European Market Update: Risk appetite buoyed by reports that private lenders said to have accepted lower interest rate in Greek PSI deal
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| 11:53 |
***Economic Data***
- (EU) ECB: €3.5B borrowed in overnight loan facility v €3.6B prior; €484.1B parked in deposit facility vs. €485.8B prior
- (RU) Russia Gold & Forex Reserve w/e Jan 20th: $499.7B v $497.1B prior
- (DE) Germany Feb GfK Consumer Confidence Survey: 5.9 v 5.6e
- (FR) France Jan Consumer Confidence: 81 v 80e
- (DK) Denmark Dec Unemployment Rate: 4.0% v 4.3%e; Gross Unemployment Rate: 6.1% v 6.3%e
- (SE) Sweden Jan Consumer Confidence: -1.3 v -7.0e; Manufacturing Confidence: -14 v -11e; Economic Tendency Survey: 91.4 v 93.0e
- (HK) Hong Kong Dec Trade Balance (HKD): -48.9B v -54.4e; Exports Y/Y: 7.4% v 3.5%e; Imports Y/Y: 8.1% v 6.6%e
- (SE) Sweden Dec PPI M/M: -0.2% v -0.4%e; Y/Y: -2.1% v -2.3%e
- (SE) Sweden Dec Trade Balance (SEK): 2.8B v 6.5Be
- (SE) Sweden Dec Unemployment Rate: 7.1% v 7.0%e
- (IT) Italy Jan Consumer Confidence: 91.6 v 92.0e
- (ZA) South Africa Dec PPI M/M: 0.0% v 0.2%e; Y/Y: 9.8% v 10.0e%e
- (IT) Italy Dec Hourly Wages M/M: 0.0% v 0.0% prior; Y/Y: 1.4% v 1.5% prior
- (BR) Brazil Jan FGV Construction Costs M/M: 0.7% v 0.7%e
Fixed Income:
- (IT) Italy Debt Agency (Tesoro) sold €4.5B vs. €4.5B indicated in new Zero Coupon 2014 CTZ; Avg Yield 3.673% v 4.853% prior; Bid-to-cover: 1.7x v 2.24x prior
- (IT) Italy Debt Agency (Tesoro) sold €500M v €250-500M indicated range in 2.15% 2014 I/L Bonds; Yield 3.20%; Bid-to-cover: 2.79x
- (HU) Hungary Debt Agency (AKK) sold total HUF48B in 2014, 2017 and 2022 Bonds
*** SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM ***
***Notes/Observations***
- Fed Chairman Bernanke signals years of low interest rates ahead with potential more stimulus. Fed stance appears to be pro inflationary
- Dow approaching 3 highs
- US Tsy Sec Geithner will not participate in any Obama second term
- Reports that private creditors were willing to accept a lower coupon in the PSI negotiations
Equities:
FTSE 100 +1.14% at 5788, DAX +1.36% at 6508, CAC-40 +1.11% at 33491, IBEX-35 +1.36% at 8671, FTSE MIB +1.61% at 16,095, SMI +0.3% at 6090
- European equity indices opened the session higher, as the US Fed disclosed that 11 out of 17 of its members saw the FOMC raising the Fed funds rate in 2014 or later. Ahead of the Fed meeting, there were expectations in the market that the Fed would not raise rates until at least mid-2014. Since the open, indices have continued to gain on renewed optimism related to the Greece private sector involvement talks, after a Greek press report, without citing sources, said Greece's private lenders were said to be willing to accept a coupon rate of below 4% on new Greek bonds. In the past, it was reported that Greece's private lenders were seeking a coupon of at least 4%.
- In individual stocks, French name Plastic Omnium [POM.FR] has gained over 5%, after reporting Q4 sales. In the UK, Anglo American [AAL.UK] and Kazakhmys [KAZ.UK] are higher following the release of their production reports. Misys [MSY.UK] has declined by over 6%, after issuing first half results. German polysilicon name Wacker Chemie [WCH.DE] has moved between gains and losses following the release of its Q4 earnings. In Switzerland, Logitech [LOGN.CH] is down over 10%, as the company's quarterly results missed expectations. Companies due to report later today include, Nokia [NOK1V.FI], Areva [AREVA.FR], Britsol-Myers Squibb [BMY], Caterpillar [CAT], Colgate [CL], 3M [MMM], Potash [POT] and AT&T [T].
Speakers:
- Greek Press report stated that private lenders were said to have accepted lower interest rate in Greek PSI deal with creditors are said to be willing to accept a coupon rate of below 4% on new Greek bonds. The report did not name sources, but said private sector creditors would submit a new improved offer with an avg interest rate of 3.75%. EU finance ministers had been seeking a rate of no more than 3.5% and in the past private lenders said that they would not accept less than 4%.
- German Fin Min Schaeuble reiterated its view that European crisis must be addressed at its source during an address to the Bundestag (lower house). He noted that it was likely that German banks would hit capital goals in June and could fill capital gaps without aid. The SoFFin was preventive medicine for euro zone contagion.
- German Econ Min Roesler commented that the ESM rescue fund had 'clear borderlines' and that there was no clear link with its funding and fiscal pact. Germany was doing every thing possible to defend the Euro
- Senior German Official commented that Greece was not on the agenda at the Jan 30th EU Leader Summit and did not expect Troika report on second package for Greece to be ready by then
- (ES) Spain Budget Min Montoro commented that Spain was in a recession and it was worse than Europe's
- Russian Central Bank Deputy Ulyukaev commented that inflationary risks have not disappeared and that conditions were not appropriate for an interest rate cut. On the reserve currency issue, Russia might diversify into AUD assets in early Feb
- Turkey Central Bank Gov Basci commented that he believed 2012 GDP growth of 4% could be easily achieved and no serious risk of inflation. The IMF forecast of Turkey stressed downside risks. He noted that Turkey had compensated for TRY currency depreciation
- Turkey Econ Min Babacan commented that there was no need to revise Turkey's economic forecasts and that 2011 GDP growth exceeded 8%. He stated that the country's central bank was not causing inflation as higher interest rates reflected reality and suitable at this time but not in the long run. Turkey was prepared for any outcome with a flexible policy but could not allow fiscal loosening. - Not yet concerned about the country's currency reserves and Turkey was still drawing foreign exchange inflows. He had no major concerns on the TRY currency rate (Lira) with no target in mind
- IMF's Brekk commented that Russia should target medium term inflation between 3-5% and forecasted Russia economic medium-term growth between 3.5-40% without enacting reforms. Russia's pension spending is on an unsustainable path
- Cyprus Fin Min Kazamias commented that it received a second Russian loan payment to be used for bond redemptions with a third installment expected by the end of March
- OECD trimmed its Denmark 2012 and 2013 GDP growth outlook and noted that international economic slowdown posed new risks for Denmark. The country's economy was growing slowly and uneven from the financial crisis while its fiscal position was relatively sound
- WTO's Lamy: CNY currency remains undervalued but no consensus by exactly how much
- Iranian policy maker Emad Hosseini said lawmakers' were finalizing a bill to stop all oil trade with Europe
- Brazil Central Bank (COPOM) Monetary Policy Meeting Minutes noted that recent data suggested that inflation was on a declining trend with a "high" chance of SELIC rate moving below 10%
Currencies:
- FX markets continued to digest the impact of the Fed's extended zero policy guidance from Wednesday. The overall effect has seen a weaker USD coupled with renewed risk appetite and higher commodity prices. The greenback was at one-month lows against the Euro and GBP and two-month lows against the CHF.
- The EUR/USD maintained a foothold above the 1.31 handle and dealers noted that it had the technical legs to probe above 1.32. There were some initial concerns that Greek debt negotiations and renewed Portugal bailout would provide some headwinds for the pair. However, press reports that the private lenders were said to have accepted lower interest rate in Greek PSI deal provided additional momentum for risk appetite and the Euro. The EUR/USD tested above the 1.3170 level during the session as a result. USD/CHF tested below 0.9170 while GBP/USD probed above 1.57 handle. Precious metals were firmer with spot gold at $1,715/oz and spot Silver testing above $33.50/oz
Political/ In the Papers:
- The Irish Independent confirmed that the EU Commission will 'carefully consider' Ireland's bid to cut the Anglo Irish Bank's bailout costs. The ECB said it is open to proposals to replace Anglo Irish Bank's €30B promissory note, or government IOUs for another instrument. Ireland is paying around 6% (although it could be refinanced at 3% by the EFSF) on the outstanding €31B in promissory notes, issued mostly to deal with the collapse of Anglo Irish Bank.
- Iranian policy maker Emad Hosseini said lawmakers are finalizing a bill to stop all oil trade with Europe. The FT reported that according to Hosseini, if the plan is approved, the government will stop oil sales to Europe before the EU begins its embargo. The bill could be taken up by parliament before Sunday. On January 23rd, EU officials agreed to impose an embargo on Iranian oil, including plans to ban Iran's petrochemical shipments from May 1st.
***Looking Ahead***
- (CH) World Economic Forum held in Davos, Switzerland
- (PT) Bank of Portugal publishes Bank Survey on Credit Market
- (US) Republican primary debate in Jacksonville, Florida
- 6:00 (BR) Brazil Dec Unemployment Rate: 4.9%e v 5.2% prior
- 6:00 (UK) Jan CBI Industrial Reported Sales: -6e v +9 prior
- 6:00 (IE) Ireland Dec PPI M/M: No est v 0.9% prior; Y/Y: No est v 1.9% prior
- 6:15 (EU) EU's Barroso
- 6:30 (DE) German Chancellor Merkel hosts Spanish PM Rajoy in Berlin
- 8:30 (US) Dec Chicago Fed National Activity Index: -0.10e v -0.37 prior
- 8:30 (US) Dec Durable Goods Orders: 2.0%e v 3.7% prior (revised from 3.8%); Durables Ex Transportation: 0.9%e v 0.3% prior
- 8:30 (US) Initial Jobless Claims: 370Ke v 352K prior; Continuing Claims: 3.50Me v 3.432M prior
- 9:00 (MX) Mexico Nov Retail Sales: No est v 3.0% prior
- 10:00 (US) Revisions of Leading Indicators
- 10:00 (US) Dec Leading Indicators: 0.7%e v 0.5% prior
- 10:00 (US) Dec New Home Sales 321Ke v 315K prior
- 10:30 (US) Weekly EIA Natural Gas Inventories
- 11:00 (US) Jan Kansas City Fed Manufacturing Activity: +2e v -4 prior
- 11:00 (US) Fed to purchase $2.25-2.75B in Notes
- 12:00 (CA) Canada Treasury Board President Clement speaks in Toronto
- 13:00 (US) Treasury to sell $29.0B in 7-Year Notes
- 14:30 (FR) Socialist Presidential Runner Hollande details platform on TV
- 16:00 (KR) South Korea Feb Manufacturing Business Survey: No est v 79 prior; Non-Manufacturing: No est v 79 prior
- 16:00 (KR) South Korea Jan Consumer Confidence: No est v 99 prior
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