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Reports Europe

European stock market, economy and companies update (December 19, 2012)

December 19, 2012, Wednesday, 11:35 GMT | 06:35 EST | 17:05 IST | 19:35 SGT
Contributed by Trade The News


*** SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM ***

***Equities***
- Indices: FTSE 100 +0.60% at 5,970, DAX +0.30% at 7,677, CAC-40 +0.50% at 3,665, IBEX-35 -1.3% at 8,272, FTSE MIB +0.80% at 16,290, SMI +0.60% at 6,951, S&P 500 Futures +0.20% at 1,444

- European equity markets are broadly higher, tracking yesterday's gains in the US equity markets. Greece's Athens Stock Exchange (ASE) has risen by 2.5%, as S&P upgraded the country's debt rating. Spain's IBEX-35 has risen by over 1%, amid the declines being seen in peripheral bond yields. Germany's DAX is trading near fresh 2012 highs, as the IFO business climate index was better than expectations and rose for the second straight month. European banks are broadly higher, led by Greek banks, which have risen by over 8% on the session. Commodity-related firms are trading mixed, following the recent declines seen in gold prices. In Asia, the Nikkei225 hit a fresh 8-month high above the psychological 10,000 level, on high volumes, ahead of the later this week Bank of Japan (BoJ) decision. In terms of US corporate earnings, companies seen reporting during the US morning include, Fedex, General Mills and Navistar.

Movers
- Germany movers [TUI AG +4% (FY11/12 earnings and guidance), Stada +3.5% (takeover speculation), ThyssenKrupp +2.5% (broker upgrade), Infineon +1.8% (tracks strength in tech sector), SAP +0.70% (Oracle earnings);Merck KGaA -3.4% (phase III data on STIMUVAX), Automakers have underperformed the overall DAX index, amid declines in shares of Porsche (negative court ruling)]
- UK Movers [RCG Holdings +200% (issued update on probe in Hong Kong), Colt Group +3% (cost savings program); Bunzl -5% (Q3 trading update), Halfords -1.3% (ex-dividend), Burberry -0.70% (ex-dividend)]
- France Movers [French banks are broadly higher ahead of possible announcement related to the French government's banking reform plans; AXA -0.50% (ratings downgrade)]
- Italy movers [ERG +5.7% (issued 2015 outlook)]
- Switzerland movers [UBS +1.5% (confirmed Libor settlement)]
- Spain movers [Banco Popular +3.3% (tracks strength in banking sector); Acerinox -3% (revised dividend plan)] -
Denmark movers [H Lundbeck -17% (cautious outlook)]

Speakers:
- IFO Economists noted that companies were more confident about the future as the calming of EMU crisis allowing companies to regain trust. Export expectations have improved. German Q4 GDP could contract by 0.3% but did not expect further ECB interest rate cuts
- BOE minutes echoed the Nov details. Inflation would likely to remain above 2% over next year, upside risks to food prices from bad weather. CPI to fall back to target medium term, but there were substantial risks. Recent UK economic news mixed, it saw a Q4 GDP contraction and reiterated that temporary factors supported Q3 GDP. On policy the BOE noted that impact from latest round of QE had yet to be felt. Most MPC members agreed past month's developments did little to alter QE arguments. Impact of coupon transfer on Treasury bills rather than Gilts implied less monetary easing in very short term. -The BOE noted that the current sterling currency level might be inconsistent with rebalancing.
- BOE Dissenter Miles reiterated that the degree of economic slack was key for his case for more QE
- Italy PM Monti has cancelled planned Friday press conference; no reason provided but dealers noted that the Italy budget vote had been speculated that it could be delayed
- Netherlands Bureau for Economic Policy Analysis (CPB): cut its 2012 and 2013 GDP forecasts. It now saw 2012 GDP forecast at -1.0% from -0.5% prior Sept view and 2013 GDP at -0.5% from +0.75% prior. It raised 2013 Gov deficit to GDP ratio to 3.3% from 2.7% prior Sept view
- Swedish NEIR Think Tank updates economic forecasts in which it saw 2012 GDP at 0.9%, 2013 GDP at 0.8% and 2014 GDP at 2.2%. It saw unemployment rising from 7.7% in 2012 to 8.4% by 2014
- EFSF and ESM announced funding program for 2013. The ESM would start the sale of 3-month and 6-month bill program in January. The EFSF would no longer hold bill auctions but look to raise 55-60B in long term issuance for financing of Irish, Greek and Portuguese programs
- France Fin Min Moscovici to submit a bill to the cabinet that would force the largest banks in France to separate prop trading into their own units
- Fitch's bi-annual global Sovereign Review noted that the Euro zone crisis and US Fiscal Cliff risk dominated sovereign outlook. Ratings of seven of the world's 10 largest economies were currently on Negative Outlook, including three major 'AAA'-rated sovereigns - the US, the UK and France. Identified the US fiscal cliff as the single biggest, near-term threat to the world economy but its base case expectation was that a compromise would be reached to avoid the $600bn of tax increases and spending cuts due to come into effect on 1 January 2013. Concerned that the current easing of market pressure on sovereign bond yields - combined with the specifics of 2013's electoral calendar, including Italian and German general elections - could induce complacency and slow policy momentum to a crawl
- Japan incoming PM Abe stated that monetary policy alone was not enough to correct strong Yen currency. He added that he would deregulate if necessary to help the Japanese economy
- Incoming Japan Coalition Party Komeito official commented that it would put need for monetary policy easing in policy agreement with LDP but would not include size of extra budget in LDP/Komeito policy agreement. He reiterated that there was no need to scrap medium and long-term targets for restoring fiscal health
- Fitch: Declining yields could pose bond bubble risk for US corporate bond investors

Currencies:
- Risk-on sentiment continued to weigh upon the USD and JPY currencies with thinning year-end liquidity conditions aiding the directional move. Markets continued to trade off fiscal cliff optimism and expectations of more central bank stimulus in 2013. The USD continued to high mult-month lows against numerous European pairs.
- The EUR/USD tested 1.3280 while EUR/JPY cross hit its highest level since Aug 2011 near 112 handle. Dealers noted that EUR currency strength still had technical momentum behind the move there could be some cautiousness in the EUR/JPY indicators which were moving into 'overbought' territory
- All eyes now on the BOJ with its Thursday rate announcement. Dealers have ongoing expectations of further Japanese policy stimulus with another 5-10T seen in asset purchases. The USD/JPY stayed above the 84 handle throughout the session. Incoming Japanese PM Abe has asked the BOJ to hike its inflation target to 2.0%
- GBP/USD hit a 3-month high above the 1.63 handle. The marlet ignored BOE commentary that current sterling level might be inconsistent with rebalancing

Political/ In the Papers:
-(EU) ECB announces Executive Board members Mersch (Luxembourg) and Constancio (Portugal) will be responsible for the Bank Union project
-(EU) EU treaties could limit the ECB's role in the bank supervisory plan - German Press
- (FR) ECB's Noyer: Economic recovery in 2013 to be gradual, sees light recession in France in the early part of 2013; To publish new bank liquidity rules in January.
- (FR) France Pres Hollande: Sees France economy rebounding in 2014- Le Point; Sees peak job losses in 2013; No reason to replace France PM Ayrault
-(GR) S&P raises Greece sovereign rating to B- from SD; outlook stable; The upgrade reflects our view of the strong determination of European Economic and Monetary Union (eurozone) member states to preserve Greek membership in the eurozone.
-(IT) Former PM Berlusconi confirms that he will run in the upcoming Italian elections; says Italy needs him - financial press; Notes the Northern League will be part of the centrist coalition; Berlusconi calls for elections to be pushed back to March from February, believes he can get 40% of the vote.
-(ES) Spain Catalonia leaders close to a deal for a majority coalition setting up a vote on independence in 2014- El Pais

***Looking Ahead***
***All times listed for economic events are denominated in Eastern Standard Time (Add 5 hours for GMT equivalent)
- 06:00 (UK) Dec CBI Industrial Reported Sales: 25e v 33 prior
- 06:00 (BR) Brazil Dec IBGE CPI IPCA-15 M/M: 0.6%e v 0.5% prior
- 06:00 (UK) BOE allotment in ECTR
- 06:30 (US) Daily Libor Fixings
- 07:00 (UK) Prime Minister's Question Time in House of Commons
- 07:00 (PT) Portugal Fin Min Gaspar
- 07:00 (US) MBA Mortgage Applications w/e Dec 14th: No est v 6.2% prior
- 07:00 (CZ) Czech Central Bank Interest Rate Decision: Expected to leave the Repo Rate unchanged at 0.05%
- 07:30 (BR) Brazil Nov Total Outstanding Loans (BRL): No est v 2.269T prior; M/M: No est v 1.4% prior; Private Banks Lending: No est v 1.208T prior; Personal Loan Default Rate: No est v 7.9% prior
- 08:00 (NO) Norway Central Bank (Norges) Interest Rate Decision: Expected to leave the Deposit Rates unchanged at 1.50%
- 08:00 (PL) Poland Nov Producer Prices M/M: -0.1%e v -0.7% prior; Y/Y: 0.0%e v 1.0% prior
- 08:00 (PL) Poland Nov Sold Industrial Output M/M: -3.5%e v +7.7% prior; Y/Y: 0.4%e v 4.6% prior
- 08:30 (CA) Canada Oct Wholesale Sales M/M: +0.5%e v -1.4% prior
- 08:30 (US) Nov Housing Starts: 872Ke v 894K prior; Building Permits: 875Ke v 868K prior (revised from 866K)
- 09:00 (MX) Mexico Oct Retail Sales: 3,6%e v 3.8% prior
- 09:00 (US) IMF Cardarelli speaks on Canada
- 09:00 (CA) Canada Nov Teranet/National Bank HPI M/M: No est v -0.20% prior; Y/Y: No est v 3.40% prior; House Price Index (HPI): No est v 154.59 prior
- 09:30 (BR) Brazil Central Bank Posts weekly Currency Flows
- 10:00 (MX) Mexico Central Bank Economist Survey
- 10:30 (US) Weekly DOE U.S. Crude Oil Inventories
- 11:00 (US) Fed to purchase $1.50-2.25B in Notes
- 11:30 (BR) Brazil Nov Caged Formal Job Creation: 15.0Ke v 67.0K prior
- 12:00 (CA) Canada to sell 2 Year Notes
- 13:00 (US) Treasury to sell $29B in 7-Year Notes
- 16:00 (CO) Colombia Oct Industrial Production Y/Y: -0.1%e v -1.3% prior
- 16:00 (CO) Colombia Oct Retail Sales Y/Y: 2.4%e v 2.3% prior
- 18:00 (US) WTO Conducts Trade Policy Review of U.S.
- (JP) Bank of Japan (BOJ) Interest Rate Decision: Expected to leave the Target Rate unchanged at 0.10%


***Notes/Observations***
- US House remains open to broader negotiations to avert the so-called fiscal cliff; negotiations and in-fighting continues
- Japan Nov Adj Merchandise Trade Balance registers its 20th straight deficit as exports to China and Europe slump ; overall exports fall for 6th straight month
- Niikei225 Index has largest percentage gain for 2012 and closes back above the 10K level for first time in 8 months; All eyes now on Thursday (tomorrow) BOJ rate decision with more stimulus expected; Other key Asian bourses were mixed
- World Bank raises China's 2013 GDP growth forecast to 8.4% from 8.1% prior; believes economic slowdown might have bottomed out
- BOE Dec Minutes echoed the Nov views; Interest rate vote was unanimous and Asset Purchase Target vote was again 8 to 1 with Miles dissenting
- German IFO Survey mixed but Business Climate registers its 2nd straight monthly improvement
- Taiwan Central Bank Interest leaves Benchmark Rate unchanged at 1.875%, as expected
- South Korea President Election exit polls show Park Geun Hye (would be the first female President) to be in the lead
- Greece 10-year bond yield hits post-restructuring low around 12% aided by S&P hike of the country's sovereign rating to B- from SD; outlook stable

***Economic Data***
- (ZA) South Africa Oct Leading Indicator: 130.1 v 129.3 prior
- (DK) Denmark Q3 Housing Prices Q/Q: -0.7%; Y/Y: -3.3%
- (SE) Sweden Dec Consumer Confidence: -12.2 v -7.0e; Manufacturing Confidence: -15 v -19e; Economic Tendency Survey: 89.6 v 86.0e
- (ES) Spain Oct Service Sector Sales Y/Y: -4.0% v -11.8% prior; Service Sector Employment Y/Y: -2.9% v -3.3% prior
- (EU) ECB: 75.0M borrowed in overnight loan facility vs. 520.0M prior; 239.1B parked in deposit facility vs. 249.0B prior
- (DE) Germany Dec IFO - Business Climate: 102.4 v 102.0e; Current Assessment: 107.1 v 108.0e; Expectations Survey: 97.9 v 96.4e
- (EU) Euro Zone Oct Current Account unadj: 7.2B v 5.0B prior; Current Account Seasonally Adj: 3.9B v 2.4B prior
- (IT) Italy Oct Industrial Orders M/M: 0.0% v 1.0%e; Y/Y: -0.1% v -12.8% prior
- (IT) Italy Oct Industrial Sales M/M: -0.2% v -4.2% prior; Y/Y: -4.7% v -5.4% prior
- (MA) Malaysia Nov CPI Y/Y: 1.3% v 1.4%e
- (TW) Taiwan Central Bank Interest leaves Benchmark Rate unchanged at 1.875%, as expected
- (UK) Bank of England (BOE) Minutes: Voted 8 to 1 to maintain Asset Purchase Target at 375B
- (UK) Bank of England (BOE) Minutes: Voted 9 to 0 (unanimous) to leaves interest rates unchanged at 0.50%
- (EU) Euro Zone Oct Construction Output M/M: -1.6% v -1.3% prior; Y/Y: -4.1% v -3.8% prior

Fixed Income:
- (IN) India sold total INR100B vs. INR100B indicated in 3-month and 6-month Bills
- (RU) Russia sold RUB21.4B in 2019 OFZ bond; Yield 6.61% vs guidance of 6.57-6.62%
- (RU) Russia sold RUB6.6B vs.RUB16.5B indicated in 2027 OFZ bond; Yield 7.03% vs. guidance of 6.98-7.03%
- (EU) ECB allotted $0.6B in 14-day USD Liquidity Tender at fixed 0.66% vs. $3.3B
- (SE) Sweden sold total SEK15B in 3-month and 6-month Bills
- (EU) ECB allotted 15.0B in 3-Month Tender vs. 16.0Be