EU Market Update: Euro remains below $1.30, as Spain sells 2015 and 2022 bonds


Economic Data

- (CN) CHINA SEPT HSBC FLASH MANUFACTURING PMI: 47.8 V 47.6 PRIOR

- (DE) GERMANY AUG PRODUCER PRICES M/M: 0.5% V 0.4%E; Y/Y: 1.6% V 1.5%E

- (CH) SWITZERLAND AUG TRADE BALANCE (CHF): 1.73B V 2.9B PRIOR

- (JP) JAPAN AUG FINAL MACHINE TOOL ORDERS Y/Y: -2.7% V -2.6% PRIOR

- (SE) Sweden presents 2013 Budget: Affirms 2012 GDP at 1.6%; 2013 GDP 2.7% and 2014 at 3.7%; There is still margin for stimulus in 2013

- (JP) JAPAN AUG NATIONWIDE DEPARTMENT STORE SALES Y/Y: -1.0% V -3.3% PRIOR; TOKYO DEPARTMENT STORE SALES Y/Y: +0.2% V -1.0% PRIOR

- (JP) JAPAN AUG JAPAN IRON AND STEEL FEDERATION CRUDE STEEL PRODUCTION M/M: 9.21M TONS V 9.25M TONS PRIOR, +3.3% Y/Y

- (JP) BANK OF JAPAN (BOJ) SEPT MONTHLY ECONOMIC REPORT: CUTS ECONOMIC ASSESSMENT

- (JP) JAPAN JULY ALL INDUSTRY ACTIVITY INDEX M/M: -0.6% V -0.5%E

- (DK) DENMARK AUG RETAIL SALES M/M: -0.4% V +0.2%E; Y/Y: -2.3% V -2.6% PRIOR

- (JP) JAPAN AUG CONVENIENCE STORE SALES Y/Y: -1.3% V -3.3% PRIOR

- (DK) DENMARK SEPT CONSUMER CONFIDENCE INDICATOR: -2.2 V +0.8E

- (FR) FRANCE SEPT PRELIMINARY PMI MANUFACTURING: 42.6 V 46.4E; PMI SERVICES: 46.1 V 49.5E

- (HK) HONG KONG AUG CPI COMPOSITE INDEX Y/Y: 3.7% V 3.9%E

- (UK) AUG RETAIL SALES EX AUTO FUEL M/M: -0.3% V -0.3%E; Y/Y: 3.1% V 3.2%E

- (UK) AUG RETAIL SALES W/AUTO FUEL M/M: -0.2% V -0.3%E; Y/Y: 2.7% V 2.9%E

- (IT) ITALY JULY INDUSTRIAL SALES M/M: 1.2% V -0.5% PRIOR; Y/Y: -5.3% V -2.7% PRIOR

- (IT) ITALY JULY INDUSTRIAL ORDERS M/M: 2.9% V -0.3%E; Y/Y: -4.9% V -9.4% PRIOR

- (TW) TAIWAN AUG EXPORT ORDERS Y/Y: -1.5% V -1.9%E

- (EU) EURO ZONE SEPT ADVANCED PMI MANUFACTURING: 46.0 V 45.5E; PMI SERVICES: 46.0 V 47.5E; PMI COMPOSITE: 45.9 V 46.3 PRIOR (lowest since June 2009)

- (NL) NETHERLANDS AUG UNEMPLOYMENT RATE: 6.5% V 6.5% PRIOR

- (NL) NETHERLANDS SEPT CONSUMER CONFIDENCE: -29 V -32 PRIOR

- (DE) GERMANY SEPT ADVANCED PMI MANUFACTURING: 47.3 V 45.2E (highest since March); PMI SERVICES: 50.6 V 48.5E

- (PL) CENTRAL/EASTERN EUROPEAN SEPT ZEW INDICATOR: -14.6 V -9.3 PRIOR

- (TW) TAIWAN CENTRAL BANK LEAVES THE BENCHMARK INTEREST RATE UNCHANGED AT 1.875%; AS EXPECTED

- (HK) HONG KONG AUG CPI COMPOSITE INDEX Y/Y: 3.7% V 3.9%E

Fixed Income:

- (FR) FRANCE DEBT AGENCY (AFT) SELLS TOTAL €7.965B VS. €7.0-8.0B INDICATED IN 2014, 2016 AND 2017 BTANS

- (HU) Hungary Debt Agency (AKK) sells total HUF50B in 2015, 2017 and 2022 bonds

- (ES) SPAIN DEBT AGENCY (TESORO) SELLS TOTAL €4.799B VS. €3.5-4.5B INDICATED RANGE IN 2015 3.75% AND 2022 5.85% BONDS; Sells €3.94B in 2015 Bono Bonds; Avg Yield 3.845% v 2.798% prior; Bid-to-cover: 1.56x v 2.01x prior; Max Yield 3.919%; Tails 7.4bps v 14.8bps prior; Sells €859M in 2022 Bono Bonds; Avg Yield 5.666% v 6.647% prior; Bid-to-cover: 2.85x v 2.40x prior; Max Yield 5.700%; Tails 3.4bps v 12.3bps prior

- (SE) Sweden sells SEK500M in I/L 2017 bonds, avg yield -0.3760% v -0.2862% prior

- (UK) DMO SELLS £4.5B IN 1% 2017 GILTS; AVG YIELD 0.802% V 0.942% PRIOR; BID-TO-COVER: 1.51X V 1.51X PRIOR; TAIL BPS V 0.6BPS PRIOR


SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

***Notes/Observations***

- Spain sales more than planned at auction of 2015, 2022 bonds, as it sold more in the shorter-dated 2015 bonds (at higher yields) which is among the maturities being targeted by the ECB's OMT bond buying program.

- Spain sold the 2015 bonds at above market yields

- Euro Zone PMI mixed as France's PMI data misses expectations, while Germany PMI comes in stronger

- Greek equities outperform amid reports that the country's officials and the Troika are moving closer to an agreement on fiscal cuts

- China manufacturing PMI contracts for 11th straight month in Sept

- Shanghai Composite has lowest close since Feb 2009.

- China's 7-day interbank repo rate rises by over 40bps, despite PBoC offering 7 and 28-day reverse repos, as more Chinese companies issue short term paper

- Commodities trade lower, led by copper on China equity losses, stronger USD


Equities

- Indices: FTSE 100 -0.60% at 5,856, DAX -0.50% at 7,354, CAC-40 -0.90% at 3,500, IBEX-35 -0.90% at 8,029, FTSE MIB -1.1% at 15,925, SMI -0.40% at 6,547, S&P 500 Futures -0.30% at 1,448.50

- European equity indices opened lower following the release of PMI data out of China which showed that the country's manufacturing sector continues to contract. Markets have remained lower amid mixed European PMI data and Spanish bond auction results. Banks are broadly lower, led by Commerzbank and Italian financials. Resource related companies are moving lower, on the declines in commodity prices and data out of China

- In the UK, shares of retailer Ocado [OCDO.UK] have declined by over 4%, following the release of its quarterly sales report. Imperial Tobacco [IMT.UK] is higher by over 1%, after disclosing its FY trading statement. German steelmaker Thyssenkrupp [TKA.DE] has underperformed the DAX, as Finland's Outokumpu outlined its proposal aimed at easing concerns related to its transaction with Inoxum.

- FTSE 100 movers (Evraz -3.6%, Vedanta -3.3%, Anglo American -3.2%, BHP -2.7%, Kazakhmys -2.4%; IAG +2.2%, Glencore +1.4%, Imperial Tobacco +1.2%, British Sky +0.80%, Capita +0.70%, Rolls-Royce +0.60%) CAC-40 movers (Total -2.1%, St. Gobain -1.6%, SocGen -1.4%, GDF -1.3%, Veolia -1.2%; Peugeot +3.7%, EADS +1.1%, PPR +0.60%, Safran +0.60%, STMicroelectronics +0.50%)

- DAX movers (Commerzbank -1.4%, BMW -1.4%, E.ON -1.2%, ThyssenKrupp -1.2%, HeidelbergCement -1%, Daimler -0.80%; Lufthansa +2.6%, Metro +2%, Fresenius Medical Care +0.80%, Deutsche Post +0.60%, Fresenius SE +0.50%

- IBEX-35 movers (Repsol -2.2%, Telefonica -1.9%, Endesa -1.6%, Amadeus -1.1%, Iberdrola -1%; Ferrovial +1.4%, Grifols +1.2%, Mapfre +1.1%, Red Electrica +1.1%, Acciona +1%)

- FTSE MIB movers (Banca Monte Paschi -2.8%, Pirelli -2.4%, Tenaris -2.4%, Intesa -1.7%, UniCredit -1.5%; Mediobanca +2.4%, Lottomatica +1.4%, Luxottica +0.30%, Autogril +0.10%)

- SMI movers (Credit Suisse -1.8%, Richemont -1.4%, ABB -1.4%, UBS -1%, Swiss Re -0.80%; Novartis +0.30%, Geberit +0.20%, Adecco +0.20%, Actelion +0.20%, SGS +0.10%)

Speakers:

- Turkey Deputy PM Babacan said the budget deficit will increase this year, up to 2.3% of GDP, 1% higher than 2011.

- Finland PM Katainen reiterates markets will test the credibility of any bank supervisor.

- Poland Central Bank Official Zielinska told us that any easing cycle should not top 50bps in total given signs EU crisis may diminish; 25bps rate cut could be possible in Oct or Nov.

- Norway Central bank Olsen commented that strong currency is damaging some Norway export industries. Monetary measures will be taken if Krone too strong. Norway still has room to maneuver on rates. Central banks could have difficulty exiting from their large bond holdings.

- Bundesbank's Dombret said there is no need to break up banks if too big too fail problem solved. Systemic risks don't only come from biggest banks. Breaking up banks won't avert future systemic risks

- Greece Fin Min Stournaras commented that he thinks the budget package to close in coming days after speaking with Greece PM Samaras, but Greece still has €2.5B to cover.

- Denmark Bus Ministry said small business credit remains tight.

- China Finance Ministry comment they will cancel fees for trade inspections starting Oct 1st through the end of the year.

- China Commerce Ministry said Japan may start a dumping review of Chinese chemical products.

- EU's Barnier said that Europe needs to find compromise with German over EU banking supervision, and that there are no plans to harmonize assets or EU deposit insurance. The basis for compromise will be extensive decentralization of banking supervision. The German deposit insurance system should be a model for Europe.

- Russia Finance Ministry has proposed a slower increase to the gas tax.

- China Premier Wen said the global situation is undergoing complex changes.

- Czech PM said cabinet needs to cut fiscal deficit below 3% of GDP

- Japan Ministry of Finance (MOF) Fujita said the BOJ move was timely and welcome and was more aggressive than expected

- Bank of Japan (BoJ) Gov Shirakawa reiterates that the recovery is pausing, uncertainties related to global economy are high.

- Poland MPC Bratkowski says there is an obvious slowing trend in production, expects levels to be 0% in the coming months.

Currencies:

- The Greenback remained stronger throughout the session with China HSBC flash manufacturing PMI showing a contraction reading in August after a sub 48 final reading in July. Spain held a successful bond auction selling more than targeted, though yields are higher. EUR/USD tested $1.2930 as traders view the results as another sign that Spain will delay any request for a bailout, creating more uncertainty. GBP/USD also fell a bit lower but better/in line UK retail sales helped to stem losses, range of $1.6236-1.6164 in the session. Yen continues to be a safe haven trade, flows into the yen against all its crosses prevailed EUR/JPY testing ¥100.99 before heading back to ¥101.10, USD/JPY had about a 50 pip range with a low of ¥78.05. AUD/USD was significantly weaker, after the China data and the continued decline in commodity prices, which are constraining expansion in its key mining sector, currently sits at -0.8% to $1.0395. USD/CHF rose higher to CHF0.9345 later in the session, Swiss trade surplus was smaller than expected but exports and imports showed improvement.

Political/In the Papers:

- (DE) German banks to receive additional six months to comply with Basel III - financial press

- (DK) Denmark Central Bank Gov: Danish GDP to grow +0.3% in 2012 (1.2% prior); Expects continued low economic growth with production +0.3% in 2012 and +1.5% in 2013 and 2014

- (EU) EU's Barroso: Europe is making progress but not out of the economic crisis yet; it is very important for Greece to remain in the EMU

- (EU) Capital outflows from Greece, Portugal, Spain and Ireland banks now totals €326B in the 12-months to the end of August - De Tijd

- (DK) Denmark PM Thorning-Schmidt: expects a significant drop in unemployment in 2013 (a very different view than many of the local banks) - Borsen

- (FR) ECB's Noyer: Reiterates ECB is acting within mandate, would be surprised if OMT bond buying program existed in a few years, as markets understand that they cannot win against the ECB

- (GR) Troika said to have accepted approx €8.5-9.5B worth of cuts to Greece fiscal situation; talks ongoing - financial press; On Sept 17th it was reported that there was an agreement on €7.5B out of the €13.5B in measures


Looking Ahead

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

- 06:00 (UK) Sept CBI Industrial Trends Total Orders: No est v -21 prior; Selling Prices: No est v +1 prior

- 07:45 (US) Fed's Rosengren speaks on Economy in Quincy, Massachusetts

- 08:00 (BR) Brazil Sept IBGE CPI IPCA-15 M/M: 0.5%e v 0.4% prior

- 08:00 (BR) Brazil Aug Unemployment Rate: No est; (Note: Brazil has yet to release the June and July figures)

- 08:00 (PL) Poland Aug Core Inflation M/M: -0.1%e v +0.1% prior; Y/Y: 2.1%e v 2.3% prior

- 08:30 (US) Initial Jobless Claims: No est v 382K prior; Continuing Claims: No est v 3.283M prior

- 08:58 (US) Sept Preliminary Markit US PMI Manufacturing: No est v 51.5 prior

- 09:00 (ZA) South Africa Central Bank (SARB) Gov Marcus press conference ahead of Interest Rate Decision

- 09:00 (EU) EU's Almunia

- 09:00 (MX) Mexico July Retail Sales: No est v 5.6% prior

- 09:30 (US) Fed's Lockhart to Speak at Kansas City Fed Conference

- 09:45 (US) Weekly Commercial Paper stats

- 10:00 (EU) Euro-Zone Sept Advanced Consumer Confidence: No est v -24.6 prior

- 10:00 (US) Sept Philadelphia Fed: -3.5e v -7.1 prior

- 10:00 (US) Aug Leading Indicators: -0.1%e v +0.4% prior

- 10:30 (US) Weekly EIA Natural Gas Inventories

- 12:00 (CO) Colombia Q2 GDP Q/Q: No est v 0.3% prior; Y/Y: No est v 4.7% prior

- 13:30 (US) Fed's Kocherlakota speaks to Business Leaders in Michigan

- 15:00 (AR) Argentina Aug Industrial Production M/M: No est v 1.4% prior; Y/Y: No est v -2.1% prior

- 16:00 (US) July RPX Composite 28-day Y/Y: No est v 2.2% prior; RPX Index: No est v 192.07

- 17:00 (US) Fed's Pianalto speaks in Oxford, Ohio

- 18:30 (US) Fed's Bullard to give Economics Lecture at Notre Dame