European Market Update: Spanish unemployment surges in January; China stresses that Europe must first address its structural issues before seeking outside assistance
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| 11:58 |
***Economic Data***
- (EU) ECB: €2.0B borrowed in overnight loan facility v €1.6B prior; €486.4B parked in deposit facility vs. €472.5B prior
- (BR) Brazil Jan FIPE CPI: 0.7% v 0.7%e
- (CH) Swiss Dec Trade Balance (CHF): 2.1B v 2.5Be; Real Exports real M/M: +6.1% v -4.8% prior; Real Imports M/M: +7.6% v -8.2% prior
- (ES) Spain Jan Net Unemployment M/M: 177.5K v 127.0Ke
- (HK) Hong Kong Dec Retail Sales Value Y/Y: 23.4% v 20.5%e; Retail Sales Volume Y/Y: 17.1% v 15.1%e
- (ZA) South Africa Jan Naamsa Vehicle Sales Y/Y: 7.0% v 9.8%e
- (NO) Norway Jan Unemployment Rate: 2.8% v 2.8%e
- (UK) Jan PMI Construction: 51.4 v 52.5e
- (RU) Russia Gold & Forex Reserves w/e Jan 27th: $504.0B v $499.7B prior
- EU) Euro Zone Dec PPI M/M: -0.2% v -0.1%e; Y/Y: 4.3% v 4.3%e
Fixed Income:
- (ES) Spain Debt Agency (Tesoro) sold €4.55B vs. €3.5-4.5B indicated range in 2015, 2016, 2017 Bonds
- Sold €2.25B in 4.0% July 2015 Bono ; Avg Yield 2.861% v 3.384% prior; Bid-to-cover: 1.63x v 1.80x prior; Maximum Yield 2.989% v 3.576% prior
- Sells €984M in 4.25% Oct 2016 Bono; Avg Yield 3.455% v 4.029% prior; Bid-to-cover: 3.57x v 3.2x; Max Yield 3.557% v 4.050% prior
- Sold €1.05 in 3.80% Jan 2017 Bono; Avg Yield 3.565% v 5.544% prior; Bid-to-cover: 2.70x v 2.69x prior; Max Yield 3.704% v 5.560% prior
- (FR) France Debt Agency (AFT) sold approx €7.96B vs. €6.5-8.0B indicated range in 2018, 2020 and 2022 Bonds (OAT)
- Sold €1.01Bin 4.25% Oct 2018 Oat; Avg Yield 2.44% v 3.27% prior; Bid-to-cover: 4.34x v 2.92x prior
- Sold €1.25B in 2.5% 2020 Bonds; Avg Yield 2.91% v 3.64% prior; Bid-to-cover: 3.99x v 3.34x prior
- Sold €5.7B in new 3.0% April 2022 OAT; Avg Yield 3.13%; Bid-to-cover: 1.71x
- (HU) Hungary Debt Agency (AKK) sold HUF50B in 12-Month Bills; Avg Yield 7.85% v 8.19% prior; Bid-to-cover:1.97x v 1.58x prior
- (UK) DMO sold ?1.25B in 0.125% I/L 2029 Gilts; Avg Yield -0.188%; Bid-to-cover:2.27 x
*** SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM ***
***Notes/Observations***
- Brazil posted its first trade deficit in 2 years in January
- Day 6 of the imminent Greek PSI deal
- Japanese officials continue verbal FX intervention
- Xstrata confirmed talks with Glencore; Rec'd approach regarding a merger of equals
- Spain Jan unemployment surges by 177K
- Spanish borrowing costs decline at 3-tranch bond auction
- China stresses that Europe must help itself first
Equities:
FTSE 100 -0.20% at 5781, DAX +0.20% at 6626, CAC-40 flat at 3366, IBEX 35 at 8717, FTSE MIB -0.20% at 16,228, SMI -0.40% at 6045
- European shares erased gains during the session after drop in oil -related names offset the rally following merger talks between Xstrata and Glencore. Xstrata [XTA.UK] rallied over 12% after confirming that Glencore made an approach for a merger of equals. Glencore already owns 34% of Xstrata shares. However, overall earnings for European companies were disappointing.
- Among notable names, Shell [RSDA.NL] declined after missing its net adjusted profit. Company noted that earnings had been affected by a downturn in industry refining margins and natural gas prices. The downside move affected its peer BP. Deutsche Bank [DBK.DE] also declined after reporting a decline in the Q4 profit as trading was adversely affected by the Eurozone debt crisis. Unilever [UNA.NL] also declined after noting that expect the external macro-economic environment to remain difficult in 2012 and input cost headwinds will persist
Speakers:
- China Premier Wen commented that China was considering involvement in EFSF and ESM facilities and reiterated its view that it was important to resolve the European debt crisis. Europe must rely on itself and reduce its debt load and introduce structural reforms
- German Chancellor Merkel commented from Beijing that China believed that Europe must do their 'homework' first regarding the crisis, then prepared to work for a stable euro
- Greece govt official commented that the bulk of discussions with EU/IMF/ECB Troika were basically completed but a few sticking points remain
- Germany BDB Banking Assoc President Schmitz stated that it must separate European monetary and fiscal policies to avoid a renewed crisis of confidence in the euro zone
- OECD chief Gurria commented that the ECB should purchase more bonds and contribute to cutting the Greek debt stock and cautioned that long term remedies would be doomed if the short-term issues are not addressed. He did note that Ireland's EU/IMF program was making good progress
- BoJ official Yamaguchi commented that the JPY currency has been appreciating recently although needed more time to assess market trend
- India Central Bank (RBI) Gov Subbarao commented that it needed to be unpredictable about forex interventions; Unreasonable for RBI to target inflation. He did concede that the RBI was biased toward containing inflation rather than managing growth.
- BoE's Posen commented in a radio interview that banks were not doing enough to support the economy
- Norway Fin Fin Johnsen commented that its economy was brighter compared to others but traditional exports did face challenge. He cautioned that banks must prepare for turmoil. Development in housing market were a concern as rising debt made sector 'extremely vulnerable' when interest rates go higher
- Italy minister said to have informed unions the gov't is to go ahead with labor refomrs regardless of agreement
- Moodys analyst Byrne commented that there was not much risk to Asian sovereign ratings in 2012
- S&P report noted that a Euro zone recession could end in late 2012 but the severity of recession was a 'close call'. The euro zone should gradually climb out of its mild recession in the second half of this year and into 2013. The core countries would likely lead the way back to growth, with other member countries delivering diverging performances. The S&P baseline forecast for 2012-2013 projected flat GDP growth for the euro zone as a whole in 2012 and 1% growth in 2013. S&P currently assigned a 60% probability to our baseline forecast, versus 40% for our alternative forecast of a true double dip. This would have a particularly adverse impact in countries like Spain, Portugal, and Italy.
Currencies:
- The FX markets maintained its recent ranges as the risk appetite tried to continue maintaining its recent momentum.
- The EUR/USD still had difficulty to break above the 1.32 handle and tested lower following the Spanish unemployment data. The pair probed below the 1.3130 area but did steady a bit after the Spanish and French bond auction results. Dealers did note that 2-way flows were prevalent with a plethora of option-related orders. Comments by China Premier Wen that it was considering involvement in EFSF and ESM facilities while German Chancellor Merkel visited the country on a three-day State visit. Wen did clarify that Europe must rely on itself and reduce its debt load and introduce structural reforms.
- The USD/JPY continued to hold above the 76.00 level with continued rhetoric from Japanese officials.
- The SNB still has yet to defend its 1.2000 floor in the EUR/CHF cross as speculators were performing the task for them. The cross was in the mid-1.20 area.
Political/ In the Papers:
- In an interview with the BBC, Bank of England's Posen said British banks are not doing enough to support the economy. He suggested that the banking sector needs more competition. In terms of policy, he supported the position that the UK would have been far worse without Quantitative Easing (QE).
- The Telegraph's Evans-Pritchard made note on the differences between the IMF and EU with regards to Greece. There are risks that policy makers in Greece could resist the new demands being made by the Troika officials. Both Germany and the Netherlands are opposed to giving Greece any more money, amid recent reports that Greece's second rescue package might have to be raised by €15B.
On the topic of the Bundesbank's liability related to the EU debt crisis, he added that the central bank has about €250B in liabilities related to the euro zone system. The Bundesbank has already provided €496B to countries including Greece, Ireland, Italy and Spain. A large portion of Bundesbank's liabilities are related to the ECB's 'TARGET2' automatic payments network, which deals with transactions between national central banks. According to Professor Frank Westermann of Osnabruck University, the liabilities of the Bundesbank are approaching the 'danger point'. A break-up of the EU would present large risks to the German central bank.
- In Ireland, NAMA reported only one in five loans were performing, with approximately €18.8B in arrears. Its recent quarterly report indicates 83% of the non-performing loans are four months in arrears; the agency must now either restructure these loans or move against developers through the courts. Prior to being transferred to NAMA, the value of performing loans were valued at €56.1B against the current value of €18.8B. NAMA chairman Frank Daly and chief executive Brendan McDonagh stated the number of non-performing loans was likely to continue rising.
***Looking Ahead***
- (EU) NATO Defense Min meet in Brussels
- (EU) EU Commission Rehn meets Netherland PM Rutte and Fin Min De Jager
- (CN) German Chancellor Merkel continues official China visit
- (US) US Senate banking committee vote on additional Iranian sanctions
- (US) Jan ICSC Chain Store Sales Y/Y: No est v 3.5% prior
- 6:00 (EU) EU Parliament votes on Iran nuclear ban
- 6:00 (EU) EU Parliament votes on Euro Bond resolution
- 6:00 (ZA) South Africa Dec Electricity Consumption Y/Y: No est v 0.2% prior; Electricity Production Y/Y: No est v 0.2% prior
- 7:00 (CZ) Czech Central Bank Interest Rate Decision: Expected to XXX the Repo Rate from the current 0.75% level
- 7:30 (US) Jan Challenger Job Cuts Y/Y: No est v 30.6% prior
- 8:00 (IT) Unicredit presents 2012 Economic Outlook
- 8:00 (US) Feb RBC Consumer Outlook Index: No est v 45.8 prior
- 8:00 (RO) Romania to sell Bonds
- 8:30 (US) Q4 Preliminary Nonfarm Productivity: 0.8e%e v 2.3% prior; Unit Labor Costs: +0.8%e v -2.5% prior
- 8:30 (US) Initial Jobless Claims: 371Ke v 377K prior; Continuing Claims: No est v 3.554M prior
- 8:45 (US) ISM NY: No est v 51.1 prior
- 9:00 (US) Fed's Evans speaks to reporters in Chicago
- 9:00 (UK) BOE member Posen
- 9:15 (EU) EU Commissioner Rehn
- 10:00 (US) Fed Chairman Bernanke testifies before House Budget Committee
- 10:00 (DK) Denmark Jan Foreign Currency Reserves (DKK): 3.535Me v 481.7B prior
- 10:30 (US) Weekly Natural Gas Inventories
- 19:15 (US) Fed's Fisher speaks in Austin, Texas
- 20:00 (CN) China Jan Non-manufacturing PMI: no est v 56.0 prior
- 21:30 (CN) China Jan HSBC Services PMI: No est v 52.5 prior
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