Reports » Europe

European stock market, economy and companies update (January 03, 2013)

Contributed by Trade The News

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

***Equities***
Indices: FTSE 100 -0.10% at 6,018, DAX -0.30% at 7,756, CAC-40 -0.50% at 3,714, IBEX-35 -1.1% at 8,350, FTSE MIB -0.50% at 16,813, SMI +2.6% at 7,001, S&P 500 Futures -0.20% at 1,454

- After the mostly lower open, European bourses have remained primarily in negative territory following the sharp gains seen on Wednesday's session. However, the Swiss SMI has outperformed in a catch-up rally, as the index was closed on yesterday's session. Spain's IBEX-35 has underperformed despite the improvement seen in the Dec unemployment data. Most resource related firms are trading lower, despite the rise in copper prices. European banks are currently mixed. Following the recent compromise agreement related to the US fiscal cliff issue, markets are now focusing on Friday's release of US monthly payrolls data. Later today, the US Dec ADP Employment Change and Challenger job cuts data will be released. Also, members of the US House of Representatives are due to vote for their new Speaker. The current House Speaker is Republican Boehner. In terms of corporate bond issuance, peripheral firms continue to come to the market, amid the easing in credit conditions. On today's session, Spanish bank BBVA announced plans to sell 5-yr EUR-denominated sr unsecured bonds at a spread of about 295bps/mid-swaps. The pricing guidance suggests that the firm could pay an interest rate, which is below Spain's 5-yr sovereign borrowing costs. In Sept of 2012, BBVA paid about 325bps to issue 2-year debt. In France, BNP and SocGen have come to the market with EUR-denominated bonds.

- Germany movers [K+S -3% (broker commentary); SMA Solar +7.5% (broker commentary),Grenkeleasing +3.5% (FY12 business update),Software AG (rebound from session's underperformance), Evotec +1.2% (acquisition, reaffirmed outlook)]
- UK movers [Bellzone Mining -7.5% (production update), Nighthawk Energy -7% (production update); Chemring Group +3% (new finance director), Next +2% (trading update)]
- France movers [Vivendi -1% (regulatory opposition to any merger with Free); Alcatel-Lucent +2.5% (broker commentary)]
- Switzerland movers [Scholz + Bickenbach +12% (takeover speculation), Oerlikon +3% (merger speculation)]

Speakers:
- Italy PM Monti: Bond spreads have fallen due to a return of foreign, Italian investor faith in Italy; hopes trend with spreads will continue
- ECB's Demetriades (Cyprus) commented that banking sector reorganization was the only option for Cyprus and must convince European partners of Cyprus' commitment
- Germany Chancellor Merkel Adviser Feld expressed fears that political parties would try to outbid each other with electoral promises that will burden the national budget and concerned that reforms made over the past years would be reversed (**Note: German elections are to be held in Sept)
- Greece banking sector non-performing loans rose approx 50% in 2012 y/y. According to the report, as of Dec Greek banks had non-performing loans equal to about 24% of total assets vs 16% y/y with the total value of the bad loans may equal about €55B.(**Note: In late Dec, Greece's Central Bank said that 50B in aid was enough to recapitalize the country's banking sector)
- UK BoE Q4 lending report noted that UK banks reported largest rise in availability of mortgage, corporate lending on record in Q4. It did see a reduction in demand for lending to small firms but an increase in demand for lending to mid-sized firms. Demand for unsecured lending increased significantly while demand for secured lending for house purchases increased. Lastly demand for unsecured lending to households rose slightly and credit for corporate sector was expected to increase in next 3 months

Currencies:
- The recent wave of risk appetite seemed to hit a few speed bumps over the US outlook despite the recent fiscal cliff deal. FX markets noted that the issue of the debt ceiling still needs to be addressed and political tensions are likely to remain in the coming months.
- The EUR/USD did hit a multi--week lows during Asian session but recovered during the early part of Europe with better unemployment data out of both Spain and Germany. The 1.3170 level was cited as a pivot point and proved difficult to penetrate in the session. The EUR/USD was back at session lows ahead of the NY morning with 1.3120 being approached
- Beneath the better Spanish unemployment data dealers did have concerns that many have fallen off the books as counting as unemployed now that their 2 years of benefits were finished. The overall situation seemed less bad with only 230K job losses in the last 6 months of 2012 compared with 300K the last 6 months of 2011
- The GBP retraced earlier losses aided by the rise in its 10-year Gilt yield, which moved above the 2% level for the first time since May 2010 but the rally faced headwinds after the Dec PMI construction came in below expectations and registered its lowest reading since June

Political/ In the Papers:
- (PT) Telegraph's Ambrose Evans-Pritchard suggests that Portugal could seek to have its austerity measures eased
- (GR) Greece banking sector non-performing loan soared in 2012 - Greek press
- (GR) Greece's top 4 banks will release their 2012 results by the end of Feb (1 month earlier than normal) in order to make potential investors feel more secure in up coming capital raising plans

***Looking Ahead***
***All times listed for economic events are denominated in Eastern Standard Time (Add 5 hours for GMT equivalent)
- (US) US House of Representative Speaker election
- 06:00 (BR) Brazil Nov Manufacturing PPI M/M: No est v 0.2% prior; Y/Y: No est v 6.4% prior
- 06:30 (US) Daily Libor fixing
- 07:00 (US) MBA Mortgage Applications w/e Dec 28th: No est v -12.3% prior
- 07:30 (US) Dec Challenger Job Cuts: No est v 57.1K prior; Y/Y: No est v 34.4% prior
- 08:00 (US) Jan RBC Consumer Outlook: No est v 46.9 prior
- 08:15 (US) Dec ADP Employment Change: +140Ke v +118K prior
- 08:30 (SG) Singapore Dec Purchasing Managers Index: 49.5e v 48.8 prior; Electronics Sector Index: 47.7e v 47.4 prior
- 08:30 (US) Initial Jobless Claims: 360Ke v 350K prior; Continuing Claims: 3.210Me v 3.206M prior
- 09:45 (US) Dec ISM New York: No est v 52.5 prior
- 10:00 (DK) Denmark Dec Foreign Currency Reserves (DKK): 507.1Be v 512.1B prior
- 11:00 (US) Treasury refunding announcement for 3-year, 10-year and 30-year bonds
- 11:00 (US) Fed to buy $4.25-5.25B in notes
- 14:00 (US) FOMC Minutes
- 16:00 (KR) South Korea Dec Foreign Exchange Reserves: No est v $326.1B prior
- 16:30 (US) Weekly API Crude Oil Inventories
- 17:00 (US) Dec Total Vehicle Sales: 15.30Me v 15.46M prior; Domestic Vehicle Sales: 11.70Me v 12.01M prior
- 20:45 (CN) China Dec HSBC Services PMI: No est v 52.1 prior

***Notes/Observations***
- China Dec Non-Manufacturing PMI registers its 10th straight month of expansion and a 4-month high
- Greece banking sector non-performing loans rose approx 50% in 2012 y/y
- Spain Dec Unemployment falls for the first time since July
- German unemployment rises for the 10th straight month but amount is below market expectations
- 10-Year Gilt yield moves above the 2.0% level for the first time since May 2010
- UK PMI Construction hits a six-month low and remains below the critical 50 level

Fiscal Cliff Commentary:
-Obama signed Fiscal Cliff compromise deal into law (as expected)
-S&P: Fiscal cliff deal won't affect US sovereign outlook; Fiscal cloud only partially lifted
-Moody's: Fiscal deal does not provide medium-term basis of meaningful improvement in debt ratios; Lack of further deficit measures could affect the rating negatively
-DBRS: Cliff deal only kicks the can down the road for two months
-IMF: More action needed to put US on sustainable path; need to control entitlement spending

***Economic Data***
- (DE) Germany Nov ILO Employment: 41.55M v 41.52M prior; Unemployment Rate: 5.4 v 5.4% prior
- (UK) Dec Nationwide House prices M/M: -0.1% v 0.0%e; Y/Y: -1.0% v -0.9%e
- (ES) Spain Dec Net Unemployment M/M: -59.1K v +62.5Ke (first decline since July)
- (CH) Swiss Dec KOF Leading Indicator: 1.28 v 1.40e
- (TR) Turkey Dec Consumer Prices M/M: 0.4% v 0.2%e; Y/Y: 6.2% v 6.0%e; CPI Core Y/Y: 5.8% v 5.7% prior
- (TR) Turkey Dec Producer Prices M/M: -0.1% v +1.7% prior; Y/Y: 2.5% v 3.6% prior
- (NO) Norway Dec PMI Survey: 50.0 v 50.0e
- (EU) ECB: €120M borrowed in overnight loan facility vs. €587M prior; €275.9B parked in deposit facility vs. €280.2B prior
- (SE) Sweden Nov Household Lending Y/Y: 4.6% v 4.5%e
- (CH) Swiss Dec Manufacturing PMI: 49.5 v 48.4e
- (HK) Hong Kong Nov Retail Sales Value Y/Y: 9.5% v 4.2%e; Retail Sales Volume Y/Y: 8.1% v 3.7%e
- (DE) Germany Dec Unemployment Change: +3KK v +10Ke (10th straight monthly increase); Unemployment Rate: 6.9% v 6.9%e
- (EU) Euro Zone Nov M3 Money Supply Y/Y: 3.8% v 3.8%e; M3 Money Supply 3-month avg: 3.4% v 3.5%e
- (UK) Dec PMI Construction: 48.7 v 49.5e; lowest reading since June 2012

Fixed Income:
- (FR) France Debt Agency (AFT) sold total €7.99B vs. €7.0-8.0B indicated range in 2019, 2020, 2022 and 2032 Oats
- Sold €1.63B in 3.75% Oct 2019 OAT; Avg Yield 1.32% v 1.27% prior; Bid-to-cover: 2.14x v 2.77x prior
- Sold €1.67B in 3.5% Apr 2020 OAT; Avg Yield 1.46% v 2.91% prior; Bid-to-cover: 1.98x v 3.99x prior
- Sold €3.53B in 2.25% Oct 2022 OAT; Avg Yield 2.07% v 2.22% prior; Bid-to-cover: 1.72x v 1.954x prior
- Sold €1.16B in 5.75% Oct 2032 OAT; Avg Yield 2.84% v 4.15% prior; Bid-to-cover: 2.24x v 2.09x prior
- (EU) ECB allotted €81.1B vs. €84.0Be in 6-Day Main Refinancing Tender at fixed 0.75%
- (HU) Hungary Debt Agency (AKK) sold HUF75B vs. HUF50B indicated in 12-month Bills; Yield 5.30% v 5.38% prior; Bid-to-cover:2.53 x v 2.08x prior
- (PL) Poland sold total PLN3.66B vs. PLN3.0-5.0B indicated range in 2023 and 2029 bonds
- (UK) DMO sold £3.75B in 1% 2017 conventional Gilts; Avg Yield 0.958% v 0.787% prior; Bid-to-cover: 2.11x v 1.59x prior; Tail 0.4bps v 0.6 bps prior