Reports » Europe

European stock market, economy and companies update (September 12, 2012)

Contributed by Trade The News

*** SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM ***
***Notes/Observations***
- German Constitutional Court ruling allows Germany to ratify ESM

***Equities***
Indices: FTSE 100 +0.30% at 5809, DAX +0.80% at 7369, CAC-40 +0.70% at 3561, IBEX-35 +0.90% at 8002, FTSE MIB +0.80% at 16,360, SMI +0.30% at 6523, S&P 500 Futures +0.50% at 1437.50

- European equity indices are trading higher, but off of their best levels after Germany's Constitutional Court rejected the injunction which sought to halt the ESM/fiscal compact. The best performing indices on the session have included the Spanish IBEX-35 and the Italian FTSE MIB. The German court ruling has been supportive to bank shares and outperformers in the sector include French and Italian banks. Resource related companies are broadly higher, amid the rise in commodity prices. Looking ahead, the focus of the markets is expected to be Thursday's US FOMC decision, as some traders have raised their bets for more quantitative easing following the weaker than expected Aug non-farm payrolls data.
- Large UK home improvement retailer Kingfisher [KGF.UK] has moved between gains and losses, as the company reported weaker than expected H1 results and raised its dividend by ~25%. Retailer Laura Ashley [ALY.UK] is higher by over 7%, following the release of its H1 results.

Speakers:
- Germany's Constitutional Court ruled against injunction with conditions to halt ESM and Fiscal Pact thus allowing Germany to ratify the ESM. The Court stated that Germany must ensure that the German liability to ESM did not exceed €190B without approval of lower house (implied about a total max size of €700B for the ESM based on current paid-in capital contribution ratios). Both houses of parliament must be informed of all ESM decisions and that Parliament could choose to raise ESM share. The court also rejected an interim bid against the ECB bond program
- German Foreign Min Westerwelle commented that the court ruling (ESM and fiscal pact) was smart and in the spirit of the EU but that work for euro and Europe remained
- Germany Chancellor Merkel Adviser Feld stated ahead of the decision German High Court likely to pass ESM with conditions. ESM was still important even after the announced ECB bond buying plan. He reiterated the German view that ECB could not save EU countries alone but the redemption fund was a possible solution to the EU crisis
- ECB member Liikanen (Finland) commented that global economic growth remained weak and reiterated that ECB policy measures were in line with its mandate. Euro reform process might take several years. ECB's outright monetary transactions required strict conditionality that would be applied equally to all Euro countries
- EU's Barroso delivered his State of Union Address which noted that the Euro was facing structural problems and that its efforts had not convinced the markets or partners. Leaders had often stepped away from summit deals they have made.- EU members could not steer events on their own; globalization requires more EU integration. There would need to be changes to EU treaty to allow deeper integration. - EU Commission to publish a blueprint plan later this year that would help further deepening economic and monetary union- which could include treaty changes. To present ideas for the treaty changes before 2014
- EU's Juncker commented after the German Court ruling and confirmed ESM to start on Oct 8th (**Note: date corresponds with Eurogroup meeting of euro zone finance ministers in Luxembourg)
- EU's Juncker commented in the press that no new candidate for vacant seat on ECB board (**Note: Previously European Parliament decided to block the appointment of Luxembourg Central Bank Gov Mersch to the ECB's board)
- Czech Foreign Min Schwarzberg could not rule out fall of government
- OECD chief economist Padoan commented that he saw European economic recovery by end of 2013
- Japan Fin Min Azumi reiterated that it would take decisive steps on JPY currency (yen) if needed, recent yen appreciation has been speculative in nature
- Japan MOF: Ministries and agencies filed ¥98T in budget requests for FY13 (record level)
- Singapore Central Bank (MAS) Survey of Economists: cut its 2012 and 2013 GDP forecasts citing worsening global economic environment
- IEA Monthly Oil Market Report maintained Oil Demand Growth Forecast at 800K bpd for 2012 and 2013
- IEA's Halff stated that the agency had not ruled out the need for an emergency stock release in the future and is closely monitoring the market

Currencies:
- Focus on ESM ruling today as the German constitutional court delivered its first interim verdict on the rescue funds. All week German officials express confidence in the pending outcome and in the end the Court rejected the injunction on the ESM, although with some conditions. Risk-on sentiment prevailed in the end. The EUR/USD climbed to fresh 4-month highs as participants saw neither big conditions attached to German court ruling on ESM nor any significant changes to existing law thus the outcome was viewed as quite positive. The USD also continued to feel the impact of the US sovereign ratings downgrade threat by Moody's and still has to withstand the prospects for FOMC action on Thursday.
- The peripheral yields and spreads continued to tighten following the German Court decision. The Italian 10-year gov't yield tested below 5.00% level (*Note: The 10-year was above 7.00% back in late July before ECB Draghi made the pledge to 'save the Euro'). The 10-year Spanish/German Gov't bond spread moved below 400bps level.
- Japan Fin Min Azumi stepped up the rhetoric that it would take decisive steps on JPY currency (yen) if needed, recent yen appreciation had been speculative in nature. The USD/JPY continued to hold above its Jun 1st low of 77.63 ahead of the NY morning

Political/ In the Papers:
- (BE) Belgium increased tax (+30%) on stock exchange transactions has only brought in €78.2M as of late July, +€2.0M y/y; Well short of the expected increase for 2012 of€50M - Le Soir
- (DK) Denmark PM Thorning-Schmidt: Outlook for EU economy was bleak; Domestic economy was relatively stable; Couldstill achieved 2012 GDP growth of 0.9%
- (EU) EU's Barnier stated that the ECB to have authority to withdraw banking license - Le Figaro interview
- (GR) Today Greece saw union strikes in schools, hospitals and local authorities; Army personnel would hold protests against salary cuts - Greek press
- (PT) Large European banks cut Portugal sovereign bond holdings by 17% in last 5 months- Portugal Press
- (ES) Spain PM Rajoy was said to be considering asking for help from the ECB bond buying program, but was not planning a full sovereign bailout - financial press
- (ES) Spain Budget Ministry might raise short term capital gains from 27% to 52% in 2013 - Spanish press

***Looking Ahead***
***All times listed for economic events are denominated in Eastern Standard Time (Add 4 hours for GMT equivalent)
- (NL) Netherlands to hold Elections
- (US) US Treasury official Brainard to visit France, Germany and Spain
- (IS) Israel Aug Trade Balance: No est v -$983M prior
- 06:00 (DE) Germany to sell €1.0B in 0.1% Inflation-Linked 2023 Bunds; Avg Yield: % v -0.390% prior; Bid-to-cover: x v 1.9x prior (July 25th)
- 06:00 (PL) Poland to sell up to PLN4.0B in Bonds
- 06:00 (RU) Russia to sell RUB20B in 2019 OFZ bonds; Yield Guidnace between 7.63-68%
- 06:30 Daily Libor Fixings
- 07:00 (US) MBA Mortgage Applications w/e Sept 7th: No est v -4.3% prior
- 07:00 (UK) Prime Minister's Question Time in House of Commons
- 07:00 (UK) BOE member Broadbent
- 07:15 (EU) World Bank official Kim in Berlin
- 07:30 (CL) Chile Central Bank's Traders Survey
- 08:00 (HU) Hungary Central Bank Minutes
- 08:30 (US) Aug Import Price Index M/M: +1.5%e v -0.6% prior; Y/Y: -1.5%e v -3.2% prior
- 08:30 (US) USDA World Agricultural Supply and Demand Estimates (WASDE)
- 09:45 (UK) BOE to buy £1.0B in 2019-2025 Gilts in reverse Auction
- 10:00 (US) July Wholesale Inventories: +0.3%e v -0.2% prior
- 10:30 (US) Weekly DOE Crude Oil Inventories
- 11:00 (US) Fed to buy $7.0-8.0B in notes
- 12:00 (DE) German Chancellor Merkel
- 13:00 (EU) ECB member Nowotny
- 13:00 (US) Treasury to sell 10-Year Notes Reopening
- 14:00 World Bank issues global financial development report
- 15:00 (AR) Argentina Aug Consumer Price Index M/M: 0.8%e v 0.8% prior; Y/Y: 9.9%e v 9.9% prior
- 15:00 (AR) Argentina Aug Wholesale Price Index M/M: No est v 1.0% prior; Y/Y: No est v 12.8% prior
- 17:00 (NZ) New Zealand Central Bank (RBNZ) Interest Rate Decision: Expected to leave the Official Cash Target Rate unchanged at 2.50%

***Economic Data***
- (FR) France Aug Consumer Price Index M/M: 0.7% v 0.6%e; Y/Y: 2.1% v 2.0%e; CPI Ex Tobacco Index: 125.06 v 125.04e
- (FR) France Aug CPI Harmonized M/M: 0.7% v 0.6%e; Y/Y: 2.4% v 2.3%e
- (IN) India July Industrial Production Y/Y: 0.1% v 0.5%e
- (FI) Finland July Final Retail Sales Volume Y/Y: 0.0% v 0.0% prior
- (DE) Germany Aug Final Consumer Price Index M/M: 0.4% v 0.3%e; Y/Y: 2.1% v 2.0%e
- (DE) Germany Aug Final CPI EU Harmonized M/M: 0.4% v 0.3%e; Y/Y: 2.2% v 2.2%e
- (SE) Sweden Aug PES Unemployment Rate: 4.8% v 4.6%e
- (FR) France July Current Account: -€2.5B v -€4.8B prior
- (ES) Spain Aug Consumer Price Index M/M: 0.6% v 0.6%e; Y/Y: 2.7% v 2.7%e
- (ES) Spain Aug CPI EU Harmonized M/M: 0.5% v 0.5%e; Y/Y: 2.7% v 2.7%e
- (ES) Spain Aug CPI Core M/M: 0.2% v 0.2%e; Y/Y: 1.4% v 1.4%e
- (IT) Italy July Industrial Production sa M/M: % v -0.2%; Y/Y: % v -4.4%; Industrial Production wda Y/Y: % v -7.3%
- (UK) Aug Jobless Claims Change: -15.0K v 0.0Ke (Flat); Claimant Count Rate:4.8% v 4.9%e v 4.9%e
- (UK) July Average Weekly Earnings 3M/Y: 1.5% v 1.6%e; Weekly Earnings ex-Bonus 3M/Y: 1.9% v 1.8%e
- (UK) July ILO Unemployment Rate: 8.1% v 8.0%e; Employment Change: 236K v 169Ke
- (EU) Euro Zone July Industrial Production M/M: 0.6% v 0.1%e; Y/Y: -2.3% v -3.3%e
- (PT) Portugal Aug Consumer Price Index M/M:-0.1 % v -0.4%e; Y/Y: 3.1% v 2.9%e
- (PT) Portugal Aug CPI EU Harmonized M/M: -0.1% v -0.2%e; Y/Y: 3.2% v 2.8%e

Fixed Income:
- (IN) India sold INR120B vs. INR120B indicated in 3-month and 6-month Bills
- (RU) Russia sold RUB9.9B vs.RUB10B indicated in 2027 OFZ bonds; Yield 8.14% vs. guidance of 8.13-8.18%
- (SE) Sweden sold total SEK10.0B in 3-month and 6-month Bills
- (EU) ECB allotted $3.8B in 7-Day USD Liquidity Tender at fixed 0.63% vs. $2.2B prior
- (EU) ECB allotted $3.7B in 3-month USD Liquidity Tender at fixed 0.63% vs. $4.5B prior
- (IT) Italy Debt Agency (Tesoso) sold total €12.0B vs. €12.0B indicated in 3-month and 12-month Bills
- Sold €3.0B vs. €3.0B indicated in 3-month Bills; Avg Yield 0.70% v 0.865% prior; Bid-to-cover: 2.25x v 2.49x prior
- Sold €9.0B vs. €9.0B indicated in 12-month Bills; Avg Yield 1.692% v 2.767% prior; Bid-to-cover: 1.65x v 1.69x prior
(CH) Switzerland sold total CHF933.5M in 2015 and 2024 Bonds
- (DE) Germany sold €3.97Bin 0.50% Oct 2017 BOBL; Avg Yield 0.61% v 0.31% prior; Bid-to-cover: 1.4x v 2.6x prior