Reports » Europe

European stock market, economy and companies update (October 10, 2012)

Contributed by Trade The News

*** SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM ***
***Notes/Observations***
- Spain might miss 2012 deficit target of 6.3% of GDP and post 6.7-6.8% deficit - Spanish press
- French, Swedish and Italian Industrial production data all come in stronger than expectations; Greece reading is positive
- Italy 12-month Bills Avg Yield: 1.941% v 1.692% prior and is the highest yield since mid-August

***Equities***
-Indices: FTSE 100 -0.40% at 5,785, DAX -0.25% at 7,216, CAC-40 -0.30% at 3,372, IBEX-35 -0.60% at 7,696, FTSE MIB -0.30% at 15,452, SMI -0.30% at 6,629, S&P 500 Futures -0.10% at 1,434

Following the lower open, most European bourses have remained in negative territory, led by declines in Spain's IBEX-35.Italy's FTSE MIB is lower by over 0.50%, as the government sold bill at higher yields than what was seen in Sept (ECB announced its OMT bond buying plan on Sept 6th). Banks are trading mixed, with UK financials outperforming, while Spanish banks have lagged. Overall, European bourses are on track for the third straight session of losses, as the USD continues to strengthen and traders assess the impact of slowing growth on corporate results. In terms of the corporate bond markets, Portugal Telecom has announced plans to sell 5.5 year bonds (pricing guidance approx. 533bps/mid-swaps), amid the recent declines seen for Portugal's sovereign bond yields.

- In London, shares of BAE [BA.UK] are slightly lower, as the firm and EADS [EAD.FR] have until 1700 UK time to make a decision on their merger proposal. Man Group [EMG.UK] has gained over 3% on renewed speculation that BlackRock could be interested in the company. UK banks have outperformed their Continental European counterparts, amid reports that the FSA plans to ease capital requirements related to lending. UK firms which have been weighed by ex-dividend factors include Balfour Beatty [BBY.UK], Kingfisher [KGF.UK], Smith & Nephew [SN.UK], Wolseley [WOS.UK] and WPP [WPP.UK]. French pharmaceutical firm Vivalis [VLS.FR] has gained over 12%, after receiving marketing approval for its cell-based human influenza vaccine. In Belgium, shares of mobile data communications products firm Option [OPTI.BE] have lost over 18%, as the company is exploring ways to improve its cash position. Danish audio/visual products firm Bang & Olufsen [BO.DK] is lower by over 2% on weaker than expected quarterly results. Germany automakers have traded mixed, amid reports that China's Sept vehicle sales declined. Fiat [F.IT] has declined by over 1%, as Moody's cut the company's credit rating.

- FTSE 100 movers (Smith & Nephew -2.5%, Aggreko -2.2%, Fresnillo -1.7%, WPP -1.7%, Rexam -1.7%; Lloyds +3.5%, RBS +2.5%, Anglo American +1.1%)
- CAC-40 movers (Publicis -2.9%, St-Gobain -1.7%, Cap Gemini -1.7%, Lafarge -1.5%, Accor -1.3%; Bouygues +2.6%, Carrefour +2.4%, Safran +2%, PPR +1.8%, France Telecom +1.8%)
- DAX movers: SAP -2%, RWE -1.1%, Continental -1%; Deutsche Bank +1%, Volkswagen +1.1%, Deutsche Post +1%)
- IBEX-35 movers (Abengoa -4.4%, Banco Popular -2.8%, Gamesa -1.5%, Mapfre -1.5%, Acciona -1.4%; Bankia +6%, Enagas +1.4%, Iberdrola +1.1%)
- FTSE MIB movers (Fiat -2.2%, Atlantia -1.9%, Banca Monte dei Paschi, Mediaset -1%; Impreglio +4.1%, Eni +1%)
- SMI movers (Adecco -1.2%)

Speakers:
- ECB's Noyer commented that bond markets were "buoyant", as peripheral countries yields were lower. He added that financial market fragmentation was still a problem and that efforts to end debt crisis take time
- ECB's Constancio commented that it needed a common resolution tool soon after supervision and that common deposit insurance could wait. He noted that a 2014 start to the bank supervisor role would be easier. There was concern that a moral hazard could hurt the effectiveness of the OMT. ECB did not share IMF view of deflation risks and the central bank would keep its word on seniority, ECB to be treated like any other investor
- ECB's Weidmann commented that turbulent times risked overburdening central banks and must guard against loosening mandate in crisis. He reiterated that the Euro was a stable currency and that central banks that were not independent lacked confidence
- SNB's Jordan commented from Tokyo that the CHF currency remained highly valued against the Euro at the 1.20 level and reiterated that the floor was the right policy for the foreseeable future. He also reiterated the view that Swiss exporters faced a difficult situation. He forecasted Swiss economic growth of about 1% in 2012. SNB assumed that euro zone would remain together, as actions by the ECB (such as the OMT) had led to change of sentiment among investors.
- Poland Central Bank's Bratkowski (dovish) commented that interest rates should be cut by 75bps by end of 2012 to help economic growth. Total scale of monetary easing should be between 100-125bps by the end of Q1 2013
- Poland Central Bank's Hausner stated that the NBP macroeconomic projections in November would likely show consumer price inflation nearing its target, which would allow the central bank's Monetary Policy Council to ease policy
- Fitch commented on risks to global economy noting that the US fiscal cliff, potential hard landing in China and EU debt crisis were all major risks to economy. It saw the potential for further sovereign downgrades in the Euro Zone but added ECB commitment reduced downward pressures in some countries. Emerging markets were resilient but not immune to global slowdown
- Fitch commented on Hungary and noted that the country not equipped for any large rise in volatility and that it had concerns over its financing as debt matureed in 2013
- S&P report noted that the Euro zone was still the main risk to the Asia Pacific region sovereign ratings. It stated that reforms that address fundamental imbalances in the currency union were still in the early stages of implementation. If investors perceived that European politicians were losing the willingness to continue with reforms or if major policy mistakes occur, it might send another financial and economic shock across the world. It noted that there was significant risk that India could face a sovereign downgrade at some future point if growth prospects dimmed, external position deteriorated, political climate worsened or fiscal reforms slowed. It also expected Japan to have another year of trade deficits
- German Institutes said to have cut their 2013 GDP growth forecast to 1.0% from 2.0% prior
- ESM Chief Regling commented in the German press that he saw the end of the crisis and that Asian investors were now less negative on EMU. A new haircut for Greece was not needed and it was not correct to say that no progress has been made dealing with debt crisis.
- Fed Chairman Bernanke commented from his trip to India that he talked about policy challenges in India and the US
- Bank of Spain chief economist De Molina commented that the adjustment process in Spain was slow and facing risks and that doubts on the country were driving up financing costs. The Govt economic growth forecasts were optimistic. Spikes in energy prices could be a risk to the adjustment process
- Japan PM Noda reiterated that the country would take decisive action when needed on the currency as the Yen strength was not in line with fundamentals (**Note: G7 meeting in Tokyo on Thursday)
- Japan Foreign Min Gemba commented that the non-attendance of PBoC Gov Zhou at Tokyo IMF meeting was not good for either China or the global economy (*Note: Two of China's most senior finance officials to skip IMF meeting in Japan as Tokyo and Beijing remain locked in a diplomatic row)
- BOJ Gov Shirakawa commented that both Japan and Switzerland suffer from strong exchange rate as the Yen and Swiss Franc are at high levels. The BOJ maintained a cautious stance toward the possible impact of the yen's rise on the domestic economy and the price outlook when it conducting monetary policy.

Currencies:
- Despite better industrial production data throughout the session the EUR/USD pair remained locked below the 1.29 handle but held the key support at 1.28 with exotic option structures said to be aiding its support.
- Spain's resistance to officially request an aid package remained a headwind to investor sentiment and the outlook on Greece seem just as uncertain. Spanish yields rose in the session as dealers noted that there was no sign of an aid request from Spain after Eurogroup and Ecofin meetings now out of the way. Market participants were now looking ahead to the European Council meeting next week
- Dealers noted that Goldman Sachs was a tad bearish on the AUD currency at their global economic forum today in Sydney. Goldman believes that the AUD was 20% overvalued.

Political/ In the Papers:
- (EU) ECB's Visco (Italy): Some European states cannot afford to delay fiscal adjustments; Reason we talk about risk of euro breakup reflects doubts about credibility of Europe's efforts.
- (EU) Draft document for the Oct 18th summit suggest eurozone leaders to endorse idea of a centralized eurozone budget separate from long-term EU budget - financial press
- (GR) Telegraph Ambrose Evans-Pritchard suggests that recent comments out of Merkel suggested that Greece will likely receive its next €31.5B aid tranche
- (GR) Greece Fin Min Stournaras: two-yr extension could be funded without additional euro zone money; reiterates deficit target of 120% of GDP by 2020
- (GR) Troika presentation on Greece at Eurogroup meeting was said to be mostly positive - financial press; Greece Govt said to be expecting to receive its next aid tranche by November end
- (IT) Italy Debt Agency (Tesoro): May only sell retail bonds twice in 2013, have not ruled out new 15-year and 30-year benchmarks; Debt financing will be less stressful in 2013; Debt is sustainable at current yields.
-(IT) IMF: Inaction by the EU could cause Spain, Italy borrowing costs to increase by 300bps, raise the costs of crisis resolution, and even start another global recession
- (IT) Italy Council of Ministers approved the law of stability; The government has approved the reduction of a point IRPEF of two rates: one about the band up to 15 thousand euro that goes from 23 to 22% and up to 28 thousand euro, which went from 27 to 26 % from 1 January 2013; The bill has not yet completely cleared the VAT increase of two points that would start in July: the VAT rise by just one point from 10 to 11% and 21-22%.
-(ES) IMF: Inaction by the EU could cause Spain, Italy borrowing costs to increase by 300bps, raise the costs of crisis resolution, and even start another global recession
- (ES) Spain Econ Min de Guindos: Respect the IMF GDP projections but they are low, don't think current Spain govt forecasts are too optimistic; Large spreads on Spain debt are due to eurozone doubts.
- (ES) Spain may miss 2012 deficit target of 6.3% of GDP; May post 6.7-6.8% deficit - Spanish press
- (UK) BOE's King: Output not expected to return to pre crisis levels for some time; UK faces slow difficult recovery; interest rates at the moment are at 'rock bottom'

***Looking Ahead***
***All times listed for economic events are denominated in Eastern Standard Time (Add 4 hours for GMT equivalent)
- OPEC Monthly Oil Report
- (BR) Brazil Central Bank (COPOM) Interest Rate Decision: Expected to leave the Selic Target Rate unchanged at 7.50%
- 06:00 (SE) Sweden Central Bank's Jocknick on banking regulation
- 06:00 (PT) Portugal Aug Construction Works Index: No est v 57 prior
- 06:00 (PT) Portugal Aug Trade Balance: No est v -€567M prior
- 06:00 (DE) Germany to sell €2.0B in inflation-linked 0.1% 2023 Bunds; Avg Yield % v % prior; Bid-to-cover: x v x prior
- 06:00 (PL) Poland to sell Bonds
- 06:15 (UK) PM Cameron speaks at Conservative Party Conference
- 06:30 (US) Daily Libor Fixing
- 07:00 (US) MBA Mortgage Applications w/e Oct 5th: No est v 16.6% prior
- 07:00 (UK) BOE's Jenkins
- 07:30 (CL) Chile Central Bank's Traders Survey
- 08:00 (HU) Hungary Central Bank's Minutes
- 08:30 (EU) ECB member Praet
- 08:30 (CL) Chile Central Bank Economist Survey
- 09:00 IMF's Vinals on global financial stability report
- 09:00 (MX) Mexico July Gross Fixed Investment: 6.4%e v 2.7% prior
- 09:00 (MX) Mexico Aug Final Trade Balance: -$979.2Me v -$979.2M prelim
- 09:45 (DE) German Chancellor Merkel visiting German military training facility in Munster
- 9:45 (UK) BOE to buy £1.0B 2020-2025 Gilts in reverse auction
- 10:00 (US) Aug JOLTs Job Openings: 3.735Me v 3.664M prior
- 10:00 (US) Aug Wholesale Inventories: 0.4%e v 0.7% prior
- 11:00 (US) Fed to sell $7.0-8.0B in notes
- 11:30 (BR) Brazil Central Bank weekly currency flows
- 11:30 (US) Treasury to sell $40B in 4-Week Bills
- 12:00 (US) DOE Oct Short-Term Crude Outlook
- 13:00 (US) Treasury to sell $21B in10-Year Notes Reopening
- 14:00 (US) Fed's Beige Book
- 14:00 (US) Fed releases Beige Book Economic Survey
- 14:45 (US) Fed's Kocherlakota speaks to Businesses in Montana
- 16:30 (US) Fed's Tarullo speaks to business leaders in Philadephia
- 16:30 (US) Weekly API Crude Oil Inventories
- 16:45 (US) Dallas Fed's Fisher speaks at Cato Conference
- 20:00 (US) Fed's Kocherlakota gives Opening Remarks at Town Hall Forum

***Economic Data***
- (DE) Germany Sept Wholesale Price Index M/M: 1.3% v 1.1% prior; Y/Y: 4.2% v 3.1% prior
- (FI) Finland Aug Industrial Production M/M: -0.8% v +0.2%e; Y/Y: -1.4% v -0.2%e
- (JP) Japan Sept Preliminary Machine Tool Orders Y/Y: -3.0% v -2.7% prior
- (FR) France Aug Industrial Production M/M: +1.5% v -0.3%e; Y/Y: -0.9% v -4.2%e
- (FR) France Aug Manufacturing Production M/M: +1.8% v -0.7%e; Y/Y: -0.4% v -4.0%e
- (DK) Denmark Sept CPI M/M: 0.2% v 0.4%e; Y/Y: 2.5% v 2.7%e
- (DK) Denmark Sept CPI EU Harmonized M/M: 0.3% v 0.5%e; Y/Y: 2.5% v 2.8%e
- (SE) Sweden Aug Industrial Production M/M: +0.4% v -0.9%e; Y/Y: 3.2% v +1.5%e
- (SE) Sweden Aug Industrial Orders M/M: -1.4% v -0.7% prior; Y/Y: -6.5% v -5.4% prior
- (PH) Philippines Aug Bank Lending Y/Y: 12.4% v 15.2% prior; Bank Lending Net of RRPs Y/Y: 14.0% v 16.0% prior
- (PH) Philippines Aug M3 Money Supply Y/Y: 6.2% v 8.7% prior
- (NO) Norway Sept CPI M/M: 0.9% v 0.9%e; Y/Y: 0.5% v 0.5%e
- (NO) Norway Sept CPI Underlying M/M: 1.1% v 1.0e; Y/Y: 1.1% v 1.0%e
- (NO) Norway Sept Producer Prices incl. Oil M/M: -1.1% v +2.3% prior; Y/Y: 1.4%
- (IT) Italy Aug Industrial Production M/M: +1.7% v -0.5%e; Y/Y: -5.1% v -4.3% prior; Industrial Production wda Y/Y: -5.2% v -9.7%e
- (GR) Greece Aug Industrial Production Y/Y: +2.5% v -4.9% prior

Fixed Income
- (IN) India sold total INR100B vs. INR100B indicated in 3-month and 6-month Bills
- (RU) Russia sold RUB34.2B vs. RUB35B indicated in 2022 OFT bonds; Yield 7.79%
- (EU) ECB allotted $3.6B in 7-day USD Liquidly Tender at fixed 0.65% vs. $1.8B prior
- (EU) ECB allotted $1.1B in 3-Month USD Liquidly Tender at $3.7B prior
- (SE) Sweden sold total SEK14.6B in 3-month and 6-month bills
- (IT) Italy Debt Agency (Tesoro) sold total €11.0B vs.€11.0B indicated in 3-month and 12-month Bills
- Sold €3.0B indicated in 3-month Bills; Avg Yield: 0.765% v 0.70% prior; Bid-to-cover: 2.79x vs. 2.25x prior
- Sold €8.0B indicated in 12-month Bills; Avg Yield: 1.941% v 1.692% prior (highest yield since mid-August); Bid-to-cover: 1.77x v 1.65x prior
- (CH) Switzerland sells CHF329.8M in 1.25% 2037 bond; Yield 1.031%
- (DE) Germany sold €3.1B in 0.50% Oct 2017 BOBL; Avg Yield 0.53% v 0.61% prior; Bid-to-cover: 2.2x v 1.4x prior