European Market Update: Weaker ZEW survey blamed on Greek debt concerns

***Economic Data***

– (FI) Finland May Unemployment Rate: 9.8% v 9.5%e
– (SA) South Africa Apr Leading Indicator: 133.8 v 135.0 prior
– (SZ) Swiss May M3 Money Supply Y/Y: 5.6% v 7.0% prior
– (GR) Greece Apr Current Account: -€2.3B v -€2.6B prior
– (SA) South Africa Q1 Current Account Balance (ZAR): -87.8B v -80.8Be; C/A to GDP ratio: -3.1% v -2.8%e
– (UK) May Public Finances (PSNCR): £11.1B v £6.6Be; Net Borrowings: £15.2B v £16.5B; PSNB ex Interventions: £17.4B v £17.0Be
– (HK) Hong Kong May CPI Y/Y: 5.2% v 5.0%e
– (GE) Germany Jun ZEW Economic Sentiment: -9.0 v -3.0e v; Current Situations: 87.6 v 90.0e
– (EU) Euro Zone Jun ZEW Economic Sentiment: -5.9 v +6.1
– (SZ) Swiss Jun KOF Institute Economic Forecast : Maintains 2011 GDP at 2.8%; Lowers 2012 growth to 1.9% from 2.3% prior

Fixed income:
– (DE) Denmark sold total DKK4.53B in 2014 and 2021 Bonds
– (SP) Spain Debt Agency (Tesoro) sold €2.99B vs. €2.25-3.25B Indicated Range in 3-Month and 6-month Bills
– Sold €0.63B in 3-month Bills; Avg Yield 1.568% v 1.380% prior; Bid-to-cover: 9.49x v 6.59x prior; max yield 1.578%
– Sold €2.36B in 6-month Bills; Avg Yield 1.776% v 1.766% prior; Bid-to-cover: 3.84x v 5.46x prior; max yield 1.790%
– (SA) South Africa sold total ZAR2.1B vs. ZAR2.1B Targeted in 2018 and 2021 Bonds
– (GR) Greece Debt Agency (PDMA) sold €1.63B vs. €1.25B Indicated in 13-week bills; Avg Yield 4.62% v 4.06% prior; Bid-to-cover: 2.94x v 3.3x prior
– (EU) ECB allotted €186.9B vs. €135Be in 7-Day Main Refinancing Tender
– (HU) Hungary Debt Agency (AKK) sells HUF50B in 3-Month Bills; Avg Yield 5.81% v 5.82% prior
– (UK) DMO sold £4.75B in 2% Jan 2016 Gilts; Avg Yield 1.963% v 2.658% prior; Bid-to-cover: 1.56x v 1.79x prior; Tail 0.5bps vs. 0.4bps prior

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

***Notes/Observations:
– RBA sees no urgency to tighten rates
– ECB 7-day main refi saw a larger than usual take
– ZEW survey comes in negative with economists blaming the Greek debt concerns
– Greece no-confidence vote around midnight Athens time (17:00 ET)
– Analyst hype up talk on US sovereign concerns.

Equities:
FTSE 100 +0.60% at 5729, DAX +0.70% at 7197, CAC 40 +0.80% at 3830, IBEX +1.1% at 10,150, FTSE MIB +0.50% at 19,781, SMI +0.30% at 6134

– European shares rose during the session as European officials may be reaching an agreement on the debt crisis or at least on the structure of European Stability Mechanism. According to EU’s Juncker, who spoke yesterday during NY session, Greece’s debt is sustainable but only if the country complies with its commitments. Investors remain anxious ahead of Greece’s confidence vote for Papandreou’s government due in the late European afternoon. If Papandreou fails, the IMF tranche of €12B will not be granted and it would precipitate Greece’s default. The confidence vote is expected to pass but even if Papandreou survives, the euro leaders will have to sort out the issue of the involvement of the private sector. Euro officials have spoken of a voluntary contribution from private institutions which may include a rollover of Greece’s debt which would lessen the lending burden of the EU/IMF Aside the fact that no banker in their right state of mind or by their own will would want to reinvest in Greek debt and that rating agencies have raised issues about the rollover proposals, the meaning and the quantification of ‘voluntary contribution’ remain a mystery.
– In M&A news, Sab Miller [SAB.UK] confirmed its offer for Fosters Group at A$4.90/shr which was rejected by the latter. Sab Miller shed about 3% during the session.

Speakers:
– S&P Sovereign analyst Kramer: Downside risks to US sovereign ratings have increased and currently saw 1 in 3 change of downgrade within three years (Note S&P did cut the US outlook in mid-April to negative)
– ECB Ordonez: Markets continue to monitor Spain as doubts have re-emerged on the country’s reforms. Unemployment rate has raised doubts as to the country’s economic recovery and its public finances. Spanish budget cuts were delaying economic growth as the country struggled with substantial challenges on its deficit
– BOE Fisher commented that there was no easy path for monetary policy to tackle present price shocks but the MPC should steer CPI gently back to target in the medium term. Inflation might stay above target for 2011 and 2012 period but added there should be no change to CPI target and ensure of no second round effects. The outlook for economy was uncertain and there were risks that UK economy proved weaker and morph into a more serious situation for policy. The BOE should accept the initial impact of price shocks as hiking interest rates earlier would have created volatility; Shocks not caused by monetary conditions but that the MPC was bound to raise rates if wages started to rise.
-China Foreign Ministry reiterated iit was willing to help European countries to realize growth in a stable manner
– ZEW Economists commented that Greek financing requirements might have contributed to decline in Survey in June. The ZEW also reiterates the view that the German economic boom might weaken in coming months and that an unfavorable US economic data hurt market assessment.
– ZEW Head Franz: EMU troubles and US downturn weigh heavily on markets.
– South Africa Central Bank Mnyande commented that a strong ZAR currency had not been a threat to economic growth. The ZAR currency helped to soothe impact of oil and food price movements and sought a stable ZAR currency at this time. MPC would not raise interest rates on cost-push inflation pressures alone as it considers other factors other than inflation such as economic growth and would not raise interest rates over oil prices
– Poland dep Fin Min Radziwill: Might not sell any more T-Bills or long bonds in 2011
– Gartner: Cuts 2011 global chip revenue growth forecast to 5.1% from 6.2%
– Bundesbank’s Dombret: Greek default ‘not a relevant scenario’
– India Apr-May import of gold and silver at $9.0B, +222% y/y

Currencies/Fixed income:
– Overall the market price action was steady for most of the morning as participants awaited the outcome of the Greek confidence vote (set for 12 midnight local time). The debt concerns were not limited to Europe as dealers took notice of Fitch’s warning on the US sovereign outlook if the debt ceiling was not raised. S&P also cautioned the US sovereign outlook. The EUR/USD was trading in the mid-1.43 neighborhood as China again verbally supported the region. However, a softer Jun ZEW survey saw the EUR/USD dipped towards the 1.4310 before finding some traction. Dealers noted that the 7-day main refi operation had a quite large take of €187B prompting some concerns that someone needs a a lot of liquidly
The GBP was softer in the session as BOE member Fisher made some dovish policy remarks. Fisher reiterated that more QE was still very much on the table as possible policy action. GBP/USD tested 1.6165 as a result of his comments.

Political/ In the Papers:
– German financial regulator BaFin was said to have told at least one domestic bank to raise capital in an article by FT Deutschland. The regulator was also reported to have told several big banks that their company-wide risk controls are not adequate.
– FT looked at potential roadblocks to the plan to rollover Greece’s debt. Evolution Securities analyst Gary Jenkins noted that it might not make sense for banks to voluntarily agree to roll over their Greek debt positions. Unless investors are offered higher coupons, it would make little sense to reinvest in Greek bonds. European officials are not likely to want to pay significantly higher coupons in the rollover. Some of the rating agencies have raised concerns about rollover proposals.
– The Financial Times reported that traders continue to remain cautious as the Euro zone debt crisis has yet to be resolved. The signs of caution in the market include the risk premiums of Spanish and Italian bonds over German government bonds. Credit default swaps on EU sovereigns and banks remained elevated. During yesterday’s session, despite the gains in equities, most safe haven assets traded with little change.
– According to the Centre for Economics and Business Research (CEBR), a split of the Euro zone may occur within five years, with a likely date seen by 2013. Without a Euro region split, the consultancy group sees economic growth in southern Europe to be less than 1.5% per year to 2015. The economic outlook for the Euro zone is weak due to austerity packages, value of the Euro, and competition from Asia. It anticipates Greece to be the first to leave due to debt issues. The senior economist Ohlenburg does not think this is the end of the Euro as such, though a break up of the Euro zone as Greece, and perhaps Portugal, will have to leave.
– UK Treasury officials are creating contingency plans in the case there is a Greek bankruptcy. The London Telegraph reported UK banks are believed to have about £2.5 billion in outstanding loans to Greece. Former Labor Foreign Secretary Jack Straw was quoted as saying that a quick end to the Euro was now better than a ‘slow death’. During yesterday’s session, the Telegraph reported that the Chancellor of the Exchequer George Osborne would tell European finance ministers in Luxembourg that Britain did not intend to play a part in any new aid package for Greece.

**Looking Ahead***
– 6:00 (NV) Netherlands Debt Agency (DSTA) to sell 2017 Bond
– 6:00 (IR) Ireland May PPI M/M: No est v -0.7% prior; Y/Y: No est v -0.8% prior
– 6:00 (IR) Ireland Apr Trade Balance: First Estimate: no est v €3.9B prior
– 6:00 (UK) Jun CBI Industrial Trends Total Orders: -5e v -2 prior; CBI Trends Selling Prices: 26e v 24 prior
– 6:00 (SA) South Africa Q2 BER Consumer Confidence: 10e v 9 prior
– 7:00 (EU) ECB to drain €74.0B in its Day Term Deposits operation
– 7:45 (US) Weekly ICSC Chain Store Sales
– 8:00 (BR) Brazil Jun IBGE CPI IPCA-15 M/M: 0.2%e v 0.7% prior
– 8:30 (CA) Canada May Leading Indicators M/M: 0.5%e v 0.8% prior
– 8:30 (CA) Canada Apr Retail Sales M/M: 0.4%e v 0.0% prior; Retail Sales Less Autos M/M: 0.6%e v -0.1% prior
– 8:55 (US) Redbook Retail sales
– 9:00 (MX) Mexico Q1 Aggregate Supply & Demand: 6.4%e v 7.2% prior
– 10:00 (US) May Existing Home Sales: 4.80Me v 5.05M prior
– 11:30 (US) Treasury to sell 4-Week Bills
– 13:00 (GE) IMF acting Chief Lispky gives speech at American Academy in Berlin
– 13:00 (SZ) SNB’s Hildebrand speaks in Zurich
– 16:30 (US) API Weekly Energy inventories

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June 22nd, 2011 in Forex News

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