European Market Update: Risk Averison sentiment resurfaces; Fitch analysts cautious on Portugal despite recent austerity targets; UK Trade deficit widens in Jan


ECONOMIC DATA

- (NO) Norway Q1 Consumer Confidence: 18.5 v 17.0e

- (JP) Japan Feb Preliminary Machine Toll Orders: 217.3% v 189.4% prior

- (CZ) Czech Q4 Avg Real Wage Y/Y: 4.8% v 4.6% prior

- (FR) France Jan Trade Balance: - €3.7B v -€4.0Be

- (CZ) Czech Jan CPI M/M: 0.0% v 0.2%e; Y/Y: 0.6% v 0.8%e

- (CZ) Czech Jan Industrial Output Y/Y: 5.3% v 4.4%e; Construction Output Y/Y: -25.6% v 3.5% prior

- (HU) Hungary Jan Preliminary Industrial Output M/M: 8.8% v -5.8% prior; Y/Y: 5.7% v -1.5%e

- (SZ) Swiss Feb CPI M/M: 0.1% v 0.2%e ; Y/Y: 0.9% v 1.0%e

- (UK) Jan Visible Trade Balance: -£8.0B v -£7.0Be; Total Trade Balance: -£3.8 v -£3.0Be; Trade Balance Non-EU: -£4.8B v -£3.4Be

- (SA) South Africa Q1 BER Business Confidence: 43.0 v 32.5e

- (GR) Greece Feb CPI Y/Y: 2.8% v 2.5%e; CPI EU Harmonized Y/Y: 2.9% v 2.5%e


SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

- Equities: Having broken a three consecutive positive trading run in yesterday's session, markets in Europe rolled over following limited gains on the open. Trading in Europe has been broadly mixed with specific downside movers dominated by earnings related plays. Most notable, EADS [EAD.FR] significantly missed on its Net and EBIT figure. Losses in the A400M led the group to cancel its final FY09 dividend payment. Commentary from JV partner Northrop Grumman [NOC] that it was withdrawing from the US KC-X bidding added further weight to shares. UK listed Liberty International [LII.UK] also gave up ground following earnings and the completion of its group de-merger operations. In sector trading, financials rotated lower following Moody's commentary that UK banks that have yet to secure funding could see ratings cuts as governments pull back support and wider Fitch commentary on sovereign ratings throughout Europe. Fitch retained its negative outlook on the German based insurance sector in a move the lowered related names. Tech related plays have traded better throughout the session following improved guidance from US based Texas Instruments [TXN] that came from the groups mid-quarter update. Into 5:30EST, markets continued to trend lower on light volumes.

- Individual equities: EADS [EAD.FR] Reports FY09 Net loss €763M v loss €400Me, EBIT loss €322M v €2.8B y/y Rev €42.8B v €42Be; will not pay dividend due to losses. || Deutsche Post World [DPW.GE]: Reports Q4 Net loss €283M v loss €220Me, Rev €12.4B v €12.5Be; FY09 dividend flat y/y at €0.60. || Inmarsat [ISAT.UK]: Reports Q4 Rev $181.5M v $160.6M y/y. || Antofogasta [ANTO.UK]: Reports FY09 Net $667.7M v $669Me, Rev $2.96B v $3.37B y/y. || Severstal [CHMF.RU]: Reports Q4 Net loss $162M v profit $150M (unclear if comparable), Rev $3.92B v $3.9Be. ||

- Speakers: Fitch commented on European Peripherals. It noted that Portugal might be downgraded if its consolidation process was insufficient and maintained a negative outlook on Portugal. It added that Portugal had no property bubble and a sound banking system. On Greece the rating agency stated that the bailout was too uncertain to be factored into ratings. Lastly on Spain, Fitch stated that the decline in Spain's tax revenues was a concern and country's macro economic risks remained high. Spain inflexible labor market could prolong economic adjustment- Portugal has no property bubble and a sound banking system ***Fitch also stated that the UK needed a stronger adjustment and should reduce the deficit to GDP ratio to 3% by 2014/15 period. The rating agency did note that strong fundamentals supported UK's "AAA" sovereign rating but that it noted its sovereign credit profile has deteriorated quite sharply and economic outlook remains uncertain. It did expected UK debt ratio to be stabilized by mid-decade *** Fitch stated that the US was vulnerable to an interest rate shocks but saw no pressure on its "AAA" sovereign credit ratings in the short/medium term. It added that large "AAA" rated countries have exceptional funding flexibility *** IMF's Strauss-Kahn commented in a speech that China's CNY currency was undervalued and he expected changes in CNY currency in the coming months. While in South Africa he added that the ZAR currency devaluation was not a good solution nor the answer for South Africa; RBSA inflation target results in s firmer ZAR currency *** Columbia Prof Mundell commented that speculators have prove a challenge for Greece and the country has to make budget adjustments. He added that the EU could create a better and less formal method for aiding the Peripherals and sought to solve the problem without outside help. There may not be a need for IMF the agency could be useful ***Poland Central Bank Gov Skrzypek commented that its monetary policy bias remained neutral as some data suggests lower-than-expected inflation. He noted that the Rate Panel was ready to act if necessary and that a stronger Zloty (PLN) would lower future inflation ***ECB's Weber stated that the German economic recovery remained intact and that the global recovery was gaining strength. He added that the recovery was uneven and at different speeds and scales depending on region. ***China Banking Regulator (CBRC) Vice Chair Cai: stated that it would focus on local financing vehicle and on the debt risks at non-banking and securities companies

- Currencies: Comments by Fitch reopened some of the European peripherals concerns and brought back risk aversion into the market. The agency's initial comment that Portugal might be downgraded if its consolidation process was insufficient and added that it maintained a negative outlook on Portugal. ***The GBP maintained a soft tone from the get go in Europe over continued political speculation and implications about the eventuality of a hung parliament. More polls suggesting that Labour and the Conservatives were neck and neck in the marginal seats. Fitch as commented on the UK and stated that its sovereign credit profile had deteriorated quite sharply and economic outlook remains uncertain yet commented that strong fundamentals supported its current "AAA" sovereign rating. The GBP was further weighed down by the Jan Trade data which had larger-than-expected deficits and did not seemed to be induced by weather-related conditions. GBP/USD slumped to test 1.4940 ***The JPY was firmer throughout the session. Initially dealers attributed fiscal-year end flows for JPY's firm tone in session but the rising risk aversion complemented the sentiment. USD/JPY moved back below the 90 level while GBP/JPY tested below 134 area. ***The EUR/CHF cross remain near the pivotal 1.4600 option barrier with dealers seeing if the SNB amends its tactics to weaken the CHF currency.

- Fixed Income: Supply has been the dominant theme in European debt markets today. France launched a new 50 year OAT (lead managers BarCap, BNP, JP and SocGen) while Finland and Belgium both have opened books on syndicated offerings of their own. Austria and the Netherlands conducted auctions without any hiccups to report, while the UK DMO sold £3B in 12 year gilts with a healthy cover ratio above 2.

- In the Papers: Business Week looks at the economic impact that Napa Valley is under going. The area is a producer of the most expensive U.S. wines, 2010 may be a vintage year for foreclosures as the industry is squeezed by falling land values and a consumer shift to cheaper brands. As many as 10 wineries and vineyards in Napa will change hands in distressed sales or foreclosures this year and next, up from none in 2008. Land values in Napa, home to about 400 producers, have fallen 15 percent from the 2007 peak, driven in part by slumping demand for high-end wine


Notes

- What a difference a year makes for equities

- Fitch analysts make all sorts of comments on sovereign ratings and expresses concern over European peripherals and UK areas.

- UK Trade deficit widens and not seemed weather related

- China FX Regulator SAFE: Gold price will rise if China buys it but noted Gold from a long term investment yield was not good. Says wary of adding to gold holdings and that the Treasury market was key for China.On the currency would keep CNY steady at reasonable level.


Looking Ahead

- 7:30 (US) Feb NFIB Small Business Optimism: No est v 89.3 prior

- 7:45 (US) ICSC weekly chain store sales

- 8:55 (US) Redbook retail sales

- 9:00 (EU) EU Barroso

- 9:30 (US) Fed Evans

- 10:00 (US) Mar IBD/TIPP Economic Optimism: No est v 46.8 prior

- 10:00 (MX) Mexico Jan Final Trade Balance: No est v -332.6M prior

- 10:00 (MX) Mexico Feb Consumer Prices M/M: 0.5%e v 1.1% prior; Y/Y: 4.8%e v 4.5% prior; Core CPI M/M: 0.4%e v 0.7% prior

- 12:00: (BR) Brazil to sell Inflation-linked Bonds

- 12:30 (MX) Mexico to sell 5-year FRN