Risk Aversion sentiment rises

ECONOMIC DATA

- (FI) Finland PPI M/M: -1.1% v 0.3%e; Y/Y: -9.6% v -8.0%e

- (CZ) Czech PPI (Industrial) M/M: -0.4% v -0.3%e; Y/Y: -4.9% v -4.8%e

- (CZ) Czech Export Price Index Y/Y: 1.5% v 0.3% prior, Import Price Index Y/Y: -3.3% v -4.0% prior

- (TU) Turkish July Consumer Confidence: 82.4 v 85.2e

- (TU) Turkish May Unemployment Rate 13.6% v 14.1%e

- (SZ) Swiss Jun Retail Sales (Real) Y/Y: 0.9% v -1.4% prior

- (DE) Wholesale Prices M/M: -0.6% v 0.8% prior, Y/Y: -10.5% v -9.3% prior

- (NO) Norwegian Trade Balance (SEK) 30.8B v 22.4B prior

- (EU) Jun Euro-Zone Trade Balance: €4.6B v €2.1B prior , Jun Euro-Zone Trade Balance Seasonal Adj: €1.0B v €1.3Be

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

- In equities news overnight: European equity markets opened to the downside taking their heavy tone from the equity declines seen across Asia. In China, the Shanghai Composite Index fell by over 5.75%, its largest fall in nine-months.
Declines in commodity and energy futures have equally dampened the equity tone within that sector. Major Swedish lender SwedBank [SWEDA.SW] announced at SEK15B secondary offer that has reignited speculation regarding the health of the pan-Baltic borrowing and financial sector. This secondary announcement comes after last week's sovereign rating downgrades and disappointing Q2 GDP reads for Estonia, Latvia and Lithuania. With earnings season winding down, today's pre-market only saw H2 reports out of Michael Page [MPI.UK], Fresnillo [FRES.UK] and Harmony [HAR.SA]. Bourses have continued a negative trend throughout the European mornings, ignoring mixed emerging markets data, better than expected Swiss retail sales and improved Euro-zone trade balance figures (showing declines in exports to both Russia and China). Equities pushed through the -1% mark by 3:30EST, with the CAC and DAX off over -2% by 5:00EST. Trading volumes have remained broadly in-line with their moving averages.

-In individual equities: SwedBank [SWEDA.SW] Announces SEK15B rights issue (about 30% of market cap). Rights issue to further strengthen core business. Offer will be used to consolidate current strategy. Continue to plan exit from state-backed funding scheme. Have no plans to change current guidance for any operating markets (includes Baltic regions). || Michael Page International [MPI.UK] Reports H1 Pretax £43.2M v £84.1M y/y, Rev £364.7M v £335Me, declares interim dividend 2.88p/shr (unchanged). || Fresnillo [FRES.UK] Reports H1 Pretax $180M v $202 y/y, Rev $426M v $494M y/y. || Shell [RDSA.UK] Places bid of £1.5B for Australia's Arrow Energy (AOE.AU) - Sunday Telegraph. || Harmony Gold [HAR.SA] : Reports FY09 EPS $0.29 v $0.48e, R $1.28B v $1.41Be. || EDF [EDF.FR] Has selected Barclays to prepare the auction of its UK electricity distribution network - London Times. || Nobel Biocare [NOBN.SZ] CEO: Dismisses rumor of merger plans with Straumann; says merger not possible due to anti-trust regulation. || H&M [HMB.SW] Reports July SSS -3% v -1%e. ||

- Speakers: Polish Dep Fin Min commented Poland public debt faces serious threat in 2010 and saw 2009 GDP growth of at least 0.2%; too early to say if economic slowdown has ended ||Polish Economic Aide stated that the Polish state asset sales will relieve pressure on bond sale operations. Official noted that the path towards economic recovery was going to be a long, slow pattern Have seen production output rising in some sectors

- In Currencies: Risk aversion was the theme throughout the European morning, which helped to maintain a firmer USD and JPY against the major European and commodity-related currencies. The continued weakness in China's equities and the fifth largest US bank failure cited for the fresh spat of risk aversion sentiment.

- The GBP was the softest of the majors as dealers noted that the Sonia market was pricing a less aggressive BOE stance over the coming year with 85bps of BOE interest rate hikes likely over next 12 months versus 130bbps last week. The Aug Rightmove house price index released in Asian showed the biggest MoM decline since Dec 2008. GBP/USD approached the lower end of the 1.63 handle as the European morning wore one. The EUR/USD tested below the 1.41 area while USD popped above the 1.08 level. USD/JPY holding below the 94.70 level throught the session with EUR/JPY off a big figure and GBP/JPY off 170 pips to test 154.25.

- The CAD and AUD were broadly weaker as NYMEX crude declined over $1.70/barrel to test below $68 in the Oct contract. USD/CAD testing 1.11 while AUD/USD dipped below the 0.8170 level.

- In Fixed Income: The Bank of England's quarterly inflation report, which forecast subdued inflation for the foreseeable future, is still reverberating throughout Gilt markets ahead of official CPI numbers tomorrow. The yield on the 2y Gilt hit fresh all time lows below 0.88% ahead of the figures, where inflation is expected to turn negative on the quarter and on an annual basis, fall below the Bank's 2% target for the second straight month. Bunds and Treasuries are both seeing some follow through from Friday's rally, albeit in thin volumes, as a familiar risk aversion picture takes shape, yield curves in both territories are undergoing some bull flattening thanks to long end outperformance. The 10y Note has not managed to sustain any dips below the 3.50% mark whilst the Bund tested an August low yield of 3.285%. Quantitative easing is next up on the slate, with the BoE fielding offers on £1.4B in long dated Gilts in a reverse auction and the Fed conducting a 4 to 6y Treasury coupon pass. Three month Euribor reset at another all time low of 0.86%.

- In Energy: National Hurricane center (NHC) noted that Bill became the first hurricane of the year with winds hitting 75mph. ||China's Vice Commerce Min Zhong says China should increase imports of key energy and resources products for the state's strategic reserves as part of efforts to reduce the country's trade surplus

NOTES

- Risk aversion sentiment surfaces as Chine equities slump. Sentiment that the rally in riskier assets had outpaced the prospects for economic growth. Equities lower, bond futures higher. USD and JPY firmer against European and commodity currencies

- Atlantic registers its first hurricane with Bill, but to avoid the Gulf, Ana weakens a bit and remains a tropical depression as she makes her way towards the Gulf of mexico

- UK Rightmove House prices register larest MoM decline since Dec

- Japan ends its recession as Q2 growth came sin at 0.9%

Looking Ahead

US Corporate earnings: Lowe's expected before the NY opening bell

- 8:30 (CL) Chile July Copper Exports: No expectations v $1.98B prior

- 8:30 (US) Aug Empire Manufacturing: 3.00e v -0.55 prior

- 9:00 (US) Jun Net Long-term TIC Flows: $17.5Be v -$19.8B prior

- 9:00 (US) Jun Total Net TIC Flows: $23.0Be v -$66.6B prior

- 9:00 (PD) Polish July Budget Level (Monthly Total) No expectations v -253.9M prior

- 9:00 (PD) Polish July Budget Perf. (YTD) No expectations v 91.60% prior; Budget Level (YTD) No expectations v -16.7B prior

- 10:00 (UK) BoE to buy £1.4B in 2025 - 2032 Gilts in its reverse auction

- 11:00 (US) NY Fed 2013 - 2016 Treasury coupon pass