European Market Update: Risk appetite continues to rise ahead of European central bank meetings; Gold continues to shine at the expense of the dollar


ECONOMIC DATA

- (RU) Russian Gold & Forex Reserves w/e Oct 2nd: $411.5B v $412.7B prior

- (JP) Japan Sept Preliminary Machine Tool Orders Y/Y: -61.9% v -71.5% prior

- (FR) Sept Bank of France Business Sentiment: 92 v 91e

- (FR) French Aug Trade Balance: -€3.4B v -€2.3Be

- (TU) Turkey Aug Industrial Production: -6.3% v -5.2%e

- (HU) Hungary Aug Preliminary Trade Balance: €229M v €414Me

- (CZ) Czech Sep Unemployment Rate: 8.6% v 8.6%e

- (NV) Dutch Sept CPI M/M: 0.5% v 0.4%e; Y/Y: 0.4% v 0.3%e

- (NV) Dutch Sept CPI EU Harmonized M/M: 0.5% v 0.5%e; Y/Y: 0.0% v -0.1%e

- (SW) Swedish Aug Industrial Production M/M: -2.9% v 0.9%e; Y/Y: -20.9% v -18.4%e

- (SW) Swedish Aug Industrial Orders M/M: -4.2% v 8.4% prior, Y/Y: -18.1% v -16.9% prior

- (SW) Swedish Aug Activity Level: 102.8 v 102.6 prior


SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

- In equities news overnight: US markets having 'officially' kicked off Q3 earnings season, equity markets in Europe as in Asia traded comfortably positive. Today being the 1-year anniversary of 2008's internationally coordinated emergency Central Bank rate cut, market commentators have broadly reflected on trends since that action and those moving forward. Following Alcoa's [AA] aftermarket numbers, European miners/mineral names and heavy industrials traded sharply higher from the open. The FTSE100, heavily weighted in miners outperformed, seeing particular strength in Vedanta [VED.UK] following its Q2 production update. The financial sector has retained its premier placement in the media with further speculation that Lloyd's Banking Group [LLOY.UK] was contemplating a £15B rights offer in its continued efforts to avoid the UK APS. Further speculation regarding HSBC [HSBA.UK] acquiring RBS's [RBA.UK] former ABN Amro Asian assets continues unabated. In a session light of government or economic data, equities have trended lower from their opening highs in mixed volumes. Overall sentiment remains positive with all sectors of the EuroStoxx50 ex Consumer Services have traded in positive territory.

-In individual equities: Lloyds [LLOY.UK] Considering £15B rights issue (about 58% of market cap) - FT. The capital raise would be part of Lloyds' plan to avoid entering the UK government's asset protection plan. || Vedanta [VED.UK] Provides Q2 production update; Production in Q2 was broadly in line with expectations. || EADs [EAD.FR] Airbus CEO: USD weakness is causing European exporters some problems. Expect Airbus to compete with Russian and Chinese market entries in future. || Hochschild Mining [HOC.UK] Announces results of convertible bond placement and share placement. || Ladbrokes [LAD.UK] Announces £275M 1 for 2 rights issue (about 25% of market cap), Reports Q3 Group Op Profit -58% y/y, Rev -15% y/y. || Air Berlin [AB1.GE] As part of prior agreement, Tui Travel UK to take 9.9% stake in firm (current stake approx 40%). || CGGVeritas [GA.FR] Provides Q3 vessel availability rate at 90% v 89% q/q, v 98% y/y. ||


Reminder:

Mainland Chinese bourse will come off their 1-week national holiday tom (Fri, Oct 9, 2009)

- Speakers: Russian Kremlin Aide: Have held no talks to drop USD as pricing currency for oil but noted that such discussions along those lines would make sense || Irish Finance Minister Lenihan: Committed to sustainable public finances, Ireland will not emerge from recession until 2011. The Irish economy remained in sharp contraction but with some tentative signs of a bottom. However, he caution that one should not be complacent about the significant challenges ahead || Colombian Fin Min Zuluago commented that Peso currency strength was a concern and was attentive to its appreciation || India Central Banker Ahluwalia commented that no evidence to suggest withdrawal of stimulus measures at this time and suggested looking for a possible exit to accommodation when GDP hits 7%. End March inflation might be 5%. Lastly he noted that market conditions were good for possible stake sales of state companies ||

- In Currencies: The USD continued its soft tone against the European and commodity related pairs but did manage to maintain a steady footing against the JPY during the European morning. Dollar weakness continues to stem from its inverse relationship with commodities. Spot gold continued to hit fresh all-time highs above the $1,055.00 level for its third straight session of record highs in the spot market. Risk appetite was back in sync following the better Australian unemployment data and earnings from Alcoa after the NY close on Wednesday. The market appears not to be fearful of any surprises from the BOE or ECB interest rate decision later today. There was a think tank report on Wednesday suggesting ECB's Trichet and other EU officials might talk the euro currency down in a manner similar to recent BOE's Mervyn King style. There was some corporate verbal intervention from France's Airbus CEO who noted that USD weakness was causing European exporters some problems. In regards to the central bank meeting dealers note that there are two items that would be watched closely. First being about strategy for an eventual movement away from quantitative easing and second, any currency-related comments. GBP/USD triggered buy stops above 1.6030 to promptly test above 1.6070 area. In USD/JPY, dealers continue to speculate whether Japan's Kampo had been on the bid Wednesday at 88.00 level in yesterday's session (implying unofficial smoothing operation by the Fin Min and BOJ). Again, large USD sell stops building below the 88 handle in the event the suspected bids are pulled or fail to materialize.

- In Fixed Income: UK and German yield curves are a touch flatter this morning, suggesting the unwinding of curve steepener trades in position squaring ahead of the ECB and BoE rate decisions. Treasuries, meanwhile continue to ignore rising equities and a falling greenback, with gold testing all time highs. Ahead of its $12B reopening the yield on the 30-year Long Bond remains steady below 4%. European corporate issuance seems to have dried up this week with the only offering of note in the session a €300M 7-year from Campari. Three month Euribor fixed unchanged at 0.74%.

- In Energy: London Times reported that according to a report from the UK Energy Research Center (UKERC), global oil production could peak within 10 years || Royal Dutch Shell [RDS.A] Reportedly 2009 exploration budget is estimated at $31B and $28B for 2010 || Tullow Oil [TLW.UK] CFO commented that Exxon buying into Ghana Jubilee Field was seen as a positive for the project

- In commodities: Spot gold continued to hit fresh all-time highs above the $1,058.50 level for its third straight session of record highs in the spot market. || South African Aug Gold Output -2.9% y/y, total Mining Output -11.5% y/y


NOTES

- Risk appetite on the rise following Alcoa earnings and Australia's unemployment reports

- Gold continues to shine at the expense of the dollar

- Key European central bank meetings later this morning with BOE and ECB expected to hold the line. Question if the currency topic would be raised at the press conference

- Widely followed think tank: European policymakers are losing trust in the Obama administration's commitment to a "strong dollar" policy and are considering policy responses

- Chinese equity markets to re-open on Friday following its weeklong holiday


Looking Ahead

- 7:00 (SA) South Africa Aug Manufacturing Production M/M: 1.3% expected versus 3.3% prior; Y/Y: -11.5% expected versus -13.7% prior

- 7:00 (UK) BoE Rate Decision: No change to 0.50% Bank rate or £175B APF expected

- 7:45 (EU) ECB Rate Decision: No change to 1% refi rate expected

- 8:00 (BR) Brazil Sept IBGE Inflation M/M: 0.2% expected versus 0.2% prior; Y/Y: 4.3% expected versus 4.4% prior

- 8:15 (CA) Canadian Sep Housing Starts: 148.0Ke v 150.5K prior

- 8:30 (US) Initial Jobless Claims: 540Ke v 551K prior, Continuing Claims: 6.15Me v 6.09M prior

- 8:30 (EU) ECB's Trichet holds press conference following rate decision

- 9:50 (CA) BoC's Jenkins

- 10:00 (US) Aug Wholesale Inventories: -1.05e v -1.4% prior

- 10:00 (MX) Mexico Sept Consumer prices M/M: 0.6% expected versus 0.2% prior; Y/Y: 5.0% expected versus 5.1% prior; Core CPI M/M: 0.4% expected versus 0.2% prior

- 11:00 (US) ICSC Chain Store Sales Y/Y: -1.5%e v -2.0% prior

- 13:00 (US) Treasury to sell $12B in reopening of 30y Bonds

- 15:00 (BR) Brazil to sell notes and bonds

- China's Shanghai Composite to re-open for Friday trading following its one-week holiday break