Reports » Europe

European stock market, economy and companies update (September 05, 2012)

Contributed by Trade The News

*** SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM ***
***Notes/Observations***
- Australia Q2 GDP a touch below expectations; A$ at 6-week low below 1.02
- China Services PMI hits 1-year low but stays in expansionary territory
- Major European PMI Services data comes in below expectations
- Market awaits ECB rate decision and press conference on Thursday to get clarification of planned bond buying scheme to lower peripheral yields. Potential disappointment looming for Europe
- Markets also waiting Friday's release of US payroll data to see if Bernanke has an excuse to perform QE3
- German new 10-year Bund auction technically uncovered; UK DMO bid-to-cover falls steeply from prior

***Equities***
Indices: FTSE 100 +0.10% at 5666, DAX +0.30% at 6954, CAC-40 flat at 3401, IBEX-35 +0.40% at 7519, FTSE MIB -0.25% at 15,184, SMI +0.50% at 6391, S&P 500 Futures -0.30% at 1401.75

- Following the mixed open, European equity indices are mostly lower, amid the rise in peripheral bond yields, mixed PMI services data and ahead of tomorrow's ECB meeting, in which Draghi is expected to give more details related to the central bank's bond buying plan. Today's weakness has been led by indices in Italy and France. European banks are mostly in negative territory and underperformers in the sector include French banks. The technically failed auction out of Germany sent buyers back into equities just ahead of the NY morning as the major bourses recovered the bulk of the session losses
- Shares of BP [BP.UK] have declined by over 4% amid press reports that US government officials could be concerned about the firm's proposed $7.8B settlement related to the Gulf of Mexico oil spill. Retailer Sports Direct [SPD.UK] is higher by over 3%, following the release of its quarterly sales figures. In Germany, shares of Norma Group [NOEJ.DE] have traded lower by more than 4%, as 3i placed shares in the company. Fresenius SE [FRE.DE] has outperformed the overall DAX, as the firm's Kabi unit raised its 2012 sales forecast. BMW [BMW.DE] has traded lower by over 1%, after reporting that its US sales declined by 5.7% y/y in Aug. GM reported that its China sales rose by 7.3%, which was a slowdown from the 15.1% increase seen in July. Additionally, there has been speculation that China's Guangzhou has placed certain restrictions on the number of new vehicles which can travel on roads. Swiss luxury watchmaker Richemont [CFR.CH] has traded slightly higher after issuing its 5-month sales report.

Speakers:
- ECB's Knot (Netherlands) was said to be leading the opposition camp over bond purchases and sought to attach as many conditions to the program as possible. Finnish Central Banker Liikanen and Belgian National Bank head Coene were also said to support his view. Spain central bank GovLinde was leading the pro bond buying camp.
- Eurogroup chief Juncker to attend tomorrow's ECB meeting in Frankfurt to present analysis of the EMU economy at the meeting.
- German Foreign Min Westerwelle reiterated the Northern European view that there must be sanctions for those EMU members who break the budget rules and added he was against weakening the reforms imposed on Greece
- According to unnamed central bank official, hard yield caps on ECB bond purchases were very unlikely, but such a possibility of such a move had not been ruled out. Also any bond purchases might continue to be sterilized.
- SNB's Danthine commented that rising rates coupled with lower growth could raise default risk and stressed that both Swiss and global countries must act to avoid a new crisis . Switzerland was facing rising risk of default and correction and saw a build up of financial stability risk. The SNB would monitor situation for need of buffer which would be used in a balanced and flexible way. There were some signals of slowing momentum in mortgage and property markets and no room for complacency over recovery
- EU's Van Rompuy reiterated the view that there was no easy fix for debt crisis and would do whatever was necessary to safeguard stability in the region. He stressed that Europe was not at the end of the rope in terms of fighting the crisis. Euro zone markets was making harder to conduct a single monetary policy but appreciated ECB's efforts. The defense of the euro is central to foreign policy
- Swiss Econ Min Schneider-Ammann remained skeptical on concept of negative interest rates. She saw fair value for EUR/CHF cross seen around 1.30. She also noted that H2 period to be more difficult for Swiss economy but no imminent need for emergency measures. Swiss banking secrecy would remain in place as secrecy was never an invitation for evaders
- OECD Sec Gen commented that the ECB should support countries that wre making necessary adjustments
- German Chemicals association VCI lowered its 2012 Chemical sector production to-3% from 0.0% prior view and raised 2012 Chemical Producer Prices outlook to +2.5% from +2.0%
- France's government said to be seeking to raise tobacco prices by 6% in Oct
- BoJ member Miyao stated that the BOJ stood ready to act if needed but had to keep an eye on side effects of unorthodox policy. He reiterated the view that BOJ foreign bond purchases would equate to FX currency intervention which was prohibited by law and was up to MOF to decide on foreign bond purchases to address the JPY currency strength (**Note: Reports circulated that a DPJ party draft campaign platform included call on BoJ to purchase foreign bonds)
- Thailand Central Bank commented after its rate decision that current policy rate continued to be appropriate. The vote was 3-2 in favor of keeping rates on hold at 3.00% with the other 2 in favor of a cut. Domestic demand would help to offset global slowdown but remained ready to adjust policy if necessary. It maintained 2012 GDP growth forecast at 5.7% and that inflationary pressures were easing and not a concern
- China Ministry of Industry and Information Technology (MIIT) noted that uncertainties might bring new challenges to China industry and saw 2012 industrial output +10% y/y

Currencies:
- Weaker PMI services data from China and the major European countries fueled some risk aversion sentiment that aided the USD and JPY currencies against the European and commodity-related pairs but were off their best levels ahead of the NY morning.
- The EUR/USD drifted lower in the session after several attempts failed earlier in the week to break above the 1.2635 level coupled with looming disappointment of Thursday's ECB monetary policy meeting. The Euro tone was not helped by press reports that ECB was unlikely to reveal explicit yield cap for bond purchase program, and that any purchases likely to be sterilized to absorb liquidity. Instead of using term deposits to mop up they will issue debt certificates.

Political/ In the Papers:
- According to unnamed central bank official, hard yield caps on ECB bond purchases very unlikely, but possibility of such a move has not been ruled out
- Nordea saw Denmark 2013 GDP reaching 1.9% (1.7% is the official target as of Aug 27th)
- Greek think tank KEPE noted that the Greece debt load was unsustainable and could not be cut to the targeted 120% of output by 2020 without major changes to austerity program
- German Fin Min Schaeuble noted that Euro would be a bit more stable next year but troubles were not over but expected the EU to exist in the same form a year from now

***Looking Ahead***
***All times listed for economic events are denominated in Eastern Standard Time (Add 4 hours for GMT equivalent)
- (PL) Poland Central Bank Interest Rate Decision: Expected to leave the Base Rate unchanged at 4.75%
- International Forum of Sovereign Wealth Funds in Mexico
- (DE) German Fin Min Schaeuble and ECB's Asumssen attend bank event in Franfurt
- 06:00 (CZ)) Czech Republic. to sell 2018 and 2023 Bonds
- 06:00 (IE) Ireland Aug Live Register Monthly Change: No est v -2.3K prior; Unemployment Rate: No est v 14.8% prior; Live Register Level: no est v 437.3 prior
- 06:00 (ZA) South Africa Q3 BER Business Confidence: No est v 41.0 prior
- 06:30 Libor fixing
- 07:00 (UK) Prime Minister's Question Time in House of Commons
- 07:00 (US) MBA Mortgage Applications w/e Aug 31st: No est v -4.3% prior
- 07:30 (CL) Chile July Economic Activity Index M/M: 0.1%e v 0.4% prior; Y/Y: 5.7%e v 6.2% prior
- 07:45 (US) Weekly ICSC Chain Store Sales
- 08:00 (BR) Brazil Aug IBGE Inflation IPCA M/M: 0.4%e v 0.4% prior; Y/Y: 5.2%e v 5.2% prior
- 08:30 (US) Q3 Final Nonfarm Productivity: 1.8%e v 1.6% prelim; Unit Labor Costs: 1.4%e v 1.7% prelim
- 08:55 (US) Weekly Redbook Retail Sales
- 09:00 (EU) EU President Van Rompuy meets France President Hollande in Paris
- 09:00 (BR) Brazil Aug PMI Services: No est v 48.9 prior
- 09:00 (CA) Bank of Canada Interest Rate Decision: Expected to leave Interest Rates unchanged at 1.00% prior
- 09:30 (CL) Chile Central Bank Q2 monetary report
- 09:45 (US) Aug ISM New York: No est v 55.2 prior
- 10:00 (PL) Poland Central Bank Gov Belka post rate decision press conference
- 10:00 (HU) Hungary Aug YTD Budget Balance (HUF): No est v -437.5B prior
- 10:00 (BR) Brazil July CNI Capacity Utilization: 81.4%e v 80.8% prior
- 09:45 (UK) BOE to buy £1.0B in 2019-2025 in reverse auction; Bid-to-cover: x v 3.29x prior
- 11:30 (BR) Brazil Aug Commodity Price Index M/M: 0.9%e v 7.8% prior; Y/Y: 11.3%e v 12.3% prior
- 11:30 (US) Treasury to sell $40B in 4-Week Bills
- 16:30 (US) Weekly API Energy Inventory data
- 21:30 (AU) Australia Aug Unemployment Rate: No est v 5.2% prior

***Economic Data***
- (EU) ECB: €523M borrowed in overnight loan facility vs. €556M prior; €342.1B parked in deposit facility vs. €341.0B prior
- (IN) India Aug Markit Services PMI: 55.0 v 54.2 prior; six-month high
- (RU) Russia Aug Services PMI: 52.6 v 52.0 prior
- (IE) Ireland Aug NCB Services PMI: 51.7 v 49.1 prior; first expansionary reading in 4 months
- (FI) Finland Q2 GDP Q/Q: -1.1% v +0.9% prior; Y/Y: -0.1 v +2.2% prior
- (SE) Sweden Aug PMI Services: 50.8 v 54.8 prior
- (NO) Norway Aug PMI: 48.7 v 50.1e
- (CZ) Czech July Retail Sales Y/Y: 0.3% v 0.2%e
- (ES) Spain Aug Services PMI: 43.4e v 43.7 prior; highest reading since March but 14th straight monthly contraction
- (CH) Swiss Aug CPI M/M: 0.0% v 0.1%e; Y/Y: -0.5% v -0.4%e
- (CH) Swiss Aug CPI EU Harmonized M/M: -0.3% v -0.3% prior; Y/Y: -0.5% v -0.8% prior
- (TH) Thailand Central Bank left Benchmark Interest Rate unchanged at 3.00% prior; as expected
- (IT) Italy Aug PMI Services: 44.0 v 43.3e, (14th straight monthly contraction)
- (FR) France Aug Final PMI Services: 49.2 v 50.2e
- (DE) Germany Aug Final PMI Services: 48.3 48.3e; lowest reading since July 2009
- (EU) Euro Zone Aug Final PMI Services:47.2 v 47.5e; PMI Composite: 46.3 v 46.6e
- (TW) Taiwan Aug Foreign Exchange Reserves: $394.2B v $391.1B prior
- (IC) Iceland Aug Preliminary Trade Balance (ISK): 12.6B v 2.4B prior
- (EU) Euro Zone Retail July Sales M/M: -0.2% v -0.2%e; Y/Y: -1.7% v -1.7%e

Fixed Income:
- (NL) Netherlands Debt Agency (DSTA) closed its book to sell at least $2.0B in 0.25% 2015 DSL bond; Guidance seen between +5 over mid-swaps (initial range was +5-8bps)
- (RU) Russia sold RUB24B vs. RUB25B indicated in new 2022 OFZ Bond; Yield 8.01% vs. guidance of 7.95-8.02%
- (IN) India sold total INR120B vs. INR120B indicated in 3-month and 12-month Bills
- (EU) ECB allotted $2.2Bin 7-Day USD Liquidity Tender at fixed 0.63% vs. prior $6.2B
- (SE) Sweden sold SEK3.5B vs. SEK3.5B indicated in 3.75% 2017 Bonds; Yield 0.9646% v 1.3855% prior
- (UK) DMO sold £1.75B in 4.5% Dec 2042 Gilts; Avg Yield 2.951% v 3.224% prior; Bid-to-cover: 1.52x v 2.2x prior; Tail: 0.4bps v 0.4bps prior
- (DE) Germany sold €3.61B in new 1.5% Sept 2022 Bunds; Avg Yield 1.42% v 1.42% prior; Bid-to-cover: 1.1x v 1.8x prior (technically uncovered)