European Market Update: Gold bug heaven as chatter that Chinese fund managers behind price moves in Gold and USD; ECB press conference more important that rate decision; OECD sees recovery taking place sooner


ECONOMIC DATA

- (SW) Swedish Riksbank's Interest Rate Decision kept interest rates unchanged at 0.25%; as expected

- (FR) French Q2 ILO Unemployment Rate: 9.5% v 8.9% prior; Mainland unemployment Rate: 9.1% v 8.5% prior, Mainland unemployment Change: 184K v 201K prior

- (CZ) Czech Avg Real Wages Y/Y: 1.4% v 2.1%e

- (IR) Irish Aug NCB Services PMI: 46.7 v 42.4 prior

- (SP) Spain Services PMI: 45.3 v 40.8 prior

- (NE) Dutch Aug CPI M/M: 0.3% v 0.3%e; Y/Y: 0.3% v 0.4%e; EU Harmonized CPI M/M: 0.2% v -1.6% prior; Y/Y: -0.1% v -0.1% prior

- (IT) Italian Aug PMI Services: 46.4 v 46.0e

- (FR) French Aug Final PMI Services: 49.3 v 48.9e

- (GE) German Aug Final PMI Services: 53.8 v 54.1e

- (EU) Euro-zone Aug Final PMI Services: 49.9 v 49.5e; PMI Composite: 50.4 v 50.0e

- (SP) Spanish Aug Consumer Confidence: 79.5 v 79.0e

- (UK) Aug PMI Services: 54.1 v 54.0e; highest reading since Sept 2007

- (EU) Euro-zone Retail Sales M/M: -0.2% v 0.1%e; Y/Y:-1.8% v -2.2%e

- (SA) South Africa SACCI Business Confidence: 83.0 v 83.2 prior

- (SZ) South Africa Q2 Current Account (ZAR): -73.1B v -99.3Be; Ratio of GDP:-3.2% v -4.4%e


SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

- In equities news overnight: European bourses opened at their best levels for the current trading session taking heart from a late session rally in mainland Chinese exchanges. European markets looked ahead to a session full of data and central bank actions. Strong PMI readings (ex Germany) out of Spain, Sweden, Italy and France, along with moderately successful auction results out of Spain and France supported a choppy equity session in the European morning. Following opening level highs, markets paired the majority of their gains, drawn lower by initial losses in banking and industrial names. These losses were recovered and financials showed signs of recovery following both the Riksbank rate decision and an G7 GDP upgrade out of the OECD. Commentary regarding factory and order utilization out of the German trade association VDMA fueled an uplift in heavy manufacturing and export names on the DAX. Trading patterns have followed an upward trajectory on European bourses following their initial lows as potions are built ahead of the ECB rate decision (11:45 GMT), US SSS figures and US Initial Jobless Claims all expected in the NY morning. Volumes continue to be strong but are lighter than those seen on Tuesday or Wednesday of this week. Despite this, the CAC and DAX have traded ahead of their moving averages.

-In individual equities: Pernod Ricard [RI.FR] Reports FY09 Net €945M v €840Me, R €7.2B v €7.2Be. Gross margin 58.4% v 57.2% y/y. Net debt to ebita at 5.3x. FY2009/2010 dividend pay out seen at 1/3 of net. || AP Moller Maersk [MAERSKB.DE] Completes share placement at DKK33K/shr (discount of 2.6%), raises DKK8.26B. Reminder: On Sept 2 -Places 250K Treasury B Shares; Seeking to raise DKK9.2B (approx 6% of market cap). || Lufthansa [LHA.GE] Exec: Might have reached bottom in business travel but no upturn yet. Strenuous work will be needed to reach 2009 FY targets. Have seen continued worsening in operations at Austrian Air, unit needs to post turnaround. Possible that global airlines post FY09 loss worse than expected $9B. || Go Ahead Group [GOG.UK] Reports Preliminary FY Pretax £42m v £110Me (unclear if comp), Rev £2.4B v £2.4Be. Proposed full year dividend maintained at 81.0 pence per share. Outlook: bus operations have proven to be robust and we expect demand for these services to remain strong. Our rail operations should deliver a good level of profitability in the year ahead, albeit below the level achieved to June 2009. || Bovis [BVS.UK] To place 12.1M new ordinary share to raise £60M (about 10% of shares outstanding). Placing is being conducted through an accelerated bookbuilding process which will be launched immediately following this announcement. || HMV [HMV.UK] Provides interim statement: Reports 18 week group LFL -1.8% y/y; Acquires 50% stake in 7digital for £7.7M in cash. Total sales growth in HMV & Ireland of 12.5%, including like for like sales up 1.7%. || ThyssenKrupp [TKA.GE] Plans to cut thousands of jobs - German Press. Most of the job reductions will occur abroad. || Infineon [IFX.GE] CEO: targets operating profit margin of 10% in Q4 of next fiscal year - FT Deutscheland. || Unilever [UNA.NV] Update: States that sales levels within Indian unit have been maintained despite weak monsoon season. Drought levels may slow the overall development of Unilever Hindustan. ||

- Speakers: French Fin Min Lagarde commented that a deterioration in labor markets to continue for the next few quarters || Japanese DPJ lawmaker commented that a strong Yen was basically good for the Japanese economy but added that must not intervene in FX markets unless currencies price action was more abnormal. There was no need to change current FX policy and Japan must not resort to currency dumping. Monetary policy decisions are to be made by the BOJ and actions taken by the BOJ have so far been appropriate || German VDMA forecasted 2010 production output at 2009 levels and added that German Manufacturers would continue to cut jobs . The VDMA now expected a decline of 20% y/y in 2009, which was at the lower end of its prior view. There was first signs that decline new orders were bottoming out but too early to determine if bottom has been reached. VDMA Wittenstein commented that there were "glaring" credit difficulties in Germany || OECD commented that economic recovery now seen coming earlier than initial forecasts. OCED added that it saw smaller than initially expected GDP declines for G7 economies in this year. However, it stressed that central banks should not begin tightening operations until late 2010 and concerns remained for overall health of financial system. The possibility of need for more fiscal stimulus had recently receded as stabilization occurring in global trade scenario.
Inventories were not expected to be seen as drag on global economy. Recovery levels in emerging markets seen as gathering pace || EU's Barroso stated that fiscal stimulus must be implemented with vigor and too early to withdraw it

- In Currencies: The early chatter was all about the recent moves in metal prices (see commodity section below), particularly gold. Speculation mounted that perhaps pressure on the Chinese state-controlled organizations to dump dollars in favor of more concrete assets like gold were swirling among dealing desks. Thus the USD's tone was subdued as gold high fresh 3-month highs towards $990/oz. The renewed chatter of Chinese reserve diversification will add to the dollar supply and also reinforce the gold tone.

- USD also weighted down by steady equity markets as China's Shanghai rebounded by almost 5% in the session as traders zoomed in on comments from China security regulator Liu who noted that that Chinese authorities would do everything they can to ensure steady growth of the equity market. Trader chatter circulating that China might suspend new IPOs by three months

- EUR/USD retested the 1.43 handle during the European morning. The option barrier talk continued with the 1.4450 DNT once again the center of the attention with expiration now cited to be in mid Sept (was originally this Friday).

- The JPY consolidated it recent gains aided by rumors that Kampo was buying USD around the 92.00 area (Same rumor surfaced back in July when the pair was probing below 92.00). The JPY held above the 92 figure through out the European morning but was unable to move above the 92.60 level. The new Japanese Gov't continues to comment in a vague way about its currency policy. With Japanese DPJ lawmaker Fujii noting that a strong Yen was basically good for the Japanese economy but will not change current FX policy and coordinated currency intervention was ideal but difficult.

- The CHF maintained a firm tone. HSBC analyst report noted that more rich foreigners are inquiring about moving funds to Switzerland, spurred by rising taxes at home and concerns about the erosion of banking secrecy for non-residents

- In Fixed Income: Ahead of the ECB rate decision government bonds are weaker with decent sized auctions from Spain and France reasonably well received but ultimately weighing on the market. Spain sold just under €5B in OAT's whilst France sold €7.5B in 6, 10 and 15y OAT's with the 10y through the screens at a discount of roughly 30bps to the benchmark Bund. The UK also sold £2.25B in long dated Gilts with acceptable results. Greek 10y bonds are weaker against the Bund following the announcement from its beleaguered Prime Minister of a snap election

- In Energy: Russian Energy Min: Forecast 2009 oil production at 490M tons. Rusia in discussion with Japan regarding loan for Eastern Pipeline construction up to $3B. Power price could rise between 6% to 7% in 2010 || Barrons commented on recent oil discovery in the Gulf of Mexico by British Petroleum [BP.UK]. The article was cautious on the oil find because only 1B barrels might be easily accessible and BP might not yield its first production until 2014.

- In commodities: Dealer chatter circulating that recent move in metals might be attributed to Chinese Sovereign Wealth Fund diversification (complemented by selling USD) . There were numerous comments from Chinese officials made in Q4 2008 on this topic. Back on Dec 16th the Ministry of Industry & Information commented that China sought to increase reserves of strategic materials. Back on Nov 18th China's PBoC was considering raising its gold reserve by 4K tons and the prior day (Nov 13th) the HK Standard reported that China might seek to buy gold in a move to diversify its currency reserves and the article added that China currently holds about 600 tons of gold and could increase this amount to as much as 4K tons.

- Credit Crunch: Moody's Report: Latvia Baa3 Credit rating (lowest investment grade) might decline several notches without IMF aid. It noted that Latvia government bond ratings are supported by significant, extraordinary financial assistance from the IMF and EU. The ratings are constrained by the severe effects of the ongoing global credit crisis on Latvia''s economy, the risk of a currency devaluation, and the country''s uncertain prospects for recovery. The outlook on all ratings is negative. Latvia's economy and government have been deeply affected by the global credit crunch and regional recession and concerned that the economy will struggle to rebound in the current environment.


NOTES

- Far East equity markets mixed with Shanghai +5%, Hang Keng +1.2%, Nikkei 225 Index -0.6%. Rumors that China might suspend new IPOs for 3 months.

- Gold bugs out in full force asChina sovereign wealth fund told to dump USD and buy strategic assets such as gold and oil.

- Russia Aug services PMI 52.2; First expansion in 11 months. UK has best reading since Sept 2007; Euro-Zone number roughly best in 18 months

- Japans Dainippon to bid $2.7B for US Sepracor [SEPR].

- China Commerce Ministry: To encourage imports of minor metals that are needed in China

- OECD see economic recovery happening soon than its prior forecasts


Looking Ahead

- (RU) Russian Gold & Forex Reserves w/e Aug 28th: No estimate v $398.3B prior

- 7:45 (EU) ECB Rate Decision: No change expected to current Refi Rate of 1.00%

- 8:30 (US) Initial Jobless Claims w/e Aug 29th: 565Ke v 570K prior, continuing Claims w/e Aug 22nd: 6.125Me v 6.133M prior

- 8:30 (EU) ECB's Trichet holds press conference following rate decision

- 10:00 (US) Aug ISM Non-Manufacturing Composite: 48.0e v 46.4 prior

- 10:00 (UK) BoE Gilt Reverse Auction

- 10:00 (EU) ECB's Stark

- 10:30 (US) Natural Gas Inventories

11:00 (US) Aug ICSC Chain Store Sales Y/Y: No estimates v -5.0%e ( ICSC has guided Aug SSS in a range of -3 to -5%)

- 11:00 (US Treasury's 3 & 10y Note announcement

- 15;00 (BR) Brazil to sell bills, FRNs and Fix-rate bonds