European Market Update: Optimism over Greece provides renewed risk appetite

***Economic Data***

– (IN) India Q1 GDP Y/Y: 7.8% v 8.1%e
– (SA) South Africa Apr Budget (ZAR): No est v -4.9B prior
– (SZ) Swiss Q1 GDP Q/Q: 0.3% v 0.7%e; Y/Y: 2.4% v 3.0%e
– (GE) Germany Apr Retail Sales M/M: 0.6% v 1.8%e; Y/Y: 3.6% v 1.5%e
– (SZ) Swiss Apr UBS Consumption Indicator: 1.585v 1.685 prior
– (GE) Germany May ILO Employment: 40.792M v 40.75M prior; Unemployment Rate: 6.0% v 6.5% prior
– (FI) Finland Mar Final Trade Balance: -€614M v -€455M prelim
– (SA) South Africa Apr M3 Money Supply Y/Y: 6.0% v 6.9%e; Private Sector Credit Y/Y: 6.2% v 5.6%e
– (FR) France Apr Consumer Spending M/M: -1.6% v -0.3%e; Y/Y: 1.2% v 3.7%e
– (FR) France Apr Producer Prices M/M: 0.8% v 0.8%e; Y/Y: 6.4% v 6.4%e
– (DE) Denmark Q1 Preliminary GDP Q/Q: -0.5% v +0.5%e; Y/Y: 1.1% v 2.4%e
– (HU) Hungary Apr Producer Prices M/M: -0.3 v 0.0% prior; Y/Y: 4.9% v 5.1%e
– (TU) Turkey Apr Trade Balance: -$9.1B v -$9.8Be
– (SW) Sweden Q1 Current Account (SEK): 71.1 v 51.5B prior
– (TH) Thailand Apr Business Sentiment: 47.3 v 54.1 prior
– (TH) Thailand Apr Current Account: -$165M v -$700Me; Total Trade Account Balance: -$477M v $1.9B prior; Overall Trade Balance: $3.6 v $1.4B prior
– (SP) Spain Mar Current Account: -€5.7B v -€5.4B prior
– (GE) Germany May Unemployment Change: -8K v -30Ke; Unemployment Rate: 7.0% v 7.0%e
– (IT) Italy Apr Preliminary Unemployment Rate: 8.1% v 8.3%e
– (NO) Norway Apr Retail sales Volume M/M: 0.0% v 0.7%e; Y/Y: 11.4% v 3.4%e
– (NO) Norway Apr Credit Indicator Growth Y/Y:6.4% v 6.4%e
– (PD) Poland Q1 GDP Q/Q: 1.0% v 0.8% prior; Y/Y: 4.4% v 4.4%e
– (CZ) Czech Apr Money Supply Y/Y: 1.2% v 2.5% prior
– (HK) Hong Kong Apr M3 Money Supply Y/Y: 6.0% v 7.2% prior
– (HK) Hong Kong Apr Retail Sales Value Y/Y: 27.7% v 25.2%e; Retail Sales Volume Y/Y: 21.9% v 19.8%e
– (EU) Euro Zone May CPI Estimate Y/Y: 2.7% v 2.8%e
– (EU) Euro Zone May Unemployment Rate: 9.9% v 9.9%e
– (IT) Italy May Preliminary CPI (NIC incl. tobacco) M/M: 0.1% v 0.2%e; Y/Y: 2.6% v 2.7%e
– (IT) Italy May Preliminary CPI EU Harmonized M/M: 0.2% v 0.2%e; Y/Y: 3.0% v 3.0%e
– (GR) Greece Mar Retail Sales Value Y/Y: -13.2 v -6.8% prior
– (SA) South Africa Q1 GDP Q/Q Annualized: 4.8% v 4.1%e; Y/Y: 3.6% v 3.5%
– (BE) Belgium Apr Unemployment Rate: 7.7% v 7.7% prior
– (MA) Malaysia Apr M3 Money Supply Y/Y: 10.1 v 8.2% prior

Fixed income:
– (SA) South Africa sold total ZAR2.1B vs. ZAR2.1B indicated in 2021 and 2041 Bonds
– (EU) ECB allotted €110.8B vs. €110Be in 7-Day Main Refinancing Tender
– (HU) Hungary Debt Agency (AKK) sold HUF 50B in 3-Month Bills; Avg Yield 5.89% v 5.90% prior
– (BE) Belgium Debt Agency sold approx €2.32B vs. €2.0-2.5B indicated range in 3-mopnth and 6-month Bills
– Sold €710M in 3-month Bills’ Avg Yield 1.162% v 1.131% prior; Bid-to-cover: 4.22x v 4.81x prior
– Sold €1.61B in 6-month Bills’ Avg Yield 1.340% v 1.341% prior; Bid-to-cover:2.55 x v 2.05x prior

*** SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM ***

***Notes/Observations:
– Moody’s placed Japan sovereign rating on review for possible downgrade
– Germany is considering backing off on the push for rescheduling Greek bonds

Equities:
– Eurostoxx +2.0% at 2870.8, FTSE100 +1.07%, at 6002.8, CAC40 +1.61% at 4006, DAX +2.14% at 7313

– European shares rose on optimism that Greece’s debt woes may come to a resolution. An article on financial press boosted sentiment by reporting that Germany would make concessions in an effort to engineer a second bailout for Greece. Indeed, Germany may stop demanding that Greece reschedule its debt. Banks were among the biggest gainers.
Steelmaker Voestalpine [VOE.AS] rallied over 2% after reporting a better than expected fourth quarter.

Speakers:
– Moody’s analyst Byrne commented on Japan’s rating action noting that placing Japan on review means that a sovereign downgrade was now more likely, He did not see any progress on whether the Govt and the LDP could reach a consensus on fiscal policy
– Japan Econ Min Yosano commented that the markets were pressuring the Japanese Gov’t to improve its financing. The Gov’t needed to show resolute action towards tax and social security reform
– ECB’s Draghi: reiterated the central bank view that monetary policy remained accommodative and that its policy would always be directed by its price stability mandate. There was no short cut out of the Euro zone crisis.
– South Africa Central Bank commented it its Bank Supervision annual report that capital adequacy of banking system remained strong under stress but did note that the impact of Basel III not reflected
– Moody’s placing all rated Japanese banks on review for possible downgrade following Japan’s sovereign rating being placed on review for downgrade
– Swiss govt official commented after the release of its Q1 GDP data and noted that the country’s economic growth was respectable. The strong CHF currency remained the main concern regarding 2011 GDP outlook as consumption was weaker though remains at high level
– Sweden Central Bank (Riksbank) lowered its 2011-13 banking sector loan loss forecast to SEK19.0B as it noted that the banks resilience to weak economic outcome was good. It recommended that banks maintain or increase capital ratios and avoid dependence on short-term funding
– India Fin Min official commented that FY12 GDP growth would be less than the 8.75% but maintained FY12 fiscal deficit to GDP ratio at 4.6%

Currencies/Fixed income:
– The price action in Europe was determined by headlines registered during Asia today. Risk appetite received a boost after the Asian session reported that Germany was considering backing off on the push for rescheduling Greek bonds. The EUR/USD climbed to three-week highs above the 1.44 handle.
– The JPY currency was weaker across the board after Moody’s placed Japan on review for possible downgrade. The USD/JPY moved above the 81.50 level while EUR/JPY climbed above 117.50.
– Weaker Swiss GDP and optimism over Greece prompted the CHF currency to soften in the session. EUR/CHF cross was making an attempt back towards the 1.23 neighborhood after tested 1.2100 last week.

Political/ In the Papers:
– According to the Telegraph, the EU intends to limit Britain’s bank regulatory control. Bank of England Deputy Governor for financial stability Paul Tucker, and FSA’s Chief Executive Hector Sants stated in the article that Britain’s proposed regulatory system risks becoming little more than a local police force applying a one-size-fits-all set of European rules. In addition the Central Bank’s Andrew Bailey said Britain could lose discretion over how it regulates its banks.
– Credit rating agency Fitch downgraded Cyprus sovereign rating three notches to ‘A-’ from ‘AA-’ due to the severity of Greece and the risk this may have for the Cyprus banking system and public finances. The developments in Greece will continue to have an important bearing on the country’s ratings, underlining the importance of solid public finances and a well-capitalized banking system.
– Italian Prime Minister Berlusconi suffered from the Italian regional elections, which may bring out the possibilities of an early election. The Prime Minister said that despite the loss of races in Naples and Milan, his coalition government will carry on. In Berlusconi’s home town of Milan, center-left opposition’s Pisapia received 55.2% of the vote to incumbent conservative Letizia Moratti’s 44.8%. Note that results were from run-offs as no candidate secured a majority during the first-round voting.
– Following the sovereign downgrade by Fitch on May 20th, the credit agency released its report on Greece. The challenge, including a new commitment to privatize €50B of state assets by 2015, and their ability to deliver in the face of rising implementation and political risk are increasingly in doubt. These concerns and the recognition that new money will be needed to address a fiscal funding shortfall from 2012 and avoid sovereign default were the main reason behind the downgrade. The agency anticipates resolving the rating watch Negative following the review of the IMF/EU program in June.

***Looking Ahead***
– (BE) Belgium Apr YTD Budget Balance: No est v -€11.1B prior
– (IS) Israel Q1 Unemployment Rate: No est v 6.6% prior
– (PE) Peru Q1 GDP Y/Y: 8.8%e v 9.2% prior
– (PO) Portugal Apr Industrial Production M/M: No est v 0.4% prior; Y/Y: No est v -2.4% prior
– 7:00 (EU) ECB announces allotment in 7-Day Term Deposits
– 8:00 (BR) Brazil Apr Industrial Production M/M: 0.2%e v 0.5% prior; Y/Y: +0.7%e v -2.1% prior
– 8:00 (CL) Chile Apr Unemployment Rate: 7.3%e v 7.3% prior
– 8:00 (SA) South Africa Apr Trade Balance (ZAR): No est v 1.0B prior
– 8:30 (CA) Canada Apr Industrial Product Price M/M: 0.7%e v 0.9% prior; Raw Materials Price Index M/M: 3.0%e v 5.7% prior
– 9:00 (CA) Bank of Canada Interest Rate Decision: Expected to leave Rates unchanged at 1.00%
– 9:00 (US) Mar S&P/CaseShiller 20-City Composite M/M: -0.24%e v -0.18% prior; Y/Y: -3.40%e v -3.33% prior; HPI: no est v 139.27 prior
– 9:00 (US) Q1 S&P/CaseShiller House price index Y/Y: No est v -4.13% prior; HPI index: No est v 130.38 prior
-9:00 (GR) Greek Members of EU Parliament speak on Debt Crisis
– 9:30 (EU) Former EU Commissioner Monti speaks at Think Tank
– 9:30 (BR) Brazil Apr Nominal Budget Balance (BRL): No est v -6.9B prior; Primary Budget Balance: 19.4Be v 13.6B prior
– 9:45 (US) May Chicago Purchasing Manager: 62.0e v 67.6 prior
– 10:00 (US) May Consumer Confidence: 66.5e v 65.4 prior
– 10:00 (US) May NAPM-Milwaukee: 60.5e v 68 prior
– 10:30 (US) May Dallas Fed Manufacturing Activity: 8.0e v 10.5 prior
– 11:00 (US) Fed to purchase $1.5-2.5B in Notes/Bonds
– 11:30 (US) Treasury to sell 3-Month and 6-month Bills
– 12:00 (CO) Colombia Apr Urban Unemployment Rate: 11.8%e v 12.2% prior
– 12:00 (AS) ECB’s Nowotny speaks in Vienna
– 13:00 (US) The US-China Business Council 38th Annual Meeting
– 15:00 (AR) Argentina Apr Construction Activity M/M: No est v -1.80% prior; Y/Y: No est v 5.1% prior
– 21:00 (CH) China May PMI Manufacturing: 51.6e v 52.9 prior
– 22:30 (CH) China May HSBC Manufacturing PMI: no est v 51.8 prior

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May 28th, 2011 in Forex News

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