- (UK) Jun Industrial Production M/M: 0.5% v 0.0%e; Y/Y: -11.1% v -11.4%e

- (UK) Jun Manufacturing Production M/M: 0.4% v -0.1%e; Y/Y: -11.7% v -12.1%e

- (EU) Euro-Zone Jun Retail Sales M/M: -0.2% v 0.3%e; Y/Y: -2.4% v -2.2%e

- (SA) South Africa Jul SACCI Business Confidence: 83.2 v 83.1 prior


SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

- In equities news overnight: Equity markets opened to the downside following yesterday's session losses but quickly corrected themselves following a strong opening from earnings related stocks (most notably Lloyds Banking Group [LLOY.UK]). Lloyds earnings highlighted a pre-market session that saw strong earnings out of French financials SocGen [GLE.FR] and Axa [CS.FR], along with reports from Carlsberg [CARLB.DC], Allied Irish [ALBK.IR] and disappointing figures from Swiss Re [RUKN.SZ]. Looking at Lloyds, despite its massive write down of £13B (worse than expected), the group did confirm expectations that impairments in H2 were seen as lower than H1, and that weak growth was seen in FY2010.
Equities retraced these earnings gains past 3:30EST in expectation of European PMI figures. July PMI's, dropping between 3:45EST and 4:00EST all showed improvement and halted the equity slide. Throughout the European morning, strong financial results out of France kept the CAC in positive territory while the DAX and FTSE bounced above and below the unchanged mark. European bourses moved higher past 5:00EST as the PBOC released its official Q2 monetary report, reaffirming its commitment to a moderately loose monetary policy and at least temporarily deflecting market concern regarding a potential Chinese clamp down on hot money. Trading volumes in the session to date have surged on interest in earnings related names with the CAC trading at +40% above its average along with average beating levels on both the DAX and FTSE.

- In individual equities: Lloyds [LLOY.UK] Reports H1 Net loss £3.96B v loss £4.9Be, Rev £11.9B v £11.3Be. H1 Impairments £13.4B v £2.9B y/y ( Around 80% the first half charge was associated with legacy HBOS's loans). Outlook: economy expected to stabilize, with weak upturn in 2010.As previously announced, expect to report a loss before tax for 2009 (excluding acquisition related negative goodwill gain). Continued pressure on margins more than offset by lower expected impairment charges in second half. || Axa [CS.FR] Reports H1 Net €1.3B v €1.0Be, Rev €48.4B v €48.1Be.
Chairman: The insurance sector and AXA were not immune to the adverse market environment. However, the Group demonstrated its capacity to act quickly and to take the necessary actions in order to preserve a solid balance sheet, manage business efficiently and maintain the trust of our customers. || Soc Gen [GLE.FR] Reports Q2 Net €309M v €46.3Me, Rev €5.7B v €5.5Be. Provision €1.1B v €1.35B q/q. Tier 1 9.5% v 8.7% q/q. Writedowns €397M v €1.51B q/q. || Swiss Re [RUKN.SZ] Reports Q2 Net loss CHF381M (incl charges) v CHF287.4Me. Outlook: The company is likely to surpass its combined ratio target of 95% for the underwriting year, provided that natural catastrophe events remain within expectations. However, the economic environment remains uncertain and the company's investment and Legacy portfolios remain exposed to market volatility. || Allied Irish Bank [ALBK.UK] Reports H1 Net loss €829.0M v profit €115.0Me (unclear if comparable), Rev €2.78B v €2.2Be. Core tier 1 cap ratio 8.5% v 6.2% y/y, tier 1 ratio 7.8% v 7.85 y/y. || Old Mutual [OML.UK] Reports H1 Pretax £538M v £415.5Me, Rev £6.56B v £1.97B y/y. || Premier Foods [PFD.UK] Reports H1 Adj Pretax £45.9M v £47Me, Rev £1.25B v £1.24Be. || Standard Life [SL.UK] Reports H1 pretax loss £21M v £112M h/h Total sales £7.5B v £9.1B y/y. AUM £156.5B v £156.8B y/y. || Adidas [ADS.GE] Reports Q2 Net €9.0M v €3.8Me, Rev €2.46B v €2.4Be. || Loewe LOE.GE: Reports Q2 EBIT €1.4M v €700Ke, Rev €71.0M v €70.6Me. || Henkel [HEN.GE] Reports Q2 Net €143M v €138Me, Rev €3.49B v €3.4Be. Outlook for 2009 remains uncertain. || Deutsche Bourse [DB1.GE] Reports Q2 Net €164.9M v €178.0Me, Rev €516M v €560Me. || Carlsberg [CARLB.DC] Reports Q2 Net DKK1.9B v DKK1.6Be, Rev DKK17.6B v DKK18.0Be; lower FY Rev guidance. ||

- Speakers: Chinese Central Bank issued its Q2 monetary report and reiterated that it would maintain a moderately lose monetary policy. The central bank noted that it would ensure loan growth but would fine tune policy based on the current economic situation. It has seen a growing number of positive economic signs It noted that deflationary pressures were seen as easing. Private investment remains weak and shrinking external demand continued to remain weak and thus hurt its exports. Domestic demand could grow farther but the economy was as of yet not on fully solid footing. ||Indonesia Central Bank noted that it would monitor inflationary pressures in 2010 as its domestic demand and commodities could stroke inflation. Its monetary policy would now be more anticipative of inflation. It saw start of global economic recovery, which would support Asian region. The PBoC noted that Quantitative Easing measures (QE) could pose inflationary risks but have helped to avert a global depression. However, it noted that QE could be a risk for currency stability || German Fin Min Steinbrueck commented that German-Swiss tax talks to start this month ||

- In Currencies: As the European morning approached a sense of risk aversion seemed apparent. Chatter circulated in the currency markets that that China's inland revenue department could increase tax on equity trading and property tax.
Rumors also spread that China would raise their capital adequacy ratio to 12% on banks from 8%. The rumors sent the yen and the dollar higher among the major European components. Lloyds Banking Group Plc posting of a first-half loss and increased the size of bad-debt provisions helped to fan the flames of risk aversion. But as the morning wore on, the temperament steadied. The stream of European data was mixed but seemed to reinforce that any economic recovery would take time and remain shallow. Nonetheless, the EUR/USD hovering around the 1.44 level.

- In Fixed Income: Yield curves flattened in both the US and Europe following the better UK production data. Gilt futures slumped over 30 ticks to test below 116.70 in the Sept contract on much better than expected domestic data, which had services PMI and industrial production output coming in well above market forecasts.

- In Energy: Royal Dutch Shell [RDS.A] To partner with PetroChina and Qatar to build a CNY80B ($11.7B) refining and chemical complex in Taizhou City, China according to Chinese Media. The plan has been submitted to China's NDRC for approval. The first phase of the complex will include an oil refinery with capacity of 400K bpd and an ethylene unit with capacity of 1.2M tons/year.


NOTES

The employment picture to be the focus now….

- European data mixed in session; UK PMI Services and production data exceeds expectations; Euro-Zone retail sales data disappoints.

- China's PBoC sees improvement in global economic outlook but reiterates that not yet on solid footing.

- UK's Lloyds bank believes that provisions for bad loans will decline "significantly"


Looking Ahead

- 7:00 (US) MBA Mortgage Applications w/e Jul 31st: % v -6.3% prior

- 7:30 (US) Jul Challenger Job Cuts Y/Y: % v -9.0% prior

- 8:15 (US) Jul ADP Employment Change: -350K expected versus -473K prior

- 10:00 (US) Jul ISM Non-Manufacturing Composite: 48.0 expected versus 47.0 prior

- 10:00 (US) Jun Factory Orders: -0.8% expected versus 1.2% prior

- 11:00 (HU) Hungary Jul Budget Balance YTD (HUF): No estimate versus -814,6B prior

- 15:30 (MX) Mexico Jul Consumer Confidence: 80.6 expected versus 81.0 prior