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Reports Europe

European stock market, economy and companies update (November 20, 2012)

November 20, 2012, Tuesday, 11:00 GMT | 06:00 EST | 16:30 IST | 19:00 SGT
Contributed by Trade The News

- Moody's becomes the second rating agency to cut France's AAA sovereign rating
- BoJ leaves monetary policy unchanged (as expected)
- RBA minutes: Further interest rate cuts may be appropriate in time
- Eurogroup meeting today on Greece expected to achieve a political endorsement in principle' on unfreezing funds to Greece with monies to be distributed in early December
- Spain sells more than indicated at its 12-month and 18-month bill auction

Indices: FTSE 100 -0.10% at 5,728, DAX +0.20% at 7,139, CAC-40 -0.10% at 3,434, IBEX-35 -0.25% at 7,743, FTSE MIB -0.50% at 15,236, SMI -0.50% at 6,603, S&P 500 Futures +0.10% at 1,383

- European equity indices are mostly lower, following the sharp gains seen during Monday's session, as Moody's joined S&P in removing France's AAA sovereign rating. Italy's FTSE MIB has underperformed amid losses in the banking sector and declines in shares of Fiat. Ahead of today's Euro Group meeting on Greece, the Athens Stock Exchange (ASE) has moved between gains and losses, while Greece's 10-year bond yields have moved lower. European banks are trading mixed. Underperformers in the sector include Credit Suisse, Commerzbank, Deutsche Bank, Intesa, Natixis and Unicredit. Resource related companies are broadly lower, tracking the declines in commodity prices.
- EasyJet [EZJ.UK] has gained over 4%, as the company disclosed its FY12 results and announced a planned increase in its dividend. Shares of Glencore [GLEN.UK] and Xstrata [XTA.UK] have moved higher, as Glencore's shareholders voted to approve the proposed merger between both companies. The deal still needs to be approved by Xstrata's shareholders and certain regulators. In Switzerland, shares of Credit Suisse [CSGN.CH] have moved lower by over 1.5%, after the firm announced plans to restructure its investment banking, asset management and private banking units. Richemont [CFR.CH] and Swatch [UHR.CH] are higher after Swiss watch exports rebounded in Oct. Shares of German retailer Metro [MEO.DE] are higher by over 1%, as the firm's CEO said the company will probably not have to cut its FY dividend. In France, banks opened the session broadly lower following Moody's downgrade of France's sovereign rating, led by BNP and Natixis. Retailer Carrefour [CA.FR] has gained over 1%, after agreeing to sell a 60% stake in its Indonesia joint venture. EADS [EAD.FR] has lagged the overall CAC-40, amid renewed speculation that Germany may raise its stake in the firm, while France might reduce its stake.

- FTSE 100 movers (Intercontinental Hotel +2.3%, IAG +2.1%, Prudential +1.9%, Burberry +1.7%, Xstrata +1.5%; Arm Holdings -2%, Meggitt -1.4%, Old Mutual -1.4%, Anglo American -1.3%, National Grid -1%)
- CAC-40 movers (Alstom -2%, STMicrolectronics -2%, Bouygues -1.9%, ArcelorMittal -1.8%, Alcatel-Lucent -1.7%; Accor +3.2%, Pernod-Ricard +1.3%, Carrefour +1.3%, Vallourec +1.1%, Safran +1.1%)
- DAX movers (Deutsche Post +1.2%, Volkswagen +1.1%, BASF +1%; Deutsche Bank -1.9%, E.ON -1.6%, K+S -1.3%, Commerzbank -1.1%)
- IBEX-35 movers (Banco Popular -4%, Tecnicas -2%, Mapfre -1.9%, FCC -1.3%, Ferrovial -1.3%; Sacyr +1.1%)
- FTSE MIB movers (Fiat -5.5%, Exor -2.9%, Mediaset -2.9%, Banca Monte Paschi -2.4%, Intesa -2.4%; Fiat Industrial +1.3%)
- SMI movers (Credit Suisse -2.4%, Holcim -1.1%, UBS -1.1%; Richemont +1.5%)

-France Fin Min Moscovici commented that French credit quality remained high and the sovereign downgrade by Moody's did not question strong fundamentals of the economy
- Moody's analyst stated that France 2013 budget and medium term fiscal plan was based upon optimistic GDP growth forecast but competitiveness pact helped to limit the size of the sovereign downgrade. Moody's would further cut France's rating if economic prospects deteriorated or previously announced reforms had difficulty in its implementation
- ECB's Nowotny commented in the Austrian Press that he was more worried about stagnation rather than inflation and saw the slowdown in global economy. Inflation was not a concern for Germany or Austria. Middle East risks might drive energy prices.
- ECB's Coeure (France) commented that there had been considerable improvement in financial markets since July but cautioned not to be fooled by such improvements. He reiterated that ECB would be ready to step in with bond purchases if and when the program was approved
- German Fin Min Schaeuble reiterates that the Germany's deficit cutting rules were the model for Europe and that Germany remained the growth engine for Europe. French sovereign rating remained very stable and he warned of over-dramatizing the recent downgrade
- Hungary Chief IMF negotiator Varga stated that there was little chance for EU/IMF agreement on precautionary loan in 2012 but should see a new turn in talks by mid-December after EU/IMF accessed Hungary final budget
- Sweden Fin Min Borg reiterated the view that economic slowdown in Sweden was not as sharp as in 2008 and the govt had scope to stimulate if needed as the economy was in a difficult situation. The ministry would update its forecasts before year end
- Almost one-third of German companies were said to planning job cuts in 2013 according to a survey by Institute of Germany Economy. The survey saw approx 20% of companies planning of adding jobs while 52% saw stable employment next year
- BOJ Gov Shirakawa stated at the post rate decision press conference that a 3% CPI target was unrealistic and that policy based on too high of CPI would hurt the economy and impact long term rates. He noted that the BOJ could achieve the current 1% inflation target govt help. The BOJ would continue with seamless easing. Central Bank financing of fiscal needs was not allowed and stressed that central banks needed to remain independent. Direct underwriting of debt was considered taboo and not done by any advanced nations. Large JGB buying would impact fiscal policy and real economy. Negative interest rates would cause tighter lending and hinder smooth market operations. Needed to watch to see if there was any impact from the island dispute with China impacted and was closely monitoring financial market developments. Japanese economy expected to be weak for the time being
- RBA's Stevens commented that the terms of trade had peaked and seen down 15% y/y by end of 2012 but noted talk of end of mining boon was somewhat overhyped. Next phase of boon for iron ore had begun and some way to go on gas. China slowdown was more material than expected but not disastrous. China growth moderation might have run its course. AUD currency might have role to play in needed economic rebalancing and he expressed surprise the AUD currency had not fallen much in terms of trade. Expected domestic consumption to grow with income. He reiterated that further monetary easing might be required (in line with minutes). The latest inflation data was on the high side but not a major problem and Euro Area anxiety was likely for some years to come
- Poland Central Bank's Kazmierczak stated that monetary easing should be very careful. He did note that a rate cut was possible in Dec but he would hold rates flat until March thereafter
- Czech Central Bank Vice Gov Hampl commented that there was no need for western style QE and that thinking about FX interventions was different from thoughts about QE.
- Japan LDP leader Abe's recent call on the BOJ to buy JGB's does not necessarily mean underwriting nor not rule out increase in JGB bond purchases by BOJ via market

- Risk appetite was a tad sketchy in the session ahead of the Eurogroup meeting, where leaders were widely expected to agree on the next aid tranche for Greece. Dealers did take note of the timing of French sovereign rating cut by Moody's ahead of the Eurogroup meeting.
- The EUR/USD seemed to take downgrade in stride and remained contained within recent ranges as optimism that US politicians would reach a deal on the fiscal cliff before year-end absorbed the impact from Moody's downgrade of France. The pair continued to test the 200-day moving average at 1.2804 throughout the morning.
- The USD/JPY remained within the recent ranges established last week as the BOJ rate decision was in line with expectations . The USD/JPY did test session lows of 81.15 after BOJ Gov Shirakawa directed commentary about recent remarks from PM-hopeful Abe. The BOJ gov noted that a 3% CPI target was unrealistic and such policy based on too high of CPI would hurt the economy

Political/ In the Papers:
- (BE) Belgium PM Di Rupo's top ministers have reached an agreement on laws to make Belgium more competitive; For 2013 and 2014 all wages will be frozen - De Tijd
- (DE) Germany Chancellor Merkel's CDU party expected to pass a resolution at December party meetings explicitly refusing joint liability for other euro zone countries (i.e. cementing rejection of euro bonds), and warn ECB against overextending its bond buying programs for weaker EMU nations - financial press
- (GR) EMU officials indicate that tentative approval will be given to Greece on Nov 20th related to the 44B tranche which will be disbursed Dec 5 - financial press; 44B bailout tranche may partly be used for bond buyback scheme.
- (GR) Germany said to be circulating a plan to buy back half of outstanding privately-held Greece debt for 25% of face value - financial press.
- (GR) The new lower Greece interest rate will likely apply to Ireland and Portugal as well - financial press
- (GR) Greece Govt official indicates Troika had not requested to cut an additional 20K employees from state workforce - financial press
- (IT) Moody's: Italy banking system Outlook remains Negative
- (IT) Bank of Italy has told Italian banks to prepare for a rise in bad loans and continue to restructure operations in order to cut costs - Italian press
-(PT) EU/ECB/IMF troika: Portugal program on track; next 2.5B disbursement could take place in Jan 2013
- (ES) Catalonia chief Mas's party CiU seen falling short of obtaining the 68 seats it needs for an absolute majority in the upcoming Spain regional elections- El Pais; Without an absolute majority a referendum on independence could prove much more difficult to implement

***Looking Ahead***
***All times listed for economic events are denominated in Eastern Standard Time (Add 5 hours for GMT equivalent)

- (EU) ECB Workshop on Excess Liquidity in Germany
- (DE) German Fin Min Schaeuble at Retailer and Wholesaler event in Berlin
- (SE) Sweden Central Bank (Riksbank) Gov Ingves speaks at OMFIF in London
- (UK) BOE member Weale at Manchester seminar
- (IS) Israel Oct Leading 'S' Indicator M/M: No est v 0.0% prior
- 06:00 (EU) EFSF to sell up to 2B in 6-month bills; Avg Yield % v -0.0238% prior; Bid-to-cover: x v 2/4x prior
- 06:00 (TR) Turkey to sell Zero 2013 Bonds
- 06:30 (EU) Daily Libor Fixing
- 07:00 (EU) ECB announces allotment in 7-Day Term Deposits; To drain 208.5B
- 07:00 (TR) Turkey Central Bank Interest Rate Decision: Expected to leave the Benchmark Repo Rate unchanged at 5.75% and cut Overnight Lending Rate by 50bps to 9.00%
- 07:45 (US) Weekly ICSC Chain Store Sales
- 08:00 (PL) Poland Oct Producer Prices M/M: 0.0%e v +0.5% prior; Y/Y: 1.5%e v 1.8% prior
- 08:00 (PL) Poland Oct Sold Industrial Output M/M: 4.1%e v 6.1% prior; Y/Y: +2.9%e v -5.2% prior
- 08:30 (CA) Canada Sept Wholesale Sales M/M: 0.5%e v 0.5% prior
- 08:30 (US) Oct Housing Starts: 840Ke v 872K prior; Building Permits: 864Ke v 890K (revised from 894K)
- 08:55 (US) Weekly Redbook Retail Sales
- 09:00 (US) Fed's Lacker (Hawk) in NY
- 09:00 (BE) Belgium Nov Consumer Confidence: No est v -17 prior
- 09:00 (EU) Weekly ECB Forex Reserves
- 11:00 (GR) Euro Finance Ministers meeting on Greece in Brussels
- 11:00 (US) Fed to purchase $1.75-2.25B in Notes
- 11:00 (UK) BOE ECTR announcement
- 11:30 (US) Treasury to sell 4-Week Bills
- 12:15 (US) Fed Chairman Bernanke at Economic Club in NY
- 14:00 (US) Fed Discount Rate minutes
- 16:00 (CO) Colombia Sept Industrial Production Y/Y: 0.8%e v -1.9% prior
- 16:00 (CO) Colombia Sept Retail Sales Y/Y: 2.0%e v 1.2% prior
- 16:00 (KR) South Korea Oct Department Store Sales: No est v -0.8% prior
- 16:30 (US) Weekly API Crude Oil Inventories
- 18:50 (JP) Japan Oct Adj Merchandise Trade Balance: 492.1Be v 980.3B prior

***Economic Data***
- (CH) Swiss Oct Trade Balance (CHF): 2.8B v 1.9 B prior; Real Exports M/M: -16.5% v 2.9% prior; Real Imports M/M: -8.2% v 4.6% prior
- (DE) Germany Oct Producer Prices M/M: 0.0% v 0.1%e; Y/Y: 1.5% v 1.6%e
- (FI) Finland Oct Unemployment Rate: 6.9% v 7.3%e
- (JP) Japan Oct Convenience Store Sales Y/Y: -2.1% v -1.6% prior
- (HU) Hungary Sept Avg Gross Wages Y/Y: 3.7% v 4.4%e
- (TW) Taiwan Oct Export Orders Y/Y: 3.2% v 0.2%e (2nd straight monthly rise)
- (EU) ECB: 1.85B borrowed in overnight loan facility 1.8B prior; 240.5B parked in deposit facility vs. 215.9B prior
- (TW) Taiwan Q3 Current Account Balance: $11.6B v $10.B prior
- (NL) Netherlands Nov Consumer Confidence: -37 v -35e
- (SE) Sweden Q3 Total Number of Employees Y/Y: 0.9% v 2.0% prior
- (NO) Norway Q3 GDP Mainland Q/Q: 0.7% v 0.5%e; GDP Q/Q: -0.8% v -0.6%e
- (ZA) South Africa Q4 BER Business Confidence: 46.0 v 47.0 prior
- (GR) Greece Sept Credit Growth Y/Y: -3.5% v -3.5% prior
- (FR) France Oct car orders +6% y/y (first rise since May)

Fixed Income:
- (ES) Spain Debt Agency (Tesoro) sold 4.93B vs.3.5-4.5B indicated range in 12-Month and 18-Month Bills
- Sold 4.2B in 12-month Bills; Avg Yield: 2.797% v 2.823% prior; Bid-to-cover: 2.10x v 2.71x prior; Max Yield 2.850% v 2.860% prior; Tail: 5.3bps v 3.7 bps bps prior
- Sold 0.7B in 18-month Bills; Avg Yield 3.034% v 3.022% prior; Bid-to-cover: 5.70x v 3.04x prior; Max Yield 3.077% v 3.070% prior; Tail: 4.3bps v 4.8 bps prior
- (CH) Switzerland sold CHF881M in 6-Month Bills; Avg Yield -0.178% v -0.158% prior
- (EU) ECB allotted 75.4B vs. 75Be in 7-Day Main Refinancing Tender at fixed rate 0.75%
- (HU) Hungary Debt Agency (AKK) sold HUF45B vs. HUF50B indicated in 3-Month Bills; Avg Yield 6.06% v 6.06% prior
- (UK) DMO sold 4.5B in 1% 2017 Gilts; Avg Yield 0.787% (record low)v 0.802% prior; Bid-to-cover: 1.59x v 1.51x prior; tail 0.6bps v 0.6bps prior

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