European Market Update: Spot gold hits fresh 2009 highs above $1,007/oz ; USD testing some key pivot points


ECONOMIC DATA

- (SZ) Swiss Aug Unemployment Rate: 3.8% v 3.9%e ; Unemployment Rate SA: 4.0% v 4.1%e

- (FI) Finland Q2 GDP Q/Q: -2.6% v -1.8%e; Y/Y: -9.4% v -7.3%e

- (GE) German Jul Trade Balance: €13.9B v €11.3Be; Current Account: €11.0B v €10.0Be

- (FR) Bank Of France Aug Bus Sentiment: 89 v 87 prior

- (SP) Spain Jul Industrial Output Y/Y:-16.7 % v -14.5% prior

- (HU) Hungarian Q2 Final GDP Y/Y: -7.5% v -7.6% prior

- (HU) Hungarian Jul Prelim Industrial Output M/M: -0.7% % v 1.7% prior, Y/Y: -19.4% v -17.2%e

- (TU) Turkish Industrial Production Y/Y: -9.2% v -9.0%e

- (CZ) Czech Q2 Final GDP Q/Q: 0.1% v 0.3% prior; Y/Y: -5.5% v -4.9% prior

- (CZ) Czech Aug Unemployment Rate: 8.5% v 8.5%e

- (DE) Denmark July Current Account (DKK): 4.9B v 4.4Be; Trade balance Ex Shipping: 4.9B v 3.5Be

- (SW) Swedish Q2 Current Account (SEK): 67.9B v 53.2B prior

- (UK) Industrial Production M/M: 0.5% v 0.2%e; Y/Y: -9.3% v -10.1%e

- (UK) Manufacturing Production M/M: 0.9% v 0.3%e; Y/Y: -10.1% v -11.1% prior


SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

- Following the second straight session of strong and broad gains out of Asian bourses, European exchanges opened on a light footing. Yesterday's M&A fever rolled over into today with Deutsche Telkom [DTE.GE] and French Telecom [FTE.FR] confirming the details of a 50:50 JV for their UK mobile operators that was widely speculated and reported yesterday. With this confirmation, telecom continued its broad outperformance followed by consumer and industrial sectors. Commentary out of the Australian press regarding the possibility that Rio Tinto [RIO.UK] may significantly outperform its stated 2009 iron ore output targets lifted that name and provided further fuel to a sector that continues to ratchet higher. August sales figures for German auto makers have led to mixed reactions with BMW [BMW.GE] moving lower and VW [VOW.GE] moving higher on the back of Audi's results. Volume levels have remained solid with good interest in telecom, technology and banking stocks.

- In individual equities: Deutsche Telkom's [DTE.GE] Orange Mobile and T-Mobile UK confirmed that they have established a 50:50 JV, creating what would be the UK's leading mobile operator, with 28.4M users, representing approximately 37% of UK mobile subscribers. The partners expect revenue of €9.4B a year and synergy cost savings of €4B from the JV. The Australian writes that Rio Tinto's [RIO.UK] 2009 annual rate of iron ore production may total 220M metric tons versus initial guidance of 200M tons. The company produced 18.5M metric tons of iron ore a month at its Pilbara operations in July and Aug, which translates into an annual rate of about 220M metric tons, if demand is maintained. BAE Systems [BA.UK] Group is formally protesting loss of military truck order to rival Oshkosh, according to the WSJ. The firm claims that the DoD's contract evaluation was flawed and the selected proposal from Oshkosh was too low to be viable. Brazilian President Lula said Brazil was in advanced talks with France over purchasing 36 Rafale fighter aircraft made by Dassault Aviation [AM.FR].
The contract would be valued at €4B. Sanofi Aventis [SAN.FR] received an order to supply 18M doses of swine flu vaccine to Brazil. The order includes the option for an additional 15M doses. The CEO of the London Stock Exchange [LSE.UK] told the FT that high-frequency traders have gained the support of the exchange. He welcomed the traders' role in providing a necessary function for exchanges. High frequency trading make up about 1/3 of all trades on the London Stock Exchange.
Tui Travel [TT.UK] updated on the TUIFly Transaction with Air Berlin, confirming speculation regarding route sharing agreement. TUI Travel will either acquire a 9.9% stake in Air Berlin for a cash consideration of €33.5M, which it will sell over a period of time, or alternatively pay Air Berlin €15M.

- In speakers: the ECB's Gonzalez-Paramo commented that markets might be reacting over optimistically to positive economic data. Sustainable growth will be impossible unless governments undertake reforms. The IMF noted that a global recovery might come a quarter ahead of its prior forecasts. Chancellor Darling commented that cutting spending at this time would squash economic recovery. He did note that budgets would have to be tighter but spending on frontline services should have priority. A Chinese Commerce Official reiterated concern over China's trade outlook. The official noted that its YTD trade figures remained less than encouraging. Japanese Cabinet Sept Monthly Report had the government maintain its economic assessment. The Japanese economy showed signs of a pick-up but record jobless rate clouded its outlook. The report viewed the job market as increasingly severe. It raised its outlook of corporate profit and CAPEX.

- In Currencies: The greenback weakened against the major pairs and commodity-related currencies as spot gold moved above the $1,000/oz marked to re-approach its 2009 highs just below the March 17, 2008 all-time high of $1,032/oz.
EUR/USD moved above the alleged option barrier at 1.4450 for fresh 2009 highs. There was talk of a Chinese seller at 1.4440 level but the area gave way just ahead of the NY morning. Dealers noted that a large one-week euro call option was purchased in the session with a mid-1.45 strike. AUD/USD made fresh 13-month highs as the pair moved above the 0.86 handle. USD/CAD is testing the 1.0700 level. Better UK production data also help the GBP/USD regain a foothold above the 1.65 level and move modestly firmer against the euro. USD/JPY is probing last week's support zone of 92.00 and there is speculation that quasi-official interest could emerge under 92. The market is still looking for a test of 91.70-80 that held on previous attempt last week where Kampo was rumored to be buying USD. Dealers are pondering whether the SNB would react to the strong CHF against the greenback and if such action would take place to bring the pair back above the 1.0650/70 area deemed significant by chartists. USD/CHF was below 1.05 ahead of the NY morning.

- In Energy: OPEC President Vasconcelos stated that member compliance with 4.2M bpd output cut enacted in Q4 2008 was around 70%; pricing at "satisfactory range." Saudi Arabia Oil Min Al-Naimi stated that the Oil market was steady and in good shape but oil stockpiles were a little bit high. The minister noted that any decision was yet to be determined at tomorrow's OPEC meeting. Consumers and producers like current price of oil. Saudi's current oil output was around 8M bpd and Saudi Arabia was complying with OPEC production cuts "as best we can" ||Kuwait Oil Min commented that its saw demand for crude growing in Q1 and Q2 of 2010 . The minister reiterated the view that OPEC was unlikely to change output quotas at this Wednesday's meeting in Vienna. The current oil prices were reasonable and acceptable for producers and consumers.

- In Commodities: An Indian trade organization stated that India's 2009 gold imports were seen at 350 tons versus 523 tons y/y. India gold demand to be lower with price over $1,000/oz UBS commodity analyst maintained their 1-month view for Gold at $950/oz area. UBS believed that one should avoid the temptation of buying gold at $1,000/oz and the analyst maintained their 3-month gold view of $1,000/oz.

- In Fixed Income Supply: Government bonds have been offered this morning amidst a gold-induced equity rally, with yield curves on both sides of the English channel undergoing bear steepening as a result. With up to €7B in a new Schatz issue up for grabs tomorrow, the German 2-yr yield has moved off its all-time lows to sit around 1.063% whilst the Bund yield is back above its key support of 3.25%. Treasuires are outperforming modestly, with the 10-yr note yield steady 3.44%.
Ahead of the Treasury's $38B auction, new 3-yr Notes are trading at 1.47% in the European when issued market, about a 6bps discount to the existing issue. The Netherlands sold €2.5B in 10-yr DSL with a yield about 37bps above the Bund and in an auction covered a healthy 2.1 times, the UK sold £3.75B in Sep 2019 Gilts with a yield tail of just 0.2bps. The Bank of England has admittedly heavily subscribed to the issue in question, with about 17% of the total outstanding bought by the central bank in reverse auctions. It has been a heavy morning for corporate issuance with benchmark offerings from Slumberger (4y EUR) KPN ( 20y GBP) and Zurich (4 y USD) all in the works. Investors appetite for auto names is especially strong with order books on BMW's 5y benchmark above €5B and orders on a €1.25B 5y from Fiat said to be in excess of £8B.


NOTES

- North American traders returning from a 3-day weekend to see a higher gold, oil and weaker USD. Initial thoughts is that they will not try to fight the flow

- Fred reminds us that hurricane season is not over

- Traders noting that the India's Sensex 30 is up 100% from its March lows of 8,047

- ECB Gonzalez Paramo continued the cautious theme from global central bankers and officials

- Cadbury bid rejected at this time. Start of European M&A wave???


Looking Ahead

- 8:30 (CA) Canadian Jul building Permits m/M; 0.4%e v 1.0% prior

- 10:00 (UK) BoE reverse Gilt auction

- 11:00 (US) Fed 2016 - 2019 coupon pass

- 12:30 (MX) Mexico to sell MXN2.5B in 5y floaters and MXN4B in 10y Bonds

- 13:00 (US) Treasury's $38B 3y Note Auction

- 15:00 (US) July Consumer Credit: -$4.0B expected versus -$10.3B prior

- 15:00 (BR) Brazil to sell Inflation-Linked bonds