European market update: BOE MPC split on asset purchase target as miles and Posen again sought more QE

         Wednesday, March 21, 2012 6:48:19 AM

European Market Update: BOE MPC split on Asset Purchase Target as Miles and Posen again sought more QE

***Economic Data***
- (JP) Japan Feb Convenience Store Sales Y/Y: 4.8% v 1.7% prior
- (PH) Philippines Jan Budget Balance (PHP): -15.9B v -101.5B prior
- (TH) Thailand Central Bank leaves Benchmark Interest Rate unchanged at 3.00%; as expected
- (CH) Swiss Feb M3 Money Supply Y/Y: 6.4% v 7.3% prior
- (AT) Austria Jan Producer Price Index M/M: +0.2 v -0.4% prior; Y/Y: 1.9% v 2.2% prior
- (NL) Netherlands Feb House Price Index M/M: -0.4 v 0.6% prior; Y/Y: -3.4 v -3.3% prior
- (IC) Iceland Central Bank (Sedlabanki) raised the 7-day Lending Rate by 25bps to 5.00%
- (NO) Norway Jan AKU Unemployment Rate: 3.2% v 3.3%e
- (UK) Feb Public Finances (PSNCR): -£7.8B v -£1.0Be; Public Sector Net Borrowing: +£12.9B v +£5.0Be; PSNB ex Interventions: +£15.2B v +£8.0Be
Fixed Income:
- (RU) Russia sold RUB3.0B vs. RUB35.2B in 2019 OFZ Bond; Yield 7.65%
- (EU) ECB allotted $1.8B in 7-Day USD liquidity Tender at fixed 0.65% vs. $2.3B prior
- (SE) Sweden sold SEK2.5B vs. SEK2.5B indicated in 3.5% 2022 Bonds; Yield 2.143%
- (DE) Germany sold €4.108B in 0.25% March 2014 Schatz; Avg Yield 0.31% v 0.25% prior; Bid-to-cover: 1.8x v 1.8x prior
- (PT) Portugal Debt Agency (IGCP) sold total €1.99B vs. €1.5-2.0B indicated in 4-Month and 12-Month Bills
- Sold €382M in 4-month Bills; Avg Yield 2.168% v 3.845% prior; Bid-to-cover: 6.7x v 10.3x prior
- Sold €1.61B in 12-month Bills; Avg Yield 3.652% v 4.943% prior; Bid-to-cover: 2.5x v 2.0x prior
- (DE) Germany sold €1.398B in April 2023 I/L bond; Avg Yield 0.15%; Bid-to-cover: 1.6x

*** SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM ***
***Notes/Observations***
- Fed Chairman Bernanke: Comfortable with easing EU strains but must remain vigilant as contagion risk remains
- Treasuries snap longest ever consecutive drop in 10-Year prices. Dealers note that previous episodes have been followed by extended yield compression
- UK BOE minutes more dovish than expected as 2 members sought more QE
- UK Budget speech key event in NY morning; watch for rating agency reaction
***Equities*** FTSE 100 +0.20% at 5901, DAX +0.30% at 7074, CAC-40 +0.40% at 3544, IBEX-35 -0.30% at 8543, FTSE MIB -0.40% at 16,893, SMI +0.30% at 6313
- European shares gained during the session ahead of US home sales data due out in the NY morning. Investors are anticipating a positive surprise especially after building permits published yesterday, surpassed analysts' estimates. Retailers pushed the shares higher following positive earnings report. - Sainsbury [SBRY.UK] rallied after reporting higher revenue and like-for-like sales for the fourth quarter. Inditex [ITX.ES] also rose after reporting figures that were in line with estimates and raising the dividend payout by 12.5%
Speakers: - Bank of England Minutes saw a surprised split in the Asset Purchase Target vote of 7 to 2 (same as the Feb meeting). The MPC majority saw little change in balance of risks to growth and inflation over the past month and was certain that UK growth would pick up in the near term but significant downside risks remain. Oil prices were a clear risk to outlook and might rise further than assumed back in Feb. The majority noted that a substantial risks to medium-term CPI outlook and future declines to CPI were less certain than recent declines. Unemployment might not cap inflation due to unclear productivity outlook and upward drift in wage agreements
- BOE Minority members Miles and Posen again voted to increase APT by £25B (same as in Feb) noting that a larger monetary stimulus was warranted to reduce the risk that persistently weak growth would damage the future supply capacity of the economy
- Greece Dep Fin Min Filippos Sachinidis was formally appointed as the next Finance Minister to replace Venizelos
- Germany might need to increase firewall guarantees to €280B from €211B. The guarantees would be needed to be raised if the EFSF was run at the same time as the ESM. The EFSF has remaining fire power of about €190B, while the ESM would have about €500B
- Germany appeared to have accepted defeat in its efforts to convince other European countries to impose a kind of sales tax on financial transactions (Tobin Tax) in the EU or in the smaller euro zone, possibly putting up an obstacle to ratifying the permanent euro-zone bailout fund in Parliament - Germany Cabinet was said to have approve 2013 budget draft which cut net borrowings by €5.7B
- German RWI Institute raised its 2012 GDP outlook to +1.0% from +0.6 % prior and forecasted 2013 GDP growth at +2.0%
- ECB's Assmussen commented that it was too early to begin exit of special measures at this time but must carefully prepare ECB's exit at this time. He noted that the exact timing depended on market developments. Crisis was not over and was not sure if recent market calm was deceptive; He stressed that govt must use this time to enact reforms. He added that the central bank did not see any sign of Europe-wide asset bubbles but were watching developments closely
- Netherlands Fin Min de Jager sought to ask the EU Commission to look for alternative to the financial transaction tax
- Japan Gov Cabinet Office monthly report maintained its overall economic assessment as economy remained in severe state after last March's earthquake but recovery trend looked more certain. Japan raised its view on consumer spending for the second straight month and also raised the view on capital spending (1st time in 8 months). Japan did caution that rising oil prices were a potential economic risk factor
- Former BoE official William Buiter commented that there was no scope in UK for additional expansionary fiscal policy. He also believed the BoE was overestimating spare capacity in the economy.
- Thailand Central Bank commented that its Interest Rates remained accommodative at 3.00% and still supported economic growth and was appropriate for inflation. The central bank cautioned that inflation risk was on the upside due to oil prices, wages and government economic policies. It reiterated that manufacturing to return to normal conditions in Q3 following the floods from 2011. Thailand raised its 2012 GDP growth outlook to 5.7% from 4.9% as well as inflation views for both headline and core readings in 2012
- Moody's downgraded rating for the City of Detroit to below investment grade
- Gartner raised its forecast for 2012 global semiconductor manufacturing equipment spending to $38.9B, -11.6% y/y (prior forecast was $35.2B)
- China PBoC to allow more agricultural bank branches have a lower RRR
Currencies:
- Approaching quarter-end had dealers question the flow direction but the firm tone in the EUR/USD was attributed to Tuesday's formal approval of the Greek second bailout conditions in its Parliament
- USD/JPY Dealers were pondering the next leg of the JPY currency move but the JPY was softer during the session. Dealers noted that 10-year Treasuries snap its longest ever consecutive drop in prices but dealers noted that previous episodes have been followed by extended yield compression which could hamper upside potential for the time being. However the JPY was softer against the major pairs.
- The GBP/USD stumbled from the 1.59 area following a much more dovish release of the BOE minutes and a sharp deterioration in government borrowing. The pair tested 1.5840 after MPC members Miles and Posen again voted for £25B in QE.
Political/ In the Papers:
- Banks in Europe are trying to design a structure aimed at easing liquidity in the commodities industry, putting together a securitized vehicle which bundles loans to commodity trading firms. Currently, larger commodity trading firms are borrowing at about 100-200bps/Libor. According to bankers, the availability of credit to the commodity industry has declined by as much as 30%.
- According to a survey of economists, a majority expects the UK to maintain its AAA sovereign credit rating, as well as government to meet its deficit targets.
- Credit ratings agency Moody's warned that there is little to no chance Irish banks will have the ability to securitize home loans in the medium-term. The agency also anticipates mortgage arrears level could increase by over 16% by the year end compared to the 11.98% reported at the end of January. Securitization was a significant source of bank funding during the boom years.
***Looking Ahead***
- (GR) EU Commissioner Rehn meets Greece Dep Fin Min
- (DE) Germany to sell €2.0B in April 2023 I/L bonds
- 7:00 (US) MBA Mortgage Applications w/e Mar 16th: No est v -2.4% prior
- 7:00 (IE) Ireland Feb PPI M/M: No est v 1.4% prior; Y/Y: No est v 2.7% prior
- 7:00 (PL) Poland to sell up to PLN2.5B in Bonds
- 7:00 (CZ) Czech Republic to sell Floating 2023 Bonds
- 7:00 (CZ) Czech Republic to sell 3.4% 2015 Bonds
- 8:00 (UK) PM question time in House of Commons
- 8:00 (FI) Finland's Parliament votes on Confidence in Government (5th time)
- 8:20 (DE) German Chancellor Merkel at CDU event
- 8:30 (UK) Chancellor Osborne Budget Speech - 8:30 (UK) OBR releases updated forecasts on UK Economy
- 8:30 (CA) Canada Feb Leading Indicators M/M: 0.6%et v 0.7% prior
- 9:30 (US) Fed Chairman Bernanke and Tsy Sec Geithner testify before Congress on Europe Debt Crisis
- 10:00 (EU) EU's Barnier speaks at EU Parliament
- 10:00 (MX) Mexico Jan Retail Sales: 4.0%e v 3.5% prior
- 10:00 (US) Feb Existing Home Sales: 4.61Me v 4.57M prior
- 10:30 (US) Weekly DOE Energy Inventories
- 10:45 (UK) (UK) BOE to buy £1.5B in 2019-2025 Gilts in reverse auction
- 11:00 (US) Fed to Purchase $3.50-4.25B in Notes
- 11:30 (BR) Brazil Central Bank weekly currency flow data
- 15:00 (AR) Argentina Feb Trade Balance: $1.3Be v $550M prior
- 17:00 (CO) Colombia Jan Industrial Production Y/Y: 4.0%e v 2.4% prior; Retail Sales Y/Y: 7.0%e v 7.5% prior
- 17:45 (NZ) New Zealand Q4 GDP Q/Q: 0.6%e v 0.8% prior; Y/Y: 2.2%e v 1.9% prior
- 19:50 (JP) Japan Feb Total Merchandise Trade Balance: -¥120.0Be v -¥1.477T prio; Adjusted Merchandise Trade Balanace: -¥342.5be v -¥612.8B prior - 22:30 (CN) China Mar HSBC Flash China Manufacturing: No est v 49.7 prior

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.