Cadbury shuns £10B offer from Kraft

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ECONOMIC DATA

- (RU) Russian Aug Official Reserves Assets: $409.6B v $399.0Be

- (CZ) Czech Jul Trade Balance (CZK) 12.3B v 10.5Be

- (SW) Sweden Aug Budget Balance (SEK): 11.8B v 6.2B prior

- (AS) Austria Aug Wholesale Price Index M/M: 0.8% v -1.3% prior; Y/Y: -8.6% v -11.5% prior

- (TT) Taiwan: Aug Trade Balance: $2.0B v $2.0Be; Total Exports Y/Y: -24.6% v -29.8%e; Total Imports Y/Y: -32.3% v -37.9%e

- (CZ) Czech Q2 Current Account: -€1.1B v 0.9B prior

- (NO) Norway - Industrial Production M/M: -0.5% v 0.8% prior; Y/Y: -8.0% v -6.3% prior;

- (NO) Norway Jul Industrial Production Manufacturing: M/M: 0.5% v 0.0%e ; Y/Y: -8.9% v -9.2%e

- (EU) Sept Euro-Zone Sentix Investor Confidence: -14.6 v -13.7e; highest reading since July 2008

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

- In equities news overnight : Despite Monday being a public holiday in the US, European markets and corporate news have maintained a high tone. Following gains out of Asia, acceleration in the M&A front has given a further boost into the new weeks trading. UK based confectionary manufacturer Cadbury [CBRY.UK] announced that US based Kraft [FKT] put forward an un-solicited offer valuing the firm at £10.2B (745p/share in cash and stock). While Cadbury's board has rejected the offer as 'undervalued,' Cadbury shares surged 38%, dramatically lifting the broader European food and consumer discretionary sector. In further M&A speculation, UK press comments regarding Xstrata [XTA.UK] and Lonmin [LMI.UK] have set off a new wave of consolidation speculation in the basic resource sector, moving those names higher. In telecoms, speculation that both Vodafone [VOD.UK] and O2 [FTE.FR] have made multi-billion Pound bids for Deutsche Telekom's [DTE.GE] UK based T-Mobile led to higher interest in those names. Equity markets maintained a light tone through the morning with little economic data to affect trending. Volume levels through the first two hours of trade were (ex-FTSE 100) ahead of their moving averages, falling to reflect the US holiday and represented levels well ahead of those generally seen during mixed market holiday sessions.

-In individual equities: Cadbury [CBRY.UK] Kraft proposes combination, values firm at £10.2B; Offers combination of stock and cash totaling 745p/share. The Board of Cadbury has rejected this proposal. Kraft Foods is proposing an offer for Cadbury (the "Possible Offer") of 300 pence in cash and 0.2589 new Kraft Foods shares per Cadbury share. This values each Cadbury share at 745 pence. || Deutsch Telecom [DTE.GE] Vodafone and O2 may have each made £3.5B bids for T-Mobile UK - London Telegraph. The bids are thought to be below the price that Deutsche Telecom is seeking. || Lonmin [LMI.UK] Could receive a new bid for Xstrata by as early as Oct - FT. There is some speculation that Xstrata may seek to acquire smaller companies as its proposed merger with Anglo American loses momentum. || Telefonica [TEF.SP] Telefonica and China Unicom Enter into a Broad Strategic Alliance and a Mutual Investment Agreement. Telefonica, will increase its interest in China Unicom to 8% from 5.38%, while China Unicom will become a Telefonica shareholder with an approximately 0.88% stake. || AB Foods [ABF.UK] Provides interim trading update: Sees continued strong trading that will lead to H2 y/y increase in operating profit. Trading for the group since the half year has been strong resulting in an increase in adjusted operating profit for the second half compared to last year. Although the interest charge will be substantially higher, we now expect some progress in adjusted earnings for the full year. ||Whitbread [WTB.UK] Provides trading statement: 24-week like-for-like sales -2.6%. || Lloyds [LLOY.UK] May seek to convert £6.8B ($11.1B) of preference shares into common equity (24.5% of market cap) - London Telegraph. The action may allow Lloyds to lower its participation in the UK's asset protection scheme. || Rio Tinto [RIO.UK] Co. and BHP are studying a merger of their Canadian diamond units in a deal that may be worth A$1B - the Australian. BHP is evaluating how its Ekati mine could be combined with Rio Tinto's Diavik mine. || Heidelbergcement [HEI.GE] Planning to raise approx €1.5B in capital during September -Boerson-Zeitung. || Lufthansa [LHA.GE] British Airways exec has held talks with firm regarding possible bid for BMI -Times. ||

- Speakers: (EU) ECB's Nowotny: States that allowing Lehman brothers to collapse in Sept 2008 was a mistake || Turkish Central Bank Gov Yilmaz commented that growth in Q2 was seen as weaker than expected but added he saw room for future improvement . The IMF loan might not be needed but stated that any IMF agreements was a political decision. It noted that Turkey might be able to maintain fiscal caution without the IMF's help. The Turkish Central bank saw the overall risks to inflation being weighed to the downside || Iranian President Amadinejad stated that Iran was ready for public meeting with US President Obama to discuss issues but added that he consider nuclear debate as 'closed' . The Iranian President noted that he would never hold talks on 'obvious' nuclear rights but would continue nuclear work in close cooperation with IAEA || China Vice Customs Head Li Kenong stated that China's Aug exports saw m/m growth but noted that its saw slower y/y declines in the data

- In Currencies: The EUR/USD continues its two-week consolidation within the 1.42 to 1.44 area, but the USD was a touch weaker in a quiet European session as the tone of weekend G20 finance ministers did little to wean investors off the current risk appetite sentiment. EUR/USD stayed around the 1.4350 throughout the European morning. The GBP/USD was firmer above the 1.64 handle in the session, aided by potential M&A flows. Kraft did propose a 'business combination with Cadbury valued at over £10B (was rejected). The commodity currencies were broadly firmer with| NZD/USD pair moving above 0.69 level for the first time since Sept 2008. AUD/USD hit fresh 1-year highs above 0.8540 level and the USD/CAD dipped below the 1.08 handle. || A former vice-chairman of the Standing Committee of the National People's Congress Cheng Siwei stated that he believed the USD would "fall hard" if the US continued to print money to buy back government bonds || Saudi Arabia Central banker: SDRs cannot compete with major reserve currencies

- In Fixed Income Supply: Price action was choppy in fixed income. Initial risk appetite in stocks helped to weigh upon bond sentiment. However, The weekend G20 Fin Min did note concern that much of the current economic recovery was due to government measures and that growth is not self sustained. || Dealers noted that the Sept-Dec Euribor spread inverted for the first time in almost a year. European fixed income futures remain in negative territory but near their best levels. Sept Gilts -17 ticks at 119.48 while Sept bunds -22 ticks at 122.70. The German 2-year/10-year spread was at its steepest level in early jun with the sprad over 218 bps.

- In The Papers: The new bank capital rules proposed by the G20 may cause France and Germany to semi-nationalize more banks. Telegraph article noted that according to G20 insiders, the rules are a particular blow to some of the leading European banks, which are likely as to have to raise more capital, implying further taxpayer bailouts. || (UK) Banks are overvaluing assets that will be included in the UK government's insurance scheme - Guardian || WSJ article noted that the U.S. dollar seemed poised to remain a favorite of investors seeking shelter from economic uncertainty this week, as U.S.
employment numbers failed to spark a return to trading on fundamentals. Artcile noted that there was little currency news from a meeting of finance ministers and central bank heads from the Group of 20 leading economies to undermine the dollar. In contrast to some recent meetings of G20 officials, there was little open questioning of the dollar's role as the dominant reserve currency.