European Market Update: JPY currency off session lows after Japan MOF and BOJ walk the standard G7 line on currencies


Economic Data

- (IN) India Jun Industrial Production Y/Y: 7.1% v 8.1%e

- (SP) Spain July Consumer Price Index M/M: -0.4% v -0.4%e; Y/Y: 1.9% v 1.9%e

- (SP) Spain July CPI Core M/M: -0.7% v -0.7%e; Y/Y: 0.8% v 0.7%e

- (SP) Spain July CPI EU Harmonized M/M:-0.4% v -0.4%e; Y/Y: 1.9% v 1.9%e

- (SW) Sweden July Headline CPI M/M: -0.3% v -0.2%e; Y/Y: 1.1% v 1.2%e; CPI Level: 302.04 v 302.33e

- (SW) Sweden July Underlining CPI M/M: -0.3% v -0.4%e; Y/Y: 1.7% v 1.7%e

- (EU) ECB Publishes Aug. Monthly Report: Reiterates comments from Aug 5th press conference

- (IT) Italy July Final CPI (NIC incl. tobacco) M/M: 0.4% v 0.4%e; Y/Y: 1.7% v 1.7%e

- (IT) Italy July Final CPI EU Harmonized M/M: -0.9% v -0.9%e; Y/Y: 1.8% v 1.8%e

- (NO) Norway Jun Retail Sales Volume M/M: -0.1% v 0.2%e; Y/Y: 2.9% v 3.0% prior

- (SW) Sweden July AMV Unemployment Rate: 4.8% v 4.9%e

- (GR) Greece Q2 Preliminary GDP Q/Q: -1.5% v -1.1e; Y/Y: -3.5% v -3.4%e

- (GR) Greece May Unemployment Rate: 12.0% v 11.6%e

- (RU) Russia Gold & Forex Reserve w/e Aug 6th: $478.3B v $474.5B prior

- (EU) Euro Zone Jun Industrial Production M/M: -0.1% v 0.6%e; Y/Y: 8.2% v 9.3%e

- (IT) Italy Jun Total Trade Balance: -€3.1B v -€2.0B prior; EU Trade Balance: -€2.0B v -€540M prior

Fixed income:

- (HU) Hungary Debt Agency sold total HUF54B in

- Sold HUF20B in Feb 2014 bonds, avg yield 6.82%; bid-to-cover: 2.0x

- Sold HUF17B in Feb 2016 bonds, avg yield 6.87%; bid-to-cover: 2.7x

- Sold HUF17B in Feb 2020 bonds, avg yield 7.09%; bid-to-cover: 2.6x

- (UK) DMO sells £3.0B in 4.0% 2022 Conventional Gilts; avg yield 3.485% v 4.333% prior; Bid-to-cover: 1.7x v 2.0x prior; tail 0.4 bps

- (IR) Ireland Debt Agency sells total €1.0B 6-month and 8-month Bills

- Sold €500M in 6-month Bill at avg yield 2.458% v 1.367% prior; Bid-to-cover: 3.6x v 2.8x prior

- Sold €500M in 8-month Bill at avg yield 2.81% v 1.8% prior; Bid-to-cover: 3.1x v 3.4x prior


SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM


Notes/Observations

- Australian July employment rate above expectations

- Nikkei 225 Index at 13 month lows and briefly touched bear market territory.

- Traders note that S&P and Shanghai equity markets are 'well below' the 100 and 200 day mvg avg

- Chatter circulating that BOJ was 'checking rates (precursor to possible currency intervention) but both BOJ and Japan MOF walk the standard G7 line about 'excessive volatility' rather then outright levels.

- China's Citic Bank halts all mortgages to 3rd home buyers in all regions.

Equities:

- As of 5:50am ET Euro Stoxx 50 Index 0.1% at 2,721; DAX Index -0.4% at 6,133; CAC-40 Index -0.3% at 3,619 and FTSE 100 Index Unchanged at 5,244

- A choppy equity session as the sentiment hinged on the JPY currency. Stocks opened higher on growing hopes that the BOJ might undergo currency intervention and this provided a brief window of risk appetite. That sentiment dissipated after both the BOJ Gov and MOF talked down the prospects of any intervention and would continue to monitor the markets

- Among notable German names scheduled to report today RWE [RWE.GE] reported better than expected results except net income which was softer than estimates. The nuclear plant tax has prompted the company to announce that it would review its medium-term goals and its 50-60% payout ratio. The EBITDA and Net would decrease by, respectively, €1B and €650M. However, it still expected a growth of 5% in the operating result and recurrent net income. Q-Cells [QCE.GE] returned to profit this quarter beating estimates on both net and revenue. Consequently the company raised its FY10 guidance for revenues. Total production volume of solar cells and thin-film modules had also shown an increase of 37%. Shares traded up by 6.4% at the open. Salzgitter [SZG.GE] beat estimates but was still uncertain on its outlook for sales and results. K+S [SDF.GE]reported a strong growth in the operating profit due mainly to further normalization in fertilizer demand and the inclusion of Morton Salt, acquired last year. However, the results slightly beat the estimates, with the revenue coming almost in line with expectations. Overall the forecast was positive, as company expected an increase in sales and revenues over the last year. Shares traded down as investors had hoped for even stronger results.

- Dutch insurer Aegon [AGN.NV] reported strong results coming better than expected. Return on equity and impairment charges were also positive. However, there is uncertainty in the market over the repayment of debt to the Dutch government which the management did little to placate as they declined to comment on speculations that the company may need to raise capital. Shares were trading down by 1.7% at the open. Anheuser-Busch InBev [ABI.BE]surprised on the positive with its results and expected EBITDA to continue to grow above H12010 levels (Q2 EBITDA at $3.35B) for the rest of the year. Shares opened up by 1.3%.

- Prudential [PRU.UK] reported better than expected results noting an increase in the operating profit on a yearly basis. Company also raised its dividend by 5%. Noted that the main growth driver are the Asian markets, while it remained cautious on the outlook for the Western economies. Company ruled out another bid for the AIA unit and there were no comments on the resignation of the CEO. Shares opened up by 1.3%. Dana Petroleum [DNX.UK]issued a takeover update from KNOC stating that it would not be prudent to recommend the proposal of £1.67B made by the Korea National Oil. As talks continue to stall, shares suffered a decline of 11% at the opened.

Speakers:

Japan Fin Min Noda unscheduled press conference reiterated that standard G7 view that excessive volatility was undesirable and that there were NO plans to hold G7 meeting either in person or via tele-conference. He noted that the MOF was in contact with other advanced nations regarding the situation and reiterated the desire to work closely with BOJ on strong JPY currency issue

- BoJ Nakaso confirmed earlier speculation that the BOJ 'checked' fx rates" to examine market conditions. He noted that the central bank was monitoring yen price movements with various currencies in addition to the USD. He again stressed that the G7 nations shared view that excessive and disorderly currency movements could adversely impact Japan's economy. The BoJ statement was not meant as verbal intervention.

- Irish Central Bank Chief Honohan commented that bond spreads were a setback and viewed then as 'ridiculous' at current levels. The Net cost to Ireland to recapitalize banks at €25B, approx 15% of GDP. He added that Ireland was not at risk of deflationary spiral due to the discipline of its EMU membership.

- BOJ Gov Shirakawa commented that the currency and equity markets were volatile and stated that it would watch the markets at this time

- Currencies/Fixed Income; The JPY currency remained the focus in the session as chatter circulated that the BOJ was 'checking rates' as a possible precursor to currency intervention. The rumor helped to propel the USD/JPY to test above 85.50 in the early part of the European session. The news of a unscheduled MOF press conference provided the momentum for the pair to test above 85.75 level. However, both the BOJ and MOF walked the standard G7 line of concern over currency volatility rather than any outright level and this took the JPY firmer across the board against the major pairs. USD/JPY entering the NY morning around the 85.35 area with EUR/JPY back below the 110 handle after testing 110.90 earlier in the session.

- Weaker European data ate away at the Euro's gains in the session. EUR/USD tested 1.2930 before Euro Zone Industrial Production registered a negative reading and Greek May unemployment and Q2 GDP were worse than analyst expectations. EUR/CHF cross reflected to continued risk aversion that has bubbled up in recent session to test

In the Papers-Geopolitical:

- The Telegraph's Evans-Pritchard addressed the recent rise in Irish government bond yields noting that the increase in borrowing costs has been driven by concerns about the rising costs of Ireland's bank bailouts and earlier rumors that the ECB may have purchased Irish debt.

- It was reported in the press that Eurostat is forcing Germany to incorporate the remaining debt of its bailed banks onto its balance sheet with Britain and Spain to possibly follow. Listing Hypo Real Estate in particular, if it added the aforementioned debt to its balance sheet, then it could take the debt-to-GDP ratio to 90%, well above the 60%requirement of the Maastricht Treaty.


Looking Ahead

- (IS) Israel July Trade Balance: $ v -$814M prior

- 8:30 (US) July Import Price Index M/M: 0.3%e v -1/35 prior; Y/Y: 5.4%e v 4.5% prior

- 8:30 (US) Initial Jobless Claims: 465Ke v 479K prior; Continuing Claims: 4.54Me v 4.54M prior

- 10:00 (US) Fed's Duke

- 13:00 (US) Treasury to sell $16B in 30-year bonds

- 17:00 (CO) Colombia Jun Trade Balance: $392.0Me v $507.7M prior