European Market Update: European PMI data mixed; ECB officials offer mixed views on Economic Outlook ahead of Key US Payroll report


Economic Data

- (IN) India August Markit Services PMI: 59.3 v 61.7 prior

- (ID) Indonesia Central Bank raised the Primary Reserve Requirement to 8.0% from 5.0% prior (Not Expected); Maintained the Reference Rate at 6.50% level (As Expected)

- (IN) India Primary Articles w/e Aug 21st : 15.2% v 14.8% prior; WPI Food Articles WPI Y/Y: 10.9% v 10.0% prior

- (IR) Ireland Aug NCB Services PMI: 52.9 v 55.7 prior

- (TU) Turkey Aug Consumer Prices M/M: 0.4% v 0.0%e; Y/Y: 8.3% v 8.0%e

- (TU) Turkey Aug Producer Prices M/M: 1.2% v 0.2%e; Y/Y: 9.0% v 7.9%e

- (NO) Norway Aug Unemployment Rate: 2.9% v 3.0%e

- (SP) Spain Aug Services PMI: 49.2 v 51.3 prior; First sub 50 reading since Feb '10

- (SZ) Swiss Aug CPI M/M: % v 0.0%e; Y/Y: % v 0.4%e

- (IT) Italy Aug PMI Services: 51.4 v 50.0e

- (FR) France Aug Final PMI Services: 60.4 v 59.9e

- (GE) Germany Aug Final PMI Services: 57.2 v 58.5e

- (EU) Euro Zone Aug Final PMI Services: 55.9 v 55.6e; PMI Composite: 56.2 v 56.1e

- (SP) Spain Aug Consumer Confidence: 74.9 v 73.6 prior

- (UK) Aug PMI Services: 51.3 v 52.9e; Employment Component: 46.9 v 49.7 prior (lowest since Oct 2009)

- (EU) Euro-Zone July Retail Sales M/M: 0.1% v 0.2%e; Y/Y: 1.1% v 0.6%e

- (IC) Iceland Q2 GDP Q/Q: -3.1% v 0.6% prior; Y/Y: -8.4% v -6.9% prior


SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Equities:

- As of 5:35am ET (9:30 GMT) Euro Stoxx 50 Index +0.6% at 2,731; DAX Index +0.4% at 6,108; CAC-40 Index +0.6% at 3,652 and FTSE 100 Index +0.5% at 5,397

- Swiss pharmaceutical Santera [SANN.SZ] managed to narrow its loss from a year ago figures and reported a 110% revenue increase. At the same time, company announced a new agreement on Parkinsons disease with Ipsen from which Santera would receive an upfront payment of €13M and additional payments and sales milestones of up to €128M. Consequently, Santera expected to be profitable in the H2 2010. Swiss pharma giant Roche [ROG.SZ] announced that it started to implement new initiative to adap cost structures and accelerate productivity improvements Group-wide. Group reaffirmed its FY10 outlook of local currency sales growth in the mid-single-digit range for the Group and the Pharmaceuticals Division in 2010 (excluding Tamiflu sales). Shares opened higher by less than 1%.

- Theolia [TEO.FR] increased revenues from the year ago level but widened its net loss to €24.2M from €14.1M a year ago. Shares dropped 10% as a result.

- In UK names, Soco International's [SIA.UK] shares opened down by 5% after announcing that it was abandoning Nganga well in Congo. Meanwhile BP [BP.UK] announced that cost of Gulf of Mexico oil spill to date had risen to $8B from $3.9B on July 19th. In M&A news, Goldcorp [GG] launched a counterbid to acquire Canada's Andean Resources valuing the company at C$3.6B. The value is 6% higher than Eldorado Gold [EGO] bid which valued Andean at C$3.4B.

Speakers:

- ECB's Nowotny commented that he did not sees any dramatic FX developments at this time and that the ECB did not have any exchange rate target. He reiterated the standard G7 view on exchange rates that he was against 'abrupt' FX price movements. He noted that the international role of Euro was increasing. He commented that the ECB exit strategy would start with liquidity withdrawal, followed by collateral quality and then interest rates increases. He noted that fellow central bank members were in one line regarding decisions to extend liquidity support

- ECB's Wellink stated that he was concerned about the medium to long term economic outlook. He noted that resolving the Unemployment conditions in a in low growth environment would be a challenge. He did dismiss speculation that economy could slip into a 'double-dip' recession

- ECB's Draghi, however, stated that the global economic recovery remained fragile in short to medium term outlook and reiterated that fiscal stimulus exit strategy was a risk to recovery. He added that financial market fragility was a risk to recovery

- Russia Central Bank stated that it was prepared to invest in Canadian currency in a few weeks. **(TTN duly noted that on June 21st Canada Fin Min Flaherty confirmed nations including Russia were purchasing CAD for reserve purposes. That same month Russia President Medvedev stated that it would continue talks with China on alternative reserve currencies. )

- South Korea Fin Min: Need steps to reduce foreign currency denominated bond issuance over the medium-to-long term picture

- India Gov't commented that it would maintain issuance of bonds with over 30-years to maturity for development of a liquid yield curve. Bond issuances were aimed at modulating maturity structure prevailing rate regime

- Indonesia Central bank commented after its rate decision that its core inflation was rising and the increase in the bank reserves requirement sought to curb inflationary forces from excess liquidity. The central bank was seeking to achieve its 2010 inflation target of 4% to 6% range

Currencies/Fixed Income:

Overall the currencies were relatively quiet ahead of the key US payroll release. Comments from the Russian Central bank was prepared to invest in Canadian currency in a few weeks time went little noticed since Russia has been the most vocal of the BRIC nations on the desire to create/implement a new reserve currency the past few years. The desire to move into CAD has been trumpeted many times by Russian official and not taken by the market as a token of transparency to allow the market to position ahead of the CBR.
The GBP did display some volatility after the UK PMI Services declined with the employment component dipping below the pivotal 50 level. Dealers' first impression of the data was that it suggested a slowdown in Q3 UK GDP growth to around 0.5% from the 1.2% experienced in Q2. GBP/USD dipped to test below 1.54 in the aftermath of the data event.

In the Papers-Geopolitical:

- Officials of the Obama Administration considered a package of business tax breaks which could be worth hundreds of billions of dollars. Options include a temporary payroll tax holiday, and a permanent extension of the expired R&D tax credit.

- In an article in the London Independent, during the month of August, the liabilities of defined benefit pension schemes rose to a record £1.2 trillion due to the drop in gilt yields, which are used as a benchmark for assessing future pension liabilities.

- Global banking regulators are expected to reach an agreement sometime next week related to the Basel III capital requirements. The agreement may allow reforms to receive a final endorsement at the G20 meeting in November. As a reminder, the Basel Committee is seeking to limit the role of hybrid capital in its new core capital requirements.

- Following last week's announcement of scheduled London Underground (LU) strikes, discussion attempted Thursday between unions and LU management broke down resulting in strikes to go on as planned. The strikes are to begin Monday, the 6th September. It is estimated that the strikes could end up costing the city by as much as £48M per day.


Notes/Observations

- European PMI Services mixed; Russia Aug services PMI moves below the 50 level; China services PMI flat m/m

- Risk aversion sentiment could simmer following US Non-Farm payroll data and likely rise in its unemployment rate. Dealers question whether equities would look for a reason to rally post-data but big any "big miss" to the downside would be hard to ignore

- Spot Gold within striking distance of fresh all time highs above the $1,265.10 set back on Jun 21st

- Russia gives the market a "head ups" up on its next currency trade (Age of transparency???)

- ECB Wellink concerned about the medium to long term economic outlook

- ECB Draghi global economic recovery remained fragile in short to medium term outlook


Looking Ahead

- 8:00 (BR) Brazil Q2 GDP Q/Q: 0.7%e v 2.7% prior; Y/Y: 8.0%e v 9.0% prior; GDP Accumulated: 5.2%e v 2.4% prior

- 8:00 (EU) ECB Gonzalez-Paramo

- 8:30 (US) Aug Change in Nonfarm Payrolls: -105Ke v -131K prior; Change in Private Payrolls: +40Ke v 71K prior; Change in Manufacturing Payrolls: 10Ke v 36K prior

- 8:30 (US) Aug Unemployment Rate: 9.6%e v 9.5% prior

- 8:30 (US) Aug Avg Hourly Earning M/M: 0.1%e v 0.2% prior; Avg Weekly Hours: 34.2e v 34.2 prior

- 10:00 (US) Fed's Lockhart speech on economy

- 10:00 (US) Aug ISM Non-Manufacturing 53.2e v 54.3 prior

- 10:00 (MX) Mexico Aug Consumer Confidence: 86.8e v 87.4 prior

- 17:00 (CO) Colombia Aug Producer Price Index M/M: No est v -0.6% prior; Y/Y: No est v 1.8% prior

- (CO) Colombia Aug Consumer Price Index M/M: 0.0%e v -0.1% prior; Y/Y: 2.3%e v 2.4% prior

- (CO) Colombia Monetary Policy Minutes