Reports » Europe

European stock market, economy and companies update (October 17, 2012)

Contributed by Trade The News

*** SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM ***
***Notes/Observations***
- Moody's maintains Spain sovereign at Baa3, lowest level of investment grade with a negative outlook
- Spain PM Rajoy reportedly informs Germany's Merkel that rumors of credit line plans are inaccurate
- BOE minutes: Differences of opinion on the need for more QE
- UK claimant count data comes in a touch better
- No decisions whatsoever expected at this week EU Leader Summit

***Equities***
-Indices: FTSE 100 +0.40% at 5,891, DAX +0.20% at 7,388, CAC-40 +0.30% at 3,510, IBEX-35 +1.5% at 8,060, FTSE MIB +0.70% at 16,091, SMI flat at 6,772, S&P 500 Futures +0.10% at 1,450

- European equity indices are trading broadly higher, led by the Spanish IBEX-35, as Moody's refrained from cutting Spain's sovereign bond rating to junk. However, the upside in markets has been capped ahead of Thursday's release of China's Q3 GDP data and this week's EU Summit. Additionally, the comments out of Moody's have had a bigger impact on the credit markets, as Spain's bond yields have declined by over 20bps on the session. In terms of European banks, outperformers in the sector have included Bankia [BKIA.ES], BBVA [BBVA.ES], BNP [BNP.FR] and RBS [RBS.UK], while laggards include Barclays [BARC.UK], Credit Agricole [ACA.FR] and Santander [SAN.ES]. Resource related firms are broadly higher, following BHP's quarterly production update.

- Shares of RBS [RBS.UK] have moved higher by over 2%, as the company confirmed that it would exit the UK government's Asset Protection Scheme (APS). 888 Holdings [888.UK] is higher by more than 7%, after the company guided its FY results to be above current market expectations. Shares of Cable & Wireless Communications [CWC.UK] have gained over 3%, after the company confirmed that it was looking to sell its stake in CTM. Dutch semiconductor equipment firm ASML [ASML.NL] is lower by over 2%, after reporting its Q3 results. Also, the company announced a plan to acquire laser manufacturer Cymer for €1.95B in cash and stock. In Switzerland, Zurich Insurance [ZURN.CH] has declined by over 3%, after disclosing that it will take a writedown in Q3. In France, Credit Agricole [ACA.FR] has lagged most of its peers, as the firm finalized the sale process for its Greek unit (Emporiki).Danone [BN.FR] is lower by over 3.5%, after reporting weaker than expected Q3 like-for-like sales. Platform truck manufacturer, Haulotte Group [PIG.FR] has declined by over 5%, after releasing its 9-month sales figures. Peugeot [UG.FR] is trading higher by over 2%, amid reports that France is considering a plan to bailout its PSA Finance unit. Finland-based power generation solutions firm Wartsila [WRT1V.FI] is higher by over 7%, as the firm raised its FY outlook.

Speakers:
- Bank of England (BOE) minutes highlighted that there was little news over past month to change balance of medium-term growth and inflation risks and the MPC agreed little would be gained by expanding QE in Oct. it noted that some difference of view within MPC about likelihood looser policy would be needed with MPC differ over likely effectiveness of more QE asset purchases if needed. Some members did see considerable scope for stimulus from QE. Funding for lending scheme (FLS) offered encouraging signs for mortgage and might take longer to help business. ECB's OMT announcement helped cut risk of sharp economic slowdown. On growth the MPC noted that any rebound in activity would occur later than in its Aug forecasts and inflation might pick up later in 2012 on higher commodity prices
- France President Hollande commented that he believed that the worst was over for the euro crisis. He reiterated that the ECB bond purchase plans ensured that inflation was not a risk. He also reiterated that surplus countries should stimulate its domestic demand.
- German senior Govt official commented that he did not expect any concrete decisions on future of EMU at this week's EU Leader summit and this included the EU bank supervisor role. Germany sought decisive steps forward on economic coordination within Europe. He did envision central intervention in national budgets when they are in violation of EU rules. He noted that any Spanish aid would have conditionality and would be negotiated (cannot say what the conditions would be) but was up to Spain to request help. Lastly he noted that Germany rejects the debt redemption fund proposal
- Sweden Fin Min Borg commented in the press that its domestic economy faced big downside risks and a weaker SEK currency perhaps would be good in current situation. He noted that European countries (Germany, Poland) should consider stimulus in their respective economies
- German Chancellor Merkel cabinet approved Soffin bank fund extension
- Norway Central bank survey: Aggregated output index for 6 months ahead at 1.58 v 1.76 in June. Growth in domestically oriented manufacturing was still weak and has slowed since previous survey
- Poland Central Bank Q4 Survey noted that business confidence outlook worsened in the quarter with companies seen cutting orders and holding back on hirings
- UK BoE Tucker: Bankers should be paid with Subordinated debt
- Japan Econ Min Fujimura commented that PM Noda had given instructions on economic measures at the cabinet meeting and would to drawn up within the next month at the latest. Government to consider deciding on use of reserves this month.
- Japan Econ Min Maehara stated that he hoped BOJ implemented powerful easing measures to achieve the 1% inflation target
- Thailand Central Bank commented after its rate decision that the vote to cut by 25bps to 2.75% was 5 to 2 with dissenters looking to hold rates steady. The easier policy was aimed at coping with global risks with EU crisis and US fiscal cliff of significant concern. It did add that the rate cut not a signal of downward trend in rates. Inflation pressures remained benign and it would maintain its 2012 GDP growth forecast at 5.7%. Thailand would lower 2013 outlook
- Japanese Lifer Insurance co. Mitsui Life stated that it planned to increase bond holdings by ¥30-40B in second half of its fiscal year. It had no plans to buy Italian bonds now, but might do so when conditions improved. The company added that it had cut Yen bonds slightly and would increase foreign holdings with no plans to reduce Fx hedge on Foreign bonds. It would also continue reducing holdings of Japanese equities in H2

Currencies:
- Moody's decision to keep Spain's sovereign rating at investment grade aided the Euro (as well as risk appetite) during the Asian session but FX price action during the European morning was largely muted. The EUR/USD hovered just above 1.3100 area. Spanish government bond yields did respond and fell to their lowest levels in six months. The 10-year yield tested below the 5.50%
- Japanese corporate were said to take advantage of the JPY weakness and cap its price action. The USD/JPY still has been unable to move above the 79 handle and steadied at 78.75 ahead of the NY morning.
- FX markets took notice of Presidential hopeful Mitt Romney, who said he would name China as a currency manipulator if he won the election

Political/ In the Papers:
- (EU) EU working group document suggests senior debt haircut should not be a prerequisite for use of ESM, junior debt haircut might be a prerequisite - financial press; ESM should not be used to recapitalize non-viable banks or finance bank closures
- (EU) EU's Van Rompuy said that there are no crisis consultations planned for the EU Summit - German Press
- (EU) ECB's Asmussen (Germany): Welcomes proposal on veto for budget commissioner - financial press; EU Econ Commissioner should have power to reject national budgets.
- (EU) European Union said to have called for proposals from banks regarding benchmark bond issuance - financial press
- (DE) Draft legislation indicates Germany to extend its Soffin bank rescue fund by two years into 2014 - financial press; Extension being considered to help cover German banks during the period until the EU banking union mechanism and supervisor is in place, which could take until 2014 to be fully implemented.
- (GR) On Tuesday there was chatter of Greek press report circulating that indicated talks between Troika and Greece had broken down
- (GR) IMF's Thomsen: Significant progress has been made at the Troika talks; agreement has been reached on most policy issues
- (GR) Greece Labor Min: Talks with the Troika are continuing; Troika will be leaving Athens tomorrow

***Looking Ahead***
***All times listed for economic events are denominated in Eastern Standard Time (Add 4 hours for GMT equivalent)
- (IN) OECD World Forum in India
- (DE) German Chancellor Merkel attends EPP Event in Bucharest
- (IS) Israel Oct Inflation Forecast: No est v 2.4% prior
- (IS) Israel Sept Money Supply Y/Y: No est v 6.0% prior
- 06:00 (IT) Italy PM Monti with Cyprus Chrisofias
- 06:00 (DE) German Government releases New Macro-Economic Forecasts
- 06:00 (CZ) Czech Republic to sell 2017 and 2021 Bonds
- 06:30 (US) Daily Libor Fixing
- 06:30 (UK) BOE ECTR operation
- 07:00 (UK) Prime Minister's Question Time in House of Commons
- 07:00 (DE) German Chancellor Merkel attends CDU Conference on Municipal Politics: Berlin
- 07:00 (BR) Brazil Oct FGV Inflation IGP-10 M/M: 0.6%e v 1.1% prior
- 07:00 (US) MBA Mortgage Applications w/e Oct 12th: No est v -1.2% prior
- 07:00 (ZA) South Africa Aug Retail Sales M/M: 0.5%e v 0.1% prior; Y/Y: 4.5%e v 4.2% prior
- 08:00 (PL) Poland Sept Sold Industrial Output M/M: +7.8%e v -0.8% prior; Y/Y: -3.9%e v +0.5% prior
- 08:00 (PL) Poland Sept Producer Prices M/M: 0.3%e v 0.1% prior; Y/Y: 1.7%e v 3.1% prior
- 08:30 (US) Sept Housing Starts: 770Ke v 750K prior; Building Permits: 810Ke v 801K prior (revised from 803K)
- 9:45 (UK) BOE to buy £1.0B 2020-2025 Gilts in reverse auction
- 10:00 (EU) EU's De Gucht speaks at FoodDrink Europe Conference in Brussels
- 10:00 (IT) Italy PM Monti
- 10:30 (US) Weekly DOE Crude Oil Inventories
- 11:00 (IC) Iceland Central Bank (Sedibanki) releases Minutes
- 11:00 (US) Fed to sell $7.0-8.0B in notes
- 14:00(BR) Brazil Sept Caged Formal Job Creation: 170.0Ke v 100.9K prior
- 15:00 (CO) Colombia Aug Trade Balance: -$235.0Me v -$214.1M prior; Imports: No est v $5.2B prior
- 21:00 (CH) China Q3 Real GDP Q/Q: 2.0%e v 1.8% prior; Y/Y: 7.4%e v 7.6% prior; GDP YTD: 7.7%e v 7.8% prior
- 21:00 (CN) China Sept Industrial Production Y/Y: 9.0%e v 8.9% prior; YTD: 10.0%e v 10.1% prior
- 21:00 (CN) China Sept Retail Sales Y/Y: 13.2%e v 13.2% prior; YTD: 14.0%3 v 14.1% prior

***Economic Data***
- (JP) Japan Sept Final Machine Tool Orders Y/Y: -2.8% v -3.0% prelim
- (EU) ECB: €1.92B borrowed in overnight loan facility v €1.97B prior; €257.9B parked in deposit facility vs. €251.4B prior
- (TH) Thailand Central Bank cuts its Benchmark interest rate by 25bps to 2.75% (not expected)
- (UK) Bank of England (BOE) Minutes: Vote was unanimous to keep both interest rates and Asset Purchase Target unchanged in Oct (as expected)
- (UK) Sept Jobless Claims Change: -4.0KK v 0.0Ke (flat); Claimant Count Rate: 4.8% v 4.8%e
- (UK) Aug Average Weekly Earnings 3M/Y: 1.7% v 1.6%e; Weekly Earnings ex-Bonus 3M/Y: 2.0% v 2.0%e
- (UK) Aug ILO Unemployment Rate (3mths): 7.9% v 8.1%e; Employment Change 3M/3M: +212K v +200Ke
- (EU) Euro Zone Aug Construction Output M/M: 0.7% v 0.1% prior; Y/Y: -5.5 v -6.2% prior
- (CH) Swiss Oct Credit Suisse ZEW Expectation Survey: -28.9 v -34.9 prior

Fixed Income:
- (IN) India sold total INR100B vs. INR100B indicated in 3-month and 6-month Bills
- (RU) Russia sold RUB19.6B in 2027 bond; Yield 7.90%
- (EU) ECB allotted $2.9B in 7-day USD Liquidity Tender at fixed 0.66% vs. $3.6B prior
- (SE) Sweden sold SEK3,5B vs. SEK3.5B indicated in 1.5% 2023 Bonds; Yield 1.7499% v 1.4670% prior
- (DE) Germany sold €4.189B in0.0% Sept 2014 Schatz; Avg Yield +0.07% v +0.06% prior; Bid-to-cover: 2.0x v 2.1x prior
- (PT) Portugal Debt Agency (IGCP) sold total €1.85B vs. €1.75-2.00B indicated range in 3-month, 6-month and 12-month Bills
- Sold €250M in 3-month Bills; Avg Yield 1.366% v 2.168% prior; Bid-to-cover:8.1 x v 6.7x prior
- Sold €830M in 6-month Bills; Avg Yield 1.839% v 1.700% prior; Bid-to-cover: 2.8x v 3.1x prior
- Sold €770M in 12-month Bills; Avg Yield 2.101% v 3.505% prior; Bid-to-cover: 2.5x v 2.4x prior