Reports » Europe

European stock market, economy and companies update (June 23, 2010)

Contributed by Trade The News

By Trade The News

*** SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM ***
- Equities: European stocks opened the session lower, tracking the declines seen in the US and Asia. The weakness on the session has been led by declines in financials (although UK banks have outperformed their peers) and resource related stocks. Factors driving today's declines include the PBoC in China setting the yuan currency weaker on today's session, and yesterday's disappointing US housing data. As of 5:30 EST, the FTSE 100 is lower by 0.60%, DAX -0.50% and the CAC-40 -0.88%. ***Euro Stoxx 50 Index -0.7% at 2,725; DAX Index -0.5% at 6,241; CAC-40 Index -0.9% at 3,673 and FTSE 100 Index -0.6% at 5,214.

- In Individual Stocks: UK banks are trading lower following the UK bank tax announced by Chancellor Osborne. The tax was less severe than market expectations. However, Lloyds opened higher by 2.1%. Bank analysts seem to consent that tax impact on Lloyds will be negligible but banks like RBS and Barclays will be most affected given their large balance sheets and low asset margins. || Stagecoach [SGC.UK] Shares opened higher by 0.7% after its earnings report. Net profit was ?111.7M lower than estimates of ?126M but revenues came in line at ?2.2B. UK bus division reported an increase of 4.2% in like-for-like sales while North America's LFL sales decreased by 3.4%. Group projected modest fare and revenue increases over the next year in the UK Bus division and modest revenue growth in North America. || Kesa [KESA.UK]: Shares opened up 3.1% following earnings report. Adjusted pretax profit was reported at ?81.9M above year-ago figures of ?65.9M. Revenues came slightly lower at ?5.1B compared to estimates of ?5.2B. || BASF [BAS.GE]: As expected, BASF confirmed the acquisition of Cognis in a transaction valued at ?3.1B. The equity purchase price was ?700M. The deal will be financed through cash and issuance of commercial paper. In a presentation, BASF expected debt to increase by approx ?2.6B following the acquisition but it would be accretive to earnings as of 2012.

- Speakers: The BOE registered a spilt vote on its interest rate decision after member Sentance sought a 25bps hike to 0.75% (first push by a BOE member for an interest-rate increase almost two years). The majority of the MCP saw inflation would take some time to reach the 2.0% target and felt that the balance of risks signaled the need for no change in rates at this time. The majority of MPC did see near some term elevated CPI prospects elevated and UK growth momentum would be more than thought. However the majority noted that sovereign debt and budget had raised downside risks. BOE member Sentence believed that UK inflation proved resilient after UK recession and that demand growth was above pre-crisis trend.. ***Spain Fin Min Salgado commented in a German press interview that Spain definitely did NOT require an EU bailout package. She noted that refinancing of ?24B in bonds in July was not a cause for concern. Spain had never manipulated statistical data and always complied to Maastricht Stability Pact. Spain deserved the market's trust that it would meet its obligations. ***Greece Finance Min Papaconstantinou commented that Greece would emerge from the current crisis without the need for debt restructuring. He expressed confidence that some sectors of the economy were returning to growth and hoped that Greece would finish this year better than expected and return to economic growth by mid-2011. Lastly he added that the situation in Spain and Portugal were better than Greece.*** UK Chancellor Osborne commented that the European debt issue was worsening and added that the UK budget hole was larger than its initial pre-election estimates *** India Ministry of Statistics official commented that the RBI could raise interest rates at any time. It noted that the June wholesale price inflation was seen below 10% but added that food inflation seen spreading to non-agricultural sectors. It saw the current fiscal year GDP growth possibly exceeding 8.5%. *** Netherlands Bureau for Economic Policy Analysis (CPB) lowered its 2010 and 2011 GDP growth estimates by 0.25%. The Dutch think tank now sees 2010 GDP growth at 1.25% and the 2011 GDP forecasts at 1.75%. The CPB forecasted the 2010 budget deficit to GDP ratio at 6.3% and sees it falling to 4.7% in 2011 *** IEA Raised it medium term outlook (2009-15 period) global oil demand growth forecast to 1.4% annually (1.2M bpd). OECD industrial gas demand would not recovery to 2008 levels before 2013 period. *** Italy Debt Agency (Tesoro) Bailout of another European sovereign unlikely ***Finland Finance Ministry raised its 2010 and 20111 GDP forecasts. It now saw 2010 GDP growth at 1.5% from 1.1% prior and 2011 GDP growth at 2.5% from 2.1% prior***German RWI Institute raised its 2010 growth forecasts to 1.9% from 1.4% prior. It also revised 2011 growth estimates to 1.7% from 1.6% prior. *** Sweden think tank NIER also raised its 2010 GDP growth view to 3.7% from its marc forecast of 2.7%

- Currencies/Fixed Income: The spilt BOE vote on its interest rate policy provided further footing for the GBP in the session. The hawkish tone by MPC Sentence help send the GBP/USD above the 1.49 handle before consolidations its gains. EUR/GBP lower to test below 0.8250 in sympathy. Supportive comments from various peripherals members provided a steady tone for the EUR/USD pair as it held steady for most of the session just under the 1.23 area.

- Geo-Political: Spanish Parliament ratified its labor reform program yesterday to tackle the country's high unemployment and economic issues. Part of the reform enables employers to control more the use of permanent employees, including limiting severance pay of some full contract workers to 33 days from 45 prior. Details will be discussed during the next several months. Only members of the Socialist party voted in favor of reforms, 168 seats out of the 350 seat assembly, with the two largest opposition parties Popular and Catalan Nationalist Party having abstained. Note the labor reforms were approved on 16th June without union support. ***In escalating tensions between Russia and Belarus over gas, Gazprom raised its cut in gas flows to Belarus by 60% following reductions by 30% yesterday arguing that debts of approximately $200M remain unsettled. The debt outstanding is the result of increases in gas prices during the first and second quarter of this year. Alternatively, Belarus suspended transit of Russian gas deliveries to Europe, and would resume only if $260M in outstanding transit fees were settled. Media reports that the disruption may affect more than 6% of EU gas consumption. Note Gazprom stated that it would reduce gas supplies by as much as 85% if debts go unsettled in following days. ***In UK politics, Treasury Chief Secretary Alexander stated that the VAT increase announced in yesterday's budget is unavoidable. He stated the increase addressed the structural deficit and the desire for a rise in income tax threshold, with the other alternative being additional spending cuts. Note that during the campaign his Liberal Democrats party was opposed to such measures. ***In a media interview, investor George Soros stated that Germany's savings policy is a threat to the European project and reiterates that a collapse in the euro cannot be rules out. He went on to say that Germany's policy is driving Euro members in deflation.

***Notes/Observations:
- PBoC sets yuan mid point at 6.8102 versus prior setting of 6.7980
- BOE member Sentence dissents and sough a rate hike
- Portugal sells 5-year bonds at a yield of 4.657% v 3.701 just three weeks ago

***Looking Ahead***
- 7:00 (CZ) Czech Central Bank Interest Rate Decision: Expected to leave the Repo Rate Unchanged at 0.75%
- 7:00 (US) MBA Mortgage Applications w/e Jun 18th: No est v 17.7% prior
- 7:00 (BR) Brazil Jun FGV Consumer Confidence: No est v 116.1 prior
- 8:00 (NO) Norway Central Bank (Norges) Interest Rate Decision: Expected to maintain the Deposit rate at 2.00%
- 8:30 (CA) Canada Apr Retail Sales M/M: -0.4%e v 2.1% prior; Ex Autos M/M: 0.0%e v 1.7% prior
- 9:00 (BE) Belgium Jun Business Confidence: -5.0e v -4.9 prior
- 9:30 (BR) Brazil May Total Outstanding Loans (BRL): No est v 1.47T prior; Private Bank Lending: No est v 855M prior
- 10:00 (MX) Mexico May Preliminary Trade Balance: $100.5Me v $194.6M prior
- 10:00 (US) May New Home Sales: 410Ke v 504K prior
- 10:30 (US) DOE weekly energy inventories: Crude: -1Me; Gasoline: +250Ke; Distillate:+1.4Me; Utilization: 88.2%e
11:30 Investor George Soros delivers lecture in Germany
12:30 (GE) German Fin Min Schaeuble
- 13:00 (US) Treasury to sell $38B in 5-year Notes
- 14:15 (US) FOMC Interest Rate Decisions: Expected to maintain interest rates at 0.25%

***Economic Data***
- (SI) Singapore May CPI M/M: 0.6% v 0.3%e; Y/Y: 3.2 v 3.0%e
- (GE) Germany Jul GFK Consumer Confidence: 3.5 v 3.3e
- (FR) France Jun Business Confidence: 95 v 96e; Production Outlook: -4 v -4e; Own-Company Production: -7 v 3 prior
- (FR) France Jun Preliminary PMI Services: 61.6 v 60.5e; PMI Manufacturing: 54.9 v 55.1e
- (SW) Sweden Jun Consumer Confidence: 22.0 v 18.0e; Manufacturing Confidence: 10 v 5e; Economic tendency: 112.2 v 110.1 prior
- (GR) Greece Apr Current Account: -?3.0B v -?3.0B prior
- (SW) Sweden May PPI M/M: 0.0% v -0.3%e; Y/Y: -0.5% v -0.8%e
- (GE) Germany Jun Advance PMI Services: 54.6v 54.7e; PMI manufacturing: 58.1 v 58.0e
- (IT) Italy Jun Consumer Confidence: 104.4 v 105.0e
- (NO) Norway Apr AKU Unemployment Rate: 3.7% v 3.5%e
- (EU) Euro Zone Jun Advance PMI Service: 55.4v 55.9e; PMI Manufacturing: 55.6 v 55.3e; PMI Composite: 56.0 v 55.8e
- (TT) Taiwan May Industrial Production Y/Y: 30.7% v 31.9%e; Commercial Sales Y/Y: 14.4% v 15.5%e
- (UK) Bank of England Minutes: Dissent on rate vote
- (UK) May BBA Loans for House Purchase: 36.7K v 36.0Ke
- (IC) Iceland Central Bank (Sedlabanki) cuts interest rates by 50bps to 8.00% from 8.50%; as expected
- (SA) South Africa May CPI (All Items) M/M: 0.2% v 0.2%e; Y/Y: 4.6% v 4.6%e