EU Market Update: Euro-skeptic Ambrose Evans-Pritchard writes Key German officials back ECB bond buying scheme


Economic Data

- (IN) India July CPI Y/Y: 9.9% v 10.0% prior; Food-based Inflation 11.5% v 10.7% prior

- (JP) Japan July Nationwide Dept. Sales Y/Y: -3.3% v -1.2% prior; Tokyo Dept. Store Sales Y/Y: -1.0% v -0.1% prior

- (FI) Finland July Unemployment Rate: 6.9% v 7.9% prior

- (ZA) South Africa Jun Leading Indicator: 129.3 v 130.8 prior

- (CH) Swiss Q2 Real Estate Index Family Homes: 408.4 v 410.4 prior

- (CH) Swiss July M3 Money Supply M3 Y/Y: 9.8% v 8.5% prior

- (NL) Netherlands July House Price Index M/M: -3.6% v+ 0.9% prior; Y/Y: -8.0% v -4.4% prior

- (SE) Sweden Q2 Total Number of Employees Y/Y: 2.0% v 2.3% prior

- (UK) July Public Finances (PSNCR): -£22.9B v +£3.0B prior; Public Sector Net Borrowing: -£1.8B v -£3.2Be; PSNB ex Interventions: +£0.6B v -£2.2Be (**Note: the number ex-intervention showed deficit vs. surplus expected)

- (HK) Hong Kong July CPI Composite Index Y/Y: 1.6% v 3.4%e

Fixed Income

- (ES) Spain Debt Agency (Tesoro) to sell between €3.5-4.5B in 12-Month and 18-Month Bills

- Sold €3.53B in 12-month Bills; Avg Yield 3.070% v 3.918% prior; Bid-to-cover: 1.91x v 2.23x prior; Max Yield 3.207% v 3.990% prior; Tail: 13.7bps v 7.2bps prior

- Sold €982M in 18-month Bills; Avg Yield 3.335% v 4.242% prior; Bid-to-cover: 3.98x v 3.66x prior; Max Yield 3.450% v 4.350% prior; Tail: 11.5bps v 10.8bps prior

- (CH) Switzerland sold CHF760.9M in 6-Month Bills; Yield -0.401%

- (EU) ECB allotted €131.3B in 7-Day Main Refinancing Tender at fixed 0.75% vs. prior €130.6B

- (HU) Hungary Debt Agency (AKK) sold HUF45B vs. HUF45B target in 3-Month Bills; Avg Yield 6.85% v 6.87% prior; Bid-to-cover: 1.58x v 1.43x prior

- (ZA) South Africa sold total ZAR2.1B vs. ZAR2.1B indicated in 2023, 2036 and 2048

- (UK) DMO sold £1.25B in 0.125% I/L 2029 Gilts; Real Yield -0.025% v -0.108% prior; Bid-to-cover: 1.84x v 1.83x prior


SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

***Notes/Observations***

- UK newspaper Daily Telegraph's Euro-skeptic in chief, Ambrose Evans-Pritchard: Germanys director at the ECB has thrown his weight behind mass purchases of Spanish and Italian debt to prevent the disintegration of the EMU, marking a crucial turning point in the Euro zone debt crisis.

- Moody's: Euro zone crisis is at best at the half way point; Greece and Ireland may need until 2016 to improve finances

- RBA: Stance of monetary policy remained appropriate; Would take some time for prior rate cuts to take effect

- SNB purchased Aussy dollars

- Spain may turn Bad Bank into Investment Fund


Equities

Indices: FTSE 100 +0.30%, DAX +0.60% at 7072, CAC-40 +0.80% at 3508, IBEX-35 +0.30% at 7493, FTSE MIB +1.4% at 15,183, SMI +0.20% at 6519, S&P 500 Futures +0.20% at 1417.75

- Following the positive open, European indices have continued to trade higher, led by indices in Italy and France. European financials are broadly higher and outperformers include French and Italian banks. Resources related firms are also gaining, in line with the rise seen for Chinese equities and commodity prices.

- Large miner Glencore [GLEN.UK] is slightly lower after reporting better than expected H1 profits. Heritage Oil [HOIL.UK] is higher by over 12%, as the company agreed to sell an interest in the Miran block located in Kurdistan. Credit card protection firm CPP Group [CPP.UK] has lost over 7%, after reporting H1 results and making cautious comments regarding its short-term outlook. In other UK movers, engineering/construction firm Severfield-Rowan [SFR.UK] has lost over 6% (reported weaker than expected H1 pretax profits), while builder Persimmon [PSN.UK] is lower by more than 1.5% (reported H1 results).
Shares of Siemens [SIE.DE] have slightly outperformed the DAX, amid speculation that the firm is mulling thousands of job cuts.
Julius Baer [BAER.CH] is higher by over 2% as the company reduced the size of its planned rights offering to CHF500M from the originally disclosed CHF750M. Dental implant maker Straumann [STMN.CH] has traded lower by over 7%, after reporting weaker than expected H1 results. Austrian construction materials firm Wienerberger [WIE.AT] is lower by approx.
3.5%,as Q2 results missed analyst expectations.

Speakers:

- Fitch managing director Riley commented that the ECB might act without the German Bundesbank and his baseline scenario remained that Europe would remain intact. He noted that continued downward pressure on sovereign ratings would occur without resolution to the crisis and if there was no progress by the end of 2012, could see further sovereign downgrades within the peripheral countries. Changes to the UK deficit cutting plans would pose risks to sovereign ratings

- UK Treasury commented that the govt remained committed to credible fiscal plan although tax receipts were coming in below forecasts with the shortfall explained by weakness in corporate tax receipts. It added that it was too early for full year conclusions

- ECB said to have approved 40 new workers to help in attempts to deal with debt crisis

- German CDU Budget lawmaker Barthle stated that 'small concessions' were possible for Greece and that it would likely pass in German Bundestag (lower house). He noted that Greece loan interest and maturity could be adjusted

- Finland President Niinisto commented that leaving the Euro was not a solution and that there was no quick and easy solutions to the European crisis. Joining the EMU was right and irreversible process and Finland's commitment to the EU and the common currency was rock solid.

- France Labor Min Sapin commented that it was an urgent need to deal with economic crisis and stressed that Youth employment was a priority in budget and reiterated cutting the deficit was key for credibility.

- Spain Basque region to bring forward elections to Oct 21st 2012 from March 2013

- BOJ Nishimura commented during his visit to Australia that China was entering 'danger zone' for financial crisis

- Former PBoC advisor Li Daokui commented that China should cut the Reserve Requirement Ratio (RRR) and saw 2012 GDP at 8.1%. He added that China's economy was recovering with Q4 GDP growth seen over 8.5%

Currencies:

- The UK press article by Euro skeptic Ambrose Evans-Pritchard painted optimism over the fate of Europe and provided the catalyst for renewed risk appetite which helped to weaken the USD and JPY currencies against the major European currencies

- The EUR/USD registered 2-week highs above the 1.24 handle while EUR/JPY cross hit fresh 6-week highs at 99.66.

- Dealers were pondering whether the price action would continue to reward range traders and punish those betting on follow through. Some note that the summer doldrums would likely persist until the key Sept German Constitutional Court ruling on ESM on Sept 12th.

Political/In the Papers:

- The Telegraph confirmed reports in Germany's Der Spiegel that ECB technicians are examining plans to cap Spanish and Italian bond yields, among other options. Ambrose Evans-Pritchard suggested the move to cap yields would be a game changer. ECB director general of market operations, Ulrich Bindseil, is leading the plans with experts from Europe's central banks. ECB executive board member Joerg Asmussen signaled full backing for the bond rescue plan of ECB chief Draghi, brushing aside warnings from the Bundesbank that large-scale purchases would amount to debt monetization and a back-door fiscal rescue of insolvent states in breach of EU treaty law.

- According to stress tests conducted by Irish business and credit risk company Vision-net, half of all Irish businesses are on the verge of collapse. So far in August, five companies went bust every day. The test results found that 9,428 companies were at a high risk of failure.

- The UK Treasury was said to be considering a plan to support the labor market. The government is considering a plan which involves "mini-jobs", which would allow certain people to work without paying tax or national insurance. The plan would allow workers to make up to €400/month without having to pay taxes.

- The director for London research organization NIESR Jonathan Portes suggested that the government increase borrowing in order to support the economy. He argued that additional borrowing would not likely lead to higher interest rates, as the UK's borrowing costs have not been directly related to the levels of the deficit in recent years. Options for the government include lowering the National Insurance Contributions for employers and low-paid workers, and increasing infrastructure spending.

- The Irish treasury management, the NTMA is expected to issue amortizing bonds in the coming days in a bid to meet the demand from potential new customers in the form of pension funds. The issue is part of a €3-€5B program to see the agency sell both amortizing bonds, inflation-linked bonds over the next year and a half. Initial maturities are seen at 15, 20, 25, 30 and 35 years.

- The Spanish press reported that Spain may turn the bad bank into an investment fund. This would fall within the parameters of the banking overhaul required by EU banking aid package. The framework for the bad bank is to be released on Friday. The investment fund model is being explored in order to attract potential investor.


Looking Ahead

***All times listed for economic events are denominated in Eastern Standard Time (Add 4 hours for GMT equivalent)

- 06:00 (EU) EFSF to sell €1.5B in 6-month Bills; Avg Yield % v -0.0113% prior; Bid-to-cover: x v 3.0x prior

- 06:00 (UK) Aug CBI Industrial Trends Total Orders: -10e v -6 prior; CBI Trends Selling Prices: -2e v -3 prior

- 06:00 (IE) Ireland July PPI M/M: No est v 0.3% prior; Y/Y: No est v 3.2% prior

- 07:00 (EU) ECB announces allotment in 7-Day Term Deposits at fixed 0.75% to offset Govt Bond Purchases (SMP); To drain €211.5B

- 07:45 (ICSC Chain Store sales

- 08:00 (PL) Poland July Core Inflation M/M: 0.1%e v 0.1% prior; Y/Y: 2.3%e v 2.3% prior

- 08:30 (CA) Canada Jun Wholesale Sales M/M: 0.3%e v 0.9% prior

- 08:45 (US) Fed's Lockhart speaks in Atlanta

- 08:55 (US) Weekly Redbook Sales

- 09:00 (BE) Belgium Aug Consumer Confidence: No est v -13 prior

- 09:00 (EU) ECB Forex Reserves

- 09:00 (UR) Ukraine to sell 5-Year and 7-Year Bonds

- 09:45 (UK) BOE to buy £1.0B in 2027-2060 in reverse auction

- 10:00 (UK) DMO quarterly consultation meeting with end investors and GEMMs

- 11:00 (US) Fed to sell $7.00-8.00B in Notes

- 11:30 (US) Treasury to sell combined $65B in 4-week and 52-Week Bills

- 13:00 (CA) Bank of Canada Dep Gov Agathe speaks in Ontario

- 15:00 (AR) Argentina Q2 Total Unemployment Rate: 7.1%e v 7.1% prior

- 16:30 (US) API Crude Oil Inventories

- 19:50 (JP) Japan July Total Merchandise Trade Balance: -¥270.0Be v +¥61.7B prior; Adjusted Merchandise Trade Balance: -¥451.5Be v -¥300.8B prior