EU Market Update: 3-month Euribor rises for the first time in the post-LTRO environment

Thursday, May 17, 2012 5:41:22 AM

EU Market Update: 3-month Euribor rises for the first time in the post-LTRO environment***Economic Data***
- (EU) ECB: €839M borrowed in overnight loan facility €2.0B prior; €785.1B parked in deposit facility v €788.4B prior
- (RU) Russia Gold & Forex Reserve w/e May 11th: $518.8B v $522.9B prior
- (JP) Japan Apr Final Machine Tool Orders Y/Y: 0.4% v 0.5% prelim
- (CZ) Czech Mar Export Price Index Y/Y: 2.5% v 4.2% prior; Import Price Index Y/Y: 4.2 v 5.8% prior
- (CZ) Czech Apr PPI (Industrial) M/M: 0.0% v 0.2%e; Y/Y: 2.2% v 2.4%e
- (ES) Spain Q1 Final GDP Q/Q: -0.3% v -0.3%e; Y/Y: -0.4% v -0.4%e >- (HK) Hong Kong Apr Unemployment Rate: 3.3% v 3.5%e
Fixed Income: >- (ES) Spain Debt Agency (Tesoro) sold total €2.49B vs. €1.5-2.5B indicated range in 2015 and 2016 Bonds (three tranches)
- Sold €372M in 4.4% Jan 2015 Bono; Avg Yield 4.375% v 2.890% prior; Bid-to-cover: 4.47x v 2.41x prior; Maximum Yield set at 4.421% v 2.960% prior
- Sold €1.02B in 4.00% July 2015 Bono; Avg Yield 4.876% v 4.037% prior; Bid-to-cover: 3.01x v 2.88x prior; Maximum Yield 4.917% v 4.069% prior
- Sold €1.1B in 3.25% April 2016 Bono; Avg Yield 5.106% v 3.374% prior; Bid-to-cover: 2.38x v 4.1x prior; Max Yield 5.13% v 3.428% prior
- (HU) Hungary Debt Agency (AKK) sold total HUF53B in 2015, 2017 and 2022 Bonds
- (UK) DMO sold £1.5B in 5% 2014 Gilt mini tender; avg yield 0.351% v 1.542% prior; Bid-to-cover: 3.67x v 1.69x prior
*** SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM ***
***Notes/Observations***
- European markets quiet due to Ascension Thursday Holiday
- US foreclosure filings hit 5 year lows
- Spain sells upper end of its range in bond auction with Yields rising (as expected)
- Troika to study contingency plan for Portugal in case of Greek EMU exit
- 3-month Euribor rises for the first time since Dec 19th 2012
***Equities*** >Indices: FTSE 100 -0.70% at 5366, DAX -0.50% at 6349, CAC-40 at 3028, IBEX-35 -0.50% at 6579, FTSE MIB -1% at 13,149, SMI +0.10% at 5872
- European equity markets opened the session slightly higher, but indices have since pared gains as most banks are in negative territory. Banks have traded with a negative tone, amid reports that JP Morgan's previously reported $2B trading loss may have risen by approx. €1B. The FT reported that Spain is expected to appoint Blackrock as one of the firms which will appraise the property assets of Spanish banks. In other banking news the Italian Banking Association suggested that it might become more difficult for Italian banks to issue debt on the international market.
- In individual movers in the UK, copper producer Antofagasta [ANTO.UK] is trading lower after reporting weaker than expected Q1 results. Vedanta Resources [VED.UK ] has traded lower by over 2%, as its FY results missed market expectations. Retailer French Connection [FCCN.UK] is has declined by over 20%, after issuing a profit warning. Energy services firm Invensys has gained over 4%, as the company reported higher than expected FY revenues and announced an increase in its dividend. In Spain, Bankia has lost over 14%, amid concerns about deposit outflows at the bank. In Germany companies including BMW [BMW.DE], Celesio [CLS1.DE] and Leoni [LEO.DE] have been weighed down by ex-dividend factors.
Speakers: >- Spanish Bank Bankia [BKIA.ES] Clients said to have withdrawn over €1B since last Wednesday
- Italy Banking Association stated that €137B of bank debt was coming due in 2012. Italian bank funding from retail clients had been very weak although positive in early 2012. >- EU/IMF/ECB Troika was said to examine possible contingency plans for Portugal in the event of a Greek exit from EMU
- UK PM Cameron commented that the UK to stick to deficit reduction plans in the face of Euro crisis. He noted that the BoE had the flexibility to do more to support the economy. He stressed that the ECB and core Euro Zone countries must do more to support demand and welcomed France's proposal of project bonds
- UK Business Sec Cable noted that there were clearly risks to domestic economy from potential euro zone breakup, but businesses should not panic from that threat
- France Fin Min Moscovici commented that both France and Germany wants Greece to stay in EMU. He stated that it needed to defend euro. France must manage public finances (reduce budget deficit and debt) while facilitating growth. He noted that growth would be a key topic at the upcoming G8 Summit. He sought to add growth to EU deficit rules and that the Budget Pact wouldl not be approved without changes. France to seek transaction tax (tobin tax) and project bonds
- German Bundesbank's Dombret commented that most European banks were now stronger than before the financial crisis. Banks in Germany are prepared for larger Greek problems.
- Former MoF official Sakakibara ('Mr Yen') commented on CNBC that Japan would not have a crisis for the next 4-5 years. Japanese exporters suffering from reduced global demand and effects from a strong JPY currency. Current USD/JPY levels were not an issue for exporters but could be if it moved below 70 handle. He believed the JPY could strengthen towards 78 for a while.
- Japanese Bankers Group head: Further turmoil in Europe could lead to a stronger JPY currency
- Hungary IMF representative Fellegi commented that the IMF talks might start in June and end in autumn. He noted that no agreement on banking sector on tax would mean tense discussions with IMF >- Fitch report noted that Basel III capital rules posed ROE challenges for global banks and estimated that the 29 global systemically important financial institutions (G-SIFI) might need to raise approximately $566B in common equity to satisfy new Basel III capital rules by end-2018.
Currencies:
- A very quiet session with most European participant observing Ascension Thursday Holiday. The highlight of the morning was the Spanish GDP figures and its 3-4 year Bond auctions which provided no surprises. The EUR/USD was little changed from its Far East opening levels of 1.2720. Concerns over Greece remain with EU/IMF/ECB Troika to examine possible contingency plans for Portugal in the event of a Greek exit from EMU. The 3-month Euribor rose for the first time since the ECB launched its 3-year lending LTRO back on Dec 21st 2011in the post-LTRO environment. Some chatter that the European holiday might have excluded on bank in its survey and skewed results
Political/ In the Papers:
- The Chief Executive of Centre for Economic and Business Research (CEBR) Douglas McWilliams stated a planned breakup of the single currency would cost 2% of euro zone GDP ($300B), while a disorderly collapse would be at 5% decline in output or a loss of $1T. He added that the end of the euro in its current form is a certainty.
- Some analysts are concerned about the collateral levels of Greek banks according to the Telegraph's Ambrose Evans-Pritchard. The low collateral levels of Greek banks could make it more difficult to obtain funding from the ECB's €100B Emergency Liquidity Assistance [ELA] facility. Some analysts believe that the ECB could improve the situation by relaxing collateral requirements for Greek banks.
- The economics editor for the BBC Stephanie Flanders noted that the estimated range of Greek deposit withdrawal is €700M-1.2B (out of €160B total deposits) following the election; the total deposits are about a third lower against end-2009. The most important aspect of the euro and Greek banks is that the ECB is again at the centre of events; the ECB has the power to make or break the euro. What it does not have is any desire to do this, or formal legal responsibility.
- The Times reported British mortgages are to be hit by the euro crisis, as homeowners are expected to face new increases in mortgage rates.
***Looking Ahead***
- 7:00 (BR) Brazil May FGV Inflation IGP-10 M/M: 1.0%e v 0.7% prior
- 8:00 (BR) Brazil Mar Retail Sales M/M: +0.3%e v -0.5% prior; Y/Y: 11.7%e v 9.6% prior; Broad Retail Sales Y/Y: 7.9%e v 2.5% prior
- 8:30 (CA) Canada Mar Int'l Securities Transactions (CAD): 8.0Be v 12.5B prior
- 8:30 (CA) Canada Mar Wholesale Sales M/M: 0.3%e v 1.6% prior
- 8:30 (US) Initial Jobless Claims: 365Ke v 367K prior; Continuing Claims: 3.225Me v 3.229M prior
- 9:00 (US) IMF Lagarde, Zhu Min and World Bank Zoellick
- 9:30 (US) IMF briefing
- 9:00 (MX) Mexico Q1 GDP Q/Q: 1.0%e v 0.4% prior; Y/Y: 4.5%e v 3.7% prior
- 9:30 (US) Weekly Commercial Paper Outstanding
- 10:00 (US) May Philadelphia Fed: 10.0e v 8.5 prior
- 10:00 (US) Apr Leading Indicators: 0.1%e v 0.3% prior
- 10:30 (US) Weekly EIA Natural Gas Inventories
- 10:30 (CA) Bank of Canada quarterly review of economy
- 11:00 (US) Fed to purchase $1.5-2.0B in Notes
- 11:00 (BR) Brazil to sell 2013, 2014, 2016 Bills
- 11:00 (BR) Brazil to sell Sell Fixed-rate 2018 and 2023 bonds
- 13:00 (US) Treasury to sell $13B in 10-Year TIPS Reopening
- 11:30 (EU) European Leaders to hold pre-G8 video conference call
- 12:00 (US) IMF chief economist Blanchard
- 12:35 (US) Fed's Bullard Speaks to Rotary Club of Louisville
- 17:00 (CO) Colombia Mar Retail Sales Y/Y: No est v 9.4% prior
- 18:00 (CL) Chile Central Bank Interest Rate Decision: Expected to leave the Nominal Overnight Rate Target unchanged at 5.00% 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.