EU Market Update: Market focus returning on Greece with PM Samaras set to meet key European official over the remainder of the week


Economic Data

- (DK) Denmark July Retail Sales M/M: -0.2% v +0.2%e; Y/Y: -2.6 v -1.0% prior

- (HU) Hungary Jun Avg Gross Wages Y/Y: 4.1% v 5.2%e

- (NO) Norway Jun AKU Unemployment Rate: 3.0% v 3.1%e

- (ZA) South Africa July CPI (all items) M/M: 0.3% v 0.6%e; Y/Y: 4.9% v 5.2%e

- (IC) Iceland Central Bank (Sedlabanki) leaves 7-day Lending Rate unchanged at 5.75%

- (GR) Greece July YTD state budget balance at -€13.2B, primary balance at -€3.1B

Fixed Income:

- (IN) India sold total INR120B vs. INR120B indicated in 3-month and 12-month Bills

- (RU) Russia sold RUB8.5B vs. RUB15B indicated in 2019 OFZ Bond; Yield 7.80% vs. guidance of 7.75-7.80%

- (SE) Sweden sold SEK3.5B vs. SEK3.5B indicated in 3.5% 2022 Bonds; Yield 1.5291% v 1.5843% prior; Bid-to-cover: 2.60 v 2.12x prior

- (EU) ECB allotted $8.5B in 7-day USD Liquidity Tender at fixed 0.64% vs. $9.3B prior

- (BE) Belgium Debt Agency priced 2020 retail bond at 2.1%

- (DE) Germany sold €4.08B in 0.0% Sept 2014 Schatz; Avg Yield 0.00% v -0.06% prior; Bid-to-cover: 1.5x v 2.0x prior


SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

***Notes/Observations***

- Japan July Trade Balance registers its 16th straight month of deficits; Exports slump to most regions with exports to Asia -9.0% y/y, exports to China -11.9% y/y, exports to Europe -25.1% y/y (biggest fall since Oct 2009); exports to US +4.7% y/y

- BOE outgoing member Posen: ECB should intervene in Spain & Italian yields; Germany would be ill-advised to let euro breakup

- Fed's Evans: Fed should provide more accommodation; rates should stay near zero until unemployment decline below 7%

- LCH Clearnet: To accept Gold as collateral for margin

- BHP cancels $30 billion Olympic Dam expansion

- German 2-year Schatz auction results described as 'tad soggy'


Equities

Indices: FTSE 100 -1% at 5799, DAX -0.80% at 7033, CAC-40 -0.60% at 3490, IBEX-35 -0.90% at 7474, FTSE MIB -0.30% at 15,279, SMI -0.40% at 6489, S&P 500 Futures -0.20% at 1409.50

- Following the lower open, European bourses have pared their losses, as Spanish 2-yr bond yields reversed the opening gains. The best performing index on the session has been the Italian FTSE MIB, while the FTSE 100 has lagged (various UK companies are trading ex-dividend). In the banking sector, French and Italian banks have outperformed (Spanish banks have lagged). UK-listed resource related firms are mostly lower, led by BHP [BLT.UK] and Fresnillo [FRES.UK]. In terms of upcoming event risks, traders will be focusing on the later today release of the US Fed's minutes. On Thursday, China and European PMI data will be released, in addition to final GDP data out of Germany.

- Large miner BHP [BLT.UK] has traded lower by over 1%, despite reporting better than expected FY results. The company announced that it would cancel the planned expansion of its large Olympic Dam Copper project, citing the outlook for commodity prices. TT Electronics [TTG.UK] has lost over 15%, after the company made cautious remarks about its FY sales outlook. Engineering/consulting firm Spirax [SPX.UK] is lower by more than 6%, as the company reported a y/y decline in H1 profits. In Germany, Rhoen-Klinikum [RHK.DE] has gained over 2% on renewed speculation that Fresenius [FRE.DE] could make another bid for the company. German automakers have traded lower, as Chinese automaker Geely [175.HK] made cautious comments regarding its H1 outlook. Shares of Danish wind power firm Vestas Wind Systems [VWS.DK] have moved between gains and losses, as the company reaffirmed its FY forecasts and announced additional job cuts. In Belgium, Delhaize Group's [DELB.BE] shares are higher by over 6%, after the company reported better than expected Q2 results. Heineken [HEIA.NL] is lower by over 4% on weaker than expected H1 results.

Speakers:

- German senior CDU member Meister commented in the German press that would tie potential Greece concessions to conditions and saw the biggest possible flexibility within Greece program. CDU official Willsch countered Meister's argument and rejected Greek concessions

- Netherlands Fin Min de Jager stated that it was not good idea for Greece to take additional time to enact planned budget cuts and reforms

- France PM Ayrault reaffirmed its 2013 deficit target of 3% of GDP but could not say if would again changeg its growth forecast. He also reiterated its view that it would act on oil prices (**Note: France has been in contact with US officials on studying all options regarding oil prices)

- DMO quarterly consultation meeting with end investors and GEMMs (Gilt Edged Market Maker) anticipated holding two syndicated offerings in the Q3 of 2012. 10 Gilt auctions comprised of 7 conventional and 3 Inflation-Linked

- Germany said to be pushing for completion of Basel III by end of December. Later German Fin Fin Schaeuble stated that Germany was seen approving the draft Basel III rules which would better protect banks in crisis

- China PBoC Gov Zhou reiterated that all tools must be made available when managing monetary policy

- Philippines Central Bank Gov Tetangco commented that it was ready to adjust monetary policy to ensure financial stability. The central bank would be watchful of both potential asset price pressures and currency volatility. He noted that a strong balance of payments to support PHP currency (peso)

Currencies:

- The FX price action during Europe was subdued with the major pairs little changed from its Tokyo opening levels.

- Some risk off sentiment weighed upon global equity prices over the last 24 hours. The S&P saw a reversal on Tuesday after hitting 4 year high. Dealers did take note of Nomura analyst Bob Janjuah call that the S&P 500 was likely to fall by 20-25% over the next 3-months. Thus the price action in Asian and Europe followed suit. The lower stocks action prompted softer commodity currencies. BHP canceled a $30B Olympic Dam expansion due its assessment of the current outlook.

- The EUR/USD still managed to hold above the 1.2440 level (its former Aug high) and kept its bullish technical momentum intact for now.

- The GBP/USD did hit fresh 3-month highs above the 1.58 level and 20 pips higher from its Asian open.

Political/In the Papers:

- The Bank of England's quantitative easing (QE) measures have helped drive the 10-year gilt yields below Treasury yields. Note US yields have also moved above UK yields, following recent positive US data including July industrial production, building permits and retail sales.

- Yields on the Ireland benchmark nine-year bond declined to below the 6.00% level for the first time since October of 2010.

- Following yesterday's public borrowing data, the UK Treasury told Whitehall departments to get ready for new budget cuts in the autumn as finances continue to deteriorate.

- The Irish Central Bank report (six months to March) noted that banks in Ireland rejected more business loan applications than any other euro zone state except Greece. SMEs were twice as likely to have loan applications rejected than the euro zone average.

- Ambrose Evans-Pritchard reported that China's property bubble could be larger than what was seen in Japan during the 1990s. In 2011, China's construction was 12% of GDP, while in Japan construction peaked at 10% of GDP. The Komatsu index of excavator usage (indicator of construction activity in China) declined by 13% in July.


Looking Ahead

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

- (GR) EU's Juncker meets Greece PM Samaras

- 06:00 (IC) Iceland to sell Bonds

- 07:00 (US) MBA Mortgage Applications w/e Aug 17th: No est v -4.5% prior

- 08:00 (BR) Brazil Aug IBGE CPI IPCA-15 M/M: 0.4%e v 0.3% prior

- 08:30 (CL) Chile Central Bank Traders Survey

- 08:30 (CA) Canada Jun Retail Sales M/M: 0.1%e v 0.3% prior; Retail Sales Less Autos M/M: 0.2%e v 0.5% prior

- 09:00 (MX) Mexico July Retail Sales: 4.5%e v 5.2% prior

- 09:45 (UK) BOE to buy £1.0B in 2019-2025 in reverse auction

- 10:00 (US) July Existing Home Sales: 4.51Me v 4.37M prior

- 10:30 (US) Weekly DOE Crude Oil Inventories

- 11:00 (US) Fed to purchase $1.50-2.00B in Notes

- 11:00 (CA) Bank of Canada Gov Carney to Speak

- 12:00 (GR) EU's Juncker joint press conference with Greece PM Samaras in Athens

- 12:15 (CH) Austria Fin Min Fekter speaks in Zurich

- 14:00 (US) Fed releases Minutes from August 1 FOMC Meeting

- 22:30 (CN) China Aug HSBC Manufacturing PMI: No est v 49.3 prior