Reports » Europe

European stock market, economy and companies update (February 22, 2012)

Contributed by Trade The News

*** SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM ***
***Notes/Observations***
- China's HSBC Feb manufacturing flash PMI Manufacturing hits 4 mo high
- President Obama's corporate tax proposal could involve cutting the top corporate tax rate to 28% from the current avg rate of about 32%
- USD/JPY pair move above the 80 level for 6-month highs; Nikkei hits 6-month highs
- German and Euro zone PMI data softer than expectations
- BOE members spilt on the amount of QE needed to guide the economy

Equities:
FTSE 100 -0.40% at 5906, DAX -0.80% at 6851, CAC-40 -0.30% at 3453, IBEX-35 -0.75% at 8700, FTSE MIB -0.25% at 16,668, SMI -0.80% at 6187

- European shares traded flat to negative territory even after Dow crossed 13000 since Nay 2008. The gains were unsustained, however, and fears over growth outlook seeped back into the market and at the open of the European trading today. European bourses remain unimpressed with the Greek deal as traders focus on the long-term prospects and debt sustainability for the bailed nation. Eurozone PMI also came lower than expected while soaring oil prices due to crisis in Iran continue to dampen risk appetite.
- In M&A news, Cove [COV.UK] rallied over 25% after Shell [RDSA.UK] offered to acquire the company for €1.95/shr which valued Cove at £995M. The offer had been approved by the board of directors. France Telecom [FTE.FR] gained after reporting earnings and announcing that it would cut its dividends and hold off on any repurchases in order to preserve cash. The move was welcomed by the investors which continue to see the company as more attractive than its peers, which have also stopped making any dividend forecasts. Deutsche Telekom and Telefonica are expected to report this week.

Speakers:
- Japan MoF official commented that he was not uncomfortable with JPY's recent weakness and would continue to watch developments and act appropriately. He added that if the JPY were to rise, then it would pose downside risks to the Japanese economy.
speculation for rebound continues to remain strong
-India Prime Minister's Economic Advisory Council (PMEAC) lowered its FY12 GDP view to 7.1% from 8.2% prior view (Note: second cut of FY growth outlook)
India PM Econ Advisor Rangarajan commented afterwards likely overshoot in fiscal deficit over the budgeted 4.6% of GDP was a matter of concern and the government must lay out a roadmap for fiscal consolidation. India needed to bring down current account deficit to range 2.0-2.5% of GDP. He also noted that RBI needed to check excessive INR currency appreciation and that continued fiscal side pressure would limit central bank action (RBI).
- Australia Foreign Min Rudd resigned ahead of PM Gillard's planned Cabinet reshuffle. The PM had planned to remove Rudd as speculation built that he would make a bid for her position before the next elections
- Bank of England (BOE) Minutes saw another unanimous vote to keep interest rates steady at 0.50% but was split 7-2 to increase the Asset Purchase Target by £50B to £325B. BOE members Miles and Posen sought a higher increase of the APT by £75B and cted that the extent of deleveraging would likely to be required and both saw considerable spare capacity. The MPC Majority feared larger dose of QE might send message that economy was weaker than it was. The majority noted that growth was volatile in the near term due to one-off factors but should strengthen gradually thereafter
- German Fin Min Schaeuble commented that he was not concerned about Greece 2012 Deficit provisions and remained confident that German Parliament would approve second bailout package for Greece later this month (Reminder: Greece FY12 budget deficit target was revised higher to 6.7% of GDP v 5.4% prior)
- Netherlands Fin Min de Jager reiterates doubts on Greece ability to implement measures in its second bailout program. The minister also reiterated that it was in favor of merging the ESM and EFSF funds to reach €750B
- Ireland issued statement on planned asset sales and identified €3B in state assets for sale under bailout
- German BDB Private Bank Federation Present Economic Forecasts: Forecasts 2012 GDP growth at 0.5% compared to 0.3% prior year
- Turkey Econ Min Caglayan commented that Turkey to sign trade deals with China valued around $1.4B. Turkey also asked China to purchase its govt bonds
- Syria National Council said to be coming to terms that military intervention is the only way forward for the country
- Iran's Supreme Khamenei stated that the country's nuclear program would not deviate from current course despite international pressure and sanctions
- Iran Dep Oil Min: Will not sell oil to any company that gives oil to Britain or France

Currencies:
The BOE minutes sent the GBP currency lower as the MPC was split on the amount of increase in the Asset Purchase Target. Two member sought more than the agreed upon amount of £50B stimulus. The GBP/USD fell from 1.5775 to test 1.5700 level in the aftermath of the release. The EUR/GBP cross hit fresh 2012 highs above 0.8430.
- The USD/JPY pair retested its Aug 2011 highs of 80.30 which corresponded to the BOJ solo intervention highs. Japanese officials remarks of satisfaction of the recent JPY moves and reiterated that they continued to watch the market for developments. Various analyst note a break above 80.30 could ignite upside potential in the pair.
- Softer PMI data out of Germany capped the upside for the time being in the EUR/USD pair but the Euro was firmer against other components. The EUR/USD remained locked with its recent trading range with 1.3330 level as the key resistance for the time being. The pair also taking its directional flows from the EUR/JPY cross. Dealers not that 106.30 is capping the upside potential for the time being,

Political/ In the Papers:
- The FT reported that the Greek government has been given nine days to meet certain conditions. Its international lenders demanded the government complete a checklist of reforms before the end of February in order to receive the €130B bailout of aid. The list includes the preparation of asset sales and plans to tackle tax evasion.
- Spain will ask EU Commission for a larger 2012 budget deficit of just over 5% instead of the prior targeted figure of 4.4%. According to the local press, Spain is estimating its 2011 budget deficit at 8% of GDP. It is expected that the government will present a final 2011 budget figure at the end of March.
- The Telegraph's Ambrose Evans-Pritchard argued that the new rescue package for Greece is only a short-term solution, reiterating that austerity measures could eventually worsen the country's economic and political crisis. The troika's economic assumptions for Greece could be too optimistic. In a worst case scenario for 2012, the troika believes the Greek economy could contract by 4.8%, while the Greek Labour Institute estimates a contraction of 7% contraction.
- In its Quarterly report on new lending, the Irish Banking Federation (IBF) reported that fourth quarter Irish mortgages increased by 6.9% quarter-on-quarter (and declined 31.4% year-on-year). This marks the third straight quarterly increase since the last quarter of 2005. New mortgage lending was at 3,856, which was valued at €639M. It was also mentioned that the number of mortgage loans issued for first-time buyer (FTB) increased on a quarterly basis.
- Following the Shadow Chancellor's request for tax reductions, the Dir-General of the Confederation of British Industry (CBI) said that Britain cannot afford cuts in taxes. The Dir-General said that the Shadow Chancellor's suggestion of a reduction in VAT and income taxes are unaffordable. In addition, the director voiced concerns about the recent anti-business sentiment from the government. As a reminder, the government is scheduled to release its budget on the 21st of March.

***Looking Ahead***
- 7:00 (UK) Prime Minister's Question Time in House of Commons
- 7:00 (US) MBA Mortgage Applications w/e Feb 17th: No est v -1.0% prior
- 7:55 (US) Weekly ICSC Chain Store sales
- 8:30 (EU Barroso
- 8:55 (US) Weekly Redbook Retail Sales
- 9:00 (BE) Belgium Feb Business Confidence: No est v -9.5 prior
- 9:00 (MX: Mexico Dec Retail Sales: 4.1%e v 7.5% prior
- 9:30 (BR) Brazil Central Bank Weekly Economists Survey
- 9:30 (BR) Brazil Central Bank Posts weekly Currency Flows' Data
- 9:45 (UK) BOE to buy £1.5B in 2019-2025 Gilts in reverse auction
- 10:00 (US) Jan Existing Home Sales: 4.66Me v 4.61M prior; M/M: 1.1%e v 1.5% prior
- 10:00 (US) Revisions: Existing Home Sales
- 11:00 (US) Fed to purchase $1.5-2.0B in Notes
- 11:30 (US) Treasury to sell 4-Week Bills
- 12:00 (DE) German Chancellor Merkel speaks at CDU Party Event in Mecklenburg
- 13:00 (US) Treasury to sell $35B in 5-Year Notes
- 14:00 (AR) Argentina Q4 Total Unemployment Rate: 7.2%e v 7.2% prior
- 16:30 (US) Weekly API Energy Inventory data
- (US) Republican Primary debate in Mesa, Arizona

Economic Data***
- (EU) ECB: €1.3B borrowed in overnight loan facility v €1.2B prior; €449.1B parked in deposit facility vs. €464.2B prior
- (FR) France Jan Consumer Price Index M/M: -0.4% v -0.2%e; Y/Y: 2.3% v 2.5%e; CPI Ex Tobacco Index: 123.06 v 123.46e
- (FR) France Jan CPI EU Harmonized M/M: -0.4% v -0.2%e; Y/Y: 2.3% v 2.7%e
- (RU) Russia Gold & Forex Reserve w/e Feb 17th: $504.4B v $509.1B prior
- (FR) France Feb Preliminary PMI Manufacturing: 50.2 v 49.0e (7-month high); PMI Services: 50.3 v 52.0e
- (CZ) Czech Jan PPI Industrial M/M: 1.0% v 0.9%e; Y/Y: 4.1% v 4.2%e
- (ZA) South Africa Jan CPI (all items) M/M: 0.6% v 0.5%e; Y/Y: 6.3% v 6.2%e
- (TW) Taiwan Jan Unemployment Rate: 4.2% v 4.2%e
- (TW) Taiwan Q4 Final GDP Y/Y: 1.9% v 1.9%e
- (DE) Germany Feb Advanced PMI Manufacturing: 50.1 v 51.5e; PMI Services: 52.6 v 53.9e
- (SE) Sweden Jan Unemployment Rate: 8.0% v 7.9%e
- (EU) Euro Zone Feb Advanced PMI Manufacturing: 49.0 v 49.4e; PMI Services: 49.4 v 50.6e (lowest since July 2010); PMI Composite: 49.7 v 50.5e
- (IC) Iceland Jan Wage Index M/M: 0.0% v 0.3% prior; Y/Y: 9.1% v 9.2% prior
- (MA) Malaysia Jan CPI Y/Y: 2.7 v 2.7%e
- (NO) Norway Dec AKU Unemployment Rate: 3.3 % v 3.4%e
- (IT) Italy Jan Final CPI (NIC incl. tobacco) M/M: 0.3% v 0.3%e; Y/Y: 3.2% v 3.2%e
- (IT) Italy Jan Final CPI EU Harmonized M/M: -1.8% v -1.8%e; Y/Y: 3.4% v 3.4%e
- (UK) Bank of England (BOE) Minutes saw another unanimous vote to keep interest rates steady at 0.50% but was split 7-2 to increase the Asset Purchase Target by £50B to £325B.
- (EU) Euro Zone Dec Industrial New Orders M/M: 1.9% v 0.5%e; Y/Y: -1.7% v -2.8%e

Fixed Income
- (RU) Russia sold RUB9.8B vs. RUB10.0B indicated in OFZ 2017 Bonds; Yield 8.32%
- (EU) ECB allotted $3.6B in 7-Day USD Liquidity Tender vs. $3.7B prior
- (SE) Sweden sold SEK3.05B vs. SEK5.0B indicated in 2022 bonds via exchange Auction; Yield 1.9106
- (DE) Germany sold €4.28B in new March 2014 Schatz; Avg Yield 0.25% v 0.17% prior; Bid-to-cover: 1.8x v 2.2x prior