European Market Update

Daily Forex Fundamentals | Written by Trade The News | Jul 13 09 10:07 GMT |

Japanese Cabinet raises economic assessment for the third straight month; Risk Aversion theme continues to simmer on renewed corporate financial sector and government fiscal health concerns ECONOMIC DATA (CZ) Czech May Final Industrial Output Y/Y: -22.0% v -21.7% prior; Construction Output Y/Y: -2.1% v 2.1% prior (SZ) Swiss June Producer & Import Prices M/M: 0.0% v 0.1%e ; Y/Y: -5.6%-5.4%e (JP) Japan Cabinet Office Monthly Economic Report: Raises economic view for third straight month but remains cautious on outlook SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM In equities news overnight: Equity markets entered the week on a bearish tone following like-minded trading in Asia. Significant equity declines in Australian, Japanese, Chinese and Indian markets reflected both political and global economic concerns that the US and macro/global economy continues to face (as worded by Geithner) significant challenges. With concerns that the timing of a global recovery may be pushed back to well-within 2010, risk aversion trades denominated equity markets. This sentiment dominated perceptions as the first full week of Q2/H1 earnings prepared to report a more detailed perspective of corporate health and operations. Pre-market Q2 reports out of Philips [PHIA.NV] significantly beat expectations on its net earnings, while simultaneously noting that outlook, sentiment and visibility remained limited. In sector performance, utilities, oil and financials performed the worst on the open (dollar strength, earnings concerns, legacy losses) while health care traded slightly higher. Downward pressures intensified through the first 15 min with equities printing lows down approx -0.50% before staging an abrupt turnaround. In a market session light on economic data or central bank talk, continued strong performance out of Philiips rallied tech and electronic names while a gradual recovery in EUR/USD and commodity prices facilitated an equity rise. By 4:00EST equities had recovered all their opening losses and had moved through the unchanged mark. In roads into positive territory remained slight (+0.10-0.25%) but were maintained through the 4:00EST hr and into 5:00EST. Volumes on European bourses remained light with the CAC off 42% ahead of its national holiday tomorrow (Batille Day). In Individual equities: Philips [PHIA.NV] Reported Q2 Net profit €45M better than the loss €77.8M expected. Revenues came in at €5.2B slightly below the €5.3B expected. Q2 Healthcare sales -5% y/y. Q2 Consumer Lifestyle sales -30% y/y, Ex. Televisions -19% y/y. Q2 Lightning sales -18% y/y. CEO: Despite some markets showing signs that decline in demand is bottoming out we remain cautious about our sales level for the rest of the year. Expected H2 of 2009 to improve over H1 due to cost cutting having positive impact on the bottom line. || Lloyds [LLOY.UK]: Speculation that the company might pepare to write off approx £13B linked to loans in commercial property, business, and mortgage holders - Sunday Times. || UBS [UBSN.SZ]: Reached prelim agreement with US DoJ; delays hearing to Aug 3; will provide information on a 'significant number' of clients. Agreement includes provisions for the IRS. Department of Justice, UBS and the Swiss government have requested a stay with a rescheduled hearing date of Aug. 3, 2009 . ||BA [BAY.UK] Declined to comment on reports that it has secured shareholder approval for an emergency rights issue of up to £500M (36% of market cap) - London Times. British Airways ready to improve merger terms and conditions -el Economista. BA may be ready to consider a 50/50 share swap, New financial head of airline would be moved from London to Spain, Iberia in return would take on substantial part of BA pension debts. || Anglo American [AAL.UK] Xstrata to reportedly offer an extra cash bonus of approx £5B to shareholders in efforts to assist negotiations - Guardian. Xstrata to raise the additional cash through rights issue as credit market currently to thin. Article states that fresh takeover attempts could appear as soon as August. Under speculated new offer, not only would additional cash be added to the share offer providing demanded premium, but in the new enlarged firm, Xstrata would represent 45% of overall voice, not 50% seen in initial offer. || Friends Provident [FP.UK] Resolution confirms considering possible offer for the company. Confirms that it is considering a possible offer for the entire issued (and to be issued) share capital of Friends Provident in connection with this consolidation strategy and has approached the Friends Provident Board in this regard. Although Resolution's proposal was not considered to be acceptable by the Board of Friends Provident, Resolution received constructive feedback from Friends Provident and its advisers and is considering its response. Clive Cowdery's Resolution to take £1.7B bid directly to shareholders -Times. Action comes after Resolutions all stock offer has been rejected by the board. Is expected to be officially confirmed in today's session. At £1.7B, offer price is at a slight premium from Friday's close price of £0.60/share. || Centrica [CNA.UK] Firm is preparing to give go-ahead for £800M Lincolnshire offshore wind array -Guardian. Lincolnshire field to generate 250MW. Rival RWE Npower is in final stages of deciding to pursue £2.2B North Wales project that is seen producing 750mw. Both programs were given gov approval. If both projects are given green light, article notes that this could be seen as sign that current slowdown in green energy construction in the UK is coming to an end. Green light would also be seen as sign that UK gov support program announced in April to subsidize and provide renewable obligation credits for new wind farm operations has achieved positive results. || Experian [EXPN.UK] Provides interim statement: Reports Q1 total revenue +1% y/y (-8% ex FX). North America Rev -2% y/y, Latin America Rev +15% y/y, UK and Ireland Rev flat y/y, EMEA/Asia Pacific+5% y/y. || Venture Production [VPC.UK] Formally rejects offer from Centrica. Board has concluded that Centrica's offer substantially undervalues Venture given its near and long term prospects and the strategic position and high quality of its UK gas reserves and resources. Reminder: Over the weekend company received cash buyout offer of 900p/shr from Centrica valued at £1.3B - Sunday Times. Centrica targeting 71% not currently owned, current offer carried premium of 7.64%. || Areva [CEI.FR] Made bids to build two new generation atomic reactors in India. Singed accord with Tata Sons Ltd. for engineering services and plans a forged-parts. || VW [PAH3.GE]: Volkswagen increases offer for 49.9% of the company above €4.0B from €3.0-4.0B prior offer - Der Spiegel. Article sees stake bid from Qatar at approx €7B for 25% stake in Porsche and the options that it holds. || Lufthansa [LHA.GE] EU may decline request for €500M subsidy for Austrian Airline acquisition - Die Presse. EU may withhold the request because it believes that airline will require further assistance. || Telecom Italia [TIT.IT] Update: PE firms looking to take stake in Sparkle unit -Il Giornale. PE names looking to take 49% stake in unit for price of up to €600M. || Banco Popolare [BP.IT] Update: Considering cap increase of €1-1.2B for Italease unit -La Stampa. Italease may be split into 'good' and 'bad' operating units. Actions to be taken following complete buyout of Italease by the bank. || Speakers: China PBoC Assistant Gov saw positive signs in its economy; China to improve financial support for the economy, Bank lending to be reasonably controlled || China MOF stated that Jun fiscal revenues rose 19.6% y/y while its H1 Revenue declined by 2.4% y/y. The MOF saw difficulty for Government finance over remainder of 2009 as the foundation for fiscal revenue growth was not solid || Spain Econ Secretary commented that Q2 GDP contraction would be significantly less than the -1.9% experienced back in Q1. He noted that cutting deficit to 3% to satisfy Maastricht treaty could be achieved by 2012|| Japan Cabinet Office Monthly Economic Report raised its economic assessment for third straight month but remained cautious on outlook. The report upgraded its view of exports, imports, business spending and private consumption. It expected economy to pick up in coming months as companies finish adjusting inventories, overseas economies improve and the effect of policy measures spreads, It did note that the Japanese economy was still in difficult situation and remained cautious on the outlook for spending, as wages are falling and companies are cutting jobs. Volatility in foreign exchange and stock markets also posed risks ||Indian Coal Minister commented that the country likely to face coal shortage of 70M tons in 2010 with demand expected at 604.3M tons in 2010 || Poland Deputy Fin Min commented that it could not exclude another USD denominated debt issue. He reiterated the view that the Zloty currency was currently undervalued. A revised plan for Euro adoption to be completed this summer || UK Financial Investments (UKFI) commented that it could make first sales of stakes in UK banks if there is an early economic recovery. It would not set a timetable for sale of Government stakes. Most sales expected to take place once economy was in recovery phase and expected to undertake several transactions in bank shares. Sales would take place on a commercial basis and also occur via private placement. It did note that UK banks face significant legacy losses In Currencies: Initial risk aversion initially benefited the USD and JPY pairs but price action well within last week's trading ranges. EUR/USD tested the 1.3900 while USD/JPY failed to move back below the 92 area. The GBP was broadly weaker in the session. GBP/USD tested the 1.6055 leve before consolidating its losses while EUE/GBP inched its way towards the 0.86 area. Uk press noted that the IMF raised new warnings about the U.K.'s public finances. Commodity bloc currencies continuing to suffer in the wake of broad based risk reduction. AUD/USD tested 0.7700 before consolidating while USD/CAD ended the European morning at 1.1645 area. In Energy/commodities: Iraqi PM: To supply 15 bcm of gas to Europe via Turkish pipeline || Iran's OPEC Governor commented that OPEC to decide on crude output ceiling at its September meeting. He did not see unscheduled meeting before September || Nigerian rebel group (MEND) has attacked the Atlas Cove Oil Jetty in Lagos State. MEND set the depot and loading tankers moored there on fire. || WSJ reports that Iran plans to submit a package of proposals discussing its nuclear program to Western govt's so as to rebuild its recently weakened diplomatic ties || MEPS analyst noted that 2009 global steel output seen at 1.17B tons (-12% y/y) In Fixed Income Supply: Government bonds have got off to a solid start this week in Europe. Gilts are leading the way up on a cross-market basis ahead of the BoE's smaller than usual round of buybacks. As the UK yield curve steepens, US and European yield curves are undergoing some bull flattening with Us 2s10s moving below 239bps for the fist time since late June and German 2s10s below 205bps for the first time since early May . Meanwhile yields on the Bund and the 10y Note are approaching parity for the first time since 4th June. Three month Euribor reset at a fresh record low below 1.00%) for the first time in history and below the ECB refi rate for the first time since April In the papers: (GE) Handelsblatt reported that German Jun tax revenues fall 8.8% y/y. Article noted that employee withholding taxes declined 5.2% as more workers went on government subsidized reduced hourly schedules while corporate tax revenue declined to €2.5B, down over 50% y/y. Income from sales taxes, the largest source of revenue, was up 1.6% y/y || UK telegraph reported that IMF warned that UK cannot afford another fiscal rescue. Article noted that IMF paper presented to world's leaders has laid bare how the UK's indebtedness has left it unable to provide the vital stimulus the economy could need over the next 18 months IMF paper noted that every other G20 country apart from the UK and Argentina has been able to budget for temporary spending increases or tax cuts next year to help drag their economies out of recession NOTES Risk Aversion theme continues to simmer on renewed financial sector concerns Lloyds rumors: Preparing to write off approx £13B linked to loans in commercial property, business, and mortgage holders…meanwhile NY Times reports Goldman Sachs likely to post huge profits Sotomayor hearings start today. Japan calls for elections on Aug 30th. Opposition party calls for diversification of reserves. Looking Ahead 6:30 (EU) ECB's Trichet Speaks at Ifo Seminar in Munich 9:30 (CA) Canadian Q2 BoC Senior Loan Officer Survey 2Q No expectations v 60.3 prior 10:30 (CA) Canadian Q2 Business Outlook Future Sales 2Q No expectations v -22 prior 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. Human error is a business risk you are willing to assume 5. 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