European Market Update: Market reaction again muted on peripheral concerns

***Economic Data***
– (PH) Philippines Feb Overseas Workers Remittances: $1.5B v $1.5B prior
– (RU) Russia Narrow Money Supply w/e Apr 11th (RUB): 5.74 v 5.67T prior
– (IN) India Mar Wholesale Prices Y/Y: 9.0% v 8.4%e
– (IN) India Primary Articles WPI w/e Apr 2nd Y/Y: 11.4% v 13.0% prior; Food Articles Y/Y: 8.3 v 9.2% prior
– (CZ) Czech Feb Export Price Index Y/Y: 0.2% v 0.6% prior; Import Price Index Y/Y: 4.3% v 4.6% prior
– (CZ) Czech Mar PPI (Industrial) M/M: 1.0% v 0.6%e; Y/Y: 6.3% v 6.0%e
– (DE) Denmark Mar Wholesale Prices M/M: 1.4% v 1.0% prior; Y/Y: 9.0% v 8.9% prior
– (TU) Turkey Jan Unemployment Rate: 11.9% v 11.4% prior
– (FI) Finland Current Account: €460M v €380M prior
– (SW) Sweden Mar Average House Prices (SEK): 2.04M v 2.14M prior
– (AS) Austria Mar Consumer Price Index M/M: 1.2% v 0.7% prior; Y/Y: 3.1% v 3.0% prior
– (IT) Italy Feb Total Trade Balance: -€3.6B v -€6.6B prior; Trade Balance EU: -€883M v -€831M prior
– (NO) Norway Mar Trade Balance (SEK): 32.3B v 30.0Be
– (IT) Bank of Italy Quarterly Economic Bulletin
– (PD) Central/Eastern European Apr ZEW: 18.7 v 13.9 prior
– (EU) Euro Zone Mar CPI M/M: 1.4% v 1.3%e; Y/Y: 2.7% v 2.6%e; CPI Core Y/Y: 1.3% v 1.1%e
– (IT) Italy Mar Final CPI (NIC incl. tobacco) M/M: 0.4% v 0.4%e; Y/Y: 2.5% v 2.5%e
– (IT) Italy Mar Final CPI EU Harmonized M/M: 2.2% v 2.0%e; Y/Y: 2.8% v 2.6%e
– (EU) Euro-Zone Feb Trade Balance Seasonally Adj: -€-2.4B v -€3.6Be; Euro-Zone Trade Balance: -€1.5Bv -€4.0Be

*** SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM ***
***Notes/Observations:
– Possibly weaker US CPI data could weaken hawkish FOMC case on rates.
– China GDP and CPI data above expectations
– Possible G20 accord on SDR basket extension could give USD bears more fuel

Equities:
FTSE 100 +0.10% at 5969, DAX +0.20% at 7160, CAC 40 -0.40% at 3956, IBEX 35 -0.74% at 10,544, FTSE MIB -0.30% at 21,768, SMI +0.40% at 6380

– European shares are trading mostly lower to flat without a particular direction. China’s CPI hit a 2-year high as leaked in the prior session while Eurozone CPI printed hotter than expected. Moody’s downgraded Ireland two notches to lowest level of medium grade but equities remained undisturbed. Financials are trading down most likely pressured by various rhetoric over a potential Greek restructuring. FTSE100 is kept afloat by strong numbers from private retailer John Lewis which also pulled up other retailers.
– Nestle [NESN.SZ] reported Q1 revenues in line with expectations and reaffirmed its FY11 outlook. Shares rallied. Swiss industrial name Syngenta [SYNN.SZ] also rallied after beating Q1 estimates. Pharma Galapagos slumped over 20% after discontinuing drug against rheumatoid arthritis in its Phase II trial. French supermarket chain Carrefour [CA.FR], which reported yesterday at the close of European bourses, disappointed on results and noted that it was facing inflationary pressures in China. Shares are down by 2%
– In M&A news, 888 [888.UK] dropped over 13% after Ladbrokes announced that it was ended merger talks with the company. In December 2010, Ladbrokes announced that it was in talks with 888 for an offer of about 70p/shr. On April 1st Ladbrokes was reported to be considering a new offer proposal at more than 70p/share.

Speakers:
– Moody’s cuts Ireland sovereign rating by two notches to the lowest level of investment grade. The rating agency also downgraded Ireland’s short-term issuer rating by one notch to Prime-3. Moody’s noted that the key drivers for the rating action were 1) the expected decline in the Irish government’s financial strength combined with the country’s weaker economic growth prospects; and 2) the uncertainty created by the solvency test required by the European Stabilization Mechanism (ESM) for the provision of future liquidity support. Moody’s commented that Ireland’s long-term potential growth continued to be better than other advanced nations. It cautioned that if fiscal objectives were not met, then further downgrades might follow. Conversely an upward rating pressure could develop if fiscal consolidation efforts reversed current debt dynamics
– Greece PM Papandreou commented in his address to the Greek Cabinet that the additional austerity measures to be detailed after Easter. The country’s medium-term economic plan was to be completed over the next several weeks and targeted to reduce spending to 44% of GDP by 2015. Greece is managing its large debt load and addressing its fiscal problem
– ECB’s Honohan commented that the ability of Irish banks to raise cash was not very flexible. He also remarked that he did not wear an ‘Irish hat’ at ECB meetings.
– BoE Sentence commented that UK inflation could exceed 5% due to GBP weakness. The perennial hawk reiterated his view that delaying rate rise at this point in time would mean bigger hike later.- A stronger GBP currency from a BOE rate hike would not be unwelcomed
– China NDRC Official Zhang: Q1 CPI was relatively high and needs “high attention”
– China PBoC’s Gov Zhou reiterated China’s view to continue gradual path making the CNY currency more flexible and welcomed discussion to include CNY as part of IMF’s SDR basket
– ECB’s Constanzio commented that inflation pressures had risen over the past two months and was a cause for concern. Second round effects of inflation might warrant a pre-emptive rate action and that Oil price rise might pose a stagflation risk. He noted that there was no pressure on Greece to seek a debt restructuring
– China State Administration of Foreign Exchange (SAFE) cut its short-term foreign debt quotas (as expected). SAFE set the 2011 quota for some foreign banks at $14.6B. The move was done to ensure international payments balance and improve liquidity management.
– PIMCO: ECB hiking rates increases the default risk for the weaker EU states

Currencies/Fixed income:
– The EUR/USD was softer in Mid-European trading but within recent weekly range. There were plenty of peripheral events to feast upon but once again the market appeared to shrug off such instances and remain focused on interest rate differentials. Another sovereign downgrade (Moody’s cut Ireland ahead of the equity open) and a Greek delay on releasing any details on its most recent round of austerity measures were largely ignored. On a good note Portugal did pay the €4.3B in bond redemptions scheduled for today. Euro Zone CPI data continued to run hot and was complemented by hawkish ECB rhetoric. EUR/USD was lower by 45 pips from the Asian open to trade at 1.4455 ahead of the NY morning.
– A defensive tone in equities helped the JPY and CHF to firm up a touch in the session. USD/JPY again tested the 83.00 level while USD/CHF was drifting back towards post WWII lows set earlier in the week.

Geo-Political/ In the Papers:
– The Greek Prime Minister Papandreou addressed the cabinet stating that the additional austerity measures are to be detailed after the Easter period. The medium-term economic plan is to be completed over the next several weeks. Greece is managing its large debt load, and will address its fiscal problem, which will include spending reduction to 44% of GDP by 2015. Note, prior to his address, it was expected by the financial press that the Greek government may announce a medium-term fiscal plan, which may disclose over €22 billion of deficit cutting measures through 2014, with plans to conduct €15 billion in asset sales. Greece had previously announced an agreement with the EU/IMF to cut its deficit to less than 3% of GDP by 2014.
– Financial news out of Germany report that some of the owners of WestLB have reached an agreement related to a overhaul plan for the bank. The plan calls for the creation of a regionally focused bank. As a reminder, back on the 13th of April 13th, the EU’s Almunia stated that he hoped to receive a viable WestLB restructuring plan by the 15th of April.
– According to the Financial Times, contagion from Greece is beginning to spread to Spain. Some investors noted in the article thought Spain had successfully decoupled itself from the problems in the European peripheral countries. During yesterday’s session, the Spanish/German 10-year yield spread increased to 192 bps from 173bps (a 5-month low).

***Looking Ahead***
– (BE) Belgium Feb Trade Balance: No est v -€518.2M prior
– 7:00 (EU( ECB Weber
– 7:00 (BR) Brazil Apr FGV Inflation IGP-10 M/M: 0.6%e v 0.8% prior
– 7:00 (IS) Israel Mar Consumer Prices M/M: 0.3%e v 0.3% prior; Y/Y: 4.4%e v 4.2% prior
– 8:00 (EU) EU Barroso meets Denmark’s leader
– 8:30 (GE) German Chancellor Merkel and Econ Min Bruederle with State Premiers on Energy
– 8:30 (US) Mar Consumer Price Index M/M: 0.5%e v 0.5% prior CPI Ex Food & Energy M/M: 0.2%e v 0.2% prior; CPI NSA: 223.15e v 221.309
– 8:30 (US) Apr Empire Manufacturing: 17.8e v 17.5 prior
– 8:45 (CA) Bank of Canada Dep Gov Boivin
– 9:00 (US) Feb Total Net TIC Flows: No est v $32.5B prior; Net Long-term TIC Flows: $40.0Be v $51.5B prior
– 9:00 (PD) Poland Mar Budget Level YTD (PLN): No est v -14.4B prior; Budget Performance YTD: No est v 35.9% prior
– 9:15 (US) Mar Industrial Production: 0.6%e v 0.0% (revised from -0.1%); Capacity Utilization: 77.4%e v 77.0% prior (revised from 76.3%)
– 9:55 (US) University of Michigan Confidence: 69.0e v 67.5 prior
– 10:00 (MX) Mexico Central Bank Interest Rate Decision: Expected to leave the Overnight Rate unchanged at 4.5%
-10:00 (EU) ECB’s Constancio speaks in New York
– 10:30 (US) Fed’s Baxter
– 10:30 (US) G20 Finance Ministers meet in Washington DC
– 11:00 (US) Fed to buy $5-7B in Notes and Bonds
– 11:15 (US) Fed’s Evans speaks in New York City
– 11:30 (PE) Peru Feb GDP Y/Y: 9.1%e v 10.0% prior
– 11:30 (PE) Peru Mar Unemployment Rate: 9.3%e v 9.1% prior
– 13:30 (US) Fed’s Hoenig to speak on Economy at Purdue University
– 15:00 (AR) Argentina Mar Consumer Price Index M/M: 0.8%e v 0.7% prior; Y/Y: 9.8%e v 10.0% prior
– 15:00 (AR) Argentina Mar Wholesale Price Index M/M: No est v 0.9% prior; Y/Y: No est v 13.6% prior
– 17:00 (CO) Colombia Feb Trade Balance: $250Me v $209.9M prior

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April 16th, 2011 in Forex News

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