Reports » Europe

European stock market, economy and companies update (October 09, 2012)

Contributed by Trade The News

*** SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM ***
***Notes/Observations***
- Spanish 10-year gov't yield higher in session and above the 6.0% level in (""Note: There was a change in the maturity used in the generic benchmark 10 year overnight and are not comparable to quotes from yesterday)
- IMF cuts 2012 and 2013 global GDP forecasts (as speculated)
- Moody's cut Cyprus sovereign rating 3 notches to B3 from Ba3 with Negative Outlook
- EU/IMF/ECB Troika said to adjust adverse scenario forecasts for Greece debt levels to 150%/GDP by 2020 vs prior forecast of 146%/GDP in March
- PBoC Gov Zhou said the impact of the global financial crisis is worsening; to take more preemptive and targeted measures in monetary policy; Shanghai Composite up 2% on renewed RRR cuts
- UK production data and Trade Balances come in worse than market expectations

***Equities***
Indices: FTSE 100 -0.20% at 5,827, DAX -0.50% at 7,256, CAC-40 -0.10% at 3,403, IBEX-35 -1% at 7,811, FTSE MIB -0.10% at 15,550, SMI +0.10% at 6,658

- Following Monday's losses, European markets opened the session slightly higher. However, markets have since pared gains, led by weakness in the Spanish IBEX-35. Banks are trading mixed, with the downside being led by Spanish financials. On yesterday's session traders were focusing on factors including upcoming corporate earnings, challenges faced by the ESM following its launch and the strength in the US dollar (following the recently released payrolls data).
Despite the weakness in equity markets, euro zone companies have continued to come to the bond market. In terms of medium-term issuance, Fonciere des Regions [FDR.FR] is marketing 2018 EUR-denominated bonds (initial pricing guidance 300-310bps/swaps); Gas Natural [GAS.ES] is planning to sell 4.5 year EUR-denominated bonds (initial pricing guidance 345bps/swaps); Nestle [NESN.CH] is planning to sell US dollar-denominated 2018 bonds (initial pricing guidance 50bps/swaps). In terms of longer-term issuance, Allianz [ALV.DE] is marketing 30-yr EUR-denominated bonds (initial pricing guidance 413bps/swaps).
In other corporate bond market news, Italy's Banco Popolare [BP.IT] was forced to cancel a planned 2016 EUR-denominated bond sale due to lack of investor demand.
With regard to event risks for later today, traders are expected to focus on the euro zone finance ministers meeting and earnings out of US aluminum firm Alcoa.

- Shares of Vedanta Resources [VED.UK] have risen by over 0.50%, following the release of the firm's Q2 production update. Staffing firm Hays [HAS.UK] has moved higher by more than 4%, as the company issued its Q1 trading update. In the Spanish banking sector, Bankia [BKIA.ES] has continued its underperformance as the company is approaching the €1/share level. The decline in Bankia come as it remains unclear if the ESM will treat Spain's bank bailout and the issue of legacy assets continues to be debated by euro zone finance ministers. Prior reports have noted that Bankia had requested €19B in state aid. Norwegian salmon firm Marine Harvest [MHG.NO] has declined by over 1%, after releasing its Q3 production update. Swiss flavor and fragrance firm Givaudan [GIVN.CH] has moved slightly higher, following the release of its Q3 sales report. Germany automakers have outperformed the overall DAX index, as Volkswagen and BMW have issued their Sept sales reports.

- FTSE 100 movers (InterContinental Hotels -7.5%, Capita -2.9%, Aggreko -2.4%, BT Group -1.4%, Serco Group -1.3%; Rio Tinto +1.5%, Schroders +1.4%, Vedanta +1.3%, Marks & Spencer +1.1%)
- CAC-40 movers (Alcatel -2.8%, Veolia -1.6%, Legrand -1.3%; STMicroelectronics +3.3%, Vinci +1.6%)
- DAX movers (BASF -1.1%, Siemens -0.90%; Volkswagen +1%)
- IBEX-35 movers (Bankia -6%, Sacyr -4%, Banco Popular -4%, Gamesa 3.7%, Acciona -2.6%)
- FTSE MIB (Finmecannica -2%, Telecom Italia -1.8%, Banco Popolare -1.5%, Impreglio -1%, Prysmian -1%)
- SMI movers (Holcim -0.90%, Givaudan +0.90%)

Speakers:
- ECB chief Draghi commented to the EU Parliament that there were reasons to be confident on the economy but sees 3 main possible risks. He noted that without a doubt that fiscal consolidation depressed growth in some regions but he saw no alternative to fiscal consolidation despite its short term output effect. He noted that a setback in reforms was a risk as weas the feedback loop from financial instability. The European Systemic Risk Board (ESRB) delivered macroprudential perspective and was looking into how to deal with Non Performing Loans
- China Foreign Min spokesperson Lei reiterated its view that was ready to maintain financial cooperation with Europe
- EU's Rehn commented ahead of the Ecofin meeting in Luxembourg that he expected substantial discussions on Financial Transaction tax (Tobin Tax). He noted that the January deadline for single supervisory mechanism is ambitious
- Sweden Fin Min Borg commented that he had severe problems with bank supervisor role and noted of very little progress on Banking Union was made over the last month
- Spain Econ Min Guindos commented that the EU group did not talk about more adjustments and that the ECB bond buying had no limit date. He added that Eurozone fin mins agreed Spain fiscal consolidation pace should depend on rate of economic growth
- PM Cameron commented that the IMF believed that the country must not abandon its current plan and stressed that the UK could not borrow its way out of difficult times. The PM noted that it needed economic growth and Govt was doing its best to achieve this. Lastly he cautioned that any 'plan B' for economy would require higher borrowing. Later Cameron made comments on a possible UK referendum to define the UK relationship with EU
- Greece Creditors said to be still unsure how to tackle Greek debt
- Turkey Deputy PM Babacan stated that it had cut its 2012 and 2013 GDP growth with 2012 GDP growth lowered to 3.2% from 4.0% prior and 2013 GDP growth to 4.0% from 5.0% prior. Turkey raised 2012 CPI forecast to 7.4% from 5.2% prior
- Turkey said to have launched a medium term economic stimulus program
- Hungary PM Orban commented that 2013 would not be an easy year
- IMF Zhu Min commented that China H1 growth rate was not terrible and the slowdown was a deliberate result of policy. He believed that growth was stabilizing and would rebound.
- Band of Japan (BOJ) released its October monthly report in which it maintained its assessment that pick up in the economy had paused. Output might remain weak for the Oct-Dec period partly due to the delay in overseas economic recovery. Japan private consumption would likely to suffer downturn due to end of subsidies for low-emission cars.
- Reports circulated that the Japanese Govt might cut its assessment of its domestic economy for the third straight month in October (Note: On Sept 13th the Govt cuts its economic assessment to view that its economic recovery was pausing due to global slowdown)
- Saudi Arabia Oil Min Naimi commented that he hoped oil prices would moderate and his country would work to moderate prices
- IEA global 2012 energy outlook noted that oil price could reach $140/barrel in 2035 if Iraq energy investment was delayed. It central scenario was that Iraq oil production to more than double to 6.1M bpd by 2020

Currencies:
- The session encountered a bit of risk aversion with numerous explanations provided by dealers. European dealers into the IMF's global economic update and focused on its Spanish comments. One of the largest 2013 growth downgrades was for Spain in the IMF report which saw a contraction of 1.3% fro, its prior view for a 0.7% contraction. Dealers noted that this was weaker than the Spanish government 2013 budget assumption of -0.5%. Comments from ECB's Draghi at the EU Parliament were also cited as a factor. Analysts noted that Draghi had asked IMF to get involved when Spain formally asks for aid which was interpreted to mean stricter conditions for the country from the ECB, etc
- The GBP was softer in the session and tested fresh 1-month lows against the greenback at 1.6000. UK PM Cameron made comments on a possible UK referendum to define the UK relationship with EU and the country's economic releases were worse than market expectations for Manufacturing data and Trade Balance.
- EUR/CHF was off its Asian session highs of 1.2140 amid reports of negative interest rates charged on CHF-denominated deposits by State Street
- Spanish 10-year gov't yield moves above the 6.0% level in early European trading (Note: Change in the generic measure on that bond). Spanish yields were moving higher but dealer did point out that one service had rolled its generic maturity on the benchmark

Political/ In the Papers:
- (CY) Moody's Downgrades Cyprus sovereign rating 3 notches to B3 from Ba3; Negative Outlook
- (EU) Telegraph's Ambrose Evans-Pritchard says the IMF's reduced forecasts for global growth illustrate the negative impact of austerity measures
- (EU) ECB's Constancio: No reason to move on interest rates right now as they are already quite accommodative; Discussions on a negative deposit rate are 'mostly intellectual' in nature; May change rates if the economy weakens
- (EU) ECB's Coeure: Conduct of single monetary policy is becoming harder; prepared to withdraw liquidity if inflation pressure appears in the medium-term
- (EU) ECB's Weidmann: Banking union should be provided the authority to intervene in national budgets; Rules should be revised regarding usage of Govt bonds as capital buffer; Should not use the banking union to share legacy bank losses
- EADS [EAD.FR]: BAE and EADS request more time from regulators: Have secured backing from UK and France, has offered Germany job guarantees in order to get approval
- (DE) Germany's BaFin Chief: ECB Governor Liikanen's banking proposals are worth considering
- (DK) Denmark Econ Min Vestager (R): Not decided if it is best for Denmark to join the EU banking supervision - Borsen
- (GR) Greece Fin Min Stournaras; The 2-yr program extension to cost approx €12B; Did not request to further postpone debt target beyond 2020, or to increase target about 120%.
- (GR) Troika said to adjust adverse scenario forecasts for Greece debt levels to 150%/GDP by 2020 vs prior forecast of 146%/GDP in March - financial press
-(PT) Portugal Fin Min Gaspar: Intends to slowly prolong maturity of debt issuance.
- (PT) Eurogroup approves €4.3B aid for Portugal
- (ES) Spain treasury plans bond private placement offer of €4.86B due 2015, 2016, 2017; Proceeds to be used for the regional liquidity fund
- (AU) RBA Dep Gov Lowe: Labor market appears to have softened in recent months

***Looking Ahead***
***All times listed for economic events are denominated in Eastern Standard Time (Add 4 hours for GMT equivalent)
- (EU) EU Finance Ministers meeting in Luxembourg
- (GR) German Chancellor Merkel to meet Greece PM Samaras in Athens
- (IS) Israel Central Bank Minutes of Rate Meeting
- 06:00 OECD Harmonized Unemployment Rates
- 06:30 (US) Daily Libor Fixing
- 07:00 (EU) ECB announces allotment in 7-Day Term Deposits to offset Govt Bond purchases; To drain €209.5B
- 07:30 (US) Sept NFIB Small Business Optimism: 95.3e v 92.9 prior
- 07:45 (US) Weekly ICSC Chain Store sales
- 08:00 (RU) Russia Q3 Consumer Confidence: No est v v -4 prior
- 08:15 (CA) Canada Sept Housing Starts: 205.0Ke v 223.8K prior (revised from 224.9K)
- 09:00 (IT) Italy PM Monti at event
- 08:55 (US) Weekly Redbook Retail Sales
- 09:00 (MX) Mexico Sept Consumer Prices M/M: 0.5%e v 0.3% prior; Y/Y: 4.8%e v 4.6% prior; CPI Core M/M: 0.2%e v 0.2% prior
- 09:00 (EU) ECB weekly Forex Reserves
- 9:45 (UK) BOE to buy £1.0B 2027-2060 Gilts in reverse auction
- 10:00 (US) Oct IBD/TIPP Economic Optimism: No est v 51.8 prior
- 10:00 (US) Sept Employment Trends
- 10:00 (MX) Mexico weekly International Reserves
- 10:00 (UK) Sept NIESR GDP Estimate: No est v 0.2% prior
- 10:30 (UK) DMO to announce size of 4.25% 2019 Gilt to be auctioned on Oct 18th
- 11:00 (US) Fed to buy$1.75-2.25B in bonds
- 11:30 (US) Treasury to sell combined $60B in 3-Month and 6-Month Bills
- 13:00 (US) Treasury to sell $32B in 3-Year Notes
- 13:30 (UK) BOE Gov King delivers Stamp Lecture at London School of Economics

***Economic Data***
- (FI) Finland July GDP Indicator: 0.3% v 0.5% prior
- (FR) France Aug Central Govt. Balance: -€97.7B v -€85.5B prior
- (FR) France Aug Trade Balance: -€5.3B v -€5.0Be
- (ES) Spain Aug House transactions Y/Y: +3.0% v -2.5% prior
- (CZ) Czech Sept CPI M/M: -0.1% v -0.1%e; Y/Y: 3.4% v 3.4%e
- (DK) Denmark Aug Current Account (DKK): 14.3B v 13.0Be; Trade Balance Ex-Shipping: 9.0B v 8.5Be
- (HU) Hungary Aug Preliminary Trade Balance: €575.1M v €519.5Be
- (TR) Turkey Aug Industrial Production WDA M/M: -2.3% v 1.3% prior; Y/Y: 1.2 v 3.3% prior; Industrial Production NSA Y/Y: -1.6% v +2.6%e
- (NL) Netherlands Aug Industrial Production M/M: -0.1 v +1.2% prior; Y/Y: -0.6% v -0.3% prior; Industrial Sales Y/Y: +1.3 v -3.1% prior
- (UK) Aug Industrial Production M/M: -0.5% v -0.5%e; Y/Y: -1.2% v -1.1%e
- (UK) Aug Manufacturing Production M/M: -1.1% v -0.7%e; Y/Y: -1.2% v -0.7%e
- (UK) Aug Visible Trade Balance: -£9.8B v -£8.5Be; Total Trade Balance: -£4.2B v -£2.4Be; Trade Balance Non EU: -£5.0B v -£4.0Be
- (IT) Italy Q2 Deficit to GDP Ratio: 5.0% v 7.3% prior
- (GR) Greece Sept Consumer Price Index Y/Y: 0.9% v 1.7% prior; CPI EU Harmonized Y/Y: 0.3% v 1.2% prior
- (RU) Russia Aug Trade Balance: $12.6B v $13.7Be; Exports: $42.1B v $42.9Be; Imports: $29.6B v $29.6Be

Fixed Income:
- (NL) Netherlands Debt Agency (DSTA) sold €2.26B vs. €1.52.5B indicated range in 1.25% Jan 2018 DSL bonds; Avg Yield 0.861% v 1.305% prior
- (DK) Denmark sold total DKK5.35B in 2016 and 2023 Bonds
- (GR) Greece Debt Agency (PDMA) sold €1.3B vs. €1.0B indicated 26-week bills ; Avg Yield 4.46% v 4.54% prior; Bid-to-cover: 1.60x v 1.95x prior
- (CH) Switzerland sold CHF817.9M in 6-Month Bills; Yield -0.158%
- (EU) ECB allotted €89.8B vs. €107Be in 7-Day Main Refinancing Tender at fixed 0.75%
- (EU) ECB allotted €12.6B vs €14.0Be in 1-Month Tender at fixed 0.75%
- (ZA) South Africa sold total ZAR2.1B v ZAR2.1B indicated in 2021,2023 and 2031 bonds
- (HU) Hungary Debt Agency (AKK) sold HUF60B vs. HUF45B indicated 3-Month Bills; Avg Yield 6.40% v 6.44% prior; Bid-to-cover: 2.32x v 2.36x prior
- (UK) DMO sold £1.75B in 4.25% 2032 conventional Gilts; Avg Yield 2.661% v 3.015% prior; Bid-to-cover: 2.12x v 1.39x prior; Tail 0.3bps v 0.9bps prior