European Market Update: Greek austerity measures of €4.8B fails to inspire markets; Russia desires more gold in its reserves


ECONOMIC DATA

- (GE) Germany Jan Retail Sales M/M: 0.0% v -0.6%e; Y/Y: -3.4% v -1.1%e

- (IR) Ireland Services PMI: 48.8 v 44.4 prior

- (TU) Turkey Feb Consumer Prices M/M: 1.5% v 0.6%e; Y/Y: 10.1% v 9.3%e

- (TU) Turkey Feb Producer Prices M/M: 1.7% v 0.7%e; Y/Y: 6.8% v 5.8%e

- (SP) Spain Feb Services PMI: 47.1 v 48.8 prior

- (SW) Sweden Q4 Current Account (SEK): 40.8B v 53.1B prior

- (IT) Italy Feb PMI Service:50.8 v 50.7e

- (FR) France Feb Final PMI Services: 54.6 v 54.7e; lowest reading in 5 months

- (GE) Germany Feb Final PMI Services: 51.9 v 51.7e

- (EU) Euro-Zone Feb Final PMI Services: 51.8 v 52.0e; PMI Composite: 53.7 v 53.7e

- (SP) Spain Feb Consumer Confidence: 71.1 v 77.5e

- (SA) South Africa Feb Sacci Business Confidence: 83.0 v 81.2 prior

- (UK) Feb PMI Service: 58.4 v 55.0e ; highest since Jan 2007

- (EU) Euro-Zone Jan Retail Sales M/M: -0.3% v -0.3%e ; Y/Y: -1.3% v-1.6%e

- Ireland Feb Live Registry Change: -2.3K v 5.8K prior; Unemployment Rate: 12.6% v 12.7% prior

- (IR) Ireland Jan Retail Sales Volume M/M: -17.3 v 0.4% prior; Y/Y: -4.8v -7.5% prior


SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

- Equities: European equity markets opened offered on mixed sentiment emanating from Asia, Greece and earnings flows. A strong Aussie GDP read led to positive rotation for most of East Asia ex-HK which continued to see financial sector losses. European earnings from Adidas [ADS.GE] and Holcim [HOLN.SZ] disappointed markets. Ahead of Feb traffic statistics, British Airlines [BAY.UK] gave up ground. Figures from Standard Chartered [STAN.UK] and Bouygues [EN.FR] have been interpreted as a positive. Energy, financial and pharma sector names have been the largest decliners through the European morning. Disappointing French, Spanish and EU PMI figures, along with Spanish consumer confidence put a cap on any incipient equity strength. Macro flows have been dominated by a much-hyped lead up to austerity figures from Greece. Markets are preparing for a heavily weighted back half of the week that will see interest rate decisions from the BOE and ECB on Thursday, and US non-farm payrolls on Friday. Trading volumes are light as equities come off three consecutive sessions of gains.

- Individual equities: Standard Chartered [STAN.UK]: Reports FY09 Pretax $5.15B v $5.1Be, Rev $15.18B v $15.1Be. || Vedanta [VED.UK]: Prices $805M (upsized from $775M) 7 year convertible bond offering. ||Bouygues [EN.FR]: Reports FY09 net profit €1.3B v €1.3Be, Rev €31.4B v €31.3Be. ||Holcim [HOLN.SZ]: Reports Q4 Net profit CHF271M v CHF245Me, Rev CHF5.36B v CHF5.6Be. ||

- Speakers: *** Greece's Deputy Citizen Protection Minister Vougias stated that the Cabinet outlined new austerity measures totaling €4.8B. The plan would cut spending by further €2.4B and would pass measures to increase revenues by another €2.4B. Greece would freeze pensions and cut civil servants bonus salary payments by 30%. The VAT would be raised to 21% from the current 19% level. ***Spain Dep Fin Min Campa commented that Spain had reasonable debt-to-GDP figures and proved it has fiscal discipline. The official was not concerned over country's ability to refinance its debt **China PBOC Vice Gov Su Ning stated that its continued to watch inflation developments closely ***Sweden Debt Office: Lowered its forecast for both 2010 and 2011 Central Gov't deficits. It now sees 2010 central gov't deficit at SEK53B v SEK64B prior view and the 2011 Central Gov't Deficit at SEK37B v SEK40B prior. The debt office also forecasted 2010 GDP growth of 2.5% and around 3% in 2011 ***Russia Central Bank Ulyukayev commented that Russia sought to increase its proportion of Gold in its reserves (note Russia currently holds 568.4 metric tons; which is around 4.3% of its reserves)*** EU proposed its 10-year economic strategy for 2020 and noted that any fiscal exit should be coordinated once the economic recovery proved sustainable. It also noted that the debt burden to last many years *** German Gov't commented on short-term staffing levels and stated that 810K Germans were on such a program at the end of 2009 compared to 1.5M seen back in Q2 2009 ***

- Currencies: The European peripherals continue to be the focus as the official Greek announcement was pending. The EUR/USD moved to test 1.3660 area after a Greek government source stated that the austerity measures totaled €4.8B (comprised of €2.4B in spending cuts and €2.4B in revenues measures). The USD sentiment was also dampened following comments from the Russian Central bank Ulyukayev who stated that it sought to increase proportion of Gold in reserves (Russia currently holds 568.4 metric tons which accounts for 4.3% of its reserves). M&A rumors also favored the Euro with FX dealers noting that Pfizer was rumored to make a $4B bid for German generic drug manufacturer ***The GBP was back near its Asian session highs following the UK Services PMI data, which registered its highest reading in over three years. ***USD/JPY was holding above the 88.50 level where dealer chatter circulated that the Japanese Postal Service was bidding for USD.

- Fixed Income: Auction results from both Germany and the UK were well received, with the DMO selling £4B in 5 year Gilts with a strong cover of 2.33 times and the Bundesbank tapping €4B in 5 Bobls with an extremely respectable cover of 1.9. with the announcement of Greece's long awaited austerity package, 10 year spreads have narrowed back below +290bps

- Geopolitical: In a closely watched Republican primary for Texas Governor, incumbent Rick Perry beat off two challenges from 16 year Senator Kay Hutchison and viral 'tea-party' candidate Debra Medina. Ultra-right Medina polled 19% (though she has refused to concede) while Hutchison polled 30%. With 51% of the vote, Perry cleared the50% bar needed to avoid a party-run off. Campaigning had been openly hostile against Washington, the Federal government and party insiders.*** Ukraine's current government majority coalition, headed by PM Tymoshenko has collapsed. The party failed to collect the 450 needed votes to prove it maintained the majority of Parliament. Failure of this strategic vote is now likely to lead to a procedural no-confidence vote. Collapse of the government would remove Tymoskenko from her PM role and offer Pres Yanukovyh's party the opportunity to form a new government. *** The EU and Vietnam have begun free-trade agreement negotiations. While the opening of a$100B/year economy pales in comparison to other emerging East Asian names, the talks are widely seen as an attempt to expand most-preferred nation status talks around the stymied Doha Round.


Notes

- Greece austerity plan of €4.8B is above the rumored €4B

- Russia Central bank seeks to hold a larger percentage of its reserves in gold

- Series of US employment reports over the next few sessions with ADP today

- European central bank decisions (BOE and ECC) on Thursday expected to remain steady


Looking Ahead

- 7:00 (US) MBA Mortgage Application w/e Feb 26th: No est v -8.5% prior

- 7:30 (US) Challenger Job Cuts: No est v -70.4 % prior

- 8:00 (BR) Brazil Jan CNI Capacity utilization: No est v 81.7% prior

- 8:00 Fed's Fisher on US economic recovery

- 8:00 Fed's Plosser

- 8:15 (US) Feb ADP Employment Change: -20Ke v -22K prior

- 10:00 (US) Feb ISM Non-Manufacturing: 51.0e v 50.5 prior

- 10:00 (GE) Germany's Asmussen briefs lawmakers on Greece

- 12:00 US Tsy Sperling

12:00 (CA) Canada to sell 5-year notes

12:30 (MX) Bond auction

- 13:00 (MX) Mexico Feb IMEF Manufacturing Index: 52.9e v 52.5 prior; Non-Manufacturing: 52.2e v 52.0 prior

- 13:00 Fed's Lockhart

- 14:00 (US) Beige Book