European Market Update: Polish GDP exceeds forecasts and helps overall risk appetite; Dealer wait to see if USD encounters any more air pockets


ECONOMIC DATA

- (FI) Finland Jul Preliminary Retail Sales Volume Y/Y: % v -1.0%e

- (CZ) Czech Jul Industrial Production Y/Y: -18.4% v -16.0%e

- (SP) Spain Jul CPI (EU Harmonized) Y/Y: -0.8% v -1.0%e

- (SP) Spain Jul Real Retail Sales Y/Y: -4.6% v -3.0%e; Adj Retail sales Y/Y: -4.9% v -4.1%e

- (SW) Swedish Jul PPI M/M: 0.7% v 0.3%e; Y/Y:0.9% v 0.5%e

- (SW) Swedish Jul Retail Sales M/M: 1.9% v 0.4%e; Y/Y: 5.4% v 3.2%e

- (PD) Poland Q2 GDP Y/Y: 1.1% v 0.5%e

- (IT) Italian PPI M/M: -0.6% v -0.3%e; Y/Y: -8.5% v -8.1%e

- (NO) Norwegian Q2 Manufacturing Wage Index Q/Q 0.8% v 0.9% prior

- (UK) Q2 Preliminary GDP Q/Q: -0.7% v -0.8%e; GDP Y/Y: -5.5% v -5.6%e

- (UK) Jun Index of Services (3mth/3mth) -0.6% v -1.0% prior

- (EU) Euro-zone Aug Business Climate Indicator: -2.21v -2.50e; Consumer Confidence: -22 v -21e

- (EU) Euro-zone Aug Euro-Zone Economic Confidence: 80.6v 78.0e; Industrial Confidence: -26 v -28; Services Confidence: -11 v -17e

- (SZ) Swiss KOF Leading Indicator -0.04 v -0.60e; Strongest MoM increase on record)

- (UK) UK Land Registry: UK July house prices M/M: +1.7%; Y/Y -11.7%


SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM 

- In equities news overnight: European equity markets opened to the positive side shaking off mixed trading results in Asia (specifically negative closes on the Hang Seng and Shanghai Composite). Moderately positive earnings results out of Lukoil [LKOH.RU], Bouygues [EN.FR], and L'Oreal [OR.FR] paired reaffirmed guidance out of Carrefour [CA.FR] and mixed earnings out of Aeroports De Paris [ADP.FR], Party Gaming [PRTY.UK], Dana Petroleum [DNX.UK] and Iberia [IBLA.SP].
 Markets traded in choppy fashion through the first hour of trade while maintaining their positive footing. At 4:00EST Poland released its Q2 GDP at 1.1%, ahead of expectations and providing at least temporary relief to concerns regarding the CEE region. Equity markets moved sharply higher following this release, specifically on the DAX where many companies have banking and retail exposure to the country. UK preliminary Q2 GDP showed an upward revision at 4:30EST to -0.7% from the expected -0.8%e and sustained the equity softness. Markets paired some gains into the 5:00EST hr following the ECB August banking report that reiterated cautious guidance and expectations for slow recovery in 2010. In sector performance, Consumer Services (led by Carrefour) and Basic Materials led the upward trend while Telecommunications and Oil and Gas lagged. Trading volume has been strong with continued outperformance in the CAC and a positive showing in the DAX following chatter related to Commerzbank [CBK.GE].

-In individual equities: Carrefour [CA.FR] Reports H1 Net Loss €58.1M (includes €511M charge) v €58.7Me, Rev €41.3B (ex VAT) v €41.2Be. Confirms FY09 Op Profit target of €2.7 - 2.8B, providing current sales trends continue. || Lukoil [LKOH.RU] Reports Q2 Net $2.3B v $1.8Be, Rev $20B v $19Be. H1 Hydrocarbon production in BOE/d 2.2M v 2.17M y/y. || Dana Petroleum [DNX.UK] Reports H1 Pretax £22M v £34Me, Rev £165.1M v £196Me. || Party gaming [PRTY.UK] Reports H1 Net loss $67M v profit $33Me, Rev $201M v $200Me. || Stage Coach Group [SGC.UK] Provides Interim Statement: The overall profitability of the Group since 30 April 2009 has remained in line with management's expectations. || National Express Group [NEX.UK] Owners looking to reject revised offers for firm from CVC and Cosmen family -FT. || Aerports De Paris [ADP.FR] Reports H1 Net €127M v €123Me, Rev €1.3B v €1.3Be. Guides FY09 passenger traffic down 4.5-6.5% y/y, slight increase in 2010. || Bouygues [EN.FR] Reports 1H net €547M v €561Me; op profit €790M v €722Me. Raises guidance for 2009 Rev to €31.5B v €31.4Be (prior guidance was €31.3B). || Maurel Et Prom MAU.FR: Reports H1 Net €12M v loss €35M y/y, Rev €75.5M v €81.4Me (1 est) || Lufthansa [LHA.GE] S&P cuts ratings one notch to lowest level of investment grade, to BBB- from BBB; outlook Negative. || Tui AG [TUI1.GE] Hapag-Lloyd unit sees H2 loss of $700M to $1B -Platow. Losses at unit are reportedly to affect shareholders in Tui, the largest stake holder in operations. || Iberia [IBLA.SP] Reports Q2 Loss €73M v €70Me, Rev €1.1B v €1.1Be. Reports H1 Net loss €165M v loss €161Me. To cut flight capacity by 5% on H2. || Vopak [VPK.NV] Reports H1 Net €114M v €118Me , Rev €492M v €503Me. Guides FY EBITDA (ex items) €495M v €441Me. ||

- Speakers: ECB Aug Banking Sector Stability Report reiterated some general theme that Global and domestic demand to gradually recover in 2010. The report noted that tight lending practices could pose more risks to bank sector and that its outlook for banks remained uncertain. Loan losses might not peak before end of 2009 and stressed that banks should take advantage of public financial aid || Polish Central Banker Pietrewicz (usually a policy Dove) commented after better-than-expected Q2 GDP data that there was no need to change interest rates. Direction of economy was optimistic and noted that 2009 GDP could exceed 1% || Polish Central Banker Slawinski was also on the wires noting that its Economy was clearly entering recovery phase || EU's Almunia noted that the Euro-zone cannot ignore risks of inflation in medium to long term || Polish Central Banker Owsiak stated that today's Q2 GDP data in Poland suggested that there was no need for interest rate cuts in H2 || Polish PM Tusk commented that the 2010 budget deficit would be larger than what Gov't sought.
Tusk added that the country needs 'very serious' fiscal discipline ||

- In Currencies: The Better Polish GDP numbers indirectly helped fuel additional risk appetite and complemented with firmer equity markets, that Equity correlation working with the USD and JPY related apirs. In the Macro picture the USD maintaining it's broad trading range but probing its extreme deviation point. The EUR/USD was little changed from its Tokyo open at 1.4365 and holding below its historical pivot point of 1.4430. The USD/CHF pair continued to probe the key daily pivot point of 1.0570. Dealer chatter focused on the price action seen in yesterday's late NY session. Dealer chatter focused on the price action noting that the flow was actually a USD/CHF amount around three yards ($3B). Reason varied as to the rationale for the flow ranging from the result of the CHF 5.5B UBS stake the Swiss govt sold out of last week that someone bought and paid for out of USD; A bank's system error that triggered the flow; repercussions from the US tax ruling on Switzerland; to simply a stop order being elected in thin, summer market. Overall month end factors could result in further choppy price action later today.

- The concern over the USD sentiment helping commodities hold onto gains into the NY morning with Oct crude futures up over 70 cents to $73.25 area and spot gold up 0.3% above the 951 level.

- In Fixed Income: Government bonds have suffered under the weight of an equity rally in Europe this morning, following slightly better than expected Polish and UK GDP figures and an improvement in Eurozone Business confidence. The yield on the 10y Bund is 2bps above its 200 day movng average at 3.27%, with the 10y Gilt approaching 3.57%. Italy sold €6.5B in conventional 3 and 10y BTPs with reasonable results. In corporate issuance, order books on a $750M offering from Swiss Re are open with price talk around the +165bps/swaps area. ||Debt futures decline also attributed to yesterday as German inflation moved out of negative territory and with confidence indicators continuing to improve the medium term.

- In Energy/Metals/Commodities: China Ministry of Industry and Information Technology commented that domestic nonferrous metals industry still faced a problem of oversupply and no certainty that the nascent recovery in demand would be sustained even though there are signs of improving market conditions. || China's NDRC has told Sinopec and CNPC to increase liquefied petroleum gas (LPG) supply . Sinopec's refining volume might reach a 2009 record in Aug and could rise 29% from Jan levels.

- In the papers: UK FSA Chairman Turner in an FT piece noted that the "Tobin tax" was feasible and enforceable. Setting the right level of a transaction tax would be difficult. This is a 'hot issue'. Back in Jan 2006 ECB's Trichet commented that the central bank was "hostile" to a Tobin-style tax on securities transactions. A Tobin tax is the suggested tax on all trade of currency across borders. Named after the economist James Tobin, the tax is intended to put a penalty on short-term speculation in currencies. The original tax rate he proposed was 1%, which was subsequently lowered to between 0.1% and 0.25%.


NOTES 

- Polish GDP exceeded expectations and provided European equity markets with a reason for continued euphoria

- Japan unemployment rate hits record high 5.7% just ahead of Sunday elections

- China's new Aug loans might fall below CNY300B v CNY356B in July

- Market seems to be testing SNB resolve on CHF currency

- Fed's Bullard: Cautiously optimistic about US economic outlook; Rates will stay low for extended period; Fed to begin exit of current policy in 2010, exiting includes raising Fed Funds rate

- The Big question as markets head into Sept and year end: What will happen when stimulus spending dries up?


Looking Ahead

- 6:30 (PD) Polish Central Bank's Skrypek speaks in Polish Parliament

- 7:00 (BR) Brazil Aug FGV Inflation IGP-M M/M: -0.4% e v -0.4% prior, FGV Inflation IGP-M Y/Y: -0.7% e v -0.7% prior

- 8:30 (CA) Canadian Q2 Current Account (BOP) -$11.2B e v -$9.1B prior

- 8:30 (CA) Canadian Jul Industrial Product Price M/M: -0.5% e v 0.7% prior; Raw Materials Price Index M/M: -3.0% e v 6.2% prior

- 8:30 (US) Jul Personal Income 0.1% e v -1.3% prior; Personal Spending 0.2% e v 0.4% prior

- 8:30 (US) Jul PCE Core M/M: 0.1% e v 0.2% prior; PCE Core Y/Y: 1.4% e v 1.5% prior; PCE Deflator Y/Y: -0.9% e v -0.4% prior

- 10:00 (US) Final Aug University of Michigan Confidence 64.0e v 63.2 prior