? EU market update: Spanish 10-year yields remain above the level of 6% as many questions about Spain.

Monday, June 11, 2012 5:38:18 AM TradeTheNews.com EU Market Update: Spanish 10-year yields remain above the 6% level as plenty of questions remain regarding Spain.***Economic Data***
- (EU) ECB: ?1.9B borrowed in overnight loan facility vs. ?1.5B prior; ?788.2B parked in deposit facility vs. ?756.6B prior
- (JP) Japan May Consumer Confidence: 40.7 v 39.8e
- (JP) Japan May Preliminary Machine Tool Orders Y/Y: -2.9% v v 0.4% prior
- (FR) France Apr Industrial Production M/M: +1.5% v -0.1%e; Y/Y: +0.9% v -0.3%e >- (FR) France Apr Manufacturing Production M/M: -0.7% v -0.7%e; Y/Y: -1.4% v -0.9%e
- (CZ) Czech May CPI M/M: 0.2% v 0.1%e; Y/Y: 3.2% v 3.1%e
- (DK) Denmark Apr Current Account (DKK): 9.4B v 5.5Be; Trade Balance (ex-shipping): 6.1B v 6.3Be prior
- (DK) Denmark May CPI M/M: 0.0% v 0.0%e; Y/Y: 2.1% v 2.1%e
- (DK) Denmark May CPI EU Harmonized M/M: 0.0% v 0.0%e; Y/Y: 2.0% v 2.0%e
- (ES) Spain Apr House transactions Y/Y: -9.9% v -22.7% prior
- (TR) Turkey Apr Current Account: -$5.0B v -$5.0Be
- (IT) Italy Q1 Final GDP Q/Q: -0.8% v -0.8%e; Y/Y: -1.4% v -1.3%e
- (CN) China May M2 Money Supply M/M: 13.2% v 12.8%e; M1 Money Supply M/M: 3.5% v 3.2%e; M0 Money Supply M/M: 10.0% v 10.6%e >- (CN) China May New Yuan Loan (CNY): 793.2B v 700.0Be
- (NO) Norway May CPI M/M: 0.0% v 0.1% prior; Y/Y: 0.5% v 0.3% prior
- (NO) Norway May CPI Underlying M/M: 0.4% v 0.1% prior; Y/Y: 1.4% v 0.7% prior
- (NO) Norway May Producer Prices incl.Oil M/M: -2.1%v -1.6% prior; Y/Y: 2.5% v 2.5% prior
Fixed Income:
- (PH) Philippines rejected all bids in 3-month, 6-month and 12-month Bills
- (SK) Slovakia Debt Agency (ARDAL) sold ?138.0M in 4.35% 2025 Bonds; Avg Yeild 4.2583%; Bid-to-cover: 1.39x
- (NO) Norway sold NOK3.0B vs. NOK3.0B indicated in 2% 2023 Bonds; Yield 2.16%
- (DE) Germany sold ?3.53B in 6-Month BuBills; Avg Yield 0.0070% v 0.0371% prior; Bid-to-cover: 1.2x v 1.5x prior
*** SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM ***
***Notes/Observations***
- Risk on sentiment prevails following ?100B Spanish banking sector aid agreement; initial impact was waning ahead of the NY morning.
- Components of China Trade Balance (exports/imports) show improvement
- China new Yuan loans shows RRR cuts are working
- Spain 10-year Govt bond unable to sustain sub-6.0% yield in session
- S&P: India may be first of BRICS nation to lose investment grade rating
***Equities*** >Indices: IBEX-35 +3.8% at 6799, FTSE 100 +1.3% at 5505, DAX +2.2% at 6265, CAC-40 +1.9% at 3116, FTSE MIB +1.9% at 13,688, SMI +1.3% at 5943, S&P 500 Futures +0.90% at 1340
- Equity indices opened the session sharply higher amid Spain's decision to seek aid for its banks and better than expected May exports data out of China. The gains for the session have been largely driven by banks in Spain, as some of the country's large financial institutions opened the session higher by over 9%. Spain IBEX-35 is continuing to outperform, as the index opened higher by over 5%. Resource related companies are broadly higher (Xstrata, Rio Tinto and BP are trading higher by approx. 2%) on higher commodity prices. Amid the rebound in the European equity markets and announcement related to Spain, corporate bond market activity has picked-up on the session. Companies speculated to issue bonds in the near-term include Accor [AC.FR], France Telecom [FTE.FR], GE Capital, Swedbank [SWEDA.SE] and Volkswagen [VOW3.DE].
- Shares of Tesco [TSCO.UK] are trading off of the best levels for the session, following the release of the firm's Q1 sales figures. Tesco also reaffirmed its FY targets, as it noted that consumer confidence levels in the UK have been largely stable. Engineering and construction services firm Severfield-Rowen [SFR.UK] has lost over 10% after issuing a profit warning, while Mouchel [MCHL.UK] is lower by over 25%, as the firm disclosed that strategic options being considered might result in only limited value for existing shareholders. In France, Technicolor [TCH.FR] has gained over 4%, after rejecting a ?1.90/share offer from JP Morgan. Porsche [PAH3.DE] is trading higher by ~4%, as a German press report said the company might be able to avoid paying ?1.5B in taxes, as part of its merger with Volkswagen. Amid the story related to Porsche, shares of Volkswagen have risen by ~3.5%. Additionally, a separate press report said that Volkswagen is said to be planning to raise its Chinese production by approx. 100% in the next few years.
Speakers: >- Spain Treasury commented that details of bank sector aid yet to be established but the plan did include buffers on top of worst case scenarios. The dept reiterated its view that its funding program would not be changed
- EU's Almunia: Believes ?100B aid would be enough for Spain; Bailout to include conditions; interest rate and timing not yet determined
- EU Commission Official Altafaj commented that the loan to Spain might have avg interest rates of 3-4%. The agreement should not impact Spain's deficit, but would impact its indebtedness. Loan to have strict conditions related to the overhaul of Spain's banking sector but the amount of the loans might not reach ?100B level
- Moody's commented that developments in Spain and Greece might prompt Euro Area sovereign rating downgrades
- Portugal PM Coelho: No reason to ask for new conditions for Portugal's financial aid program following the rescue request for Spanish banks
- Finland Fin Min Urpilainen stated that Finland would demand collateral or its share of emergency loans to shore up the Spanish banking system if aid comes from EFSF facility
- ECB Constancio urged accountants to adopt a long-term view to risks as focusing on shareholder volume provideed only short-term perspective. Fair value accounting could be "Outright wrong" and that current provisioning methodology was a risk to financial stability
- JP Morgan commented on Spain: Country's debt to GDP ratio would jump to around 90% from 81% if the entire ?100B package is used
- Germany Public Banking Assoc official Voeb commented that the sovereign debt crisis was heightening and putting earnings under pressure. The Spain banking sector bailout would help stabilize markets
- S&P commented on China's revised capital rules and noted there were in line with expectations and could push the banking sector to shore up capital
- S&P stated that India might be first of BRICS nation to lose its investment grade rating (**Note: currently at BBB-, outlook negative)
- Japan Govt nominated Takahide Kiuchi and Takehiro Sato as BoJ board members with a parliamentary vote expected mid-week
- Thailand Central Bank reiterated its view that it no need to take any action in FX markets at this time as recent THB currency (Baht) volatility was caused by external factors and that most capital inflows detected were short term
- OPEC President commented that there was a tremendous surplus in oil market but rejected idea of quota system at this stage. Iraq planned 2.9M bpd exports in 2013 vs. 2.4M bpd currently and saw $100-120/barrel as a reasonable price. Iraq was not substituting Iranian production at this time
Currencies:
- Relief and reversing of safe-haven flows characterized the early part of today's session but dealers still had plenty of questions regarding Spain. Thus the markets still needed to be convinced that the weekend agreement was not just a bunch of headlines masking the core problem before Greek election. Key points including where money would come from and in what form it would take (Cash or bonds). Also which banks still to be determined? Overall dealers noted that contingent liabilities were now way higher nonetheless.
The Spanish 10-year Govt bond yield briefly dipped below the 6.0% for the first time in almost a month but could not sustain the momentum to hold that level.
- Swiss names were said to be once again behind the soft tone in Euro after the open with renewed chatter circulating that the SNB might be legging out of the Euros accumulated from its defense of the EUR/CHF floor at 1.2000. The EUR/USD hovered below the pivotal 1.2630 level throughout the European morning after a test above during Asia.
Political/ In the Papers:
- Certain Greek energy companies were reported to have been seeking to obtain emergency bank loans in order to pay suppliers and prevent power cuts.
- The Telegraph's Ambrose Evans-Pritchard anticipated the ?100B bailout for Spanish banks as a loan package to the sovereign state of Spain will raise the country's public debt by up to 10% of GDP. In addition, the rescue package is less than some market estimates; JP Morgan said Spain requires ?350B; RBS placed the estimate at ?450B.
- Comments made by JP Morgan analyst expects the Spanish debt to GDP ratio would jump to around 90% from 81% if the entire ?100B package were to be used. This compares to forecasts made by Spain in April where it forecasted the 2012 debt/GDP ratio at 79.8% vs. 68.5% y/y
- The French President Hollande and his party moved closer to securing the majority needed to govern France with first round results predicting the Socialists and other leftists will take a majority of the 577 seats in the National Assembly in the second round on the 17th June. Four polling agency projections and early official results show diminished support for former President Nicolas Sarkozy's conservative UMP party across the country. They show growing support for the left, amid anger at cost-cutting austerity measures and reforms under Sarkozy seen by some as too friendly to the rich.
- According to the Populus poll 80% of the British population support a European referendum. A third support a referendum in the next few years compared to the 18% seeing no need for one in the foreseeable future.
- In a report released by Deutsche Bank the Irish housing market is expected to continue to be significantly oversupplied. The vacancy rate is at 15% with over 289K empty houses (including approx 60k vacant holiday homes). According to the bank, if current population trends are sustained, housing oversupply will take 43 years to clear.
***Looking Ahead***
***All times listed for economic events are denominated in Eastern Standard Time (Add 4 hours for GMT equivalent)
- (ES) IMF report on Spain's banking sector
- (DE) German Chancellor Merkel attends event honoring Frankfurt Mayor Roth
- (PT) Bank of Portugal Releases Data on Banks
- 6:00 (PT) Portugal Apr Trade Balance: No est v -?842M prior
- 6:00 (EU) Apr Leading Indicators: No ets v 100.4 prior
- 7:00 (IE) Ireland May Consumer Confidence: No est v 62.5 prior
- 7:30 (FI) IMF review of the Finland
- 7:30 (BR) Brazil Central Bank Weekly Economists Survey
- 8:00 (RO) Romania to sell 12-Month Bills
- 9:00 (MX) Mexico Apr Industrial Production M/M: 0.6%e v 1.5% prior; Y/Y: 4.8%e v 3.1% prior
- 9:00 (MX) Mexico Apr Final Trade Balance: $560Me v $560.2M prelim
- 9:00 (FR) France Debt Agency (AFT) to sell between ?7.8B in 3-month, 6-month and 12-month bills
- 9:30 (EU) ECB calls for bids in 7-Day Main Refinancing Tender
- 9:30 (EU) ECB calls for bids in in 1-Month Tender
- 9:30 (EU) ECB announces weekly settlements in its Govt Bond Purchase program
- 11:00 (MX) Mexico May Vehicle Production: No est v 206.4K prior; Vehicle Domestic Sales: No est v 69.9K prior; Vehicle Exports: No est v 168.9K prior
- 11:00 (US) Fed to sell $1.00-1.50B in Notes
- 11:30 (US) Treasury to sell $30B in 3-Month and $27B in 6-Month Bills
- 12:00 (EU) EU's Rehn speaks at European Parliament in Strasbourg, France
- 12:00 (US) Fed's Lockhart speaks on U.S. Economy in Chicago
- 12:00 (US) Fed's Williams delivers opening remarks in San Francisco
- 13:45 (CA) Bank of Canada's Carney gives intro at Montreal Conference
- 18:00 (US) Fed's Pianalto speaks on Improving Educational Attainment
- 20:00 (JP) BOJ Governor Shirakawa speech to San Francisco Fed. 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. Daily Forex