Reports » Europe

European stock market, economy and companies update (June 21, 2010)

Contributed by Trade The News

By Trade The News

*** SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM ***
- Equities: European equities opened the session sharply higher, tracking the gains seen in Asia after China said that it would increase the flexibility of its yuan currency. The move by China was aiding risk appetite and indicated that China saw a more sustainable global economic recovery compared to their prior view of a 'fragile' global growth. Today's gains have been led by commodity related shares on speculation that a stronger yuan would increase Chinese demand for resource. Today's gains have also been supported by financials on speculation that the release of the EU bank stress tests could lead to greater transparency in the sector. Euro Stoxx 50 Index +1.4% at 2,775; DAX Index +1.3% at 6,297; CAC-40 Index +1.6% at 3,745 and FTSE 100 Index +1.0% at 5,305.

- In Individual Stocks: Akza Nobel [AKZA.NV]: Sold National Starch to Corn Product for $1.3B. On a cash basis, the transaction is expected to be accretive by the end of 2011. ||Subsea 7 [SUB.NO]: Entered into agreement to merget with Acergy. Under the terms of the agreement, Subsea 7 common shareholders will receive 1.065 Acergy common shares for every Subsea 7 common share. Completion is anticipated towards the end of 2010 or Q1 2011|| Balfour Betty [BBY.UK] was appointed as a preferred bidder by the Derby City for its Building School project. The contract is valued at ?231M. The work is expected to be complete by 2014. ||BHP Billiton [BHP.AU]: Reached agreement with West Australia to amend royalty rates for iron ore. Royalty rates will increase from 3.75% of sales revenue to 5.625% for Fines and from 3.25% to 5.0% for Beneficiated Ore.|| Valeant Pharmaceuticals [VRX]: Entered into an agreement to merge with Biovail. Under the terms of the agreement, Valeant stockholders will receive a one-time special cash dividend of $16.77 per share immediately prior to closing of the merger and 1.7809 shares of Biovail common stock. Transaction is expected to be cash EPS accretive to both companies.

- Speakers: German Finance Ministry released its May Report and stated that the month's Total Tax revenue came in at ?38.2B, +1.6% y/y while Federal Tax revenues were ?18.3B, -0.3% y/y. It guides 2010 Federal Net Borrowing around ?65B; Federal Structural Deficit around ?53B. The German economic recovery was strengthening, but little momentum for private consumption. The MOF reiterated the view that Q2 GDP growth 'markedly higher' than prior quarter. *** SNB stated that its May FX Investments M/M: CHF239B v CHF153B prior. ***ECB's Wellink commented that it was a positive phenomenon that the euro decline had been curbed. ECB to purchase Gov't bonds as long as monetary policy transmission needed. Austerity measures could impact growth in the short-term but was a positive factor in the long run. Spain needed more measures to prevent further problems but reiterated the view that Greece was on track with their austerity program. Bank Stress Test analysis to include "What if" analysis and include sovereign scenarios ***ECB Liikanen commented that he saw more political support growing to enforce Maastricht Stability Pact and that it needed tools to prevent public and private from over borrowing. He added that no country has been unaffected by the economic crisis. *** ECB's Noyer stated that the Euro System covered bond purchase program was nearly complete and was useful to support bank lending. He noted that market tensions and risk premiums have increased in recent weeks and could impact financial stability and the real economy. Tension could only abate through rigorous budget discipline *** ECB's Provopoulos stated that the Euro system was buying securities due to the fact that it does not consider the possibilities of a Greek default ***Japan PM Kan reiterated the view that tax reform was necessary for strong fiscal policy and that Japan would seek a primary balance surplus by 2020. He noted that the primary focus of upcoming G20 Summit in Canada would be on European fiscal problems. *** Japan Debt Chief Kaizuka stated that it saw FY11 issuance at ?162T and that this represented 'heavy burden' on markets. He added that favorable funding situation cannot last forever and that the new administration was committed to fiscal consolidation. -He added that the government's new growth targets were 'very ambitious'. Lastly he noted that the agency intended to prolong average maturity on new issues *** Bank of Italy commented that under Italy's tax amnesty program around ?97B had been declared between September and April period *** World Gold Council stated that 2010 Gold demand was expected to be strong driven by growing demand for jewelry in China and India and coupled continued with concerns of economic instability, sovereign risk. ***China's Vice Commerce Min commented that the Yuan reform would be gradual and controllable and reiterated that the currency issue was China's own affair

- Currencies/Fixed Income: European currencies were holding steady but off their best levels after making multi-week highs against the dollar in early Asia-Pacific price action. The European dealers believed that the PBoC currency pledge was 'well timed' to head off criticism ahead of the June 26th/27th G20 summit in Canada and actually might have succeeded in removing the yuan's valuation from debate. Dealers keenly pointed out that China's willingness to accept a stronger CNY resulted in a weaker CNY across the board against everything except USD. The USD/CNY dipped below the 6.80 level compared to the 6.8275 fixing rate by PBoC earlier today. EUR/USD holding around the 1.24 handle through the session but off its 1.2467 highs seen just ahead of the European equity open. Overall dealers continue to believe that Euro needs to be sold on rallies but conceded that a retracement back towards 1.30 could not be ruled out in the current environment. The JPY was softer against the major pairs with USD/JPY testing 91. Despite the euphoric in the global equity markets, spot gold hit fresh all-time highs testing above $1,265/oz.

- Geo-Political: The Polish presidential elections are to be extended as the leading candidate was unable to claim a majority thus continuing a second round of voting. Though various polling data indicate that interim president Komorowski was in the lead, he may still be below the 50% needed for outright victory. A runoff appears likely to continue on Sunday, the 4th of July. *** Russian President Medvedev notified Gazprom to shut natural gas supplies to Belarus due to outstanding payments confirming prior speculation. It was reported back on the 20th of June that Gazprom's CEO affirmed cuts for Belarus may be coming Monday following recent failed gas discussions. *** Former Bank of England member Blanchflower commented today that a UK double dip recession is 'absolutely certain', further reiterating that UK needs a sensible plan to reduce its deficit.

- In the papers: In the UK, Unite Union is planning for a possible third strike tomorrow. According to the Guardian, Unite is expected to notify British Airways of a new ballot of 11,000 members. Unite are in preparation for vote that may be sent to British Airways as early as tomorrow, which would allow voting in a week. If strikes are to occur, actions may begin as soon as 3rd of August depending on voting results by flight attendants. *** In a London Telegraph article by Ambrose Evans-Pritchard, it was noted that gold is reclaiming a historic role as safe haven and benchmark currency, citing recent demand in gold related to sovereign concerns. He goes on to comment how the World Gold Council recently stated that central banks in Russia, the Philippines, Kazakhstan and Venezuela have been buying gold, in addition to the Saudi Arabian central bank restating its reserves of gold higher from 143M tons to 323M tons.

***Notes/Observations:
- Preposition ahead of the Jun 26th-27th G20 Summit in Canada; USD reserve status back on the table via BRIC members
- China signals end to currency peg ahead of G20.
- China keeps CNY rate unchanged against the USD in session surprising markets after announcing it was unhitching the peg.
- Russia's Medvedev backs CNY, INR, and RUB as alternatives to USD as reserve currencies.
- ECB's Trichet: Reiterates view that Euro is a very credible currency
- Spot Gold hits fresh all-time highs above $1,265/oz
- Several European auto companies announce bond offerigs

***Looking Ahead***
- (PD) Poland May Producer Prices M/M: 1.6% v 0.6%e; Y/Y: 1.5% v 0.5%e
- (PD) Poland May Sold Industrial Output M/M: 2.0% v -3.4%e; Y/Y: 14.0% v 7.9%e
- (RU) Russia May retail sales M/M: 2.1% v 1.7%e; Y/Y: 5.1% v 4.5%e
- (CA) Canada May Leading Indicators M/M: 0.9% v 0.7%e
- (CA) Canada Apr Intl Securities Transactions: C$12.4B v C$2.5Be
- (BE) Belgium Jun Consumer Confidence: v -13.0 prior
- (MX) Mexico Apr Retail Sales: 3.5%e v 2.3% prior
- (MX) Mexico Central bank Interest rate Decision: Expected to leave the Overnight Rate Unchanged at 4.50%

***Economic Data***
- (JP) Japan May Tokyo Department Store Sales Y/Y: -1.8% v -4.9% prior; Nationwide Dept. Store Sales Y/Y: -2.1% v -3.7% prior
- (SZ) Swiss May M3 Money Supply Y/Y: 7.1% v 5.4% prior
- (JP) Japan May Convenience Store sales Y/Y: -3.2% v -3.7% prior
- (TT) Taiwan May Exports Orders Y/Y: 34.0% v 37.9%e
- (IT) Italy May Non-EU Trade Balance Y/Y: -?1.4B v ?465M prior
- (IC) Iceland May Wage Index M/M: 0.2% v 0.1% prior; Y/Y: 4.0% v 4.0% prior
- (IT) Italy Apr Current Account: -?3.8B v -?5.3B prior