European Market Update

Daily Forex Fundamentals | Written by Trade The News | Jul 21 08 09:58 GMT |

The Lull Before the Storm ECONOMIC DATA SZ June M3 Money Supply: 1.5% v 2.9% prior || Prior revised from 2.6% to 2.9% SZ Q2 Real Estate Index Family Houses: 346.5 v 340.4 prior SZ June Producer & Import Prices: M/M 0.6% v 0.5%e || Y/Y 4.5% v 4.4%e SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM In equity news overnight an analyst at Lehman overnight cut his outlook for the FTSE world index to 362 from 415. The index averaged 439.4 over the past year, and opened around 394.5 today. HBOS [HBOS.UK] confirmed the results of its rights issue noting the receipt of 8.29% of acceptances. The company's underwriters, Dresdner and Morgan Stanley, will seek to sell the remaining 1.38B shares until tomorrow evening. Wolters Kluwer [WKL.NV] reduced its FY08 organic revenue growth outlook to 3% from 4%, citing recent market conditions in non-subscription product lines. Inmarsat [ISAT.UK] announced that talks with Harbinger Capital have ended. The board concluded that there is no merit in continuing discussions at this time. Roche [ROG.SZ] offered to buy the rest of Genentech (DNA) at $89/share in cash, in a deal valued at $43.7B. Roche acquired a majority in Genentech in 1990 and currently owns 55.9% of all outstanding shares. The transaction will have no impact on Roche's sales and Core EPS targets for 2008, as communicated earlier in the year. Roche also remains committed to increasing its dividend payout ratio for the next three years as previously announced. In the newspapers, according to the Telegraph British Petroleum [BP.UK] blocked a $1.8B dividend payment from its Russian joint venture in an effort to pressure its billionaire partners The article said that BP made the move at a TKN-BP [TNBP.RU] board meeting in Cyprus earlier this month. The Financial Mail wrote overnight that Centrica [CAN.UK] and British Gas [BG.UK] plan to raise gas bills by more than 30% this year. La Repubblica reported overnight that DZ Bank may place a bid for Banca Italease [BIL.IT] in the early part of September. Recall that there was some speculation about this in May. The Observer wrote overnight that there are concerns that Anglo Irish [AGLD.UK] may have to sharply increase its loan loss provisions due to the conditions of the UK and Irish property markets. An analyst at RBC believes that Anglo Irish is one of the most susceptible to a decline in the UK's commercial real estate market. The Mail on Sunday wrote overnight that GKN is expected to sign an agreement to buy Airbus' [EAD.FR] Filton plant. In fixed income related news the Financial Times noted that credit default swaps for Greece, Italy, Spain, Ireland and Portugal have all risen sharply in July, perhaps indicating that they have the weakest economies in the EU. The USD was softer against the major currency pairs as the week began. Higher commodity prices were the catalyst for the USD's soft tone. Dealers noted that geopolitical concerns remained on the back burner following the weekend's six-party talks with Iran. An Iranian nuclear delegate noted that 'there is no chance' that Iran will suspend its uranium enrichment program. Thus the net result of the talks was a 2-week deadline for Iran to curb its program otherwise it will face increased sanctions. The EUR/USD tested its recent resistance level above the 1.59 handle. The USD/CHF was hovering around the 1.02 handle. On the speaker front the Bank of England's Blanchflower said overnight that we are going into recession and we are probably in one now, adding that he would like to see rates 'well below' their current level. Blanchflower asserted that the BOE needs to act now to prevent a recession, noting that the UK will probably have 3 or 4 quarters of contraction and risks are to the downside. Blanchflower added that monetary policy has been far too tight for too long. In an interview with Welt am Sonntag German Finance Minister Steinbrueck said that 2008 GDP growth could be slightly above 1.7%, noting that there is no reason to fear a recession. NOTES Most of the focus overnight seemed to rest upon comments made by the Fed's Stern on Friday afternoon after the European close. Markets digested Stern's hawkish tone, which seemed to highlight that the Fed is simply confused. Comments from Bank of England dove Blanchflower were also noted by many market participants overnight as they indicated that the BOE may have to make a prompt, sharp cut to interest rates in order to avoid a deep recession. In fixed income bond yields were in focus as the recent (small) decline seemingly disappeared at the long end of the curve over the past two sessions. Some dealers noted that the 2-year note/schatz spread is back on the approach of, and just a stone throw away from the 200bps level. Others took note of the 10-year bund/OLO spread, which remains at its widest level since the end of March due to political instability in Belgium. Even further, some attention was paid to the Financial Times article that pointed out the rise in credit default swaps in some of the EU countries; certainly a reminder that there is a grim cloud of uncertainty hovering over the European economy. Economic data will remain light for the earlier part of the week, but is set to pick up later on with particular focus on Thursday's release of July IFO data in Germany, as well as June retail sales in the UK. Earnings season is in full swing this week with a seemingly countless number of earnings reports expected on Thursday. Before we make it to Thursday we will encounter many notables including the release of results from Dow components Bank of America (BAC), and Merck (MRK) this morning. “There are some men who lift the age they inhabit, till all men walk on higher ground in that lifetime.” - Maxwell Anderson Trade The News Staff Trade The News, Inc. 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. 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