European Market Update – 3/15/10

European Market Update: Traders focus shifting from European peripherals towards key central bank meetings; GBP continues to reflect political and economic uncertainties

*** ECONOMIC DATA ***
- (JP) Japanese Cabinet March Economic Report raised the economic assessment for the first time in eight months. Economy had been steadily picking up but upturn only weakly self-sustaining. Reiterated view that deflation poses economic risk
- (IN) India Feb Wholesale Prices Y/Y: 9.9% v 9.7%e
- (CH) China Feb Foreign Direct Investment (FDI) Y/Y: 1.1% v 10.7%e
- (FI) Finland Feb CPI M/M: 0.4% v 0.2% e; Y/Y: 0.1% v -0.1%e
- (FI) Finland Jan Final Retail Sales Volume Y/Y: -0.9% v 1.6% prior
- (CZ) Czech Feb PPI M/M: -0.3% v 0.1%e; Y/Y: -2.0% v -1.6%e
- (CZ) Czech Jan Export Price Index Y/Y: -5.5% v -3.9% prior; Import Price Index Y/Y: -3.9% v -3.2% prior
- (TU) Turkey Dec Unemployment: 13.5% v 13.9%e
- (FI) Finland Jan Current Account: €270M v €450M prior
- (SZ) Swiss Feb Producer & Import Prices M/M: -0.3% v 0.1%e; Y/Y: -1.0% v -0.6%e
- (DE) Denmark Feb Wholesales Prices M/M: -0.1% v 1.5% prior; Y/Y: 2.3% v 2.8% prior
- (NE) Netherlands Jan Trade Balance: €2.0 v €2.1B prior
- (NO) Norway Feb Trade Balance (NOK): 32.4B v 34.4B prior
- (EU) Euro Zone Q4 Employment Q/Q: -0.2% v -0.5% prior; Y/Y: -2.0% v -2.1% prior

*** SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM ***
- Equities: European equity markets have started the week on downward tone with banks and miners on their back foot. Markets are anticipating a range of political and central bank action that will include a range of rate decisions (US and Japan highlighting) and possible US Congress votes on healthcare and financial regulation. Ahead of these releases, financials have given back ground, warnings from China on the Yuan and American public debt furthering the rotation. Miners have trended lower on concerns over Asian demand while a continuation of iron ore pricing issues, this time highlighted by ThyssenKrupp [TKA.GE] and Vale [VALE], refused to let the input price issue fade away. French insurers traded negative as an industry body reiterated expected costs related to winter storm Xyntha. In this environment, defensives had a better showing with utilities, pharma and telecom standing out. Roche [ROG.SZ] and AstraZenica [AZN.UK] received positive mention from MS while BT [BT.UK] received an upgrade from Citi. Into 6:00est European markets traded at or near their lows on volume levels that were well below moving averages.

- Individual equities: Altran [ALT.FR]: Reports FY09 Net loss €75.3M v €12.7M y/y, Rev €1.4B v €1.65B y/y. || Krones [KRN.GE]: Reports FY09 Net loss €34.5M v loss €24Me, Rev €1.87B v €1.9Be. || Pharming [PHARM.NV]: To request approval at EGM to raise authorized share capital with 200-400M if and when needed. ||

- Speakers: BoE’s Barker commented in a press interview that the UK needed about two more months of data to get better picture of economic outlook. She did not see a double dip recession but does not rule out a negative quarterly GDP. She did reiterated view that economic recovery would be bumpy and fragile***Japan’s government upgraded its assessment of the economy for the first time in eight months, but reiterated that deflation posed a risk and called on the Bank of Japan for further economic support. ***Japan MoF Noda commented that a flexible Chinese yuan currency would be a positive factor for both the global and Chinese economies. He commented about the upcoming BOJ policy decision on Wednesday. He would welcome a flexible action from the BoJ and believed the Central Bank was sufficiently aware of the role over monetary policy. The Gov’t would closely monitor the BOJ’s policy decisions. ***Japan Fin Min Kan commented that he saw evidence of self-sustaining recovery in domestic demand but downside risks remained. He did note that concerns over a double-dip recession have receded and reiterated that both Gov’t and BOJ working together to defeat inflationary price pressures. Kan stated that the Euro currency woes could impact the JPY but added that the JPY currency was relatively steady *** Qatar OPEC official stated that it would discuss output compliance levels at March 17th meeting but saw no pressing need to change supply targets ***EU’s Almunia reiterated the view that the proposed European Monetary Fund (EMF) would be used to solve a long-term problem *** ECB’s Tumpel- Gugerell stated that the ECB had not taken a stance on the proposed European Monetary Fund (EMF)

- Currencies: The GBP was softer in choppy in its price action as the country’s debt and political situation continues to be debated . The GBP began the session modestly softer as the latest election polls continue to point towards a hung parliament. Comments from BOE’s Barker about a possible negative GDP reading (see speakers section of report) also added to the pound bearish sentiment. GBP/USD off 150 pips as the NY morning approached to test 1.5050. The Euro was mildly softer against most majors and EUR/CHF hit fresh 16 month lows below the 1.4540 level. EUR/JPY near session lo

- Sovereign: European Finance minters to meet early this week to discuss EMF concept. *** Moody’s: US “Aaa” sovereign rating would see pressure on budget’s 10-yr projections; Says higher UK yields could test UK’s “Aaa” sovereign status over time but confident whoever wins the UK election would act on deficit, even if there is a hung parliament.

- Geo-political: Voter frustration from the current economic malaise reappeared in a first round, regional French election on Sunday. In the vote, Pres Sazkozy’s center right UMP coalition fared poorly, taking 27% of the first round while a combination of left wing/socialist parties polled a combined 48.2%. A further blow to the UMP came from the resurgence of the far right Front National that polled 11.7%. Pundits have looked on the vote as referendum on the Sarkozy Presidency and point to the extraordinarily low turnout as a reflection of popular discontent with all parties. *** A power failure at a central Chile electricity grid transformer temporarily left most of the country without electricity for Sunday night and temporally halted copper production in the Antofagasta region (produced 900K tons of copper in 2009). State and private mines have reported a gradual resumption of power and operations at their facilities.*** A political tiff between the US and Israel continued over the weekend as Pres Advisory David Alexrod used the Sunday morning talk shows to follow up sharp comments from VP Biden and Sec State Clinton. Timing of a new East Jerusalem settlement announcement puts a newly restarted proxy-talk plan into jeopardy and complicated US efforts for multi-national consensus on Iran.

***Notes:
- No surprises from China over the weekend as PM Wen lashes out to US (others) on potential Yuan currency revaluation
- US TIC data to show if Chinese dwindling holdings of Tsy a trend
- Focus moving from European peripheral situation to central bank policy meetings. Traders seeing if the Fed amends the wording on its exit policy at its FOMC on Tuesday. BoJ this week might begin new Quantitative Easing (QE) program

***Looking Ahead:
- Greece to submit progress report to EU on deficit cutting plan
- 7:30 (GE) BDB Bank Lobby
- 8:30 (CL) Chile Feb Copper Exports: No est v $3.4B prior
- 8:30 (CA) Canada Jan New Motor Vehicle Sales: 0.0%e v 2.6% prior
- 8:30 (US) Mar Empire Manufacturing: 22.00e v 24.91 prior
- 9:00 (US) Jan Net Long Term TIC Flows: $47.5B v $63.3B prior; Total Net TIC Flows: No est v $60.9B prior
- 9:00 (PD) Poland Feb CPI M/M: 0.4%e v 0.5% prior; Y/Y: 3.0%e v 3.6% prior
- 9:15 (US) Feb Industrial Production: 0.0%e v 0.9% prior; Capacity Utilization: 72.6%e v 72.6% prior
- 10:00 (PD) Poland Feb Budget Level (PLN): No est v -4.8B prior; Budget Level YTD: No est v -4.8B prior
- 10:00 (BE) Belgium Dec Trade Balance (EUR): No est v 1.9B prior
- 12:30 (IS) Israel Feb Consumer Prices M/M: -0.4%e v -0.7% prior; Y/Y: 3.5%e v 3.8% prior
- 13:00 (US) Mar NAHB Housing Market Index: 17e v 17 prior

Written by Trade the News

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