European Market Update: Stronger German ZEW fails to inspire European markets; ECB overnight borrowings soar to over 15B

European Market Update: Stronger German ZEW fails to inspire European markets; ECB overnight borrowings soar to over €15B***Economic Data*** - (RU) Russia Central Bank (CBR) left its key rates unchanged (as expected) with Refinancing Rate at 8.00% level; Overnight Deposit Rate at 4.00% and the Overnight Auction-Based Repo at 5.25% - (EU) ECB: €15.6B borrowed in overnight loan facility v €632M prior; €795.2B parked in deposit facility vs. €798.0B prior

- (FR) France Feb Consumer Price Index M/M: 0.4% v 0.4%e; Y/Y: 2.5% v 2.4%e v 2.3% prior; CPI Ex Tobacco Index: 123.58 v 123.66e
- (FR) France Feb CPI EU Harmonized M/M: 0.5% v 0.5%e; Y/Y: 2.5% v 2.6%e
- (FI) Finland Jan Final Retail Sales Volume Y/Y: No est v 4.5% prior
- (FR) France Jan Current Account: -4.2B v -€2.8B prior
- (CZ) Czech Jan Industrial Output Y/Y: 3.2% v 3.0%e; Construction Output Y/Y: -5.3% v +14.5% prior
- (HU) Hungary Feb Consumer Prices M/M:0.8% v 0.5%e; Y/Y: 5.9% v 5.6%e
- (ES) Spain Feb Consumer Price Index M/M: 0.1% v 0.1%e; Y/Y: 2.0% v 2.0%e
- (ES) Spain Feb CPI EU Harmonized M/M: 0.1% v 0.1%e; Y/Y: 1.9% v 1.9%e
- (ES) Spain Feb CPI Core M/M: 0.0% v -0.1%e; Y/Y: 1.2% v 1.1%e
- (CH) Swiss Feb Producer & Import Prices M/M: 0.2%e v 0.0% prior; Y/Y: -2.4%e v -2.4% prior
- (HK) Hong Kong Q4 Industrial Production Y/Y: -2.2% v +0.2% prior; Producer Price Y/Y: 6.5% v 9.5% prior
- (NL) Netherlands Jan Trade Balance: €4.1B v €4.1B prior
- (SE) Sweden Feb CPI Headline Rate M/M: 0.7% v 0.5%e; Y/Y: 1.9% v 1.8%e; CPI Level: v 313.67e
- (SE) Sweden Feb CPI Underlying (CPIF) M/M: 0.7% v 0.6%e; Y/Y: 1.1% v 1.0%e
- (CZ) Czech Jan Current Account (CZK): 14.2B v 10.2Be
- (IT) Italy Feb Final CPI (NIC incl. tobacco) M/M: 0.4% v 0.4%e; Y/Y: 3.3% v 3.3%e
- (IT) Italy Feb Final CPIEU Harmonized M/M: 0.2% v 0.2%e; Y/Y: 3.4% v 3.4%e
- (RU) Russia Jan Trade Balance: $20.5B v $20.6Be
- (ZA) South Africa Jan Gold Production Y/Y: -11.3% v -8.2% prior; Mining Production Y/Y: -2.5%% v +0.9% prior
- (UK) Jan DCLG UK House Prices Y/Y: 0.2% v 0.1% prior
- (UK) Jan Visible Trade Balance: -£7.5B v -£7.9Be; Total Trade Balance: -£1.8B v -£1.9Be; Trade Balance Non EU: -£3.7B v -£4.3Be
- (DE) German Bundesbank publishes 2011 Annual Report: Net profit €600M v €2.2B y/y
- (DE) Germany Mar ZEW Economic. Sentiment: 22.3 v 10.0e; Current Situation: 41.5e
- (EU) Euro Zone Mar ZEW Economic Sentiment: +11.0 v -8.1 prior
Fixed Income: - (NL) Netherlands Debt Agency (DSTA) sold €2.825B €2.5-3.5B indicated in April 0.75% 2015 DSL Bonds; Avg Yield 0.618% v 0.853% prior
- (ZA) South Africa sold ZAR2.1B in 2017, 2021 and 2036 bonds
- (IT) Italy Debt Agency (Tesoro) sold total €12.0B v €12.0B indicated in 3-month and 12-month Bills
- Sold €8,5B vs €8.5Be in 3-Month Bills; Avg Yield 0.439% v 1.735% prior; Bid-to-cover.2.23x v 3.05x prior
- Sold €3.5B vs. €3.5e in 12-month Bills; Avg Yield 2.392% v 2.230% prior; Bid-to-cover: 1.38x v 1.09x prior
- (EU) ECB allotted €42.2B in 7-Day Main Refinancing Tender at fixed 1.00% vs. €17.5B prior
- (EU) ECB allotted € in 1-Month Refinancing Tender at fixed 1.0% vs. €14.3B prior
- (HU) Hungary Debt Agency (AKK) sold HUF55B vs. HUF50B Target in 3-Month Bills; avg Yield 7.25% v % prior; Bid-to-cover: x v x prior
- (BE) Belgium Debt Agency sold total €3.26B vs. €3.2B indicated in 3-month and 12-month Bills
- Sold €1.625B vs. €1.6Be in 3-month Bills; Avg Yield 0.188% v 0.211% prior; Bid-to-cover: 2.64x v 2.34x prior
- Sold €1.63B vs. €1.6Be in 12-month Bills; Avg Yield 0.586% v 0.892% prior; Bid-to-cover: 2.58x v 2.64x
*** SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM ***
***Notes/Observations***
- BOJ hold interest rates steady, as expected
- Final approval of Greek Bailout likely Wednesday; third rescue 'unlikely'
- Spain agrees to an additional 0.5% in cuts to bring deficit target down to 5.3% in 2012
- EU and Japan to Join US in making Rare Earth case against China
before WTO
- Criteria for US banking sector stress tests released: To include unemployment rate as high as 13%, equity price decline of 50%, and housing price decline of 21%
- ECB overnight borrowing climbs to €15B
- Swiss Producer & import data shows the country is winning the fight against deflation
- German ZEW survey continues to outperform
Equities: FTSE 100 +0.80% at 5941, DAX +1.1% at 6973, CAC-40 +1.1% at 3528, IBEX-35 +1.2% at 8279, FTSE MIB +1.4% at 16,689, SMI +0.70% at 6234
- European shares rose ahead of Fed's policy meeting and after strong US retail sales data. German ZEW also came much stronger than expected, the highest since June 2010. The positive data from two of the world's growth engine has aided risk appetite.
- Among notable news, Antofagasta [ANTO.UK] fell after net income missed expectations while EBITDA and Revenue came in line. Dividend also decreased and that had included a special dividend paid in 2010.
Speakers:
- EU's Juncker commented ahead of the secod day of Eurogroup meeting that it was best if a sitting central bank governor succeeded Gonzalez-Paramo on the Board. He noted that EMU growth outlook was not the best but markets now knew EMU was committed to stability. Juncker ruled out private sector involvement for Portugal and reiterated that the country remained on track for the next few years. He also noted that Italy was performing well and had no concerns
- EU/IMF analysis update noted that the prospects of Greece returning to the markets at program end was uncertain. It noted that privatization efforts to bring €45B in 2012-20 (€12B in 2012-14. The economy of Greece to stabilize in 2013 and indicated mild cyclical recovery for 2014-17 period. It stressed that Greece must maintain good policies through 2030 to reduce debt to below 100% of GDP. The cost of the financial system support estimated at €50B.
- BOJ Gov Shirakawa commented in his post rate decision press conference that the central bank to back its strong easing policy and would continue to do utmost to beat deflation. He noted that it must watch crude oil's price impact on domestic economy. The Feb easing was one factor behind the JPY currency weakness and added that the easing in European tension and signs of improvement in US were factors for the JPY price action.. Whether Japan was heading for desirable price growth is key to its policy decision. Decided to expand loans for growth as part of package to defeat deflation but was concern weakening over BOJ's loans were inviting fierce competition among banks
- European Finance Ministers and officials comment ahead of the second day of meetings.
- EU's Barroso commented to EU Parliament that the situation remained fragile in Europe and that a reinforced firewall was an indispensable part of strategy
- EU President Van Rompuy addressd the European Parliament and reiterated that EU was at a turning point
- Spain Fin Min de Guindos commented that Spain would comply with the additional budget deficit reduction for 2012
- Sweden Fin Min Borg stated that must not see any reduction in Spain's credibility. Financial transaction tax would increase costs for companies and govts
- Luxembourg Fin Min Frieden stated that increasing size of regional firewall was not urgent although some EU countries would have problems for years to come. He also noted that the transaction tax could divert business away from Europe
- Austria Fin Min Fekter: Would be better to give Hungary time to adjust
- German Fin Min Schaeuble noted that the meeting would sees an orientation debate on Financial Transaction tax (Tobin Tax) and saw no reason to exempt financial trades from tax. The minister added that he knows that such a tax can only be achieved on a European level and not globally and should consider alternatives if cannot get a tobin tax on a European level. The tax should be discussed at the Ecofin meeting at the end of March but the debate should not drag on
He commented that Greece's debt to GDP outlook was better than foreseen
- ZEW Economist Franz commented that the German economy was in remarkably good shape and was less concerned about the debt crisis at this time. Domestic demand to keep boosting German growth but risks would continue due to the low European activity elsewhere. Strong German industrial production triggers index improvement. The ZEW saw the case for higher interest rates due to rising CPI but the fragile economic situation did not permit an increase
- China Foreign Min official Lui commented that China's rare earth policy complied with WTO rules and that charges of it monopolizing rare earths were 'groundless'. He noted that China exploitation of rare earth was not sustainable but would continue to export
- Bundesbank President Weidmann commented that Target 2 claims were not a standalone risk because EU breakup was absurd
- Luxembourg Fin Min Frieden stated that he saw problem for Spain's 2013 deficit to GDP to be below 3% and added that the country needed to look into making additional budget cuts
- Japan METI energy official was said to later meet OPEC ministers in Kuwait this week on energy needs and that it viewed Saudi Arabia as a very important in replacing Iranian crude
- Moody's cut Cyprus sovereign ratings to 'Ba1' from 'Baa3'
Currencies:
- The EUR/USD maintained a steady repor in the early European session aide by reports of sovereign demand coupled with the euro zone finance ministers approval of the payout of Greece's second bailout. However high daily ECB borrowings raised a red flag on the fragility of the recovery in Europe. The better German ZEW survey failed to provide support but the EUR/USD continued to maintain its recent trading range for March with 1.3070 seen as support.
- The BOJ press conference provided an opportunity for the JPY currency to weaken across the board after Gov Shirakawa opening comment that the central bank wouldl continue with strong easing program. The USD/JPY recovered from a test of 82.00 to reach above 82.75 during the session.
- The higher Swiss inflation data pleased analysts but had little initial effect on the CHF currency pairs.
Political/ In the Papers:
- The President of the German Bundesbank Weidmann reiterated that central banks cannot solve the current crisis, and that emergency measures should be limited and temporary. Monetary policy should not focus on providing life support to weak banks.
- According to Dealogic, the year to date corporate bond issuances hit a record figure of $386 billion. Similarly, the Barclays Index showed the average spreads on investment-grade bonds narrowed to 184bps from 234bps at the end of 2011. The March average yields declined to 3.27% (the lowest reading since records began in 1973). Also junk bond yields declined to 7.19% from 8.36% at the end of 2011.
- In rating actions, Moody's cuts the sovereign ratings of Cyprus to junk status at 'Ba1' from 'Baa3', with a negative outlook, due to heightened concerns that the banking sector will require state support over its heavy exposure to Greece.
***Looking Ahead***
- (US) Congressional Budget Office (CBO) projection update
- 7:00 (IE) Ireland Jan Industrial Production M/M: No est v 2.5% prior; Y/Y: No est v -4.7% prior
- 7:00 (TU) Turkey to sell New Fixed Rate 2017 Bonds
- 7:00 (IC) Iceland to sell Bills
- 7:30 (EU) ECB's Draghi speaks in Paris
- 7:30 (US) Feb NFIB Small Business Optimism: 94.5e v 93.9 prior
- 7:45 (US) ICSC weekly chain store sales
- 8:00 (EU) ECB to drain €218.0B in7-Day Term Deposit Tender to offset Govt Bond Purchases (SMP)
- 8:00 (IC) Iceland Feb Unemployment Rate: No est v 7.2% prior
- 8:00 (SO) Slovenia Debt Agency (ARDAL) to sell 3-month, 6-month and 12-month Bills
- 8:30 (US) Feb Advance Retail Sales: 1.1%e v 0.4% prior; Retail Sales Less Autos: 0.7%e v 0.7% prior; Retail Sales Ex Auto & Gas: 0.5%e v 0.6% prior
- 8:55 (US) Weekly Redbook Retail Sales
- 9:00 (PL) Poland Feb CPI M/M: 0.3%e v 0.7% prior; Y/Y: 4.2%e v 4.1% prior
- 9:00 (PL) Poland Jan Current Account: -€1.0Be v -€1.3B prior; Trade Balance: -€380Me v -€1.1B prior
- 9:00 (DE) ECB's Weidmann speaks after Bundesbank publishes annual report
- 9:30 (EU) EU President Van Rompuy
- 10:00 (EU) ECB weekly Forex Reserves
- 10:00 (US) Mar IBD/TIPP Economic Optimism: 50.0e v 49.4 prior
- 10:00 (US) Jan JOLTs Job Openings: No est v 3.376M prior
- 10:00 (US) Jan Business Inventories: 0.5%e v 0.4% prior
- 10:00 (MX) Mexico Jan Industrial Production M/M: No est v 0.9% prior; Y/Y: No est v 2.8% prior
- 10:45 (UK) BOE to buy £1.5B in 2027-2060 Gilts in reverse auction
- 11:00 (BR) Brazil to sell 2016, 2018, 2022, 2030, 2040 and 2050 I/L bonds
- 11:00 (MX) Mexico weekly International Reserves
- 11:30 (US) Treasury to sell 4-Week Bills
- 12:00 (IT) Italy PM Monti meets German Chancellor Merkel in Rome
- 12:00 (IC) Iceland Feb International Reserves (DKK): No est v 1.1B prior
- 13:00 (US) Treasury to sell 10-Year Notes Reopening
- 14:15 (US) FOMC Interest Rate Decision: Expected to leave Interest Rates unchanged at 0.25%
- 15:00 (AR) Argentina Feb Consumer Price Index M/M: No est v 0.9% prior; Y/Y: No est v 9.7% prior
- 15:00 (AR) Argentina Feb Wholesale Price Index M/M: No est v 0.9% prior; Y/Y: No est v 12.5% prior
- 16:30 (US) Weekly API Energy Inventories
- (US) Republican Alabama Primary
- (US) Republican Hawaii Caucus
- (US) Republican Mississippi Primary
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