European Market Update: Barron's lectures the Fed on interest rates; Key corporate earnings continue to flow


ECONOMIC DATA

- (FI) Finland Sept PPI M/M: -0.2% v 0.7% prior; Y/Y: -7.8% v -8.6% prior

- (HK) Hong Kong Unemployment Rate: 5.3% v 5.4%e


SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

- In equities news overnight: European equity markets have rebounded from Friday's declines through morning trading with strong performance on all three of Europe's main bourses. Preparing for a busy week of European corporate earnings, weekend news and speculation continued to focus on M&A and IPO stories. For UK insurer Aviva [AV.UK], the firm released details regarding its proposed Delta Llyod IPO spin off with a price range of €15.5-19/share for a total valuation of €2.6-3.1B. UK based transportation firm National Express [NEX.UK] updated its position vis-a -vi Stagecoach Group [SGC.UK] and Go-ahead Group [GOG.UK] with a reiterated interest in holding a capital raise. Speculation in the UK press stated that Spanish banking group BBVA [BBVA.SP] was considering buying RBS's [RBS.UK] England and Wales based retail banking assets. Basic materials and Consumer Goods sectors all traded higher on the EuroStoxx50. Consumer Goods names Unilever [UNA.NV] and Nestle [NESN.VX] took lifts following upgrades and strong comments from analysts at UBS.
Trading volumes have been light throughout the morning session with the CAC, DAX and FTSE all trading approx 30% below their moving averages

-In equities: Aviva [AV.UK] Delta Lloyd IPO priced at €15.50-19/share; Gross proceeds seen at €1.2B. || RBS [RBS.UK] Spanish BBVA may make bid for firms retail bank assets -Times. || ABB [ABBN.SZ] Discloses Q3 positive provision of $380M, Guides Q3 Net $1B v $910Me. || AstraZeneca [AZN.UK] Alabama Supreme Court rules in favor of AZN, GSK and NVS; strikes down prior $275M jury award against the companies. || National [NEX.UK] Have not received proposal form First Group; See fund raising complete by 2010. || Daimler [DAI.GE] To exceed 2009 cost cutting goal of €4B by a double-digit percentage - German Press. || ThyssenKrupp [TKA.GE] To cut 2,000-2,500 administrative positions (about 1% of total workforce) - German Press. || Sulzer [SUN.SZ] Reports 9-month orders at CHF2.28B v CHF3.33B y/y. ||

- Speakers: BOJ's Hayakwa commented that Japanese companies were not calling for steps to weaken JPY currency. He did note that a strong JPY currency encouraged companies to move abroad. The pace of output increase could slow in Oct period || French Budget Min Woerthc commented that the country's 2010 GDP could exceed gov't official 0.75% target ||Polish Central Bank's Noga commented that Poland's 2010 GDP could exceed 2.0% with GDP growth as much as 1.3% is still possible in 2009. The public deficit levels remained a threat. The current economic data supported neutral policy bias || Bank of Japan (BOJ) Quarterly regional Report noted that the economy remained severe in some regions, but was improving in all regions. It saw improvement in exports, output sectors while CAPEX was declining on weak corporate profits. Consumption remained weak, although some impact of policy was seen. Housing decreased, but public investment had risen ||

- In Currencies: USD maintained a softer tone into European open against most of the major pairs. The dollar did see some initial gains in Asia following the comments out of barrons. Howver, the European traders concluded that Barrons did not set interest rate policy and won't influence the Fed's thinking about keeping interest rates low for a long time (like 2011). The Eurogroup meeting later today has dealers pondering whether the recent strength in EUR/USD would yield any change in Eurogroup's currency message. Dealers are expecting that EcoFin to follow G7 line on forex with more concern over volatility rather then specific levels.Dealers noted that the interest yield differentials have been trending in favor of the Euro as the benchmark 2-year yield spread is around 46bps, the highest since early June. EUR/USD still unable to breech the 1.50 level but not too far off last's weeks 14-month high of 1.4967. The reserve cuurency issue continues to be a flash point. Former US Secretary of State Kissinger commented that China no longer wanted the dollar to control the global monetary system. The former US official noted that any moves to alter the US dollar's reserve status would be made over a long period

- The GBP was weaker against the majors. Weekend press reports were not positive on the currency. According to Ernst and Young Item Club, the pound would continue to trade near parity against the Euro for up to 4 years. London Times reported that BoE's member Posen was ready to back an increase in the central bank's quantitative easing (QE) program next month. GBP/USD was holding below the 1.63 leve throughout the European morning. EUR/GBP was trading at 0.9170 area, up over 60 pips from its Asian opening levels.

- The JPY was slightly firmer aided by comments from BOJ's member Hayakwa. He noted that companies were not calling for steps to weaken JPY currency at this time and that a strong JPY currency encouraged companies to move abroad. USD/USD at 90.50.

- In Fixed Income: Short dated treasuries have been subject to a modest bout of selling in the overnight session after Barron's ran a cover feature calling on the Fed to raise rates to avoid inflating another financial bubble. The 2-year note yield is higher by roughly 4bps in current trading but key psychological resistance of 1% is still in tact. Yields are higher across the term structure although the long end has held up better under the selling and the curve is flatter as a result. The 10-year Note is 2bps higher at 3.432% and the 30 year bond yield is steady at 4.25%. UK and German yield curves are also flatter, tracking he move in Treasuries. The 10-year Gilt has outperformed its peers just a touch after the BoE's Posen hinted at support for an expansion of QE next month. European peripheral spreads are narrower against Bunds with Italy (-3bps at Bunds +84) the best performer so far.

- In Energy: FT article noted that the Nigeria's government plnned to transfer 10% of its oil and gas joint venture to residents of the Niger Delta in a move to stabilize the Niger Delta region.

||Reportedly China's top two oil companies Sept gasoline stocks M/M: -3.1%; Diesel stocks M/M: +1.1% at 7.1M tons

- In the papers: London Times reported that BoE's member Posen was ready to back an increase in the central bank's quantitative easing (QE) program next month. The decision on whether to extend quantitative easing would depend on the outcome of the BoE's forecasting round. Posen suggested that the quantitative easing probably needed to go farther. The article added that a forecast from Ernst & Young Item Club predicts a "W" recovery, in which the economy struggles to grow in 2010. || Barron's cover story implored Fed Chairman Bernanke to raise Fed Funds rate to 2% to prevent another asset price bubble. The artcile stated that the move in the Dow above 10,000 demonstrated the health of the US economy and that "super low rates are fueling financial speculation, angering our economic partners and foreign creditors, and potentially stoking inflation." According to the article, raising policy rates to a more normalized level would send a signal to markets that "the U.S. is serious about supporting its beleaguered currency and that the worst is over for the global economy"


NOTES 

- Traders eye whether Q3 corporate earnings can deliver on heightened expectations.

- Barron's: Implores Fed Chairman Bernanke to raise Fed Funds rate to 2% to prevent another asset price bubble


Looking Ahead:

- tbc (RU) Russian Sept Unemployment Rate: 8.3%e v 7.8% prior

- tbc (RU) Russian Sept Retail Sales M/M: 1.6%e v 1.8% prior, Y/Y: -9.0%e v -9.8% prior

- 8:00 (HU) Hungarian Central Bank Rate Decision: 50bps cut to 7.00% expected (current Base Rate is 7.50%)

- 8:00 (PD) Polish Sept Producer Prices M/M: 0.1%e v -0.2% prior, Y/Y: 2.2%e v 2.5% prior

- 8:30 (CA) Canadian Aug International Securities Transactions: C$3.00B3 v C$0.35B prior

- 13:00 (US) Oct NAHB Housing Market Index: 20e v 19 prior