European Market Update: BNP seeks to raise more capital; Russia again lowers its refi-rate to stimulate its economy


ECONOMIC DATA

- (RU) Russian Central Bank lowers Refi rate by 50bps to 10.00 (second cut this month)

- (RO) Romania Central bank cuts interest rates by 50bps to 8.00%; As expected

- (FI) Finland Aug Prelim Retail Sales: -3.9% v -0.4% prior

- (SZ) Swiss UBS Consumption Indicator: 0.658 v 0.747 prior

- (GE) German Aug Import Price Index M/M: 1.3% v 0.7%e; Y/Y: -10.9% v -11.4%e

- (HU) Hungarian Aug Producer Prices M/M: -0.5% v -1.5% prior, Y/Y: 4.6% v 6.0% prior

- (SP) Spanish Aug Retail Sales Y/Y: -4.0% v -4.6% prior, Adjusted Real Retail Sales Y/Y: -4.0% v -4.5%e

- (SP) Spanish Sep Prelim CPI - EU Harmonized Y/Y: -1.0% v -0.8%e

- (IT) Italian Sep Business Confidence: 74.0 v 75.8e v 74.8 prior, Retailers Confidence General: 95.4 v 98.0 prior, Services Survey: -6 v -5 prior

- (SW) Swedish Aug Retail Sales M/M: -2.1% v 0.5%e; Y/Y:1.2 % v 4.4%e

- (IT) Italian Aug Hourly Wages M/M: 0.3% v 0.2% prior, Y/Y: 2.4% v 2.1%e

- (HK) Hong Kong Retail Sales Volume Y/Y: -1.0% v -3.3%e; Retail Sales Value Y/Y: -0.2% v -3.5%e

- (UK) Q2 Final GDP Q/Q: -0.6% v -0.6%e; Y/Y: -5.5% v -5.4%e

- (UK) Q2 Current Account: -11.4B£ v -£7.7Be

- (UK) Aug Net Consumer Credit: -£0.3 v £0.0Be; Net Lending: £1.0B v £0.2Be

- (UK) Aug Mortgage Approvals: 52.3K v 51.5Ke

- (UK) M4 Money Supply M/M: 0.1% v 0.1% prior, Y/Y: 12.5% v 12.6% prior

- (EU) Sep Business Climate Indicator: -2.07 v -1.92e; Consumer Confidence: -19 v -21e; Economic Confidence: 82.8 v 82.7e; Industrial Confidence: -24 v -24e; - Services Confidence: -9 v -9

- (IT) Italian Jul Large Company Employment (Net seasonally Adj): -1.8% v -1.6% prior

- (UK) CBI Sept Distributive Trades: +3 v -16 prior


SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

- In equities news overnight: European equities, in contrast to the US and Asian equity rally, set their own tone on a negative footing. The European pre-market was dominated by news in the financial sector. Comments from the CEO of UBS [UBSN.SZ] regarding his interest to pull the bank out of $39.1B commitment to Switzerland's toxic asset program, were followed by the formal announcement from BNP Paribas [BNP.FR] regarding the launch of a €4.3B capital raise to pay back government held non-voting shares. Despite this improved sentiment regarding the health of the banking sector, other sectors, and equities fared less well. Analyst sector calls, including a cautious view on the UK, a downgrade on the UK Real Estate sector (Credit Suisse) and a cut to the Metal and Mining sector at SocGen. Overall lagers in European trading were dominated by the heavy industrials with steels and autos lagging. Commentary out of Siemens [SIE.GE] regarding future orders and unit performance sent those shares, and the broader tech, IT and industrial names down in sympathy. Into 5:30EST, equities have continued to trend lower. Industrials, basic materials and the oil and gas sector are leading lagers on the EuroStoxx50, with only the financial sector holding to positive levels. Trading volumes have been mixed with good numbers ahead of average on the FTSE, and below average returns on the CAC and DAX.

-In individual equities: BNP [BNP.FR] Launches a €4.3B share capital increase (approx 7% of market cap). Capital raise will be used to repay €5.1B non-voting shares held by the French government. || UBS [UBSN.SZ] Wants to end its bad bank deal with the Swiss Government; may return to health within a year - FT interview of CEO Gruebel. UBS may be able to bring the assets at the bad bank back onto its balance sheet by late 2010. || Siemens SIE.GE: CFO: Reiterates Q4 order intake targets at same levels as those seen in Q3; Reiterates FY09 views. IT business will give more detailed outlook later in 2009; IT business not a good place to be in at current time. Order backlog in energy sector will maintain its high margin.
Expects renewable unit Q4 margins down slightly, margins in unit will remain broadly weak. || RWE [RWE.GE] Authorizes €38.5M share buyback program, offer expires Nov 6th. || BASF [BAS.GE] Sees Asian/Pacific sales doubling by 2020; 2020 targets include growth at 2% ahead of market in region. || British Airlines [BAY.UK] CEO: Have seen no signs of recovery as of yet; Group has further plans to reduce network size. || Tui Travel [TT.UK] Provides pre close update: Summer trading almost full; To raise approx £440M through convertible bond offer as part of refinancing operations. || Elan [ELN.IR] ELN: Announces Intent to Offer $600M in Senior Fixed Rate Notes Due 2016 (17% of market cap). || Salzgitter [SZG.GE] Launches €300M (about 7% of market cap) 7-year convertible bond offering, coupon indicated at 0.625 - 1.625%. || VW [VOW.GE] Reaches 18-month labor agreement with IG Metal union, agrees to 4.2% raise for 95K employees, effective Jan 1, 2010. ||

- Speakers: China Central Bank (PBoC) Issued its Q3 Monetary Policy Statement and reiterated to continue with its "moderately loose" monetary policy. The PBoC also noted that the, foundations of recovery remained "unstable" with External demand remaining weak. To continue to strengthen domestic demand for economic growth. The PBoC to guide reasonable growth of money and credit and cap loans to industries with overcapacity. Would maintain sufficient banking system liquidity || ECB's Liikanen commented that the most difficult phase of crisis was now over, but there was no need to rush for exit of monetary stimulus yet. Rebound in oil and other commodities expected to continue though 2011. ECB was assessing data on a monthly basis. There was no need to tighten policy at this time as output gap remains large. No problem for ECB to tightening at appropriate time || ECB's Constancio reiterated the central bank theme that inflationary expectations were well anchored. The economic and financial crisis were showing sings of easing but there was major uncertainty over sustainability of recovery || MOF advisor Gyohten: Does not view JPY rise as sharp; does not see big turbulence in current FX price action || Russian Central banker Ulyukayev commented that the CBR viewed the situation on domestic FX market as balanced and the Refi rate at historical low levels but noted that it could lower still bank rate. It considered that inflationary risks as not high, but considered economic risks higher. Forecasted YoY inflation under 11.0% from Oct. Worst of crisis was back in May but growth was still not stable. He forecasted 2010 GDP growth could top 4.0% and did not see significant threats to central banking system from bad debts || Russian PM Putin: Anti-crisis activities should remain focused on autos, machine building and construction sectors

|| German DIW Institute: Adjusts German Q3 GDP forecast to +0.7% q/q from +0.8% prior view. || EU's Junker commented that have seen stabilization in EU but stressed that best course of action remains prudence. - Exit strategies should be implemented as recovery takes hold. Stated that 2011 should be the year when exit strategies are gradually implemented and that crisis impact on the employment front to be felt for a long period of time || German IFO: firms finding lending slightly less restrictive in Sept v Aug. Credit conditions for large manufacturers at its toughest level since 2003 || IATA: August International Air Passenger Traffic -1.1% y/y; continue to see profitability as remaining distant || Spain forecasted its 2010 gross debt issuances at €211.5B with Net debt issuances seen at €76.2B . It would make provisions for issuing up to €6.0B in foreign currency debt in 2010. Public sector deficit seen at 5.2% in 2011 and falling to 3.0% by 2012

- In Currencies: The USD seems to slowly grind a bid against the European currencies recover against the commodity currencies as the session unfolded. The dollar seemed to follow the commodity markets for its tone. The Chinese Steel Group CISA stated ahead of the trading day that its saw global iron ore markets as being over-supplied in 2010 and the dollar seemed to take note, especially when various central bankers in both Europe and the Far east again issued cautious statements on the sustainability of the recent recovery.

The JPY was again on center stage as the market continues to digest the new Japanese Gov't view on its currency.
Throughout the Asian session Japan Finance Minister Fujii seemed to adjust his prior positioning when he noted that he would not rule out taking action in the FX market currency when moves were deemed "abnormal" However he again reiterated that a global competition to devalue each country's currency would be wrong. During the European morning, Japanese Special Currency Advisor to the Ministry of Finance commented that he did not view JPY rise as sharp; does not see big turbulence in current FX price action. The USD/JPY drifted down from the 90 level to test 89.65 but oval price action was subdued.

- The GBP was soft during the European morning as a closed door meeting between BOE member Bean with various London economists took place. Some speculation simmered that the BOE might still pursue a deposit rate cut in a manner that Sweden enacted back in July to negative rates. GBP/USD at 1.5840, lower by 50 pips from its Asian opening levels.
However, the GBP recovered following the CBI distributive trade data, whiched registered a positive reading of 3 versus -14 in the prio month. GBP/USD entering the NY morning above the 1.59 handle

- In Fixed Income: In a twist to the usual inverse relationship, which has been ignored for some time now, government bonds have retreated in tandem with equities this morning in Europe. Italy sold a combined total of almost €6.5B in 3 and 11 BTPs and the UK sold £3.75B in 2022 Gilts with similarly acceptable results. Corporate issuance remains heavy with major European names including Renault, BBVA and Elan all coming to market with offerings during the session. Ahead of the ECB's 2nd 12 month refi, three month Euribor actually increased for the first time since June, fixing 1bps higher at 0.75%

- In Energy: China's NDRC confirmed earlier speculation that it would cut gasoline and diesel prices effective Wednesday by CNY190/ton

|| Sinopec [386.hk] To spend billions of yuan to expand and build facilities - South China Morning Post. As part of the plan, the company will spend CNY53B with Kuwait Petroleum to develop an integrated refinery in the Guangdong province.

- In commodities: Chinese Steel Group CISA: Saw global iron ore markets as being over-supplied in 2010; Will attempt to switch negotiation periods to calendar year contracts. It was still engaged in 2009/10 price negotiations with BHP and Vale, but not Rio Tinto ||


NOTES

- End of quarter continues to influence trade

- US Halloween retail sales spending to decline 18% to $4.8B - National Retail Federations

- Japanese official try to clarify their stand on the JPY currency

- Major event this week will be the September U.S. jobs report Friday and the two employment data points that precede them on Wednesday and Thursday


Looking Ahead

- (EU) ECB to call for bids in 12 month refi tender

- 7:00 (BR) Brazil Sept FGV Inflation IGP-M M/M: 0.5%e v -0.4% prior; Y/Y: -0.4%e v -0.7% prior

- 9:00 (US) Jul S&P/CaseShiller Composite -20 Y/Y: -14.2%e v 15.44% prior, S&P/CaseShiller House Price Index: No estimates v 141.86 prior

- 9:30 (BR) Brazil Aug Total Outstanding Loans: No estimate versus $1.3B prior; Private Bank lending: No estimate versus $0.8B prior

- 9:50 (US) Fed's Fisher

- 10:00 (IR) Ireland Sept Consumer Confidence: No estimate versus 48.7 prior

- 12:00 (CH) China Aug Leading index: No estimate versus 103.2 prior