European Market Update: Key US earnings continue to aid risk appetite; Verbal currency intervention picking up its pace


ECONOMIC DATA

- (JP) Japan Oct Cabinet Office Monthly Report: maintained its economic assessment for the third straight month

- (TU) Turkey Consumer Confidence: 81.9 v 81.8e

- (SZ) Swiss Retail Sales Y/Y: -1.0% v 0.8%e

- (SP) Spain Aug Industrial Orders Y/Y: -18.4% v -26.1% prior ; Service sector Sales Y/Y: -13.4% v -13.9% prior

- (RU) Russia Sept Producer Prices M/M: 1.2% v 1.0%e; Y/Y: -5.5% v -5.7%e

- (IT) Italian Aug Trade Balance: -€1.4B v €4.1B prior , Trade Balance EU: -€0.4B v €2.4B prior

- (EU) Euro-zone Aug Trade Balance: -€4.0Bv €2.5Be; Trade Balance Seasonal Adj: 1.0B€ v €4.9Be

- 6am release (IT) Italian Current Account: -€3.2B v €3.3B prior


SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

- In equities news overnight: European equity markets opened to the positive side and traded sharply higher through 4:30EST. Equities have taken their momentum from continued strong tech earnings out of the US with IBM [IBM] and Google [GOOG] beating street expectations. Consumer tied earnings out of Europe including Carrefour [CA.FR]] and Accor [AC.FR] released after the close yesterday demonstrated continued weakness in that sector. Sony [SNE] and Ericsson's [ERICB.SW] handset making JV reported its Q3 figures in the European premarket, reporting a net loss, but a loss that was above its street estimate. SonyEricsson, however, maintained its view that 2009 global markets would decline by 10% y/y (yesterday Nokia [NOK1V.FH] raised its expectation to -7% from -10% prior). In a continued trend of proposed merger deals falling through, CVC decided to walk away from National Express [NEX.UK]. In an unwind from yesterday, shares of Sainsbury [SBRY.UK] traded down over 3% as rumors of a Qatar offer fizzled out. This rumor had effects not only on shares, but currency pairs that have since sold off. In sector moves, oil and gas outperformed on the EuroStoxx50 while healthcare underperformed, led lower by Sanofi-Acentis [SAN.FR] following a downgrade out of Cheuvereux. Trading volumes remain mixed with the FSTE and DAX below moving averages while the CAC is printing ahead of averages.

-In equities: Carrefour [CA.FR] Reports Q3 Rev €24B v €24.3Be; aiming to sell Russian business and entirely move out of the market. Q3 French sales -3.4%; like for like -4.2%. ||Accor [AC.FR] Reports Q3 Rev €1.85B v €1.83Be; 9-month LFL -8.2%. Maintains FY09 pretax €400-450M (as given Aug 27) v €415Me. || ING INGA.NV: To Transfer Its U.S. Reinsurance Business To RGA Inc. Transaction is expected to release nearly €100M in capital and improve the debt/equity ratio of ING Insurance by around 60 basis points. || [SNE/ERIC] Sony Ericsson JV reports Q3 Net Loss €199M v loss €274Me, Rev £1.62B. ASP: €114 v €120 q/q (€109 y/y). || National Express [NEX.UK] CVC/Cosmen Confirms it will not make an offer for company; Will support group capital raise. || VW [VOW.GE] Reports Sept group operations +11.9% y/y; 9 month operations -0.5% y/y. 9-month unit sales at 4.76M. Schedules EGM for Dec 3; EGM to propose issuance of new preferred shares. Continue to plan for increase in preferred share float in H1 2010. Will seek to elect Piech and Porsche members of new supervisory board. Capital increase will be used to secure needed refinancing related to Porsche. || Lloyds [LLOY.UK] To sell Halifax Estate Agency for £1 to LSL Property Services. || Iberia IBLA.SP: Reports Sept load factor 79% v 80.6% y/y. ||

- Speakers: Japanese MOF Currency Advisor Gyohten commented that cooperation between Japan, China and US should be sought to stabilize the dollar as large countries have the responsibility for currency stability || ECB's Provopulos reiterated the view that it is too soon to cut fiscal stimulus as the economy remain fragile He noted that selecting the appropriate time for withdrawal of special measures would pose a challenge and that medium-term, post crisis growth would remain crucial . ECB continued to aim for price stability in the medium term but cautioned that ECB would promptly exit special measures if the price risk increased. Fiscal deficits and debts posed a risk to recovery; Gov't would need to consolidate that situation once the economic recovery was sustainable and solid.||Polish Central Banker Czekaj commented that the Polish Central Bank remained with an easing bias. He stated that the central bank would more likely to continue lowering interest rates than raising them next year and wouldl maintain a 'wait and see' approach into 2010 period || Turkish Constitutional Court ruled that foreigners must pay withholding tax and that it applied to profits on equity trades.
The decision would take effect in nine months || BOJ's Shirakawa commented that the Japanese economy had started to pick up and noted that the East Asia region was recovering faster than expected. The BOJ chief noted that the central bank would maintain easy monetary policy as small firms' faced continued difficult financing conditions and that Japan continued to face more downside economic risks than upside potential. He conceded that its exports might be weighed down if US and Europe economies encounter more difficulties. Lastly the BOJ would decide on corporate fund support measures appropriately, perhaps at next meeting or even later || Japan Oct Cabinet Office Monthly Report maintained its economic assessment for the third straight month. The reported noted that Japan had seen exports rising specifically in inter-Asian trade. Economy has been recovering but remained in difficult situation || Japanese Deputy PM Kan commented that both the BoJ and government basically agreed on its economic projections. He also noted that large currency price movement could affect the Japanese economy || Japan's MOF's Noda stated that the initial FY2010/11 budget requests around ¥95.0T. He cautioned that the current year tax revenues might dip below ¥40 trillion. ||

- In Currencies: The verbal intervention phase for the USD continued with Japan's top Currency Advisor Gyohten noting that cooperation between Japan, China and US should be sought to stabilize the USD. This comment echoed US Treasury Sec Geither during the Asian session that he expected that the dollar would stay the dominant reserve currency and had an obligation to maintain its global role. The Euro-Zone finance ministers meeting (EcoFin) on Monday could be the key focus into the weekend.

- The TIC data release over the coming period would be more interesting since it would cover the recent period of BRIC reserve currency talk stemming from the April G20 period. Russian Central Bank again lowered the intervention level for the Ruble basket to 35.75 level. The CBR has done this numerous times during the month of October.

- In price action, the GBP continued its sharp, choppy price action. Speculation that the BOE might be considering slowing Quantitative Easing measures coupled with an oversold currency had seen the gbp/usd approached1.64 level in Asia with EUR/GBP and GBP/JPY crosses mirroring the pound's recent strength. Some dealers note that the down trend line from Aug 2008 is currently around the 1.65 area and seem to take advantage of the GBP's strength on rallies.

- The EUR/USD remains below the 1.50 level but dealers remain keen to see if Far East sovereign names will continue to diversify its reserves on any Euro dips. The 1.4840 area is cited as the short term pivot level in the EUR/USD pair.

- The JPY retained a softer tone that started on a technical note. MOF Currency Advisor Gyohten commented that cooperation between Japan, China and the US helped the USD/JPY move above the 91 level. There was some chatter of a 91 option expiring later today to contain any further volatility for the time being.

- In Fixed Income: Government bond markets are weaker in light volumes as an eventful week draws to a close, and the fallout from earnings season continues. Yield curves are offering a mixed picture with bear flattening in Treasuries and Bunds contrasting with bear steepening in the UK. On a cross markets basis, Gilts have underperformed significantly, with the 10 year yield up 7bps and approaching 3.65% ( a level not touched since late Sept. Euro-zone peripheral spreads are a touch narrower against Bunds, and Spain the best performer. Greece is the exception , with the 10y wider by about 3bps after the new government conceded it will require some additional borrowing in the current fiscal year

- In Energy: Repsol [REP.SP] REP.SP: Announces tests on Cardon IV field off Venezuela contained crude oil. Field contains the natural-gas equivalent of between 1B and 1.4B barrels of oil, which equates to 5.5 to 7.7 trillion cubic feet of gas. The field is seen as the largest natural gas field in the company's history. || Chinese press noted that China will accelerate changes to power prices. Under the plan, power producers mighty be allowed to decide on-grid charges by the use of a bidding prices.

- Also, on-grid tariffs (charges paid by electricity producers to distributors) would be capped to reduce the impact on inflation. Power prices for retail customers would be linked to on-grid fees. ||


NOTES 

- Headline earnings from GE and Bank of America [BAC]. Dow Jones Industrial 10,000 level remains the focus

- US Treasury Sec Geither: Expects USD to stay dominant currency; has obligation to maintain dollar's role

- US Treasury again failed to name China as a 'currency manipulator' but noted that China's currency adjustment to date was not sufficient to reduce current account surplus

- US TIC data to see how serious the BRIC nations are on alternatives to dollar


Looking Ahead

- tba (BE) Belgium Aug Trade Balance: No estimate v €0.9B prior

- tba (US) Monthly Budget Statement: -$37.0Be v $45.7B prior

- 7:00 (CA) Canadian Sept CPI M/M: 0.1%e v 0.0% prior, Y/Y: -0.9%e v -0.8% prior

- 7:00 (CA) Canada Sept Core CPI M/M 0.2%e v 0.1% prior, Y/Y: 1.4%e v 1.6% prior

- 7:00 (BR) Brazil Oct FGV Inflation IGP-10 M/M: 0.2%e v 0.4% prior

- 8:00 (PD) Poland Sept Avg Gross Wages M/M: 0.2%e v -2.8% prior, Y/Y: 3.0%e v 3.0% prior ,

- 8:00 (PD) Poland Sept Employment M/M: -0.1%e v -0.1% prior, Y/Y: -2.4%e v -2.2% prior

- 9:00 (US) Net Long Tem TIC Flows: $30.0Be v $15.3B prior, Total Net TIC Flows: No estimates v -$97.5B prior

- 9:15 (US) Sept Industrial Production: 0.2%e v 0.8% prior, Capacity Utilization: 69.8%e v 69.6% prior

-10:00 (US) Oct U. of Michigan Confidence: 73.3e v 73.5 prior

-10:00 (MX) Mexican Central Bank Interest Rate Decision: Consensus expectations for no change to current overnight rate from the current 4.50% level