Russian Central Bank cuts its refi rate by 25%; in line with CBR statements

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European Market Update: Protectionism weighs on sentiment as equities slip and USD recovers from its recent spat of weakness

ECONOMIC DATA

- Russian Central Bank cuts its refi rate by 25%; in line with CBR statements

- (FI) Finland Aug CPI M/M: % v 0.3 v 0.2%e; Y/Y: -0.7% v -0.8%e

- (CZ) Czech Jul Retail Sales Y/Y: % v -7.0%e

- (SZ) Swiss Aug Producer & Import Prices M/M: 0.1% v 0.1%e; Y/Y: -5.5% v -5.4%e

- (UK) Jul CML loans for home purchases M/M +24%

- (HK) Hong Kong Q2 Industrial Production: -9.5% v -10.1% prior, Producer Price: -2.9% v -1.4% prior

- (EU) Euro-Zone Q2 Employment Q/Q: -0.5% v -0.7% prior, Y/Y: -1.8 v -1.2% prior

- (EU) Euro-zone July Industrial Production M/M: -0.3% v -0.2%e; Y/Y: -15.9% v -16.7%e

- (EU) European Commission releases Interim Forecasts: Maintains its 2009 GDP view, sees positive 2010 growth

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

- In equities news overnight : Equities in Europe entered the weak on a heavy tone with broad downside trading. This pattern followed negative close in NY on Friday and a negative Asian trading session (ex China). Risk aversion continued into the session with not only equities trading lower, but energy, and hard and soft commodities also posting losses.
Geo-political/trade issues regarding the Obama administration's decision to apply a 35% tariff on Chinese car and light truck tires opened the possibility of retaliatory Chinese actions. Sectors trading lower included autos (attached to the US/China spat), basic resource and miners along with financial names. M&A speculation has continued through the weekend with the UK press continuing comments on Deutsche Telekom [DTE.GE], claiming the firm is considering an offer for US operator Spring [S]. Secondary offerings were announced by Heidelbergcement [HEI.GE], SwedBank [SWEDA.SW] and Wienerberger [WIE.AS]. Trading volumes remained mixed with UK and German bourses below average and the French CAC40 printing broadly in line.

-In individual equities: Deutsche Telecom [DTE.GE] (T-Mobile) said to be mulling a bid for Sprint - UK Telegraph. || Heidelpergcement [HEI.GE] To hold secondary offering of 62.5M new shares (50% of share outstanding). || Korian [KORI.FR] Reports H1 Net €7M v €10Me; Expects to see continued increase in operating interests. || Repsol [REP.SP] Venezuela gas discovery might hold 7 to 8 trilion feet of gas. || Finmeccanica [FNC.IT] DRS Unit signs $1.9B agreement with US military. || Sasol [SOL.SA] Reports FY09 Net ZAR13.6B v ZAR13.5Be, Rev ZAR137.8B v ZAR129.7Me. CAPEX for 2009-2013 reprioritized at approx ZAR15B/year. || Royal Dutch Shell RDSA.UK: CEO Voser: Has speculated that Canada should build a west-bound oil pipeline to supply Chinese markets. || RBS [RBS.UK] Seeking to relaunch its Williams & Glyn brand - London Times. RBS might seek to sell Williams & Glyn's as it seeks to reduce its market share in retail and commercial banking, as the move would support the EU commission's aim of creating a new competitor in UK banking. || Yell Group [YELL.UK] Group has received approval for capital raise from its large institutional holders -Sunday Telegraph. || Allied Irish Bank [ALBK.UK] Irish state may take majority stake in lender - Sunday Business Post. ||

- Speakers: Japanese Vice Fin Min Tango reiterated that watching currency levels closely but had no comment on current level of Yen. He also noted that Japan was not considering extra budget for new stimulus || French Fin Min Lagarde writes to 6 domestic banks seeking action plans increasing lending through end 2009 - Les Echos || IMF Strauss Kahn stated that the financial crisis was behind us at this time but the economic crisis continued. He noted that the probability that another financial institution going under was low. Unemployment to continue rising even when growth returns and expected G20 leaders to continue to support idea of maintaining stimulus || German IMK institute raised its 2010 GDP view to +0.5% from -0.4% prior . It also increased its German 2009 GDP forecast to -5.2% from -6.5% prior view made back in July || Russian Fin Min Kudrin commented that he did not see broad change to Ruble exchange rate in next 3-year period || European Commission released its interim Forecasts. The commission maintained its 2009 GDP view of a 4.0% contraction but now saw positive 2010 growth. The economic situation has improved markedly since Q2 and risks to GDP are broadly balanced.
External conditions are increasingly favorable. Uncertainty of the sustainability of the economic recovery remains and cannot rule out negative feedback loops. The EU saw no significant inflationary pressures at this time and wage growth was expected to decelerate. || EU's Almunia commented he saw some levels in optimism in most recent EU commission forecasts. EU growth was still holding high levels of prudence. He did added that credit flows remain impaired || Russian Fin Min Kudrin stated that he did not see broad change to Ruble exchange rate in next 3-year period. The minister also commented that there were no plans to borrow abroad in 2009 but could theoretically tap capital markets this year. Russia would be able to move with in a month's notice

- In Currencies: The USD approached the European morning on firmer footing after last weeks soft performance. A potential trade war between China and the U.S. helped to bring some risk aversion sentiment back on the table. China's "strong" opposition to the U.S. sanctions on tire imports from China have been the cause of equity market losses and a retreat from risk appetite. The issue of protectionism has been a concern throughout the economic crisis and was a key theme back at the April G20 summit in London. The ECB's most recent monthly report on Sept 10th also commented that one should not neglect the risk of protectionism resurgence.

The EUR/USD tested 1.4515 just ahead of the European equity open and consolidated its losses throughout the morning. There is some vague chatter of quasi-official names on the approached.

- The psychological USD/JPY 90 line came onto view during the sessionbut was not tested. USD/JPY heading into the NY morning at 90.70 after testing 90.30 overnight. Japanese Vice Fin Min Tango reiterated that watching currency levels closely. Goldman Sachs chief economist noted that currency markets were having 'silly' month as JPY currency appreciation does not make sense; believes JPY appreciation will not last.

- The CHF currency is also a factor as the EUR/CHF cross continues to probe its 200-day moving average current seen at the 1.5118 level.

- In Energy: Shell [RDSA.UK] CEO Voser commented that he speculated that Canada should build a west-bound oil pipeline to supply Chinese markets

- Commodities: Telegraph's Ambrose Evans-Pritchard stated that UBS analyst John Reade recommended that nimble investors take profits on any long gold and silver positions, looking to re-enter after a correction. Reade has a price target over the next month of $950/oz, with fresh rallies seen in 2010. Reade has been a winner of the London Bullion Market Association's forecasting prize. The article adds that net long positions for gold held by speculators hit 29M ozs last week, which was a record high. ***Note: Comments from UBS were made back on Sept 8th on gold

- In Fixed Income Supply: Government bonds are offering a mixed picture this morning in Europe. Gilts are up slightly, ahead of another BoE buyback and following the DMO's £1B 2028 mini tender, on the other hand Bunds have struggled as a supply heavy week gets underway. Italy sold €2.9B in 5y BTP's with an average cover of 1.5 and a risk premium of around 50bps above the German 5y Bobl. Just over 3.5k contracts have traded on the first day of the new 10y Italian BTP future on Eurex. Treasuries have seen some buying in the short end and belly, with relative weakness in the long end if the curve. The 10y Note is currently unchanged around 3.35%. Germany's $4B dollar denominated 3y is said to be 2.5 times oversubscribed in Europe, before a pitch has even been thrown across the Atlantic. In corporates, Walmart launched a 20y Euro denominated issue, with guidance at 105bps over swaps.

- In The Papers: According to Ernst & Young's Item Club, house prices will not return to the peak reached in the fall of 2007 for at least another 5 years - London Times || In the weekend press (Der Spiegel) stated that the IMF chief Strauss-Kahn was noted to believe that despite positive signs in French and German economies, the global economic crisis was not over and needed to move forward with regulatory reform . the article noted that Strauss-Kahn commented that it was dangerous to think that the financial crisis is already behind us, and hopes progress will be made at the upcoming G20 summit in Pittsburgh on the issues of tighter capital regulations for banks and pay restrictions in the financial sector. || Russia n PM Putin stated that he would come to an accommodation with President Medvedev on future Russian leadership according to the London Times. The article noted that Putin suggested he could reach an arrangement to return to the Presidency that would allow him to stay in power until 2024. In 2012, Putin will be constitutionally allowed to serve two more six-year terms as President.

- Credit Crisis: Moody's commented that its outlook For UK Banks Remained Negative. The report noted that since the start of the global financial sector crisis in 2007, the UK banking sector has absorbed losses of around GBP110B on loans and securities by the end of 2008, and has raised or arranged around GBP120B of new capital by the middle of 2009.

NOTES

- Protectionism weighs on sentiment as equity slip and USD recovers from its 2009 lows; potential trade war with China and the U.S.

- Economist Stiglitz: Banking problems are now bigger than pre Lehman; Chief economist at Goldman Sachs believes global economy remains in period of recovery

- Russian Central Bank cuts its refi rate by 25%; in line with CBR statements

- European Commission: Ameds its 2010 GDP view but notes Uncertainty of the sustainability of the economic recovery remains; cannot rule out negative feedback loops