European Market Update June 9, 2010 7:18am CDT

Reports of strong Chinese exports data offset by lingering concerns over corporate profits

***Economic Data***
- (FI) Finland Q1 GDP Q/Q: -0.4% v 0.3%e; Y/Y: -0.8% v 0.3%e
- (FI) Finland Apr Preliminary Trade Balance: €355M v -€345M prior
- (JP) Japan May Preliminary Machine Tool Orders Y/Y: 191.8% v 220.9% prior
- (HU) Hungary Q1 Final GDP Q/Q: 0.9% v 0.9% prior; Y/Y: 0.1% v 0.1% prior
- (CZ) Czech May CPI M/M: 0.1% v 0.1%e; Y/Y: 1.2% v 1.2%e
- (CZ) Czech Q1 Final GDP Q/Q: 0.5% v 0.2% prior; Y/Y: 1.1% v 1.2% prior
- (SW) Sweden Apr Industrial Production M/M: 0.9% v 1.0%e; Y/Y: 7.3% v 6.0%e
- (SW) Sweden Apr Industrial Orders M/M: 0.7% v 4.2% prior; Y/Y: 17.6% v 24.0% prior
- (DE) Denmark Apr Current Account (DKK): 7.8B v 5.0B prior; Trade Bal. X Shipping: 5.8B v 8.3B prior
- (UK) Apr Visible Trade Balance: -£7.3B v -£7.0Be; Total Trade Balance: -£3.3B v -£3.0Be ; Trade Balance Non EU: -£4.0B v -£3.8Be
- (GR) Greece Q1 Final GDP Q/Q:-1.0% v -0.8%e; Y/Y: -2.5% v -2.3% prior
- (GR) Greece Apr Industrial Production Y/Y: -5.1 v -3.7% prior

Fixed Income:
- (GE) Germany sells €5.625B in Jun 2012 Schatz; avg yield 0.47%; bid-to-cover: 2.4x v 1.4x prior
- (UK) DMO sells £3.75B in 3.75% 2020 Gilts; avg yield 3.633%; bid-to-cover: 1.86x v 1.7x avg
- (PO) Portugal Debt Agency (IGCP) sells total €1.52B in OTs (upper end of estimates); Sold €701 M in 5.45% Sept 2013 OTs with avg yield 3.60% and Bid-to-cover: 2.4 v 1.6x prior; Sold €816M in 4.8% Jun 2020 OTs with avg yield 5.23% and a Bid-to-cover 1.8x v 1.7x avg

*** SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM ***
- Equities: European equity markets opened marginally higher, after Chinese stocks had a late day rally on reports that China's exports in May could rise by around 50% y/y. However, as of 5:21 EST, equities have moved off of the earlier highs following trade data out of the UK and a downward revision to Greece's Q1 GDP. Other factors which have weighed on sentiment included a rumor of a profit downgrade at Nokia and market concerns about BP's dividend. Furthermore. markets were slightly unsettled by the ECB noting that a report that it was planning to issue €10B was sent in error. Euro Stoxx 50 Index -0.5% at 2,499; DAX Index -0.3% at 5,848; CAC-40 Index -0.35 at 3,371 and FTSE 100 Index -0.4% at 5,007

- In Individual Stocks: Remy Cointreau [RCO.FR]: Reported final Net profit and Revenues of €86.3M and €807.8M above year-ago figures of €86.1M and €714.1M, respectively. Noted unfavorable foreign exchange background and negatibe impact of the international economic climate. Noted business in US had improved but was still below pre-crisis levels. Company was less positive on Europe. || Allscripts [MDRX]: To merge with Eclipsys [ECLP] in a transaction valued at $1.3B. As a result, Allscripts' main shareholder, Misys [MSY.UK] would sell its majority stake of 54.6% in Allscripts. Transaction is expected to be accretive to Allscript's FY11 earnings. Following merger announcement, Allscripts increased its FY10 guidance. Company guided FY10 in the high end of $0.64-0.65 in line with estimates of 0.65 and Revenues at $700-705M above estimates of $702M. ||Hampson [HAMP.UK]: Reported FY adjusted pretax profit of £24.9M and revenues of both figures below year-ago levels of £37.6M and £256.6M, respectively. Noted the difficulties in 2009/10 which had created uncertainty and led to a significant impact on profits and results for the year. Company continues to remain cautious for the 2010/11. ||Ingenico [ING.FR]: Provided long term targets and expected to multiply by 3 the revenue from transactions. Guided EBITDA margin in the range of 16% to 17% of the 2010 revenue and H1 revenues to be above €380M

- Speakers: ECB's Trichet reiterated the central bank's commitment to price stability and that the current crisis would be exited with more resilient institutions. - Crisis has strained economies and societies considerably an need quantum leap in European economic goverance. Fiscal policy must inspire the same confidence as monetary policy
- ECB has the tools and autonomy to deliver medium term price stabilit ***Japan Fin Min Noda stated that no intention of guiding JPY currency rate in any particular direction and the Ministry's position was to observe the FX market movements. Inflation should be slightly above 1% on average, though not imposing CPI suggestion for the BoJ. He stressed that the BOJ to continue easy monetary policy stance. He reiterated G7 view on currency volatility: Dramatic moves in fx were not good for the economy or financial stability and must not be overly relaxed regarding low long-term rates. *** Fitch again commented on the UK following the PM's budget outline on Tuesday. Fitch stated that the time for UK government to deliver on the deficits and the current UK Gov actions were only that start of multi-year process of cuts. A faster pace of deficit cuts was needed in the medium term. Fitch noted that the main risk for UK was not doing enough on cutting its deficits. Fitch did concede that low interest rates had been very important for the country economic recovery ***German Parliament publishes draft law regarding ban on short-sale and Credit Default Swaps (CDS)

- Currencies/Fixed Income: The session began with another spat of risk appetite on reports that China's May export data was well above the 32% consensus expectations. However, the euphoria seemed to evaporate once again on reports that the ECB planned to issue debt certificates which would effectively drain liquidity from the market for three months. The ECB stated that the announcement was only a 'test' but dealers seemed to sense a growing sense of disconnect the ECB has endured from the real problems facing the Euro Zone. Risk aversion also trying to resurface on renewed rumors and concerns on profit warnings from several European companies. Overall the EUR/USD was holding below the 1.20 handle and basically unchanged on the week. Portugal bond auction did raise a bit more than the €1.5b expected and countered some of the aversion sentiment.

- Geo-Political: Dutch to elect new parliament. Main campaign issues revolve around budget and immigration. Opinion polls indicate a victory for the VVD party, to claim 36 seats in lower house positioning party leader Mark Rutte to be the next prime minister. ***UK Chancellor Osborne presented budget outline with spending cuts of approximately 20%. The budget outline is for entire parliamentary term of four years. It is estimated ministerial cuts of 20% to affect various areas including welfare, pensions and tax credits. The Chancellor stated that the newly established Office of Budget Responsibility to submit growth forecasts next Monday. Note the government is planning to reduce £9B from this year's budget *** In today's edition of Les Echos, the French government may introduce new tax on high salary earners with income above €11K/month to help finance pension system deficit. It is estimated that the tax will affect about 100K households. *** WSJ commented on the efforts by Spain to restructure its savings banks, where about 12 of Spain's 45 savings banks are speeding up efforts to restructure before the end of the month, as the European Commission's deadline on bank bailouts nears. Some believe that the restructuring efforts may cause savings banks to liquidate property assets.

***Notes/Observations:
- British Petroleum [BP.UK] lower on dividend concerns, chatter of Nokia [NOK1V.FH] profit warnings
- Early Europe sees a bit of risk appetite on reports of stronger Chinese export data
- ECB announces issuance €10B in debt certificates then recanted the story as a 'purely technical test'
- Traders taking notice of a Global investor poll that saw almost a 75% chance that Greece would default
- China: Labor unrest grows. Authorities freeze IPOs on overcapacity concerns.
- Debt Auctions on the plate in session with Germany, Portugal and US today. Tomorrow Spain, Italy, and more US issuance

***Looking Ahead***
- 6:00 (PD) Poland to sell PLN2.5B in bonds
- 6:00 (GE) Germany sells €1.0B in Index-Linked notes
- 7:00 (US) MBA Mortgage Applications w/e Jun 4th: No est v 0.9% prior
- 7:00 (BR) Brazil May FGV Inflation IGP-DI: 1.3%e v 0.7% prior
- 7:45 (EU) EU President Van Rompuy speaks on Euro
- 8:00 (GE) German Fin Min Schaeuble and ECB's Weber at CDU economic forum
- 8:00 (HU) Hungary Central Bank's Minutes
- 8:00 (BR) Brazil May IBGE Inflation IPCA M/M: 0.4%e v 0.6% prior; Y/Y: 5.2%e v 5.35 prior
- 9:00 (BE) Belgium Q1 Final GDP Q/Q: No est v 0.1% prior Y/Y: No est v 1.0% prior
- 10:00 (US) Fed's Bernanke testifies on economy at House Budget Committee
- 10:00 (US) Apr Wholesale Inventories: 0.5%e v 0.4% prior
- 10:00 (MX) Mexico May Consumer Prices M/M: -0.6%e v -0.3% prior Y/Y: 4.0%e v 4.3% prior; Core CPI M/M: 0.3%e v 0.1% prior
- 10:00 (MX) Mexico Apr Final Trade Balance: No est v $197.4M prior
- 10:30 (US) DOE Weekly energy inventories: Crude: -1Me; Gasoline: -250Ke; Distillate: +500Ke; Utilization: 87.5%
- 12:00 (US) Fed's Sack
-13:00 (US) Treasury to sell $25B in 5-year notes
- 14:00 US Fed's Beige Book
- 16:00 (US) Fed's Bernanke in Richmond
- 16:00 (GE) German Chancellor Merkel speech on economy at CDU economic forum
- 17:00 (NZ) New Zealand Central Bank (RBNZ) Interest Rate Decision: Expected to raise the Official Cash Rate by 25bps to 2.75% from current 2.50% level
- (BR) Brazil Central Bank (COPOM) Interest Rate Decisions: Expected to raise the SELIC Target by 75bps to 10.25% from the current 9.50% level

Learn more about Trade the News