TradeTheNews.com European Market Update: UK net debt tops the Major European PMI data improves in January

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Share This Story: | | Email Tuesday, January 24, 2012 5:42:21 AM

 TradeTheNews.com European Market Update: UK net debt tops the £1.0 trillion mark; Major European PMI data improves in January

***Economic Data***
- (EU) ECB: €3.4B borrowed in overnight loan facility v €3.3B prior; €490.5B parked in deposit facility vs. €491.8B prior
- (FI) Finland Dec Unemployment Rate: 7.4% v 6.8%e
- (ZA) South Africa Nov Leading Indicator: 132.2 v 131.4 prior
- (FR) France Jan Preliminary PMI Manufacturing: 48.5 v 48.6e; PMI Services: 51.7 v50.0e
- (CZ) Czech Jan Business Confidence: 7.4 v 5.3 prior; Consumer Confidence: -25.3 v -29.8 prior; Composite: +0.8 v -1.7 prior
- (ES) Spain Nov Mortgages-capital loaned Y/Y: -32.6% v -40.6% prior; Mortgages on Houses Y/Y: -35.8 v -43.6% prior
- (AT) Austria Nov Industrial Production M/M: 0.0% v 0.1% prior; Y/Y: 2.5% v 3.5% prior
- (DE) Germany Jan Advanced PMI Manufacturing: 50.9 v 49.0e (first growth since Sept 2011); PMI Services: 54.5 v 52.4e (highest level since June 2011)
- (EU) Euro Zone Jan Advanced PMI Manufacturing: 48.7 v 47.2e; PMI Services:50.5 v 49.0e; PMI Composite: 50.4 v 48.5e
- (UK) Dec Public Finances (PSNCR): £22.9B v £19.0Be; Public Sector Net Borrowing: €10.8B v £12.1Be; PSNB ex Interventions: £13.7B v £14.9Be v £18.1B prior
- (EU) Euro Zone Nov Industrial New Orders M/M: -1.3% v -2.2%e; Y/Y: -2.7% v -2.7%e
- (IS) Israel Nov Unemployment Rate: 5.4% v 5.4% prior
- (BR) Brazil Jan IBGE CPI IPCA-15 M/M: 0.7% v 0.6%e
- (IE) Ireland Dec Property Prices M/M: -1.7% v -1.5% prior; Y/Y: -16.7 v -15.6% prior

Fixed Income:
- (NL) Netherlands Debt Agency (DSTA) sold €1.835B vs. 1.5-2.5B indicated range in 2013 and 2042 Bonds
- Sold €495M in 1.75% 2013 Bonds; avg yield 0.074% v 0.861% prior
- Sold €1.34B in 3.75% 2042 Bonds; avg yield 2.690% v 4.03% prior
- (ES) Spain Debt Agency (Tesoro) sold approx €2.51B vs. €1.5-2.5B indicated range in 3-Month and 6-Month Bills
- Sold €1.4B in 3-month Bills; Avg Yield 1.285% v 1.735% prior; Bid-to-cover: 4.32x v 2.9x prior; Max Yield 1.330% v 1.880% prior
- Sold €1.11B in 6-month Bills; Avg Yield 1.847% v 2.435% prior; Bid-to-cover: 6.87x v 4.1x prior; Max Yield 1.900% v 2.530% prior
- (DK) Denmark sold total DKK2.14B in 2016 and 2021 Bonds
- (TU) Turkey sold TRY 2.37B in 10% 2013 Bonds
- (ZA) South Africa sold total ZAR vs. ZAR2.1B indicated in 2017 and 2021 Bonds
- (EU) ECB allotted €130.3B in 7-Day Main Refinancing Tender vs. €120Be at fixed rate of 1.00%
- (HU) Hungary sold HUF45B vs. HUF45B Target in 3-Month Bills; avg yield 7.65% v 7.84% prior; Bid-to-cover: 1.99x v 3.15x prior

*** SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM ***
***Notes/Observations***
- Japan expected to announce its first trade deficit since 1980 on Wednesday
- Coupon issue sends Greek debt negotiations back to square one
- India cuts is Cash Reserve Ratio by 50bps to 5.50% (not expected); leaves key rate unchanged
- Major European PMI data improves with several readings back above the pivotal 50 level
- Greek sovereign debt negotiations appear to have hit an impasse over the interest rate on the bonds set to replace existing ones but Greece remains optimistic that a deal can be achieved

Equities:
FTSE 100 -0.70% at 5740, DAX -0.95% at 6374, CAC-40 -0.75% at 3312, FTSE MIB -0.50% at 15,828, SMI -0.70% at 6086

- European equity indices opened the session lower, led by weakness in Spanish and German equities. The equity weakness comes amid the lingering Greek private sector involvement (PSI) talks and disappointing corporate earnings. Banking names opened the session lower following yesterday's sharp gains, led by declines in French banks after S&P downgraded SocGen [GLE.FR] and Credit Agricole [ACA.FR]. UK-listed miners including are declining, amid the weakness in commodity prices.
- In individual names, large Swiss refiner Petroplus [PPHN.CH] is lower by over 70%, after announcing that it defaulted on $1.75B worth of debt. Also, Petroplus said it would prepare for bankruptcy proceedings in Switzerland. In Germany, solar name Q-Cells [QCE.DE] has lost over 15%, after the company provided guidance and announced a plan to restructure its debt. Siemens [SIE.DE] is lower by approximately 3.5%, as the company reported weaker than expected quarterly earnings. Software AG [SOW.DE] has lost more than 5%, following the release of its earnings and 2012 guidance. In Italy, Telecom Italia [TIT.IT] is down over 3% on speculation that the company might lower its dividend. In UK movers, shares of PZ Cussons [PZC.UK], Playtech [PTEC.UK] and Chemring [CHG.UK] are all declining after reporting financial figures. In the Netherlands, KPN [KPN.NL] is lower by more than 5%, after reporting weaker than expected Q4 earnings and issuing cautious guidance for 2012. In France, STMicroelectronics [STM.FR] has declined by approximately 6%, after reporting weaker than expected Q4 results.

Speakers:
- UK Treasury commented on the Dec public finance data and noted that UK debt over £1.0T shows the unsustainable level of spending over the past few years and was critical to act decisively with the deficit
- India Central Bank (RBI) Gov Subbarao commented that past interest rate tightening was one reason for slower economic growth but also contribute by global and local sentiment. The RBI would meet the 10 largest banks to discuss bad loans and issue guidelines for hedging. He noted that the State Govt might borrow INR250B more
- BOJ Gov Shirakawa commented at his post rate decision press conference that the BOJ Board agreed that the timing of Japanese economic recovery was delayed and would fully watch the risk of JPY currency appreciation. He added that the central bank must pay more attention to impact of strong JPY currency on the domestic economy. He reiterated the view that the European debt crisis remained biggest risk to Japan and that concrete plan to strengthen European firewalls had yet to be implemented. He did not believe that Japan's trade deficit would continue as a trend as the deficit was mainly due to post-quake energy costs. Concerns over global funding has eased somewhat but the Volker rule would negatively affect USD funding
- IMF Chief Lagarde commented in the German press that she saw financing needs of €1 trillion over the next two years as the size needs to be 'very clear and high'. She was determined to be positive on the euro and more work needed to be done. Greece PSI must be substantial and the European fiscal compact needed to be put in place
- Greece's privatization agency forecasted 2012 revenue of € 4.7B from state asset compared to its € 9.3B target set in the budget
- The second day of Ecofin meeting brought out a plethora of finance minister commentary
- Greece Fin Min Venizelos stated that the country received the 'green light' from Eurogroup to close PSI deal and expected this to happen over the next few days
- Sweden Fin Min Borg stated that Greece faced a difficult timetable in order to deliver its reforms
- Greece Conservative leader Samaras commented that elections needed to be held by April 8th 2012 and expected the bond swap deal to be finished by March 5th at latest. He added that Greece needed to lower taxes and concentrate on reforms for economic recovery as the country was in an unprecedented long-term depression.
- Austria Fin Min Fekter stated that she expected Greece to do more on reforms and remained skeptical on that issue. She noted that when masures were presented, then it culd decide on next Greek installment but could find consensus on faster implementation of ESM
- Spain Fin Min Montoro stated that Spain's austerity measures had been well received and must continue with policies
- Netherlands Fin Min de Jager commented that a sustainable debt level for Greece was a requirement for its second bailout package
- EU's Almunia commented that EU was examining banks in Portugal, Spain, France and Belgium
- Hungary Dep PM: Govt believed that the mandatory lowering of judges retirement age was not discriminatory and part of broader pension reform
- European Bank for Reconstruction and Development (EBRD) cuts Hungary 2012 GDP at -1.5% from +0.5% prior. For Emerging Europe the EBRD trimmed its 2012 GDP view to 3.1% from 3.2% prior
- Spain's Fondo de Amortizacion del Deficit Electric's (FADE) was said to have pulled planned euro-denominated bond issuance

Currencies:
- The European PMI data came in a touch better than expectations and this helped the Euro maintain a firming footing in the early part of the session and offset from the initial lack of progress on Greek debt discussions. Overall dealers suspected Euro short-covering as the evident excuse. Despite the coupon issue remaining outstanding the Greek Fin Min Venizelos stated that Greece did receive the 'green light' from Eurogroup on the PSI discussions. The trading was choppy overall in a 60+ pip range with EUR/USD testing 1.3063 at one point after the PMI data before retreating back under 1.30 handle. The pair was at 1.3015 ahead of the NY morning.
- The JPY was a tad weaker in the session aided by comments from BOJ Gov Shirakawa that he remained concerned over the JPY currency strength. The EUR/JPY cross popped up to test 100.83 with some jitters that the BOJ might intervene in the pair after Shirakawa's verbal intervention. Dealers did also note that the looming Japanese fiscal year-end might prompt Japanese life insurance investment adjustment activity

Political/ In the Papers:
- A report in the financial press noted that a growing number of analysts, economists and politicians are worried that Portugal will need a second bailout in 2013 when its €9 billion in debt comes due. Currently, the country is covered for 2012 as long as it follows the bailout plan. The IMF may require Portugal to present its financing plans before releasing more aid.
- According to Ernst & Young, there were 88 corporate profit warnings in the fourth quarter compared to 51 in the prior quarter. This was the largest quarter-on-quarter increase in 10 years. The profit warnings were led by retail and technology companies. Last year, the software and computer services sector issued 31 warnings, which was the highest number since 2008.

***Looking Ahead***
- (DE) German Chancellor Merkel to meet IMF chief Lagarde
- (IE) Ireland Fin Min Noonan to meet ECB chief Draghi and EU Commissioner Rehn on Irish bank debt
- (AR) Argentina Jan Consumer Confidence: No est v 52.6 prior
- 7:00 (EU) ECB announces allotment in 7-Day Term Deposits
- 7:00 (TR) Turkey Central Bank Interest Rate Decision: Expected to leave the Benchmark Repo Rate unchanged at 5.75%
- 7:30 (BR) Brazil Dec Current Account: -$5.2B v -$6.8B prior; Foreign Direct Investment (FDI): $5.0Be v $4.1B prior
- 7;45 (US) Weekly ICSC Chain Store Sales
- 8:00 (HU) Hungary Central Bank Interest Rate Decision: Expected to raise the Base Rate by 50bps to 7.50%
- 8:30 (CA) Canada Nov Retail Sales M/M: 0.2%e v 1.00% prior; Retail Sales Less Autos M/M: 0.2%e v 0.7% prior
- 8:55 (US) Weekly Redbook Retail Sales
- 9:00 (BE) Belgium Jan Business Confidence: -10.0e v -10.6 prior
- 9:00 (MX) Mexico Nov Global Economic Indicator: 3.6%e v 3.7% prior
- 9:00 (US) The Federal Open Market Committee (FOMC) holds a closed meeting
- 9:05 (EU) ECB's Gonzalez-Paramo speaks In New York
- 9:30 (EU) ECB calls for bids in 3-Month Tender
- 9:45 (UK) BOE to buy £1.7B in 2038-2060 Gilts in reverse auction
- 10:00 (US) IMF releases updated economic and financial forecasts
- 10:00 (MX) Mexico International Reserves w/e Jan 20th
- 10:00 (US) Jan Richmond Fed Manufacturing Index: 6.0e v 3.0 prior
- 11:00 (US) Fed to purchase $4.25-5.00B in Notes
- 11:15 (CH) SNB's Danthine makes speech in Zurich
- 11:30 (US) Treasury to sell 4-Week Bills
- 13:00 (US) Treasury to sell $35.0B in 2-Year Notes
- 13:00 (DE) ECB member Weidmann
- 13:15 (EU) ECB's Mersch speaking in Luxembourg
- 14:00 (AR) Argentina Dec Industrial Production M/M: No est v 1.8% prior; Y/Y: 1.6%e v 4.0% prior
- 14:00 (AR) Argentina Dec Shop Center Sales Y/Y: No est v 20.6% prior
- 15:00 (UK) Bank of England Gov King speaks in Brighton
- 16:30 (US) Weekly API Energy Inventories
- 18:00 (IT) Italy PM Monti addresses Italian Senate on EU's Ecofin outcome
- 18:50 (JP) Japan Dec Total Merchandize Trade Balance: -¥139.7Be v -¥687.6B prior (revised from -¥684.7B)
- 18:50 (JP) Japan Dec Adjusted Merchandize Trade Balance: -¥412.3Be v -¥537.9B prior

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