EU Market Update: Peripheral yields move higher over Italian political clouds; FRench and Italian production data worse than expectations


Notes/Observations

- Greece extends debt buy-back program until Tuesday to achieve the €30B target

- PM Monti: To resign from PM post after 2013 budget law is passed

- Japan back in a technical recession

- China data mixed with better Industrial Production and Retail Sates data while Trade Balance lower than expected with weaker components

- Russia hikes its deposit rate by 25bps while keeping other rates unchanged

- France and Italy Industrial Production data weaker than expected

- EU leaders receive Nobel Peace prize today; Makes one wonder why Stalin didn't receive one for maintaining peace in Eastern Europe

- Canada to approve C$15B CNOOC purchase of Nexen andC$ 5.2BPetronas bid for Progress Energy


Economic Data

- (RU) Russia Central Bank (CBR) left its Refinancing Rate and Overnight Auction-Based Repo unchanged at 8.25% and 5.50% respectively; Raised the Overnight Deposit Rate by 25bps to 4.50% (not expected)

- (RU) Russia Nov Light Vehicle & Car Sales Y/Y: 0% (flat) v 5%e

- (DE) Germany Oct Current Account: €13.6B v €13.5Be; Trade Balance: €15.8B v €15.5Be; Exports M/M: 0.3% v -0.3%e; Imports M/M: 2.5% v +0.4%e

- (FI) Finland Oct Industrial Production M/M: +0.4% v -0.5% prior; Y/Y: % v -1.7% prior

- (FR) Bank of France Nov Business Sentiment: 91 v 92e

- (FR) France Oct Industrial Production M/M: -0.7% v +0.3%e; Y/Y: -3.6% v -2.0%e

- (FR) France Oct Manufacturing Production M/M: -0.9% v +0.2%e; Y/Y: -4.0% v -2.3%e

- (DK) Denmark Oct Current Account (DKK): 9.4B v 9.0B prior; Trade Balance Ex-Shipping: 6.6B v 5.9B prior

- (DK) Denmark Nov CPI M/M: -0.1% v -0.1% prior; Y/Y: 2.3 v 2.3% prior

- (DK) Denmark Nov CPI EU Harmonized M/M: -0.2% v -0.1% prior; Y/Y: 2.2% v 2.3% prior

- (CZ) Czech Nov Unemployment Rate: 8.7% v 8.6%e

- (CZ) Czech Oct Industrial Output Y/Y: 4.1% v 3.5%e; Construction Output Y/Y: 4.1% v -6.8% prior

- (CZ) Czech Nov CPI M/M: -0.2% v +0.1%e; Y/Y: 2.7% v 3.0%e

- (AT) Austria Final Q3 WIFO GDP: +0.1% v -0.1% prelim

- (TR) Turkey Q3 GDP Q/Q: 0.2% v 1.7% prior; Y/Y: 1.6% v 2.5%e; GDP wda Y/Y: 1.9% v 3.4% prior

- (TR) Turkey Oct Industrial Production WDA M/M: -2.6 v 4.8% prior; Y/Y: -0.9% v 3.0%e; Industrial Production NSA Y/Y: -5.7% v -2.5%e

- (EU) ECB: €562M borrowed in overnight loan facility vs. €585M prior; €235.3B parked in deposit facility vs. €230.0B prior

- (SE) Sweden Oct Industrial Production M/M: 0.5% v 0.0%e; Y/Y: -4.4%e v -5.2%e

- (SE) Sweden Oct Industrial Orders M/M: 1.6% v 0.8% prior; Y/Y: -2.1% v -5.8% prior

- (IT) Italy Oct Industrial Production M/M: -1.1% v -0.3%e; Y/Y: -0.3%e% v -10.5% prior; Industrial Production WDA Y/Y: -6.2% v -4.3%e

- (NO) Norway Nov CPI M/M: 0.1% v 0.2%e; Y/Y: 1.1% v 1.3%e

- (NO) Norway Nov CPI Underlying M/M: 0.0% v 0.0%e; Y/Y: 1.3% v 1.1% prior

- (NO) Norway Nov Producer Prices M/M: -0.4% v +0.4% prior; Y/Y: 0.0% v 1.7% prior

- (EU) Euro Zone Dec Sentix Investor Confidence: -16.8 v -16.9e

- (IT) Bank of Italy (BOT) Oct Private Loans -0.1% y/y; Deposits +4.7% y/y; Household lending turned negative in month

- (IT) Italy Q3 Final GDP Q/Q: -0.2% v -0.2%e; Y/Y: -2.4% v -2.4%e

- (GR) Greece Oct Industrial Production Y/Y: +2.0% v -7.0% prior

- (GR) Greece Nov Consumer Price Index Y/Y: 1.0% v 1.6% prior; EU Harmonized Y/Y: 0.4% v 0.9% prior

Fixed Income:

- (SK) Slovakia Debt Agency (ARDAL) sold €76.3M in 4.35% Oct 2025 bond; Avg Yield: 3.3635% v 3.5453% prior; Bid-to-cover: 1.34x v 1.30x prior

- (NO) Norway sold NOK4.0B in May 3.75% 2021 bonds; Avg Yield 1.92% v 1.48% prior; Bid-to-cover: 2.22x v 2.93x prior

- (NL) Netherlands Debt Agency (DSTA) sold total €2.15B vs. €2.0-4.0B indicated range in 3-month and 6-month Bills

- Sold €1.08B vs. €2.0B indicated in 3-month bills; Yield: -0.041% v -0.034% prior; Bid-to-cover: 2.60x v 3.28x prior

- Sold €1.07B vs. €2.0B indicated in 6-month Bills; Avg Yield: -0.040% v -0.016% prior; Bid-to-cover: 2.40x v 3.1x prior


SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

***Equities***

Indices: FTSE MIB -3.4% at 15,161, FTSE 100 -0.30% at 5,895, CAC-40 -0.70% at 3,580, IBEX-35 -2% at 7,691, SMI -0.30% at 6,905, S&P 500 Futures -0.30% at 1,412

- European equity markets are broadly lower, as political concerns in Italy have driven the FTSE MIB lower by over 3.4%. The news related to the planned resignation of Italy's PM Monti, has come amid mixed data out of China and confirmation out of Greece of the plan to extend the government debt exchange. Italian banks have led the declines in the banking sector with losses of more than 6%.Miners are mostly lower, despite the gains being seen for commodity prices. Events of interest for the week include Germany's Dec ZEW Survey (Tuesday), US FOMC decision (Wed Dec 12th), Italian and Spanish debt auctions (Wed and Thursday), EU finance minsters' meetings (Wed and Thursday) and German Dec advance PMI data (Friday).

- Italy movers [Banks lower by over 6% (political concerns)]

- UK movers [Rolls-Royce -1% (concerns related to bribery probe); UK Coal +22% (completed restructuring agreement]

- Germany movers [Air Berlin -1.5% (speculation related to further cost cuts), RWE -1.4% (broker downgrade), HannoverRe, MunichRe lower by approx. 1% (AIG sees over $1B in Sandy-related losses); Curanum +13% (received bid from Korian), Talanx +1.5% (added to MDAX)]

- France movers [BNP, Credit Agricole, SocGen lower by over 2% (broad banking sector weakness); STMicroelectronics +2% (strategy update) Dutch movers [Imtech -6% (forgery allegations)]

Speakers:

- Spain Fin Min de Guindos commented that Spain needed to end the doubts on the future of the Euro and that the country had no plans for additional austerity measures. Uncertainties about Italy could have a contagion effect on Spain but the ECB OMT bond buying plan was a useful tool. Lastly he reiterated view that Spain is studying the bailout conditions and would take the step that is in Spain's best interest

- EU's Van Rompuy: No alternatives to economic policies that Italy PM Monti has put in place

- German govt spokesperson Streiter: German Chancellor Merkel and Italy PM Monti to meet later today and did not expect the Monti resignation to destabilize the EMU

- Russia Central Bank commented after its rate decision that the reason it raised the Deposit Rate was to cap money market volatility and now saw money market rates as appropriate for coming months. Economic growth risks were negligible. It saw its next rate decision to take place in first half of January 2013

- Poland Central Bank Glapinski commented that he saw January cuts in Base rate as almost certain but would like to see pause in rate cut cycle after Jan reduction. He could not rule more cuts afterwards

- Poland Central Bank Chojna-Duch (dovish) stated that the country remained in monetary easing trend and was difficult to predict the scope of Polish easing

- Banks with over €30B in assets might face direct ECB oversight according to a draft EU document with ECB to also focus oversight on cross-border banks

- India Fin Min Chidamraram: Bad loans have risen +3.5% due to economic stress

- China party chief Xi: Economic restructuring cannot be delayed

Currencies:

- Euro zone uncertainty was the dominant theme this Monday after Italy PM Monti announced his resignation. - Italy 10-year gov't yield opened the session just under 4.70% and edged higher through the mid-morning to over 4.80%. The Italian situation prompted vague chatter that Italy might delay its upcoming bond auction circulating (later denied).

- The Greece debt buyback deadline had been extended until tomorrow (Tuesday Dec 11th), but it was thought to be close to reaching its €30B target

- The EUR/USD hovered around the 1.2900 throughout the session thus far. Overall dealers were eyeing the how the USD might manage with the upcoming FOMC rate decision this week coupled with the current fiscal-cliff negotiation. The bigger picture for the pair remained the 1.28-1.32 consolidation range with the 1.2930 area remain the daily focal point at this time.

- The JPY currency benefited from the uncertainty in the EMU but stayed contained within recent ranges.

Political/In the Papers:

- (IT) PM Monti: To resign from PM post after 2013 budget law is passed; Will resign immediately if he cannot get his allies to vote for the budget

- (IT) National elections in Italy may now be held as early as February following announcement of a resignation by PM Monti - financial press

- (IT) Former PM Berlusconi announced he will run again for Prime Minister post in upcoming elections

- (IT) Italy PM Monti may run as a candidate in Italy PM elections- financial press

- (IT) Italy's Democratic Party chief Bersani: Would respect the EU commitments if elected as next PM; Would proceed with liberalization and not dismantle pension/labor reform - financial press; May introduce a tax on valuable property.

- (IT) S&P notes it could lower Italy sovereign rating assuming recession moves into the 2H of next year; Notes there is significant risk GDP will not recover

- (EU) ECB's Draghi, Weidmann, Coeure and Asmussen said to have argued against a rate cut last week - financial press; Other members may have been ready to support an immediate rate cut, but the German members Weidmann and Asmussen were joined by Bank of France's Coeure and ECB President Draghi in arguing against a rate cut in December.

- Bank for International Settlements (BIS) warns world risks fresh credit bubble - Telegraph

- (GR) Greece PM Samaras: Can say with certainty that the debt buyback is going very well; Will have definite results on Monday or Tuesday - financial press

- (US) Pres Obama and House Speaker Boehner said to have met at the White House for a round of budget talks; Lines of communications said to remain open - US financial press

- (US) Vice President Biden: The administration is prepared to respond to any serious fiscal cliff deal from the Republican side, however top rates must rise

- (US) IMF's Lagarde: Political agreement on US budget needs to be comprehensive to secure certainty for investors - financial press


Looking Ahead

***All times listed for economic events are denominated in Eastern Standard Time (Add 5 hours for GMT equivalent)

- (PT) Bank of Portugal Nov Data on Banks

- (IS) Bank of Israel Publishes Minutes of Rate Meeting

- 06:00 (PT) Portugal New Industrial Orders

- (EU) OECD Oct Leading Indicators: No est v 100.2 prior

- 06:00 (IS) Israel to sell 2016, 2017, 2018, 2023, 2042 bonds

- 06:15 (NO) German Chancellor Merkel holds bilateral trade talks with Norway PM Stoltenberg

- 06:30 (EU) EU Foreign Ministers Meet in Brussels

- 06:30 (US) Daily Libor Fixings

- 07:00 (EU) EU's Van Rompuy Attends Nobel Prize Ceremony in Oslo, Norway

- 08:00 (IS) Bank of Israel Governor Stanley Fischer speaks at Globes

- 08:00 (RO) Romania to sell Bills

- 08:15 (CA) Canada Nov Housing Starts: 202.0Ke v 204.1K prior

- 09:00 (MX) Mexico Sept Gross Fixed Investment: No est v 3.7% prior

- 09:00 (MX) Mexico Oct Final Trade Balance: -$895.5Me v -1.7B prelim

- 09:00 (FR) France Debt Agency (AFT) to sell up to €6.0B in 3-month, 6-month and 12-month Bills

- 09:30 (EU) ECB calls for Bids in 7-Day Main and 3-month Refinancing Tender

- 09:30 (EU) ECB Announces Bond Purchases

- 11:00 (US) Fed to purchase $1.50-2.25B in Notes

- 11:30 (US) Treasury to sell $60B in 3-Month and 6-Month Bills

- 12:15 (UK) BOE Gov King speaks at Economic Club in NY