TradeTheNews.com European Market Update: Risk appetite benefits as Europe inches towards fiscal union

 TradeTheNews.com European Market Update: Risk appetite benefits as Europe inches towards fiscal union

***Economic Data***
- (EU) ECB: €2.2B borrowed in overnight loan facility v €2.4B prior; €479.4B parked in deposit facility vs. €488.9B prior
- (IN) India FY11 annual GDP Y/Y: 8.4% v 8.4% prior (Revision)
- (ZA) South Africa Dec Private Sector Credit Y/Y: 6.3%e v 5.9% prior; M3 Money Supply Y/Y: 8.2% v 7.6%e
- (DE) Germany Dec Retail Sales M/M: -1.4%% v 0.8%e; Y/Y: -0.9% v 0.9%e
- (DE) Germany Dec ILO Employment : 41.26M v 41.19M prior; Unemployment: 5.5% v 5.5% prior
- (FI) Finland Nov Final Trade Balance: -€358.0M v -€260M prelim
- (CH) Swiss Dec UBS Consumption Indicator: 0.92 v 0.78 prior
- (TW) Taiwan Dec Leading Index M/M: 0.5% v 0.5% prior; Coincident Index M/M: -0.6% v -0.6% prior
- (TH) Thailand Dec Business Sentiment Index: 48.5 v 39.0 prior
- (TH) Thailand Dec Current Account Balance: +1.9B v -$1.0Be; Total Trade Account Balance: -$238M v +$218M prior; Overall Trade Balance: -$1.0B v -$1.5B prior
- (FR) France Dec Producer Prices M/M: -0.1% v -0.1%e; Y/Y: 4.7% v 4.7%e
- (FR) France Dec Consumer Spending M/M: -0.7% v +0.2%e; Y/Y: -3.1% v -2.1%e
- (ES) Spain Nov Total Housing Permits M/M: -13.2 v -22.0% prior; Housing Permits Y/Y: -31.5% v -2.9% prior
- (CH) Swiss Central Bank publishes Dec Balance Sheet Data: Currency Holdings (CHF): 257.5B v 261.9B prior
- (HU) Hungary Dec Unemployment Rate: 10.7% v 10.%e
- (HU) Hungary Dec Producer Prices M/M: -0.5% v +2.5% prior; Y/Y: 7.5% v 7.4%e
- (ES) Spain January Preliminary Consumer Price Index Y/Y: 2.0% v 2.3%e; CPI EU Harmonized Y/Y: 2.0% v 2.2%e
- (TR) Turkey Dec Trade Balance: -$8.1B v -$8.6Be
- (TW) Taiwan Q4 Preliminary GDP Constant Prices Y/Y: 1.9% v 2.8%e
- (DE) Germany Jan Unemployment Change: -34K v -10Ke; Unemployment Rate: 6.7% v 6.8%e
- (HK) Hong Kong Dec M2 Money Supply Y/Y: 4.6% v 3.6% prior; M3 Money Supply Y/Y: 4.6% v 3.5% prior; M1 Money Supply Y/Y: 8/8% v 3.1% prior
- (HK) Hong Kong Dec Govt Mthly Budget Budget (HKD): +38.3BB v -1.4B prior
- (CZ) Czech Dec Money Supply Y/Y: 5.2% v 5.2% prior
- (IC) Iceland Dec Final Trade Balance (ISK): 6.9B v 14.5B prelim
- (IT) Italy Dec Preliminary Unemployment Rate: 8.9% v 8.7%e
- (NO) Norway Dec Credit Indicator Growth Y/Y: 6.7% v 6.5%e
- (NO) Norway Dec Retail sales Volume M/M: -0.3 v +0.2%e; Y/Y: 2.6% v 2.2%e
- (ES) Spain Nov Current Account: -€4.1B v +€0.5B prior
- (UK) Dec Net Consumer Credit: -£0.4B v +£0.4Be; Net Lending: £0.7B v £0.8Be
- (UK) Dec Mortgage Approvals: 52.9K v 54.0Ke
- (UK) Dec M4 Money Supply M/M: -1.4% v -0.5% prior (largest monthly decline on record); Y/Y: -2.5% v -2.5% prior; M4 Ex OFCs 3M Annualized: -0.8 v +3.2% prior
- (EU) Euro Zone Dec Unemployment Rate: 10.4% 10.4%e (highest level since April 1998)
- (BE) Belgium Dec Unemployment Rate: 7.2% v 7.2% prior
- (IT) Italy Dec PPI M/M: +0.1% v -0.1%e; Y/Y: 3.8% v 3.7%e
- (GR) Greece Nov Retail Sales Value Y/Y: -6.3% v -8.1% prior; Retail Sales Volume Y/Y: -8.9% v -10.8% prior
- (MA) Malaysia Central Bank left the Overnight Rate unchanged at 3.00%; as expected
- (EU) OECD Dec Inflation Y/Y: 2.9% v 3.1% prior
- (BR) Brazil Dec Industrial Production M/M: 0.9% v 1.0 %e; Y/Y: --1.2% v 0.8%e
- (PT) Portugal Dec Industrial Production M/M: -1.5 v -2.3 % prior; Y/Y: -8.7 v -3.0% prior
- (PT) Portugal Dec Retail Sales M/M: +2.3% v -2.5% prior; Y/Y: -10.3% v -9.2% prior

Fixed Income:
- (ZA) South Africa sold total ZAR2.1B vs. ZAR2.1B indicated in 2018, 2020 and 2031 Bonds
- (EU) ECB allotted €115.6B vs. €120Be in 7-Day Main Refinancing Tender
- (HU) Hungary Debt Agency (AKK) sold HUF50B in 3-Month Bills; avg yield 7.41% v 7.94% prior; Bid-to-cover: 2.73x v 3.15x prior
- (BE) Belgium Debt Agency sold total €2.58B vs. €3.0B indicated in 3-month and 6-month Bills
- Sold €1.64B vs. €1.8Be in 3-month Bills; Avg Yield 0.506% v 0.429% prior; Bid-to-cover: 2.70x v 2.23x prior
- Sold €940M vs. €1.2Be in 6-month Bills, Avg Yield 0.710% v 0.364% prior; Bid-to-cover: 4.02x v 2.01x prior

*** SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM ***
***Notes/Observations***
- EU Governments appear to be closer to fiscal union arrangement and agreement on €500B ESM Bailout Fund
-ECB Draghi: Fiscal Pact is first step toward fiscal union
- Continued optimism on progress in Greek PSI talks
- German Jan unemployment data beats expectations
- Italy Dec Unemployment data higher than expectations
- Euro Zone Dec Unemployment of 10.4% is the highest since 1998

Equities:
FTSE 100 +0.80% at 5715, DAX +0.90% at 6503, CAC-40 +1.1% at 3302, IBEX-35 +0.40% at 8553, FTSE MIB +1.5% at 15,983, SMI +0.30% at 5989

- European shares rose during the session as markets adopted a risk-on attitude following EU summit. European leaders agreed on stricter budget plan while Greece's PM Papademos noted that debt talks had advanced significantly. Continental banks rose on optimism while UK banks declined after Santander [SAN.ES] expected a tough 2012 for UK banks. Oil stocks were also up tracking gains in crude.
- ARM Holdings [ARM.UK] reported higher than expected earnings which pushed the stock higher.

Speakers:
- EU's Juncker commented that there was no need for a special commissioner to monitor Greece and forecasted an agreement between Greece and private creditors possible by end of week and Monday 'at the latest' and heinsisted to Greek PM Papademos that PSI be settled asap. He added that Mersch was the best candidate for ECB executive board.
- China Premier Wen reiterated the view that China would fine tune its economic policy and step up credit support for the economy at a State Council meeting. He commented that it would promote reasonable decline in housing prices
- German Chancellor Merkel was said to be seeking support of Chinese investors and lobby for joint euro stabilization in China ahead of her Official Visit to the Far East (set for Feb 1st thru 4th)
- BOE Tucker commented that bank rules must expose debt and equity investors to losses
- India PM Econ Advisor Rangarajan commented that the country needed to use all tools to combat inflation and lowerits budget deficit to deliver higher economic growth. He stressed that India should target a current account deficit below 2.5% of GDP

Currencies:
- Risk appetite was bolstered by the outcome of the EU Leader Summit on Monday which moved closer fiscal union for 25 States (Except UK and Czech Republic) and to finally sign off on the details of a €500B permanent bailout fund. The final shape of the deal to reduce Greece's debt is still unknown after
months of wrangling between the Greek government but optimism continued to prevail
- The USD maintained a softer tone against the major pairs. The EUR/USD was back testing the 1.32 handle but was unable to take out last Friday's intra-day high of 1.3220. The pair was off its best levels as the various European data continued to highlight the two-tier economies of Europe. German unemployment data was at record lows while the whole the Euro Zone unemployment was at its highest level since early 1998. German retail sales did show that its economy had pockets of weakness.
- The JPY strength remained apparent with USD/JPY probing the lower end of the 76 handle and some two big figures from last week's high in the pair. EUR/JPY was at 100.67

Political/ In the Papers:
- The FT commented that European banks may ask for further funds from the ECB. Banks in Europe may tap the ECBs funding scheme for up to two times more than the ECB supplied in €489 billion auction last month, indicating a possible further liquidity squeeze. Several large European banks said they may double, or even triple funding requests in February's auction (29th Feb). US banks Goldman Sachs informed their clients that banks could ask for twice as much as the auction in December; one senior banker stated that banks could easily do another €1 trillion.
- Various press articles out of Europe commented on the rising borrowing costs in Portugal, as it hit record highs following fears that it could follow in Greece's footstep towards a debt write-down. SocGen economist Nixon said Portugal may struggle in its plans to return to the capital markets by the end of next year. It may require additional finances, which may mean a second bailout, or possibly a similar Greek-like debt write-down. Evans-Pritchard also noted contagion concerns related to Greece have weighed on Portuguese bonds with Investors doubting EU officials' pledges that haircuts would not be applied to debt.
- Following its FY12 cut in economic forecasts (from 1% to just 0.9%), the IBEC (Irish Business and Employers' Confederation) reiterated a call for measures aimed at stimulating consumer spending. One suggestion was to allow people to draw down part of private pensions or other voluntary contributions to spend at this time.

***Looking Ahead***
- (RU) Russia 2011 Annual Real GDP Y/Y: No est v 4.0% prior
- 7:00 (EU) ECB announces allotment in 7-Day Term Deposits; To drain €219.0B
- 7:00 (CL) Chile Dec Unemployment Rate: 7.1%e v 7.1% prior
- 7:00 (ZA) South Africa Dec Trade Balance: -1.6Be v -8.0B prior
- 7:30 (BR) Brazil Dec Primary Budget Balance: 1.B v 8.2B prior; Nominal Budget Balance: no est v -10.2B prior; Net debt to GDP: 36.4%e v 36.6% prior
- 7:45 (US) Weekly ICSC Chain Store sales
- 8:00 (BR) Brazil ABRAS Dec Supermarket Sales
- 8:00 (PL) Poland Central Bank Jan Inflation Expectations: No est v 4.8% prior
- 8:30 (US) Q4 Employment Cost Index: 0.4%e v 0.3% prior
- 8:30 (CA) Canada Dec Industrial Product Price M/M: -0.1%e v +0.2% prior; Raw Materials Price Index M/M: 0.0%e v 3.8% prior
- 8:30 (CA) Canada Nov Gross Domestic Product M/M: 0.2%e v 0.0% prior; Y/Y: 2.3%e v 2.7% prior
- 8:55 (US) Redbook Weekly Retail Sales
- 9:00 (US) Nov S&P/CaseShiller 20 City M/M: -0.50%e v -0.62% prior; Y/Y: -3.3%e v -3.4% prior; Home Price Index: No est v 140.3 prior
- 9:45 (US) Jan Chicago Purchasing Manager: 63.0e v 62.2 prior
- 9:45 (UK) BOE to buy £1.7B in 2038-2060 Gilts in reverse auction
- 10:00 (US) Revisions to ISM's 2012 Seasonal Adjustments
- 10:00 (US) Jan Consumer Confidence: 68.0e v 64.5 prior
- 10:00 (US) Jan NAPM Milwaukee: 57.5e v 57.8 prior
- 10:00 (MX) Mexico International Reserves w/e Jan 27th
- 11:00 (US) CBO releases economic outlook
- 11:00 (CO) Colombia Dec Urban Unemployment Rate: 10.3%e v 10.3% prior
- 11:00 (US) Fed to purchase $2.25-2.75B in Notes
- 11:30 (US) Treasury to sell 4-Week Bills
- 12:00 (DE) German Econ Min Roesler
- 14:00 (AR) Argentina Dec Construction Activity M/M: No est v -1.3% prior; Y/Y: No est v 3.2% prior
- 16:30 (US) Weekly API Energy Inventories
- 21:30 (CN) China Jan HSBC Manufacturing PMI: No est v 48.7 prior
- (US) Republican Florida Primary

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