European Market Update: Shanghai Composite registers its second biggest one day gain of the year; UK registered its first net borrowing figure for the month of July in 13 years as the current UK recession has ravaged tax revenues


ECONOMIC DATA

- (PH) Philippines Central Bank leaves its Overnight Borrowing Rate at 4.00%; as expected

- (RU) Russian Gold & Forex Reserves: $400.6B v $403.4B prior

- (SZ) Swiss Jul Trade Balance: CHF2.4B v CHF1.6B prior; Exports M/M: 4.1% v -1.4% prior; Imports M/M: -1.7% v 1.9% prior

- (JP) Japan Jul Convenience Store Sales Y/Y: -7.5% v -2.3% prior

- (NV) Netherlands Jul Unemployment Rate: 4.8% v 4.9%e

- (NO) Norwegian Q2 GDP Q/Q: % v -0.7%e; GDP Mainland Norway Q/Q: % v -0.3%e

- (TT) Taiwan Q2 Current Account Balance: $9.9B v $9.4Be

- (UK) BOE Trend in lending Report: July Gross Mortgage Approvals 53.4K v 50.2K m/m

- (HK) Hong Kong Jul CPI - Composite Index Y/Y: -1.5% v -1.5%e

- (UK) Jul Retail Sales M/M: 0.4% v 0.4%e; Y/Y: 3.3% v 2.7%e

- (UK) Jul M4 Money Supply M/M: 1.0% v 0.2%e; Y/Y: 13.6% v 13.3%e

- (UK) Jul Public Finances PSNCR: £0.2B v -£5.6Be; Net Borrowing: £8.0B v £0.6Be; first net borrowing figure for the month of July in 13 years

- (SZ) Swiss ZEW Expectations Survey: 18.6 v 0.0 prior

- (TT) Taiwan Q2 GDP - Constant Prices Y/Y: -7.5% v -7.8%e

- (LV) Latvian Q2 Quarterly Unemployment: % v 13.9% prior


SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

- In equities news overnight: European equity markets followed rebound gains seen in Asia after Chinese markets recovered from Wednesday's declines. Strength in commodities and the energy complex, specifically oil continued after yesterdays surprisingly large DOE draw-downs, providing a further boost to energy and mining related sectors. Earnings out of Rio Tinto [RIO.UK] came in broadly in line with expectations and the firm confirmed synergy expectations in its iron ore JV and provided moderately positive comments regarding forward looking pricing expectations. Rio traded positive from the open of its London listing and provided further support to the basic resource program. Other earnings included cement maker Holcim [HOLN.SZ] which reiterated depressed sales volumes expectation in EU and US ops but traded higher on inline earnings figures. Further commentary out of UBS after the US close put some further finality into the swirling questions surrounding the bank. In yesterday's session, the bank, along with the US and Swiss gov reached an agreement regarding tax evasion allegations. After the close, the Swiss gov announced their intention to convert their stake to common shares and then dispose of that holding via a banking consortium. Following the open, bourses continued to trend higher and printed intersession highs just before 5:00EST. Market volumes have remained muted but are off lows seen yesterday with interest in earnings, energy and oil related names.

-In individual equities: UBSN.SZ: Swiss Govt has announced it will convert all CHF6B of its stake; UBS to issue 332M shares upon the conversion (10.4% of shares outstanding) and immediately place those shares. Swiss CHF6B stake currently was issued in mandatory convertible notes due 2011. The Swiss government has selected a consortium of banks to place the shares. || Rio Tinto [RIO.UK] Reports H1 Net $2.57B v $2.52Be, Adj Rev $18.8B v $20.2Be, will not pay interim dividend (as previously declared). Plan $3.7B in global divestments in 2009. Net debts at $39.1B (-$14.8B following rights issue). || Vendanta [VED.UK] Revised Offer to Purchase Operating Assets of ASARCO LLC to $2.1B v $1.58B previous. || Ahold [AH.NV] Reports Q2 Net profit €195M v €184Me, Rev €6.4B v €6.4Be. || Holcim [HOLN.SZ] Reports Q2 Net CHF453M v CHF436Me, Rev CHF5.6B v CHF5.8Be. Have yet to see sign of turnaround in H1 operations. FY09 cost savings program target raised to CHF600M from CHF375M. || Air Berlin [AB1.GE] Places €125M in 5-year 9% convertible bond, with a conversion price of €4.01/shr. Says funds to be used for refinancing purposes. ||

- Speakers: Bank of England (BOE) issued its trends in lending report for July. Its sampling of banks for gross mortgage approvals was at 53.4K versus 50.2K from the prior month. Gross mortgage lending rose to £9.5B compared to £9.0B prior month but net lending to business declined for the third straight month to -£0.9B compared to -£3.5B prior month. Lenders noted that competition might cut mortgage spreads; re-mortgaging remained subdued. Lenders did not see any signs of consumer credit increase ||BOJ's Mizuno commented that price decline in the Japanese economy was due to effects from the weak economy. He noted that the BOJ had no tools to push prices higher in the short term and limited policy options to fight deflationary concerns. Mizuno remained worried by weak Japanese income and wage levels. He did note that the outlook for Chinese economy had improved since April. On the currency front, the exchange rate was a risk to Japan's economic outlook and added that he was unsure of USD direction || Taiwan Gov't official noted tha it revised its 2009 GDP forecast slight upwards to a decline of 4.0% versus a decline of 4.25% prior expectations. || HKMA's Yam: Non performing loan ratio now seen at 1.5% || S&P commented about the Asian region. S&P stated that the Asian region would benefit from a Chinese economic recovery but that a sluggish US economy could hinder its rebound . S&P noted that ample liquidity situation remained in Asia and the region would record positive GDP growth in 2009

- In Currencies: The currency markets continued to take its main que from equity price action. China strategist at Merrill noted that Chinese equities were set to rebound from its slump as the bear market would not last. The Shanghai Composite ended the session up over 4.5% t move back above the 2,900 level and helped risk appetite to regain its composure. Thus risk appetite continues its usual impact of weighing upon the USD and JPY currencies to the benefit of European, emerging and commodity-related currencies.

- The EUR/USD price action was tame during the European morning. Dealers noting of chatter of a do-not-touch (DNT) option being placed with expiration set for 1-month. The range rumored to be 1.40 to 1.45 area

- A slew of GBP data provided some choppy price action for the pound. The positive retail sales figures helped to push the GBP/USD pair over the 1.66 level but it quickly retreated as the public finances data was digested. The UK registered its first net borrowing figure for the month of July in 13 years. The data showing that the current UK recession has ravaged tax revenue and the cost of unemployment benefits surged. The BOE trend in lending report basically noted that the overall view that there remained no real evidence of credit flows improving on the back of the BoE's asset purchase program. The GBP/USD approaching the NY morning just above the 1.65 handle

- In Fixed Income: Government bond markets are weaker this morning as European equities stage a revival. The UK has again been in focus and Gilt markets digested and ultimately shrugged off a smorgasbord of contradictory data with better than expected retail sales and higher than expected M4 figures contrasting with the worst July Government deficit on record. Bear steepening is a constant theme across all markets with Treasuries slightly outperforming on a relative basis.
Focus now shifts to the Treasury's 2,5 and 7y note announcements with a record package above $110B a highly plausible outcome || The UK sold £1.1B in 2032 linkers with a slightly weaker than average cover ratio of 1.75 times ||ING analyst commented that the 2010 Euro-region deficit to be 6.5% of GDP and noted that the ratio levels were disturbing. ING noted that European bond supply pressure to intensify in 2010 as EU Governments might sell around €1 trillion in bonds

- In Energy: FT reported that an undisclosed hedge fund has placed a large bet that natural gas prices will triple during Northern Hemisphere winter. Article noted that the fund spent millions for the right to buy US natural gas at $10.00/BTU in Jan and Feb.|| Hurricane Bill weakens to Category 3 storm


NOTES

- Swiss confirm it would sell its stake in UBS following its accord with the US over taxes

- China strategist at Merrill noted that Chinese equities were set to rebound from its slump as the bear market would not last; Shanghai Composite registers its second biggest one day gain of the year


Looking Ahead

- (RU) Russian Jul Unemployment: % v 8.3%e

- (RU) Russian Jul Retail Sales M/M: % v 0.2% prior; Y/Y: % v -7.1%e

- 8:00 (BZ) Brazil Unemployment Rate: 8.4%e v 8.1% prior

- 8:00 (PD) Poland Net Core Inflation M/M: 0.3% e v 0.3% prior Y/Y: 2.9%e v 2.7% prior

- 8:30 (CA) Canadian Wholesale Sales M/M: 0.2%e v -0.3% prior

- 8:30 (US) Initial Jobless Claims w/e Aug 15th: 550Ke v 558K prior; Continuing Claims: 6.215M v 6.202M prior

- 9:00 (US) Jun RPX Composite 28dy Y/Y:: No expectations v 192.05 prior

- 9:00 (BE) Belgian Consumer Confidence: No expectations v -17.0 prior

- 9:00 (US) Jun RPX Composite 28dy Index: No expectations v 192.05 prior

- 10:00 (US) Jul Leading Indicators 0.7%e v 0.7% prior

- 10:00 (US) Aug Philadelphia Fed. -2e v -7.5 prior

- 10:00 (US) Q2 Mortgage Delinquencies: No expectations v 9.12% prior

- 11:00 (US) Treasury's 2/5/7 year note announcements