European market Update: Quarter-end sees rising risk appetite; IMF raises 2010 global GDP view and lowers global bank losses


ECONOMIC DATA

- (GE) German Aug ILO Unemployment: 7.7% v 7.7% prior, Unemployed Total: 3.3M (unchanged vs July)

- (HU) Hungarian Q2 Current Account: €476M v -€300Me

- (FR) French Aug PPI M/M: 0.4% v 0.3%e; Y/Y: -8.5% v -8.9%e

- (FR) France Q2 Public debt at €1.43T, up 4.5% q/q

- (SP) Spanish Q2 House Prices for Total Homes Q/Q: -0.4% v -2.7% prior, Y/Y: -7.7% v -7.6% prior

- (SP) Spain July Total Housing permits M/M: 20.4% v -4.5% prior; Y/Y: -44.3% v -51.8% prior

- (SP) Spain Q2 Current Account: -€2.0B v -€3.3B prior

- (TH) Thailand Total Trade Balance: $2.3B v $799M prior; Current Account Balance: $1.9B v $1.7Be

- (DE) Danish Q2 GDP Q/Q: -2.6% v -1.5%e; Y/Y: -7.2% v -5.3%e

- (GE) German Sep Unemployment Change: -12K v +20Ke; unemployment Rate: 8.2% v 8.4%e

- (NO) Norwegian Aug Credit Indicator Growth: 5.9% v 6.2%e

- (NO) Norwegian Aug Retail Sales Volume M/M: 0.3% v 0.2%e; Y/Y: 1.5% v 3.8% prior

- (IT) Italian Aug PPI M/M: 0.6% v 0.2%e; Y/Y: -7.8% v -8.0%e

- (HK) Hong Kong Aug Gov't Monthly Budget (HKD): -15.3B v -10.9B prior

- (UK) Jul Index of Services: -0.2% v -0.6% prior

- (EU) Euro-zone Sep CPI Y/Y Estimate: -0.3% v -0.2%e

- (IC) Iceland Aug Final Trade Balance: 12.6B v 12.6B

- (IT) Italian Sep Prelim CPI M/M: -0.2% v -0.1%e; Y/Y: 0.2% v 0.4%e

- (IT) Italy Sept CPI EU Harmonized M/M: 0.6% v 0.7%e; Y/Y: 0.3% v 0.4%e

- (SZ) Swiss Sept KOF Leading Indicator: 0.85 v 0.30e

- (IR) Irish Sep Unemployment Rate: 12.6% v 12.6% prior, Live Register Monthly Change: 0.6K v 5.4K prior


SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

- In equities news overnight: European markets have maintained a positive footing throughout the first half of their trading session. Trading ranges remained tight until after 4:30EST. At that time comments out of Japanese Fin Min Fujii that the current trading levels of the Yen would not be discussed at the G-7, and concurrently, the UK Takeover Panel set a deadline for Kraft's [KFT] interest in Cadbury [CBRY.UK]. These dual statements consolidating existing consensus and spurned an equity lift. Asian trading was decidedly mixed with Chinese and Indian bourses trading higher, whilst the rest of Asia traded lower. The Key underperforming European equity sector through the session has been mining and basic resource. These names have been sold following continued commentary out of Chinese officials and steel names related to 2010 iron ore oversupply, and reduction of output in non-productive mills. Cautious comments out of Deutsche Bank on commodity linked names further this pressure. Outperforming sectors on the EuroStoxx50 included financials, following announcements out of Unicredit [UCG.IT] and Intesa Sanpaolo [ISP.IT] actions to avoid Italian gov Tremonti bond offers, and utility names. Equity markets through 5:30EST have continued an upward trajectory following a strong flow of sovereign supply and ECB 12-month repo allocation data.

-In individual equities: Unicredit [UCG.IT] Board approves €4B rights issue to strengthen its tier 1 capital ratio; decides not to proceed with state aid from Italy, Austria. || Intesa Sanpaolo [ISP.IT] Will not utilize Tremonti Bonds; Capital levels will be raised via internal methods. || UCB [UCB.BE] Launching €350M convertible bond offer (6% of market cap), maturity date 2015. || Novartis [NOVN.SZ] Two-year Phase III study shows Novartis oral MS therapy FTY720 significantly reduces relapses and disability progression, FREEDOMS study met primary and secondary end points. || Cadbury [CBRY.UK] UK takeover panel sets Nov 9th deadline for Kraft deal. || Marks and Spencer [MKS.UK] Reports Q2 UK LFL Sales -0.5% v -1.6%e, Group Sales +2.7%. || Thomas Cook [TCG.UK] Expects to meet FY expectations, summer trading has been "strong", winter bookings have improved since August. || Anglo American [AAL.UK] May sell a stake of its Minas-Rio project in Brazil to finance expansion of iron-ore mine. || Rio Tinto [RIO.UK] Reportedly discovered large molybdenum in Bingham Canyone site. || Rosneft [ROSN.RU] CEO: Remain happy with oil trading at $60/bbl; investment in oil falls when oil moves out of $50-60 band. ||

- Speakers: IMF lowered its estimates for global bank writedowns estimate to 3.4T from its prior view of 4.0T. It did note that Says $600B improvement due to rising values of illiquid securities but commented that over half of bank writedowns have yet to be recognized. The IMF cautioned that global financial risks remained elevated with significant risk reversal. UK, European banks have realized 40% of losses, US banks have realized 60% of losses. Toxic debt remained a priority and a challenge. Bank capital positions improved but earnings will not offset writedowns. Complacency was now a risk and must take care in removing public support || Japanese Fin Min Fujji stated that Japan had no plans to raise Yen appreciation issue at upcoming G-7 meeting. He noted that Japan would pursue domestic demand-led growth and see global cooperation as important. || ECB's Papademos: Central bank preparing analysis tools to study systemic risk board || German Labor Office commented that the recent decline in its jobless figures were not seen as a change in broad trend || ECB's Papademos stated that the central bank was preparing analysis tools to study systemic risk board. Macro prudent oversight complemented monetary policy role in support financial system || BoE's Miles stated that the central bank has cut the UK benchmark interest rate to its effective floor at 0.5%. Conventional fiscal and monetary measures have reached its limits.
|| ECB's Weber commented that he was against intervention to reduce Germany's exports and current account surpluses ||

- In Currencies: The USD approached month and quarter end on a softer note as a rise in risk appetite aided the energy and metal commodities. The CAD and AUD pairs maintained their firm tone following the upward revision in the IMF global GDP for 2010. IMF also revised down its estimate for global bank losses. Spot Gold moved back above $1000.00/oz level
AUD/USD moved back above the 0.88 handle while USD/CAD reapproached the 1.0700 level.

- The EUR/USD tested the 1.4670 level as the NY morning approached. The second ECB 12-month tender operation results increased optimism that balance sheet stresses in the euro-zone area and in the emerging market countries have significantly reduced.

- The JPY was firmer against its major pairs after Japanese Fin Min Fuji noted that he was unlikely to bring up the recent JPY appreciation issue at the next G7 meeting. USD/JPY tested below 89.40 following the comments.

- In Fixed Income: Month-end demand has yet to creep into government bond markets, with Bunds, Treasuries and Gilts are being offered this morning in Europe. The ECB's second ever offer of unlimited 12 months at a generous 1% was taken up to the tune of just €75.2B, well below market expectations and well below the €442B allotment in June. Just 579 banks bid for funds compared to 1,121 in June. The reduced take up was positive for the Euro but negative for Euro-zone government bonds, particularly in the short end. Supply has also been a factor, with Germany reopening the existing 2 year Schatz by €4.1B, with a good bid-to-cover of 1.7x. The yield on the Germany 2 year is back above 1.3%, and German 2s10s has flattened by 5bps to 192bps, the narrowest level in the spread since early August. Greek government bonds are also under pressure ahead of an election, with the 10y Greek issue blowing out to 130bps over Bunds - it cheapest level relative to the German benchmark in september.Corporate issuance has been limited to the financial sector. UBS sold €2B in 5y covered bonds whilst Intesa Sanpaolo launched a tier 1 perpetual offering.

- In Energy: Exxon [XOM] solds 20% of two Indonesian oil and gas blocks to Petronas || Roseneft [ROSN.RU] CEO stated that he was happy with oil trading at $60/bbl. Investment in oil declines when oil moves out of $50-60 band. Oil prices could rise further on the back of speculation, not fundamentals but noted that oil price spike hurts producers as well as consumers ||


NOTES

- IMF to raise its 2010 world growth forecast to 3.1% from 2.5% prior

- IMF revised down its estimate for global bank losses to $3.4T from $4.0T prior

- BoJ may consider ending corporate debt purchases

- Japanese Fin Min Fujji: Has no plan to raise Yen appreciation issue at upcoming G-7 meeting

- Aus Aug Ret Sales stronger than expected


Looking Ahead

- (PD) Poland Central Bank Interest Rate Announcement: Expected to keep rates unchanged at 3.50%

- (RU) Russian Q2 Current Account: No estimate v $9.1B prior

- 7:00 (US) MBA Mortgage Applications: No estimates v 12.8% prior

- 7:30 (IN) Indian Q2 Current Account: $0.00Be v $4.75B prior

- 8:00 (SA) South African Aug Trade Balance: 0.0Be v 0.4B prior

- 8:00 (PD) Polish Q2 Current Account: €830Me v €342M prior

- 8:15 (US) Sept ADP Employment Change: -200Ke v -298K prior

- 8:30 (US) Q2 Final GDP Q/Q: -1.2%e v -1.0% prior, GDP Price Index: 0.0%e v 0.0% prior

- 8:30 (US) Q2 Personal Consumption: -1.0%e v -1.0% prior, Core PCE Q/Q: 2.0%e v 2.0% prior

- 8:30 (CA) Canadian Jul GDP M/M: 0.5%e v 0.1% prior

- 8:30 (CA) Canadian Aug Raw Materials Price Index: 3.0%e v -3.8% prior, Industrial Product Price: 0.4%e v -0.5% prior

- 9:30 (BR) Brazil Aug Budget Balance: No estimate versus -8.4B prior

- 9:45 (US) Aug Chicago PMI: 52.0e v 50.0 prior

- 10:00 (US) Sep NAPM-Milwaukee: No estimates v 56.0 prior

- 10:00 (TU) Turkey Aug Trade Balance: -3.8Be v -3.4B prior

- 10:30am (US) DoE Crude Oil/Gasoline/Distillate Inventories

- 15:30 (MX) Mexico Aug Budget balance YTD: -155.9 v -143.9 prior