Tuesday, December 14, 2010

Portugal received a clear statement of financial support from China

Economic Data

- (FR) France Nov Consumer Price Index M/M: 0.1% v 0.1%e; Y/Y: 1.6% v 1.7%e; CPI Ex Tobacco Index: 120.09 v 120.15e
- (FR) France Nov CPI EU Harmonized M/M: 0.1% v 0.1%e; Y/Y: 1.8% v 1.8%e
- (IN) India Nov Wholesale Prices Y/Y: 7.5% v 7.5%e
- (SZ) Swiss Dec SECO Forecasts maintain the 2010 GDP at 2.7%; Raised 2011 GDP growth at 1.5% from 1.3% prior
- (FI) Finland Nov CPI M/M: 0.2% v 0.1%e; Y/Y: 2.5% v 2.3%e
- (NV) Netherlands Oct Trade Balance: €3.5B v €4.6B prior
- (CZ) Czech Oct Current Account (CZK): +0.6B v -10.0Be
- (IT) Italy Q3 Labor Costs Q/Q: 0.5% v 0.5% prior; Y/Y: 3.1% v 3.4% prior
- (SA) South Africa Nov CPI (all items) M/M: 0.2% v 0.1%e; Y/Y: 3.6% v 3.5%e
- (UK) Oct DCLG UK House Prices Y/Y: 5.5% v 6.1%e
- (UK) Nov CPI M/M: 0.4% v 0.3%e; Y/Y: 3.3% v 3.2%e; CPI Core Y/Y: 2.7% v 2.7%e
- (UK) Nov RPI M/M: 0.4% v 0.2%e; Y/Y: 4.7% v 4.5%e; RPIX Y/Y: 4.7% v 4.4%e
- (SP) ECB Nov Funding to Spainish Banks M/M: €64.5B v €71.0B prior
- (GR) ECB Nov Funding to Greece Banks M/M: €95.1B v €92.4B prior
- (GE) Germany Dec ZEW Economic Sentiment: 4.3 v 3.9e; Current Situation: 82.6 v 84.5e
- (EU) Euro Zone Nov ZEW Economic Sentiment: 15.5 v 10.5e
- (EU) Euro Zone Oct Industrial Production M/M: 0.7% v 1.3%e; Y/Y: 6.9% v 7.6%e
- (PO) Portugal Nov Consumer Price Index M/M: 0.2% v 0.4% prior; Y/Y: 2.3% v 2.3% prior
- (PO) Portugal Nov CPI EU Harmonized M/M: 0.1% v 0.3% prior; Y/Y: 2.2% v 2.3% prior
- (IS) Israel Q4 Current Account: $2.3B v $2.0B prior
- (BR) Brazil Oct Retail Sales M/M: 0.4% v 1.2%e ; Y/Y: 8.8% v 10.4%e
Fixed Income:
- (SA) South Africa sells total ZAR2.1B vs ZAR2.1B indicated in 2018 and 2020 Bonds
- (SP) Spain Debt Agency (Tesoro)sells approx €2.51B vs €2-3B Indicated Range in 12-month and 18-month
- Sold €1.99B in 12-month Bills; avg yield 3.449% v 2.363% prior; Bid-to-cover: 2.2x v 1.9x prior
- Sold €520M in 18 month Bills; avg yield 3.721% v 2.664% prior; Bid-to-cover: 4.54x v 3.7x prior
- (EU) ECB allotted €187.8B in its 7-Day Main Refi Tender at fixed 1.0%
- (HU) Hungary Debt Agency (AKK) sold HUF40B in 3-Month Bills; avg yield 5.69% v 5.72% prior
- (BE) Belgium Debt Agency sold approx €2.51B in 3-month and 12-month Bills
- Sold €940M in 3-month Bills; avg yield 0.884% v 0.864% prior; Bid-to-cover: 1.5x v 1.5x prior
- Sold €1.56B in 12 month Bills; avg yield 1.821% v1.117% prior; Bid-to-cover: 3.8x v 2.4x prior 


- Portugal Fin dos Santos in Beijing requesting China to purchase Portuguese govt bonds; talks seemed to have paid off
- German ZEW data continue to highlight the German growth engine.
- Continues cautious 2011 growth outlook from various countries and think-tanks
- US Retail sales data to guage the mood of consumers into Holiday season
- FOMC prepares to discuss interest rates and bond purchases later today
- Equities:
Eurostoxx50 at 2854, -0.05%, FSTE100 at 5859, -0.03%, CAC40 at 3895, +0.07%, DAX at 7026, -0.04%
- European shares declined and slipped into negative territory after six consecutive winning sessions as markets pause ahead of FOMC's meeting on Tuesday NY afternoon. Financials were pressured lower. Allied Irish Bank [ALBK.IR] fell about 4% following news that Irish government would block bonus payout stating that it would withhold state aid if €40M in bonuses would be paid.
- UK restaurant and hotel operator Whitbread [WTB.UK] fell about 1% in London trading after its interim statement. Company showed a strong growth in hotels and Costa Coffee chain which did not offset the more sluggish growth of its restaurant business. The company acknowledged that sales in the restaurant business had slowed in Q3 and that outlook for consumer spending remained uncertain. Finnish stainless steel producer Outokumpu [OUT1V.FH] slipped about 8% after cutting its Q4 guidance of operating profits, expecting them to be negative rather than prior view of breakeven. The news dragged down other steel names such as Thyssenkrupp and ArcelorMittal. German private broadcaster ProsiebenSat1 [PSM.GE] also fell in the session following news that the company may be sold by Kohlberg Kravis Roberts and Permira in 2011. Meanwhile TUI AG [TUI1.GE] rose about 3% after FY earnings beat analysts' expectations. The company had a positive outlook for 2011. Among the best winners in London was Bunzl [BNZL.UK], UK non-food consumable products supplier guided FY10 revenue growth at 3 to 4% and was optimistic on the current environment. - European airliners were higher after Credit Suisse upgraded Lufthansa [LHA.GE] and Air France [AF.FR] citing increased air traffic ahead of the holidays season
- Reportedly Portugal says it received a clear statement of financial support from China
- Swiss Dec SECO Economic forecast noted that the country's 2011 economic growth was likely to slow less than expected while it's the unemployment rate would continue to decline.
- Hungary Central Bank Gov Simor commented that the Hungarian economy was still vulnerable to shifts in investor sentiment and expressed concern that eroding investor confidence was one of the biggest potential threats. The Gov added that rising Credit Default Swaps (CDS spreads) were being closely watched as risk assessment of Hungary had deteriorated during the recent months. Simor labeled the Gov't government measures of high temporary taxes on banks and other big businesses as "unconventional"
- On the recent tightening cycle: Simor stated that one should not believe that a 25-basis-point increase would get inflation back to target and stated that a modest tightening cycle" could be enough to damp inflationary expectations.
- Czech Central Bank Hampl commented that he saw a higher possibility of anti-inflationary risks to the central bank's forecast . he noted that the risk that the European debt crisis was spreading farther than earlier forecasted and would it would react accordingly on its policy
- Russia Central Bank Board Member Shvetsov commented that the CBR could maintain either an accommodative monetary policy or shift towards a more neutral stance. On th topic of currencies he expected the Euro to remain under press in 2011 as he was concerned over EU stability. H added that he saw upside risks to inflation in 2011, citing food prices - Portugal Fin dos Santos in Beijing requesting China to purchase Portuguese govt bonds
- IMF officials commented from a Moscow conference that emerging markets reserves growth was contributing to global imbalances. The IMF sought a greater role of the Special Drawing Rights (SDRs) to make the monetary system less USD dependent. It noted that it could propose guidelines on capital flows for some countries.
- ZEW Economists noted that EU Austerity measures and recent China monetary policy steps were risks to German exports . It added that Germany's domestic demand to complement its export growth
- IFO institute noted that German Economic growth would continue in 2011 but at a slower pace. Growth would slow along with the wider global economy and become more dependent on domestic demand. It noted that slowing growth in emerging economies earlier this year had begun to affect developed countries since the middle of the year
- Italy PM Berlusconi wins first of two key confidence votes
- The EUR/USD maintain a firm, steady tone into the session as Portugal received a clear statement of financial support from China. The pair tested above 1.3470 for fresh 3-week highs before settling down around 1.3450 area heading into the NY morning. The economic data in the session continued to show the robustness of the German economic engine while Euro zone industrial production should the broader picture in a less positive light. Some of the Eastern European central banks voicing some concerns over contagion effect of the peripheral debt situation (refer to speakers above). Dealers noted that perhaps the euro upside might be limited should euro zone spreads widen further but thin December markets tend to have a mind of their own.
- Overall the USD was softer against the major pairs as some suspect that the Fed might signal an increase its debt purchase plan. USD/JPY dipped below the 83 handle while USD/CHF was off over 50 pips in the lower portion of the 0.96 area.
Geo-Political/ In the Papers:
- In European parliamentary news, Prime Minister Berlusconi won the confidence vote in the Senate (upper house), though the highly anticipated vote in the Chamber of Deputies (lower house) continues to remain tight with a differential of one or maybe two votes to side in either direction. The initial vote in the Senate is expected around 1030 GMT, followed later by the no-confidence vote in the lower house with result expected after 1230 GMT. Note that if the prime minister loses in either house, then he will have to resign his position.
- Following yesterday's decision against bonuses by the board of Allied Irish Banks, the Irish government stated that it would withhold state aid to the bank if the €40M in bonuses were to be paid out.
- There were reported improvements in foreign relation in the Korean peninsula as the Chinese Foreign Ministry said that North Korea has responded positively to six-party talks.
- The Financial Times commented on the deleveraging by US consumers, as mortgage borrowers seek to repay balances ahead of schedule and repay credit card debt with disposable income. The article cited chief economist at Freddie Mac Frank Nothaft stating the trend may be positive over the long-run but detrimental to growth over short-term.

Looking Ahead:

- 7:00 (EU) ECB to drain €72B in 70-day Term Deposit Facility
- 7:30 (US) Nov NFIB Small Business Optimism: 92.5e v 91.7 prior
- 7:45 (US) ICSC Weekly Chain Store Sales
- 8:00 (PD) Poland Nov CPI M/M: 0.3%e v 0.5% prior; Y/Y: 2.8%e v 2.8% prior
- 8:30 (CA) Canada Nov Leading Indicators M/M: 0.5%e v 0.2% prior
- 8:30 (CA) Canada Q3 Labor Productivity Q/Q: -0.1%e v -0.8% prior
- 8:30 (US) Nov Producer Price Index M/M: 0.6%e v 0.4% prior; PPI Ex Food & Energy M/M: 0.2%e v -0.6% prior
- 8:30 (US) Nov Advance Retail Sales: 0.6%e v 1.2% prior; Retail Sales Less Autos: 0.6%e v 0.4% prior
- 8:55 (US) Weekly Redbook Retail Sales
- 9:00 (EU) EU's Barroso Takes Part in European Parliament Question
- 10:00 (US) Oct Business Inventories: 1.0%e v 0.9% prior
-11:30 (US) Treasury to sell 4-Week Bills and 1-year Bills
- 14:15 (US) FOMC meeting

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