European market Update: Global equity markets appears to reprice the whole global economic recovery prospects with deepening concerns over the widening credit spreads


ECONOMIC DATA

- (SZ) Swiss Dec Trade Balance (CHF): 1.4B v 2.0B prior; Exports M/M: -1.6% v 2.1% prior; Imports M/M: -5.6% v 1.9% prior

- (UK) Jan Halifax House price M/M: 0.6% v 0.7%e; 3M/Yr: 3.6% v 3.6%

- (UK) Jan New Car Registrations: 29.8% v 38.9% prior

- (BR) Brazil COPOM monetary policy meeting minutes from Jan 27th : Output gap was being reduced by domestic demand; Prepared to shift its policy stance if conditions warrant


SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

- In equities: Following a brief foray into positive territory, European markets have turned decisively negative. Negative trading followed a broadly lower Asian session that saw the Nikkei retreat under pressure from Toyota [TM] and the Hang Seng fall as investors participated in broad financial sector profit taking. Trading in Europe took a cue from continued disappointing earnings in the energy sector, with Royal Dutch [RDSA.UK] following BP [BP.UK] and Exxon [XOM] with disappointing mid stream and refining figures. Deutsche Bank [DBK.GE] highlighted the earnings from Euro financials that included Santander [SAN.SP] and Dankse DANSKE.DE]. Deutsche posted a strong Net figure, but showed builds in losses provisions and underwhelmed the market. Insurance name Zurich Financial [ZURN.SZ] posted strong figures and announced a dividend hike that was positively greeted by the market. Financials have continued their lower rotation as the trading session is dominated from overhangs in the central bank arena. Markets are anticipating decision from both the BoE and ECB. Trading volumes have been high throughout the European morning with major bourses significantly beating their moving averages. Yesterday's closing loss snapped a three session positive trend.

- In individual equities: Deutsche Bank [DBK.GE]: Reports Q4 Net €756M v €685Me (ex tax benefit), Rev €5.5B v €6.0Be, proposes FY09 div at €0.75/shr v €0.50 y/y. ||

Vodafone [VOD.UK]: Reports Q3 Rev £11.5B v £11.4Be; FY09 free cash flow expectations raised to £6.5-7B. || Royal Dutch [RDSA.UK]: Reports Q4 Net $1.96B v $2.9Be, Rev $81B v $68.5Be. || Zurich Financials [ZURN.SZ]: Reports Q4 Net $1.05B v $1.1Be, FY09 Gross Written Premiums $34B -8% y/y; Increases dividend payment to CHF16 v CHF11 prior. || Santander [SAN.SP]: Reports FY09 Net €8.94B v €8.9Be, Rev €39.4B v €39.1Be. || Unilever [UNA.NV]: Reports Q4 Net €906M v €877Me, Rev €9.66B v €10.1Be, declares quarterly dividend of €0.195/shr v €0.125/shr y/y.

- Speakers: IMF's Strauss-Kahn commented that economic growth remained fragile and stressed that governments need to spell out how they plan to reduce their debt in the medium term outlook. He did not believe that Greece was at risk of bankruptcy but conceded the situation was serious. He again expressed confidence that the Greek PM would take the necessary steps to curb its deficits. He stated that the Euro-Zone would deal with the Greek situation (reply to question whether IMF would aid Greece) and added that the IMF would help Greece if asked. The crisis in Spain was very strong and the country needed to make a considerable effort*** Bank of International Settlements (BIS) Caruana commented that conditions for global growth were better but risks remained. He added that it was hard to determine if a double-dip recession would occur but that the financial system might be a headwind for recovery. Central Banks must expect additional volatility throughout the recovery. Global inflation pressures were low and central banks must keep expectations anchored. He cautioned the danger of exiting special measures too late and that governments must ensure that debt situation is at a sustainable level or face trouble ***Moody's stated that it has NOT placed Spain's " AAA" sovereign rating under review *** Spain Econ Min Salgado stated that she saw no risk to the Euro-Zone membership. She added that her country's fiscal situation was very different than that of Greece *** Norway Fin Min Johnsen commented that fiscal policy must not lead to higher interest rates and that Gov't must return to its spending rules *** China Foreign Min Zhaoxu stated that the Yuan currency level was not the main reason for the US trade deficit with China. He added that outside pressure would not help resolve the exchange rate issue. He also commented that sanctions against US companies that sell arms to Taiwan were appropriate *** China Banking Regulator CBRC Shanghai's branch stated that stress test results show that Mortgage NPL would increase to 1.18% from 0.45% with a 10% decline in home prices *** Former BOE member Julius commented that a risk of a UK debt or currency crisis could occur within six months *** S&P issued a report on Spanish and Russian local and regional governments (LRGs) and concluded that credit quality was likely to remain under pressure in 2010 *** Brazil Central Bank (COPOM) released its minutes from Jan 27th decision and noted that the country's output gap was being reduced by rising domestic demand. It pledged to remain vigilant to prevent short-term inflationary pressures from expanding into the longer-term picture. The central bank was prepared to shift its policy stance if conditions warranted. ***Japan's MOF forecasted ¥51.3T in new bond issuance for FY2011/12 (Begins in April)

- Currencies: The European fiscal situation continues to be the catalyst for currency movements in the aftermath of the EU approval of the Greek austerity plan. As noted on Wednesday the EU approval of the Greek plan had dealers believed that the commission's findings were actually somewhat less favorably beyond the headline 'approval' of the austerity plan.
Various European and quasi-gov't officials continued to express optimism over countries will and effort to tame burgeoning debt levels and budget deficits over the medium term. However, Euro continued to exhibit weakness and tested below the Jan lows of 1.3850 for fresh seven month lows. Dealers noted that there are a plethora of key events over the next 48 hours with BOE, ECB rate decisions, US payroll data and a G7 summit. The effects of which will see whether the EUR/USD can hold above some pivot chart points and technical levels. The 1.3740 area in the pair was a pivot last summer when reserve diversification was the on-going theme and the 1.3825 area is deemed a key weekly close level.

- Fixed Income: In a well subscribed auction covered 1.9 times, Spain sold €2.5B in 2013s, in the middle of the range of expectations in terms of size But the auction has provided little respite for euro-zone peripherals with Portugal the worst performer, wider by another 10bps at +154bps, and Greece another 3bps wider and above +350bps

- CDS spreads are also surging. Spain +18bps, Portugal +13bps, Italy +11bps. Market chatter has focused on the Itraxx Sovereign CDS Index , which closed wider than the CDX Investment Grade Index yesterday - a disconcerting illustration of the transfer of indebtedness from the private to public sector over the past 12 months. Lost ground has yet to be recovered after Moody's stated that it had NOT placed Spain's Aaa rating under review

- Core markets are subdued ahead of key interest rate decisions from the BoE and ECB, with yields and cross market spreads range bound. France sold a combined total of €7.9B in off the run OAT's - at the top of the range of expectations in terms of size and auctions well covered.

- Geo/political: Argentina Pres Kirchner appointed a new Central Bank Pres, Mercedes Del Pont; the appointment is now awaiting Senate confirmation. Pont is seen as strong supporter of Kirchner and of gov intervention in the domestic economy. Pont is expected to support plans to use $6.57B of state reserves to service international loans. Pont has previously supported legislation that critics have described as significantly reducing the independence of the Central Bank as an institution. The UK MoD has released a 'Green Paper' defense strategy update. The paper confirms the belief that the UK is best served by maintaining a deployable, global military reach as its primary security threats remain international.
However, rising costs and debt levels mean that stand alone projects will need to be scaled down. The paper calls for intensified cooperation with allies, specifically European states (France) in synchronizing their military spending and capabilities. UK military forces are a key ally of the US in its prosecution of the Global War on Terror (GWOT). Expanded sanctions against Iran have continued to hit headwinds. China has once again remained on the sideline, with a negative outlook, on tougher sanctions. Chinese diplomats stated that increased pressure on Iran would only limit/derail diplomatic efforts. In yesterday's session, France and Germany both vocally reaffirmed their position that further sanctions against an unrepentant Iran would be justified. US and UK diplomats have questioned the legitimacy of Iran's agreement to move nuclear fuel outside of the country for enrichments, stating the action is seemed as more of a red herring, seeking to bide for more time.


Notes:

- European peripheral spreads remain under pressure.

- Commodity prices as softer after Australian retail sales and NZ employment both came in weaker than expected. March Copper futures under the 3.00 level throughout the European morning. .

- Traders feeling that the global equity markets appears to reprice the whole global economic recovery prospects with deepening concerns over the widening credit spreads.

- Monster online employment index 114 in Jan vs 115 in Dec.

- EU commission findings on Greece seem somewhat less favorably beyond yesterday's 'approval' of the austerity plan

- Talk that the US annual employment benchmark revision could show loss of over 800K

- BoE and ECB interest rate decisions this morning


Looking Ahead:

- Plethora of US earnings ahead of the equity open; Jan Same-store sales data for major retailers. AVP, BKC, CI, CLX, K, MA, RAI, SLE expected to report

- (RU) Russia Jan Consumer Prices M/M: 2.0%e0.4% prior; Y/Y: 8.4%e v 8.8% prior; CPI YTD: 2/0%e

- (RU) Russia Jan Core CPI M/M: 0.9%e v 0.4% prior; Core CPI YTD: 0.9%e v 8.3% prior

- (RU) Russia Gold & Forex Reserves w/e Jan 29th$ v $435.6B prior

- 7:00 (UK) BOE interest rate decision: Expected to maintain both interest rates and Asset purchase targets at current levels (0.50% and £200B respectively)

- 7:00 (CZ) Czech Central Bank Interest Rate Decision: Expected to maintain the Repo Rate at 1.00%

- 7:30 (BR) Brazil Jan Vehicle sales: No est v 293.0K prior; Vehicle Production: No est v 251.5K prior

- 7:30 (EU) ECB Interest Rate Decision: Expected to maintain main Refi rate at 1.00%

- 8:30 (CA) Canada Dec Building Permits M/M: 2.5%e v -4.6% prior

- 8:30 (US) Q4 Preliminary Nonfarm Productivity: 6.5%e v 8.1% prior; Unit Labor Costs: -3.5%e v -2.5% prior

- 8:30 (US) Initial Jobless Claims: 455Ke v 470K prior; Continuing Claims: 4.581Me v 4.602M prior

- 10:00 (CA) Canada Jan Ivey Purchasing managers Index: 53.0e v 48.4 prior

- 10:00 (US) Dec Factory Orders: 0.5%e v 1.1% prior

- 10:00 (MX) Mexico Jan Consumer Confidence: 79.8e v 80.1 prior

- 10:30 (US) Jan ICSC Chain Store Sales Y/Y: No est v 2.8% prior

- 16:00 (CO) Colombia Jan Producer Price Index M/M: No est v 0.9% prior; Y/Y: No est v -2.2% prior