Reports » Europe

European stock market, economy and companies update (January 30, 2012)

Contributed by Trade The News

By Trade The News

*** SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM ***
***Notes/Observations***
- EU Leader meet in Brussels on fiscal compact treaty and ESM facility
- France President proposes VAT increase and financial tax ahead of spring elections
- Troika officials increased their estimates for the 2nd bailout package for Greece by €15B to €145B due to deteriorating economic situation

Equities:
FTSE 100 -0.50% at 5703, DAX -0.40% at 6485, CAC-40 -0.80% at 3292, IBEX-35 -1.1% at 8562, FTSE MIB -0.50% at 15,852, SMI -0.30% at 6011

- European shares declined during the session pressured by the financial sector as Greece failed to reach a final agreement with its private creditors. The debt talks, now at a tentative stage, come at a crucial time ahead of the EU's first 2012 summit which will take place today in Brussels. EU leaders are expected to finalize its austerity measures package but the discussion may center around a deal on PSI.

- In individual news, Philips [PHIA.NL] lost over 2% after reporting a wider than expected loss and remained cautious on 2012, especially Europe. The company had already issued two profit warnings regarding its disappointing Q4 earnings. Hochtief [HOT.DE] also sank after lowering its FY11 guidance due to extraordinary charges. On the other hand, Ryanair [RYA.UK] for FY net to €480M v €440M prior.

Speakers:
- EU Leader Summit draft was circulated by the press which noted that the leaders to pledge to take growth enhancing measures (in line with recent leader commentary on themes). The leaders would praise ECB long term loan operation in helping to avert a credit crunch and guard against de-leveraging caused by bank recapitalizations. It would consider higher lending ceiling for EU investment bank. The Fiscal pact would retain automatic correction mechanism and give EU Court of Justice a role in judging respect for rules. It foresaw a limit of 0.5% on structural deficits (as expected). The EU fiscal pact to take effect once 12 euro zone members ratify and only those countries that ratify fiscal compact could access ESM
- ECB's Makuch commented that he saw some probability of recession in the Euro Area. He added that that Greek debt write-down was an exceptional situation and not likely to occur elsewhere. The aim was to stabilize the Greek situation nd reiterated view that governments are responsible for solution to debt crisis
- German Fin Ministry official Kothaus commented that Greece had not fully put in place their reforms and could not yet say whether Greek debt was sustainable
- Ireland Min Creighton commented that he was hopeful the fiscal compact treaty would be "signed off as is" and expressed satisfaction with the text of treaty. The govt still has to decide on referendum on EU fiscal union cautioning that if voters rejected fiscal treaties it would be difficult for Ireland to remain in the euro.
- IMF commented on Turkey and recommended a tighter fiscal policy for country as monetary policy had been overburdened
- Morgan Stanley analyst commented on Hungary and forecasted that the country would obtain an IMF loan by April and envisioned it entailing a 'mini Vienna 2'. The analyst also stated that the recent string of rate hikes by the central bank might be near an end.

Currencies:
- Risk aversion was a bit prevalent during the session. Dealers noted that the Shanghai Composite ended session -1.5% at 2,285 with the lack of any change in PBoC rate policy during the lunar New Year holiday used as an initial excuse.
- The peripheral spread were sharply wider in the session with renewed concerns over Portugal. The 10-year Portuguese/German Gov't bond spread was at approx 1,5660bp for fresh EMU record highs, wider by almost 55bps in the session. The Italian auction results did not provide any relief in the aversion sentiment with the Italian 10-year yild rising by several basis points to 6.20% during post auction trading.
- The EUR/USD ended last week at the upper end of its technical rebound of 1.3230 area and traded drifted down towards the 1.3130 ahead of Italian 4-part bond auction and EU Leader Summit.

Political/ In the Papers:
- The FT commented on the recent rebound in EU bank bonds, noting that due largely to measures by the ECB, European financial companies bonds have returned about 3.5% so far for January versus about 3% for US financial debt. Amid the rise in European bank bonds, the iTraxx Senior European Financials Index has declined to about 215bps from 340bps in November, implying lower credit risks for EU banks.
- The Telegraph's Evans-Pritchard commented on whether lending measures by the ECB can help prevent a credit crunch in the EU. In December, credit to households and firms contracted by €90 billion, which is the largest monthly drop since the Euro was launched. IMF chief economist Olivier Blanchard warned that the deleveraging by banks in EU, could lead to a dangerous downward spiral for the financial system and possibly a disorderly default.
- Following the World Economic Forum in Davos, Switzerland, Harvard economist Rogoff said that he sees a probable restructuring of Irish bank debt, and wider Greek and Portuguese debt cuts to occur. He added 'we are going to need restructuring in Greece and Portugal is just clear, probably also in Ireland, where it would be enough to do the bank debt; in Spain probably as well, if you include the private-sector debt and the big banks. Italy is a borderline case, where it may just be a liquidity issue'.
- Credit rating agency Moody's stated that EU banks are likely to rely more upon ECB funding which is seen as a credit negative. In particular, Spain's deteriorating growth prospects are complicating its fiscal consolidation. The recent weak economic forecast of the Bank of Spain is a credit negative. In Germany, the financial market stabilization act was seen as providing temporary relief to banks.

***Looking Ahead***
- (EU) France President Sarkozy, German Chancellor Merkel and Italy PM Monti meet
- (DE) Germany Jan CPI Baden Wuerttemberg: No est v 0.6% prior; Y/Y: No est v 2.2% prior
- (DE) Germany Jan Preliminary Consumer Price Index M/M: -0.5%e v 0.7% prior; Y/Y: 2.0%e v 2.1% prior
- (DE) Germany Jan Preliminary CPI EU Harmonized M/M: -0.4%e v 0.7% prior; Y/Y: 2.4%e v 2.3% prior
- (BR) Brazil Dec Central Govt Budget (BRL): No est v 4.6B prior
- (CO) Colombia Central Bank Interest Rate Decision: Expected to leave the Overnight Lending Rate unchanged4.75%
- 6:00 (DE) Germany Jan CPI Barvaria: No est v 0.7% prior; Y/Y: No est v 2.4% prior
- 6:00 (IS) Israel to 2014, 2016 and 2022 Bonds
- 6:00 (IS) Israel to sell 2014 and 2022 Inflation-Linked Bonds
- 6:00 (PL) Poland to sell up to PLN3.0B in 52-Week Bills
- 6:00 (BE) Belgium Debt Agency cancelled prior Bond Auction
- 7:00 (CL) Chile Dec Industrial Production Y/Y: 1.3%e v 2.0% prior; Industrial Sales Y/Y: 2.5%e v 4.5% prior
- 7:00 (CL) Chile Dec Total Copper Production: No est v 458.0K tons prior
- 7:00 (CL) Chile Dec Retail Sales Y/Y: 7.9%e v 8.5% prior
- 8:30 (US) Dec Personal Income: 0.4%e v 0.1% prior; Personal Spending: 0.1%e v 0.1% prior
- 8:30 (US) Dec PCE Core M/M: 0.1%e v 0.1% prior; Y/Y: 1.7%e v 1.7% prior; PCE Deflator Y/Y: 2.3%e v 2.5% prior
- 9:00 (EU) EU Leaders hold Summit in Brussels
- 9:00 (EU) EU's Barnier
- 9:00 (FR) France Debt Agency (AFT) to sell Bills (BTF)
- 9:30 (EU) ECB calls for bids in 7-Day Main Refinancing Tender
- 9:30 (EU) ECB announces weekly settlements in Govt Bond Purchase program (SMP)
- 9:45 (UK) BOE to buy £1.7B in 2015-2021 Gilts in reverse auction
- 10:30 (US) Jan Dallas Fed Manufacturing Activity: 0.5%e v -3 prior
- 11:00 (U) Fed to purchase $4.25-5.00B in Notes
- 11:30 (US) Treasury to sell $31B in 3-Month and $29B in 6-Month Bills
- 12:00 (EU) ECB member Nowotny
- 15:30 (MX) Mexico Dec YTD Budget Balance (MXN): no est v -213.091B prior
- 16:45 (NZ) New Zealand Dec Building Permits M/M: No est v -6.4% prior

***Economic Data***
- (DE) Germany Jan CPI Saxony: -0.4% v +0.7% prior; Y/Y: 2.3% v 2.2% prior
- (ES) Spain Q4 Preliminary GDP Q/Q: -0.3% v -0.3%e; Y/Y: 0.3% v 0.2%e
- (TW) Taiwan Dec Unemployment Rate: 4.2% v 4.3%e; (lowest level since Aug 2008 )
- (TW) Taiwan Dec Money Supply M1B Daily Avg Y/Y: 3.5% v 4.2% prior; M2 Money Supply M2 Daily Avg Y/Y: 5.0% v 4.8%e
- (SE) Sweden Nov Non-Manual Workers Wages Y/Y: 2.6% v 2.3% prior
- DE) Germany Jan CPI Brandenberg: -0.4% v +0.6% prior; Y/Y: 2.2% v 2.1% prior
- (IT) Italy Jan Business Confidence: 92.1 v 92.3e
- (DE) Germany Jan CPI North Rhine Westphalia: -0.4% v +0.7% prior; Y/Y: 1.8% v 1.7% prior
- (EU) Euro Zone Jan Business Climate Indicator:-0.21 v -0.25e; Consumer Confidence: -20.7 v -20.6e; Economic Confidence: 93.4 v 93.8e; Industrial Confidence: -7.2 v -6.8e; Services Confidence: -0.6 v -1.6e
- (BR) Brazil Jan FGV Inflation IGP-M M/M: 0.3% v 0.3%e; Y/Y: 4.5% v 4.6%e
- (PT) Portugal Jan Consumer Confidence: -57.1 v -56.8 prior; Economic Climate Indicator: -4.7 v -4.4 prior

Fixed Income:
- (IT) Italy Debt Agency (Tesoro) sold total €7.74B v. €5.5-8.0B indicated range in 2016, 2017, 2021 and 2022 Bonds
- Sold €746M in 3.75% Apr 2016 BTP; Gross Yield 4.79% v 4.93% prior ; Bid-to-cover: x v 1.93x prior
- Sold €3.57B vs. €3.0-4.0Be in May 4.75% 2017 BTPs; Avg Yield 5.39% v 4.93% prior; Bid-to-cover: 1.3x v 2.3x prior
- Sold €1.16B in 3.75% March 2021 BTPs; Avg Yield 5.74% v 5.49% prior; Bid-to-cover: x v 1.58x prior
- Sold €2.00B vs. €1.5-2.0Be in 5% March 2022 BTPs Avg Yield 6.08% v 6.98% prior; Bid-to-cover: 1.42x v 1.42x prior
- (NO) Norway sold NOK4.0B vs. NOK4.0B indicated in 5% 2015 Bonds; Yield 1.59% v 3.22% prior
- (SK) Slovakia Debt Agency (ARDAL) sold €260.5M in 12-month Bills; Yield 1.704% v 1.9699% prior, Bid-to-cover: 2.85 v 3.03x prior