European Market Update: Initial risk appetite gives way to aversion as German 2010 unemployment forecast and Swedish budget revision shows economic reality


ECONOMIC DATA

- (IN) India Aug Manufacturing PMI: 53.2 v 55.3 prior

- (IN) India Government official: India July Trade Balance -$6.0B v -$6.2B prior

- (SZ) Swiss Q2 GDP Q/Q: -0.3% v -1.0%e ; Y/Y: -2.0% v -3.0%e

- (GE) German Retail Sales M/M: 0.7% v 0.7%e; Y/Y: -1.0% v -1.2%e; First MoM rise in 3 months

- (SW) Swedbank Aug PMI Survey: 52.4 v 54.5e

- (TU) Turkey Aug PMI Manufacturing: 53.7 v 54.0 prior

- (IR) Irish Aug NCB Manufacturing PMI: 44.0 v 43.7 prior

- (SP) Spain Aug Manufacturing PMI: 47.2 v 47.3 prior

- (SZ) Swiss SVME Aug PMI: 50.2 v 46.9e

- (CZ) Czech Aug PMI Manufacturing PMI: 47.1 v 43.5 prior

- (IT) Italian Business Confidence: 74.8 v 73.0e; Retailers Confidence: 98.1 v 98.7 prior; Services Survey: -6 v -13 prior

- (IT) Italian Aug Final PMI Manufacturing: 44.2 v 46.2e

- (FR) French Aug Final PMI Manufacturing: 50.8 v 50.2e

- (GE) German Aug Unemployment Change: -1K v 30Ke; Unemployment Rate: 8.3% v 8.4%e

- (GE) German Aug Final PMI Manufacturing: 49.2 v 49.0e

- (EU) Euro-zone Aug Final Manufacturing: 48.2 v 47.9e

- (IT) Italian Jul Hourly Wages M/M: 0.2% v 0.2%e; Y/Y: 2.1% v 2.2%e

- (HU) Hungary Aug PMI: 45.8 v 49.2 prior

- (UK) Jul Net Consumer Credit: -£0.2B v £0.1Be; Net Lending Secured on Dwellings: -£0.4 v £0.3Be

- (UK) Jul Mortgage Approvals: 50.1K v 50.1Ke

- (UK) Jul Final M4 Money Supply M/M: 1.5% v 1.0% prior, Y/Y: 14.5% v 13.6 % prior

- (UK) Aug PMI Manufacturing: 49.7 v 51.5e

- (EU) Euro-zone Unemployment Rate: 9.5% v 9.5%e

- (SA) South Africa Aug Kagiso PMI: 39.3 v 38.2e


SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

- In equities news overnight: Equity markets in Europe looked set to start September on a positive note with a strong open.
A broadly positive Asian session that saw a recovery in trading on the Shanghai Index and a RBA rate decision holding Australian rates (as expected) at 3.00%. Positive earnings reports out of French names Vivendi [VIV.FR] and Vinci [DG.FR] (that also announced a purchase/equity stake with Qatar) were leading movers to the upside at the start of European trading. Opening levels were slowly lost as bourses drifted lower through the 3:00EST hr. PMI figures, all reading slightly ahead of expectations provided little stimulus and markets continued to trend lower approaching the 4:00EST release of German unemployment. Germany August unemployment was leaked at a loss of -1K (which was then confirmed) compared to the expectation of a gain of 30Ke. German Labor Min comments that 2010 unemployment is seen in a broad range of 4-5M v 2009 seen at 3.7M added further immediate weight to the trading picture. European bourses fell into negative territory with the FTSE and DAX moving below the -1.00% mark and the CAC down just about -0.75%. UK August PMI read at 4:30EST below the expectation, and lower than 50, furthered the downtrend. These lows have served as a new base for trading with equities gradually sliding lower into and through the 5:00EST hr. Volumes have been strong with the FTSE outperforming as it attempts to make up for the holiday celebrated yesterday and markets more broadly react to data flows.

-In individual equities: Vinci [DG.FR] Reports final 1H Net profit €690M v €639Me, EBIT €1.4B v €1.4Be. Order Book at end of June €24B. To pay interim dividend of €0.52/share. To buy electric engineering firm Cegelec from Qatari state-owned from for €1.18B in 31.5M share offering. Qatar to hold stake of 5-8% in firm for period of 3 years. || Eiffage [FGR.FR] Reports 1H operating profit €423M v €466Me; net profit €50M v €140M y/y. Lowers 2009 Rev guidance to €13.4B (€13.79B given Feb 27) v €13.4Be. || Vivendi [VIV.FR] Reports H1 Net profit €1.4B v €1.3Be, Rev €13.1B v €13.1Be - Les Echos.
Confirms FY09 guidance for operating profits to rise y/y. Seeking to maintain dividend level. ||Areva [CEI.FR] Reports final 1H Net €161M v €456Me, Rev €6.5B v €6.6Be. Backlog €49B +6% y/y. Notes that cannot confirm its outlook for 2009.
Expect 2009 operating income similar to 2008; sees strong backlog of growth in 2009. || Lloyds [LLOY.UK] The second £1B tranche of the £10B business lending guarantee. Scheme has been agreed between the firm and the business department - FT. Under the arrangement, the government has guaranteed half of the risk on a portfolio of Lloyds' existing short-term loans to companies in return for the bank agreeing to more business lending. || RSA Insurance [RSA.UK] Mulling a $1B (£614M) rights offering (14% of market cap)- London Telegraph. || Anglo Gold Ashanti [ANG.SA] Prices secondary at ZAR288.32/share (2% discount from current price). Puts gross value of 7.8M share cap raise at ZAR2.249B (2% of market cap). || Air Berlin [AB1.GE] BlueBay Asset Management funds bought convertible bonds on Aug 25 that mature in 2014.
Bonds can be converted to equity in 2014 that would account for approx 4M shares. Would give BlueBay a 5.2% stake in the airline. || Commerzbank [CBK.GE] CEO Blessing says the firm may return to profit next year - FT. Says Q2 "marked the bottom" for the lender. || Ferroval [FER.SP] Fraport is not interested in buying either Stansted or Gatwick -Franfurter Allgemeine Zeitung. ||

- Speakers: (GE) German Labor Min: Sees avg 2009 jobless below 3.7M but added that he expected 2010 unemployment to be between 4-5M|| Swedish Budget Authorityrevised their 2009 budget deficit higher at SEK201B compared to its SEK160B prior forecast || India Planning Panel revised its 2007-12 GDP growth outlook to 7.8% from 9.0% prior view. The panel forecasted FY2010 GDP growth at 6.3%; 2011 GDP growth at 8% and 2012 at 9%. Panel head Ahluwalia commented later that he expected Indian GDP growth over the next few quarters but expected a stronger recovery in Jan-Mar quarter (Q4 of the Indian FY)|| German government announces €17.5B plan to prevent credit crunch, to guarantee loans from state bank KfW and provide aid for credit insurers || Chinese regulatory authorities reportedly investigating some derivatives contracts

- In Currencies: Rising risk appetite initially sent USD and JPY lower against their respective pairs in Europe and commodity regions aided by series of economic data from both the Far East and Europe. The Aug China PMI data showed that its manufacturing grew at its best pace since Q1 2008. On the European front the Swiss Q2 GDP and German retail sales data both exceeded expectations. However, as the European session wore on a slew of minor economic releases and comments helped the risk aversion sentiment to simmer with the Swedish budget revision and German labor Min 2010 outlook as key focus. The German government announcement of a €17.5B plan to prevent credit crunch helped to sooth the rising aversion in the session. Nonetheless the initial euphoria over the growth outlook seemed to be enveloped by concerns over the impact of unemployment on future consumer spending and the Federal fiscal impact of slow growth going forward.

- The EUR/USD continues to consolidate within its two-week trading range of 1.42 to 1.44 area with chatter circulating of a 1.4450 DNT (Do-Not-Touch) option being defended. The option reportedly has a Friday expiration (which corresponds with the US payroll data release).

- The GBP/USD dipped into negative territory after the UK Manufacturing PMI unexpectedly fell back to 49.7 and the July reading was revised lower. GBP/USD moving back towards the lower 1.62 neighborhood.

- The JPY was slightly weaker against the major pairs bit off its worst levels in the session. As September trading commences, dealers will keenly be aware of the Japanese repatriations into fiscal half-year end for many firms. There has been recent press reports that an increasing number of Japanese firms plan to take advantage of tax exemptions on dividends from overseas units to repatriate funds with ¥40T mentioned in value.

- The EUR/CHF cross linger just over the 1.5130 key technical support in recent weeks. The break of that level (and 1.0570 in USD/CHF on a value date-change close) would force the SNB to step up its effort to counter CHF appreciation.

- In Fixed Income: The early portion of European data releases were bond negative this morning in Europe. However Government bonds are now benefiting from risk aversion following a second wave of under whelming economic numbers and cautious comments from Government officials. Gilts are outperforming Bunds after UK PMI manufacturing fell back below the 50 level in August, and after the BoE revealed foreign purchases of Gilts had increased by £1.6B in July, compared to a decrease of £2.6B in June. The yield on the 2y Gilt is not far away from all time lows at 0.83% , whilst 10y Gilts are sitting right at their 200 day moving average of 3.523%. Despite underperforming on a relative basis, Bunds have reclaimed the 3.25% level in the cash market following developments in German employment. On a seasonally adjusted basis Germany added 1,000 jobs in August, with Unemployment at 8.3%, both better than the market expected. But the German Labor Minister's forecast of joblessness reaching up to 5M in 2010, more than a million higher than current levels, spooked that market saw and saw equities slump and government bonds rise. Some rumours circulated of a month end related liquidation of a large equity position, rebalanced into bonds. Issuance has picked up this morning in the corporate, sovereign and even supra sovereign spheres. Order books are open on offerings from German firms Fraport and IKB.
Sweden is planning a 2y EUR denominated benchmark issue (price talk at 12bps below swaps) whilst Slovenia's 15y issue is said to be attracting good bidding, indicated at +85bps over swaps. The EIB is planning a 3y USD denominated bonds in a benchmark offering, and Austria comfortably sold €2.2B in 5y and 10y RABG's

- In Energy: Iraq Aug oil exports at 2.0M bpd, down 1.3% MoM with sales at ales $4.3B v $4.07B m/m || Reportedly China's NDRC plans to raise gasoline and diesel prices by CNY300/ton. || India July Crude Oil import (ex Reliance) -16% y/y,


NOTES

- Bubbelvision noting that statistically September is the weakest month of the year for equities; also historically September is also the most volatile month for Forex

- China Shanghai Composite stages relief rally

- Swedish Budget revision and German Labor Minister 2010 unemployment outlook brings risk aversion back in focus

- German Labor Min cast a wider net for 2010 unemployment between 4M to5M versus the 3.7M 'worst' case in 2009. Post German Federal election deal speculation gives pause to the extreme reading for 2010…

- UK Aug Manufacturing PMI unexpectedly fell back to 49.7 and the July reading was revised down to 50.2 from 50.8 prior

- German government announces €17.5B plan to prevent credit crunch


Looking Ahead:

US- mfg PMI, Pending Homes Sales, Construction.

- (BE) Belgium Jul Unemployment: % v 8.1% prior

- 9:30 (BR) Brazil Aug PMI Manufacturing: No estimates v 48.0 prior

- 10:00 (US) Aug ISM Manufacturing: 50.5e v 48.9 prior, Prices Paid: 57.8e v 55.0 prior

- 10:00 (US) Jul Pending Home Sales M/M: 1.6%e v 3.6% prior, Y/Y: No estimates v 3.6% prior

- 10:00 (US) Construction Spending M/M: 0.0%e v 0.3% prior

- 12:30 (MX) Mexico to sell 3-year I/L Bonds and MXP5B in 3-year bonds