TradeTheNews.com European Market Update: Risk appetite finds footing aided by China GDP data and German ZEW survey

Tuesday, January 17, 2012 5:54:21 AM
 TradeTheNews.com European Market Update: Risk appetite finds footing aided by China GDP data and German ZEW survey
***Economic Data***
- (EU) ECB: €1.6B borrowed in overnight loan facility vs. €2.4B prior; parked in overnight deposit facility (fresh record higs) vs. €493.3B prior
- (FI) Finland Dec PPI M/M: -0.4% v 0.0% prior; Y/Y: 1.8% v 3.7% prior
- (SE) Sweden Dec PES Unemployment Rate: 4.7% v 4.6%e
- (EU) Dec EU 25 New Car Registrations: -6.4 v -3.5% prior
- (ZA) South Africa Nov Gold Production Y/Y: -4.5% v -3.3% prior; Mining Production Y/Y: -4.6% v -9.0%e
- (UK) Nov DCLG UK House Prices Y/Y: -3.3% v -0.4% prior
- (UK) Dec CPI M/M: 0.4% v 0.4%e; Y/Y: 4.2% v 4.2%e; Core CPI Y/Y: 3.0% v 3.0%e
- (UK) Dec RPI M/M: 0.4% v 0.3%e; Y/Y: 4.8% v 4.7%e; RPIX Y/Y: 5.0% v 4.9%e; Retail Price Index: 239.4 v 239.1e
- (DE) Germany Jan ZEW Economic Sentiment: -21.6 v -49.4e (highest reading since July 2011); Current Situation: 28.4 v 24.0e
- (EU) Euro Zone Dec CPI M/M: 0.3% v 0.4%e; Y/Y: 2.7% v 2.8%e; CPI Core Y/Y: 1.6% v 1.6%e
- (EU) Euro Zone Jan ZEW Economic Sentiment: -32.5 v -54.1 prior
- (BR) Brazil Jan FGV Inflation IGP-10 M/M: 0.1% v 0.0%e
- (IS) Israel Jan Inflation Forecast: 2.3% v 2.2% prior
- (IS) Israel Dec Money Supply Y/Y: 2.5 v 1.9% prior

Fixed Income
- (ZA) South Africa sold total ZAR2.1B vs. ZAR2.1B indicated in 2020 and 2041 Bonds
- (ES) Spain Debt Agency (Tesoro) sold total €4.88B vs. €5.0B indicated in 12-Month and 18-Month Bills
- Sold €3.01B in 12-month Bills; Avg Yield 2.049% v 4.050% prior; Bid-to-cover: 3.54x v 3.14x prior; Max Yield 2.150% v 4.088% prior
- Sold €1.87B in 18-month Bills; Avg Yield 2.399% v 4.226% prior; Bid-to-cover: 3.23x v 4.97x prior; Max Yield 2.490% v 4.250% prior
- (GR) Greece Debt Agency (PDMA) sold 1.625B€ vs. €1.25B indicated in 13-week Bills; Avg Yield 4.64% v 4.68% prior; Bid-to-cover: 2.90x v 2.91x prior
- (EU) ECB allotted €126.9B in 7-day Refi Operations vs. €100Be at fixed 1.0%
- (EU) ECB allotted €38.7B in 1-month Refi Operation at fixed 1.0% vs. €41.2B prior
- (HU) Hungary Debt Agency (AKK) sold HUF55B vs. HUF45B in 3-Month Bills; Avg Yield 7.84% v 7.98% prior; Bid-to-cover:3.15x v 2.74x prior
- (BE) Belgium Debt Agency sold total €2.96B vs.€3.0B indicated in 3-month and 12-month Bills
- Sells €1.76B vs. €1.8B in 3-month Bills; Avg Yield 0.429% v 0.264% prior; Bid-to-cover: 2.23x v 2.13x prior
- Sells €1.20B vs. €1.2B in 12-month Bills; Avg Yield 1.162% v 2.167% prior; Bid-to-cover: 2.06x v 2.21x prior
- (EU) EFSF sells €1.501B vs. €1.5B indicated in 6-month Bills; Avg Yoeld 0.2664%; Bid-to-cover: 3.1x (First issuance of this maturity)
*** SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM ***
***Notes/Observations***
- S&P downgrades EFSF one notch to AA+ following the prior French, Austrian cuts
- China Q4 GDP at 2 year lows but above analysts' estimates
- Germany Jan ZEW Survey improves to its best reading since July 2011
Equities:
FTSE 100 +1.1% at 5717, DAX +1.8% at 6334, CAC-40 +1.6% at 3277, FTSE MIB +1.4% at 15,432, SMI +0.50% at 6063
- European shares recovered their losses taking cue from Asian trading even after China's data showed economic slowing. As expected, S&P downgraded EFSF rating to AA+, an action which did not move markets. However, German ZEW data was the highest reading since July 2011 marking a significant improvement in sentiment.
In corporate news, Metro AG [MEO.DE] rallied after exceeding analysts' expectations. Company decided to discontinue divestment activities related to Galeria Kaufhof. Burberry [BRBY.UK] also reported its Q3 revenues which had increased over the year. Shares were trading lower.
Speakers:
- ZEW Economists commented that the improvement in the ZEW sentiment was helped by improved US data and lower EMU yields improvement. The ZEW saw the Germany economy stabilizing over the next six months. Contrary to repeatedly expressed fears of recession, the assessment of experts gives reason for cautious optimism.
- ZEW's Franz commented that Germany would only experience a "dent" in its economic activity and noted that the ECB generous liquidity operations supported rise in sentiment. He did caution that the EU debt crisis remains risk to economic growth.
- ECB's Nowotny commented that the central bank was looking for alternatives for the Govt Bond Buying program (SMP) and that discussions included the entire monetary policy spectrum and instruments. He noted that a triple A rating for ESM facility was possibly but not necessary. On monetary policy Nowotny stated that the ECB never pre-commits on interest rate decisions but did note that the ECB had taken clear steps not only in terms of interest rate decreases, but also in terms of the very massive broadening of liquidity provision and of the opinion that it was now about capturing the full effect of these measures. He believed the S&P downgrade of Austria was political to an extent but not without cause.
- ECB's Nowotny commented at a Euromoney conference that a negative feedback loop with sovereign debt crisis has occurred and needed higher growth in order to stabilize budgets. The banks 9% core tier 1 capital plan by mid-2012 was unfortunate and increased problems. Supervisors needed to assess bank capital plan to avoid restrictive impact on lending. Emerging Europe would grow faster than EU average but added that convergence woud be at a slower rate
- Fitch Sovereign Director Parker commented that Greece was insolvent and would default 'quite soon', which should not be a surprice. He added that Greece would not likely to honor its March 20th bond payment nd that the EU debt crisis would be both long and drawn out process
- EU's Buti reiterated view that Greek debt swap negotiations (PSI) are currently paused
- German Govt Advisor Franz stated that the Euro would survive with 17 members still in it in a year's time
- EFSF chief Regling commented that the European nations did have a plan to lower deficits
but conceded that Greece was a difficult case. He noted that there was not much impact from S&P downgrade, so long as Moody's and Fitch did not follow. Investors have lost confidence in European policy making and are afraid that the Euro Zone might break up but such fears are unfounded. EFSF never had issues placing bonds as it has had good demand from Asia and Middle East investors and had significant preliminary commitments from global investors
- metals consultancy GFMS commented that 2011 global gold demand was at 4,436 tons, +2% y/y while global gold investment was at 1,563 tons, -7.0% y/y. Gold to average $1,640/oz in H1 2012 and could test support around $1,550/oz and could break $2,000/oz by late 2012 or early 2013. It noted that gold market was near closing its decade long bull rally but added that economic and political backdrop still favored gold and could 'fire up' on re-emergence of US concerns. China might overtake India as top gold consumer in H1 2012
Currencies:
- The Euro continued to rebound from last Friday's lows of 1.2622 and continued to shake off the multi-country sovereign downgrade from S&P last Friday and subsequent cut in the EFSF facility rating by a notch. Risk appetite also improved as traders assessed China's Q4 GDP data and better German ZEW survey. EUR/USD held a key support of 1.2660 on Monday and tested the 1.28 area by the NY morning in today's session. The Euro was also supported by comments from ECB Nowotny who indicated that the ECB was not planning to cut its main refi rate further any time soon as it would study the recent cuts and massive central bank liquidity operations. The Euro did stall at the 1.28 level after Fitch sovereign director Parker bluntly stated that
Political/ In the Papers:
- The Irish government provided an update and identified suitable assets to sell per troika bailout agreements. Stake sales include 25% stake in Aer Lingus, Dublin Port, and parts in Bord Gis and Coillte. The finance minister and the public expenditure minister is to meet senior officials Thursday morning, prior to the release of two separate press conferences. The government added that it has met all the targets in line with the program.
- Various banks in Europe are looking to find ways to raise capital without the use of share sales. Certain banks are seeking to revise their accounting methods related to prior acquisitions in order to boost capital levels. Banks are also seeking to restructure their capital structures in order to raise certain types of capital. European banks are expected to present their capital raising plans to the EBA by the end of this week.
- Some fund managers remain concerned about the possibility of a "messy" default for Greece. The FT reported that if there were a disorderly default for Greece, then it could lead to write downs of more than €50 billion. Also, if there is an orderly default for Greece, it could lead to further contagion.
***Looking Ahead***
- (GR) EU/IMF/ECB Troika mission to Greece begins (technical team)
- (EU) ECB's Reserve Maintenance Period Ends
- (ES) Spain Q4 House Price Index Q/Q: No est v -1.3% prior; Y/Y: No est v -5.5% prior
- 6:00 (TU) Turkey sells TRY in to sell 2013 and 2018 Bonds
- 7:00 (EU) ECB to drain €217.0B in 7-day Term Deposit Tender to offset bond purchases
- 7:30 (ES) EU President Van Rompuy meets Spain PM Rajoy in Madrid
- 8:00 (BR) Brazil Nov CNI Capacity Utilization: 81.6%e v 81.4% prior
- 8:30 (CA) Canada Nov Int'l Securities Transactions: No est v C$2.03B prior
- 8:30 (US) Jan Empire Manufacturing: 11.00e v 9.53 prior
- 8:30 (US) Revisions: Empire State Manufacturing Activity Index
- 9:00 (CA) Bank of Canada Interest Rate Decision: Expected to leave Interest Rate unchanged at 1.00%
- 9:00 (US) OccupyDC holds an Occupy Congress rally.
- 9:45 (UK) BOE to buy £1.7B in 2038-2060 Gilts in reverse auction
- 10:00 (MX) Mexico International Reserves w/e Jan 13th No est v $144.1B prior
- 11;30 (UK)BOE member Posen
- 11;30 (DE) Bundesbank Gov Weidmann
- 11:30 (US) Treasury to sell 3-Month and 6-Month Bills
- 18:00 (IT) Italy PM Monti travels to London to meet with PM Cameron at London School of Economics
- (CN) EU Barnier travels to Beijing, China
Legal disclaimer and risk disclosure
All information provided by Trade The News (a product of Trade The News, Inc. "referred to as TTN hereafter") is for informational purposes only. Information provided is not meant as investment advice nor is it a recommendation to Buy or Sell securities. Although information is taken from sources deemed reliable, no guarantees or assurances can be made to the accuracy of any information provided. 1. Information can be inaccurate and/or incomplete 2. Information can be mistakenly re-released or be delayed, 3. Information may be incorrect, misread, misinterpreted or misunderstood 4. Human error is a business risk you are willing to assume 5. Technology can crash or be interrupted without notice 6. Trading decisions are the responsibility of traders, not those providing additional information. Trade The News is not liable (financial and/or non-financial) for any losses that may arise from any information provided by TTN. Trading securities involves a high degree of risk, and financial losses can and do occur on a regular basis and are part of the risk of trading and investing.