TradeTheNews.com European Market Update: Spanish and French debt auctions show no kinks despite recent SP sovereign downgrades

Thursday, January 19, 2012 5:44:32 AM
 TradeTheNews.com European Market Update: Spanish and French debt auctions show no kinks despite recent S&P sovereign downgrades
***Economic Data***
- (EU) ECB: €3.3B borrowed in overnight loan facility v €2.3B prior; €395.3B parked in deposit facility vs. €528.2B prior (Note: New Maintenance period began)
- (IN) India Primary Articles WPI w/e Jan 7th Y/Y: 2.5% v 0.5% prior; Food Articles WPI Y/Y: -0.4 v -2.9% prior
- (PH) Philippines Dec Balance of Payments: -$114M v $364M prior
- (RU) Russia Gold & Forex Reserve w/e Jan 13th: $497.1B v $498.0B prior
- (PH) Philippines Central Bank (BSP) cuts the Overnight Borrowing Rate by 25bps to 4.25%; as expected
- (AT) Austria Nov Producer Price Index M/M: +0.2% v -0.1% prior; Y/Y: 3.3% v 3.4% prior
- (NL) Netherlands Jan Consumer Confidence: -37 -34e
- (NL) Netherlands Dec Unemployment Rate: 5.8% v 5.9%e
- (HK) Hong Kong Dec Unemployment Rate: 3.3% v 3.4%e
- (EU) Euro Zone Nov Current Account nsa: €1.0B v +€2.6B prior; Current Account Seasonally Adj: - v -€1.8€7.5B prior
- (PL) Central/Eastern European Jan ZEW Indicator: -26.6 v -41.4 prior

Fixed Income
- (ES) Spain Debt Agency (Tesoro) sold €6.61B vs. €3.5-4.5B indicated range in2016, 2019 and 2022 Bonds
- Sold €1.3B in 4.25% Oct 2016 Bono; Avg Yield % v 5.276% prior; Bid-to-cover: 3.2x v 2.83; Max Yield 4.050% v 5.280% prior
- Sold €2.3B in 4.60% July 2019 Bono; Avg Yield % v 5.110% prior; Bid-to-cover: 2.0x v 2.09x prior; Max Yield 4.643% v 5.147% prior
- Sold €3.0B in 5.85% Jan 2022 Bono; Avg Yield % v 6.975% prior; Bid-to-cover: 2.2x v 1.54x prior; Max Yield 5.466%
- (FR) France Debt Agency (AFT) sold total €7.97B vs. €6.5-8.0B indicated range in 2014, 2015 and 2016 BTANs
- Sold €2.961B in 3.0% 2014 BTAN; Avg Yield 1.05% v 1.58% prior; Bid-to-cover: 2.10x v 2.98x prior
- Sold €1.575B in 2.0% 2015 BTAN; Avg Yield 1.51% v 2.44% prior; Bid-to-cover: 3.40x v 2.40x prior
- Solds €3.429 in 2.5% 2016 BTAN; Avg Yield 1.89% v 2.82% prior; Bid-to-cover: 2.10x v 1.68x prior
- (UK) DMO sold £4.0B in 4% Jan 2016 Gilts; Avg Yield 0.893% v 1.789% prior; Bid-to-cover: 2.02x v 1.48x prior; Tail:0.2 bps v 0.5bps prior
- (HU) Hungary Debt Agency (AKK) sold HUF45B vs. HUF45B targeted in 12-Month Bills; Avg Yield 8.19% v 9.96% prior
*** SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM ***
***Notes/Observations***
- Australia Job data worse than expected
- Greek PSI discussions continue
- S&P registers its first close above 1300 since summer 2011
- First bond auctions in France and Spain since the ratings cuts go reasonable well
Equities:
FTSE 100 +0.10% at 5708, DAX +0.10% at 6358, CAC-40 +0.70% at 3288, IBEX-35 +0.50% at 8463, FTSE MIB +0.60% at 15,367, SMI +0.30% at 6133
- European shares climbed higher following recent news that Greece was working with its lenders and that IMF would increase its lending resources by $500B. The initial euphoria at the news has subsided given the reluctance of some countries, namely US and Canada, to the potential increase. On a positive note, Spanish auction were well received as Spain sold considerably higher than the planned range.
- In corporate news, Carrefour [CA.FR] dropped about 1.8% after missing estimates and expecting a lower operating profit. French manufacturer Alstom [ALO.FR] also declined after reporting a 9% drop in its Q3 revenues which missed estimates. Company blamed the weak economic conditions in developed countries. Commerzbank [CBK.DE] rose after announcing that it had fulfilled 57% of the EBA requirements and strengthened Tier 1 capital ratios from its own resources.
Speakers:
- ECB's Asmussen reiterated that the central bank's extraordinary measure were strictly temporary and that the govt bond purchase program could not last forever. He did note that the ECB had many unconventional tools such as liquidity measures. He supported strengthening and early introduction of ESM facility and that it had many advantages over the EFSF. The ESM required high, stable firewalls and that all members should contribute more capital to ESM.
- ECB published its Jan Monthly Report echoes Draghi's post rate decision commentary. The report reiterated that CPI to stay above 2% in the short term and move back towards target in medium term. The report also reiterated that downside risks to economic outlook were substantial and that ongoing financial market tensions to dampen economic activity. It did noted that it saw tentative signs of stabilization
- Bundesbank Official Dombret commented that global imbalances played an important role in financial stability. European members faced a moral hazard in buying stressed sovereign debt and that non-European investors should purchases peripheral bonds to diversify their portfolios. Global Investors should help to solve the debt crisis in Europe and purchase more sovereign debt on long-term sustainability. Monetary policy tools were not primarily financial stability tools
- Slovakia Fin Min Miklos commented that the combined EFSF and ESM capacity should not exceed €500M and that the EFSF lending capacity should be sufficient for ongoing programs despite the recent S&P downgrade
- Greece Finance Minister Venizelos confirmed that the final phase of Troika talks was related to new aid will begin and that new EU-led aid deal would come with new terms. He reiterated that the PSI debt swap talks were at a "critical" stage
- Germany BDI Federation commented in its economic outlook that it saw 2012 Germany exports rising 3% y/y and that overall 2012 GDP growth of 1.0% was possible (compares to official German Govt view of 0.75% growth)
- S&P commented that the Euro zone could see a mild recession in the first half of 2012 with roughly a 40% chance of deeper EU recession materializing
- Norway Central Bank (Norges) Q4 Survey of Bank Lending stated that household lending rose in quarter but saw broadly unchanged household credit demand. Banks tightened household credit standards in Q4 with tighter standards also seen in Q1
- Spain's government might halt transfers to regions which miss spending target
- Japan had not made any commitment regarding contribution to IMF new round of fund raising but would consider support for Europe's effort to stabilize markets including bilateral loans to IMF
- Fitch analyst reiterated its view that it expected that six euro zone members currently on review to end with downgrade of 1-2 notches in most states
- Fitch commented on Spain and noted that the Gov't liquidity plans for the autonomous regions was interesting
- Fitch commented that an disorderly Greek default was not likely
- Czech Central Bank Gov Singer commented that interest rates might remain unchanged during 2012
- Philippine Central Bank commented after its interest rate decision that its 2012 and 2013 inflation target seen falling within lower half of the 3-5% range. It did see upside risk to inflation from strong capital flows and geo-political issues with the main risk being oil prices. The local economy would likely to face external headwinds in 2012
- Iran foreign minister Salehi commented that no one needed to be concerned about the Hormuz Strait but the region was of importance to Iran and warned other Gulf nations not be to dragged into conflict. He noted that the US was double-dealing with Iran as it was flexing muscles but secretly asking for discussions. President Obama must follow up letter with goodwill
Currencies:
- The Euro continued to grind higher against the major pairs against a more supportive background. The recent disclosure that the IMF sought to raise its lending resources and not complications from the Spanish and French bond auctions helped the EUR/USD to probe above the 1.29 handle for fresh 2-week highs. The technical picture was also more constructive for the Euro. The EUR/USD was above the prior 3-month channel resistance line while EUR/JPY cross appeared to have some potential of a weekly reversal after testing 11-year lows earlier this month at 97.00. The cross probed the 99 handle during the session.
- The EUR/CHF cross seemed bent on testing the SNB's resolve on holding the 1.2000 floor that has been enacted since early September. The cross was at 1.2070 for the bulk of the session.
Political/ In the Papers:
- In an international study released by consultancy McKinsey, UK had the highest level of debt following Japan. UK debt increased over the past three years to more than 5x its economic output. At current trends, it would take until 2020 for households to return debt levels to the pre-bubble trend. The report compares major economies since 2008. The overall sentiment was positive for the US with household debt possibly reaching sustainable levels in roughly two years or slightly more compared to the UK where it will take many more years.
- The Telegraph's Evans-Pritchard looked at the warning signs related to China's economy. Unsold property inventories in China have hit multi-year highs with more than 800K cars sitting unsold in warehouses. According to former Chinese banking regulator Liu Mingbank, orders for new ships have declined sharply. China's property sector makes up about 13% of GDP, which is in line with levels seen in Spain at the peak of its property bubble. The extent of China's property bubble and the aggressive tightening measures by officials has raised concerns about whether policy makers can engineer a 'soft landing'.
- The FT reported that European banks, Commerzbank and Monte dei Paschi di Siena, are in danger as the Friday deadline approaches. Regulators in Europe were reported to be certain that both banks will not be able produce realistic plans to deal with capital deficits by deadline on Friday; this exposes both banks to the risk of full or partial nationalization. European official had said it is almost inevitable that further injection of funds by the state will be required. Plpease note that the recent EBA tests found that 31 out of the 70 banks tested needed to raise a total of €115B in new capital; European regulators gave banks until June, need to submit a plan by deadline of Friday.
***Looking Ahead***
- (ZA) South Africa Central Bank (SARB) Interest Rate Decision: Expected to maintain interest rates at 5.50%
- 6:00 (PL) Poland to sell up to PLN6.0B in Zero Coupon Bonds
- 6:00 (PT) Portugal Dec Producer Prices M/M: No est v 0.2% prior; Y/Y: No est v 5.2% prior
- 6:00 (IE) Ireland Dec CPI M/M: No est v 0.0% prior; Y/Y: 2.7%e v 2.9% prior
- 6:00 (IE) Ireland Dec CPI EU Harmonized M/M: -0.2%e v 0.0% prior; Y/Y: 1.3%e v 1.7% prior
- 7:00 (EU) ECB chief Draghi
- 8:00 (PL) Poland Dec Sold Industrial Output M/M: -6.3%e v +0.7% prior; Y/Y: 6.2%e v 8.7% prior
- 8:00 (PL) Poland Dec Producer Prices M/M: 0.6%e v 0.7% prior; Y/Y: 8.3%e v 8.9% pror
- 8:00 (RO) Romania to sell 5 Year Bond
- 8:30 (CA) Canada Nov Manufacturing Sales M/M: +0.8%e v -0.8% prior
- 8:30 (US) Dec Consumer Price Index M/M: 0.1%e v 0.0% prior; CPI Ex Food & Energy M/M: 0.1%e v 0.2%; CPI NSA: 225.782e v 226.23 prior
- 8:30 (US) Dec Housing Starts: 680Ke v 685K prior; Building Permits: 679Ke v 680K prior (revised from 681K)
- 8:30 (US) Initial Jobless Claims: 384Ke v 399K prior; Y/Y: 3.59Me v 3.628M prior
- 9:00 (BE) Belgium Jan Consumer Confidence: No est v -12 prior
- 9:00 (MX) Mexico Dec Unemployment Rate: 4.8%e v 5.0% prior
- 10:00 (US) Jan Philadelphia Fed: 10.3e v 10.3 prior
- 10:30 (US) Weekly EIA Natural Gas Inventories
- 11:00 (US) Weekly DOE Energy Inventories
- 11:00 (US) Treasury refunding announcement for 2-year, 5-year and 7-year notes
- 11:00 (US) Fed to buy Notes
- 13:00 (US) Treasury to sell $15.0B in10-Year TIPS
- 12:00 (DE) German Bundesbank President Weidmann
- 12:00 (EU) OECD
- 12:10 (CA) Canada former Dep Fin Min speaks in Ottawa
- 16:00 (CO) Colombia Nov Industrial Production Y/Y: 5.2e v 5.0% prior; Y/Y: 5.9%e v 6.1% prior
- (MX) G20 vice Finance Ministers meet in Mexico City (first of a 2-day meeting)
- (US) Republican Party holds Primary Debate in Charleston, South Carolina
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