EU Market Update: Spanish/German 10-yr spread widens by over 20bps, ahead of key events out of Spain

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EU Market Update: Spanish/German 10-yr spread widens by over 20bps, ahead of key events out of Spain

26.09.2012 12:07 Wednesday
***Economic Data***
- (IT) ITALY JULY RETAIL SALES M/M: -0.2% V 0.0%E; Y/Y: -3.2% V -0.8%E
- (SE) SWEDEN AUG TRADE BALANCE (SEK): 3.3B V 3.0BE
- (SE) SWEDEN SEPT CONSUMER CONFIDENCE: 2.0 V 5.4 PRIOR; MANUFACTURING CONFIDENCE: -10 V -9 PRIOR; ECONOMIC TENDENCY SURVEY: 95.8 V 97.1 PRIOR
- (DE) GERMANY SEPT CPI SAXONY M/M: 0.2% V 0.3% PRIOR; Y/Y: 2.0% V 2.1% PRIOR
- (FR) FRANCE SEPT CONSUMER CONFIDENCE: 85 V 86E
- (FI) FINLAND AUG PRELIMINARY RETAIL SALES VOLUME Y/Y: 1.2% V 0.0% PRIOR
- (DE) GERMANY SEPT CPI NORTH RHINE WESTPHALIA M/M: 0.0% V 0.4% PRIOR; Y/Y: % V 1.9% PRIOR
- (NO) NORWAY JULY AKU UNEMPLOYMENT RATE: 3.0% V 3.0%E
- (DE) GERMANY SEPT CPI BRANDENBURG M/M: -0.2% V 0.2% PRIOR; Y/Y: 1.9% V 2.0% PRIOR
- (DE) GERMANY SEPT CPI BADEN WUERTTEMBERG M/M: 0.2% V 0.2% PRIOR; Y/Y: 2.0% V 1.8% PRIOR
- (DE) GERMANY SEPT CPI HESSE M/M: 0.0% V 0.4% PRIOR; Y/Y: 2.0% V 2.3% PRIOR
- (SG) SINGAPORE AUG INDUSTRIAL PRODUCTION M/M: -2.3% V 0.0%E; Y/Y: -2.2% V 1.0%E

Fixed Income:
- (CN) China MoF sells 20-yr Bond at yield of 4.1% v 4.03% prev on April 19th
- (DE) GERMANY SELLS €3.19B V €5.0B INDICATED IN 1.5% SEPT 2022 BUNDS; AVG YIELD 1.52% V 1.42% PRIOR; BID-TO-COVER: 1.2X V 1.1X PRIOR (2nd consecutive technically uncovered auction)
- (IN) India sells total INR120B v INR120B prior in 3-month and 6-month Bills
- (IT) ITALY DEBT AGENCY (TESORO) SELLS €9.0 VS. €9.0B INDICATED IN 6-MONTH BILLS; AVG YIELD: 1.503% V 1.585% PRIOR; BID-TO-COVER 1.39X V 1.69X PRIOR
- (RU) Russia sells RUB19.2B in 2017 OFZ Bond; Yield 7.53% v 7.57% prior
- (SE) Sweden sells total SEK10.0B vs. SEK10.0B indicated in 3-month and 6-month Bills
- (SG) Singapore sells S$2.0B v S$2.9B prior in 0.25% 2014 bonds; Avg yield 0.31% v 0.27% prior

*** SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM ***
***Notes/Observations***

- Spain 10-year bond yields move sharply higher and approach 6.0%, ahead of event risks due later in the week (including budget statement and results of banking sector stress tests); Bank of Spain cautious on Q3 GDP
- Italian yields higher ahead of tomorrow's sale of 5 and 10-yr bonds
- Italy sells 6-month bills at lowest yield since March.
- 3-month Euribor does not hit new record low
- French/German 10 yr yield spread widens ahead of the French's government's draft budget announcement.
- Germany has second straight "technically uncovered" 2022 Bund auction
- Equity markets decline amid protests in Spain and Greece, higher peripheral yields and chatter that some investors are exiting bets related to QE3
- Shanghai Composites tests the 2,000 psychological levels and closes at the lowest level since late Jan 2009
- China money market rates drop over 90bps, as PBoC steps up liquidity injections
- More companies in China are delaying planned bond sales
- AUD/USD lower, amid commodity price weakness and RBA rate cut speculation
- EUR/JPY trades below ¥100 on broad Euro weakness

***Equities***

Indices: FTSE 100 -0.90% at 5,807, DAX -1.3% at 7,325, CAC-40 -1.8% at 3,450, IBEX-35 -2.3% at 7,985, FTSE MIB -2.3% at 15,567
- European equity indices are broadly lower amid the sharp rise in peripheral yields and weakness in the Asian markets. The downside has been led by Spain's IBEX-35 and Italy's FTSE MIB. Losses have been seen across the banking sector, as major German banks are lower by over 4%.Resources related firms are lower, tracking the declines in commodity prices.
- The London Stock Exchange [LSE.UK] is lower by more than 1.5%, after issuing its 5-month trading update. Shares of ICAP [IAP.UK] have lost over 4% following the release of H1 sales. Waste management firm Shanks [SKS.UK] has moved lower by over 12% after issuing a profit warning. In Switzerland, computer software firm Myriad Group [MYRN.CH] is lower by over 20%, as the company reported a y/y decline in H1 sales and announced plans to conduct a rights offering. In Germany, Conergy [CGY.DE] has declined by more than 20%, after MEMC terminated a wafer supply agreement with the company. German automakers have underperformed the overall DAX index, as Japanese automakers are said to be planning to lower production in China. CGG Veritas [GA.FR] is lower by more than 4%, as the company announced the terms for its previously announced rights offering. Shares of Pages Jaunes [PAG.FR] have declined by more than 3%, as the company is continuing talks with lenders related to extending the maturity of debt due in Nov 2013.
- FTSE 100 movers (Evraz -3.9%, RSA Insurance -3.5%, Vedanta -3.4%, RBS -3.2%, Kazakhymys -3.1%)
- CAC-40 movers (Credit Agricole -3.6%, Carrefour -3.5%, Renault 3.5%, ArcelorMittal -3.3%, Veolia Environmental -3.2%)
- DAX movers (Deutsche Bank -4.4%, Commerzbank -4.2%, Continental AG -3.2%, ThyssenKrupp -2.7%, Infineon -2.4%, Fresenius Medical Care +1.4%)
- Fomento -4.5%, Bankia -4.2%, Sacyr -4.1%, Acciona -4.1%, Gamesa -4%)
- Banca Popolare -4.4%, Banca Monte Paschi -4.3%, Intesa -3.7%, Mediaset -3%, Exor -3%)
- SMI movers (UBS -3%, Adecco -2.7%, Credit Suisse -2.6%, Holcim -2.1%, Richemont -1.8%)

Speakers:
-Denmark Industry Minister Ole Sohn proposes law on ARMS and interest only loans, to make borrows manage fixed rates that will go into effect in 2013.
-ECB's Hansson (Estonia) said the govt has relied too heavily on ECB.
-Japan MOF extends Fx currency monitoring to year end.
-Hungary Central Bank Gov Simor said Hungary needs IMF agreement.
-PIMCO Amey commented that it is difficult to see how Greece will remain in the Eurozone. UK safe haven status could be easily lost.
-China Govt advisor said China will lift the proportion of services industry in economy, and will open the industry more to foreign investors.
-Philippines Central Bank Gov said they are not ruling out further policy easing in 2012.
-Former PBoC Advisor Fang Gang comment that China cannot overestimate the speed of yuan internationalization. Currently, yuan is at an equilibrium level currently.
-Ireland Jobs Min Bruton said of course we still expect a bank deal, there are always ups and downs in negotiations.
-India Central Bank proposes extending deadline for mandatory clearing of Rupee forward contracts from Oct 1st to Jan 1st.
-DMO Stheeman commented that Gilt remit size seen staying in the very near term. QE absorption shows the strength of Gilts market.
-Bank of Spain said that available data suggests Spain Q3 GDP fell at a significant rate.
-Spain Econ Min Spokesperson comment Spain will probably seek less than €60B for bank bailout (up to €100B available).
-ECB's Hansson said he sees global inflation slowing, sees moderate contraction of Euro economy in 2012, moderate growth in 2013.
-New Zealand State Pension fund said they see NZD as significantly overvalued, and are happy to short it.
-France Labor Min Sapin commented that job figures are very bad. There are more than 3M jobless. Corporate job cut rules need to be changed.
-Hong Kong Finance Sec Tsang said He has talked with Taiwan about increasing trade ties.
-Poland Central Bank Gov Belka said loosening monetary policy is obvious, policy easing should not be one off move, easing to be discussed at Oct meeting.

Currencies:
- It was a euro centric session as the EUR/USD continued its downward trend today weighed on by negative sentiment as events continue to unravel in the bloc. The EUR/USD testing the psychologically important $1.2850, it managed to briefly break through before skipping back up 30 pips to $1.2880 heading into the second technically uncovered German 2022 bond auction. Negative sentiment abound, was fueled from North to South in the EU. There were widespread protests in Spain, involving rubber bullets and other crowd controls; the Troika is set to return to Greece as a general strike (the 1st since the formation of the new Gov in June) take place. The Finance Ministers of Germany, Netherlands and Finland said that bank recapitalizations by ESM should only be applied to new cases, leading to more uncertainty. Spain's Catalonia called for a snap election, as chatter surfaced that the army could be used against any attempt from the region to secede. EUR/JPY was less volatile than its dollar cross but generally followed the trend, testing to ¥99.70 with an upside of ¥100.50. USD/CHF remained near yesterday's trend of slowly marching upward, gaining about 20 pips to CHF0.9405. The Sterling was mostly unchanged in the session with a slight downside bias to $1.6180 currently.

Political/ In the Papers:
- (EU) ECB's Draghi: Growth remains highly uneven, economy to return to growth next year; Monetary policy cannot function properly when euro zone nations have vastly different borrowing costs
- (EU) Fin Mins of Germany, Netherlands and Finland: Bank recapitalizations by ESM should only be applied to new cases - financial press
- (EU) ECB's Weidmann: OMT bond buying program could be more negative than positive over the long-term - financial press; In the past some countries have dealt with borrowing costs above 7% on a temporary basis.
- (EU) ECB's Weidmann reportedly not the lone council member who was skeptical about ECB bond purchases - financial press; Note: Prior reports have suggested that ECB officials Knot (Netherlands), Liikanen (Finland) and Coene (Belgium) were said to have concerns about the OMT bond purchases.
- Infineon [IFX.DE]: Expect a soft start to 2013, and Q4 2012 revenue down slightly q/q; will be taking steps to improve profitability; Q1 2013 revenue to be down as much as 10% q/q
- (FR) France Labor Min Sapin: Job figures are very bad, there are more than 3M jobless; Note: France's Aug jobseekers data is due to be released later today.
- (GR) Grece Fin Min Stournaras: Loan extensions may cost approx €13-15B
- (GR) Follow Up: IMF may stop additional aid payments to Greece before decisions taken on further debt restructuring - Skai.gr
- (IE) Ireland is said to be considering sale of a syndicated USD bond - financial press
- (IT) Italy PM Monti: Confirms has no plans to run in the Italian elections in early 2013; Hopes Italy will not need to request bond buying. Any aid request cannot become a surrender of sovereignty.
- (PT) Portugal 2013 public debt revised higher to 124% of GDP - Diario Economico; In April, it was reported that Portugal's debt to GDP was expected to peak at 115% in 2013
- (ES) Spain PM Rajoy: Will seek bailout if rates become too high for the economy; Expects bank bailout to be much lower than €100B.
- (ES) Police in Madrid said to have fired rubber bullets in effort to disperse protesters - press; Large crowds said to have been gathered all day outside of the Parliament in protest against planned austerity measures.
-(PT) Several of Portugal security forces plan to join general worker protests across Portugal over the next few days - Economico
- (ES) Spain PM Rajoy: Will limit early retirement to keep retirement age at 65 - Financial press
-(GR) Greece to hold first general strike today since new govt was formed in June - Greek press
- (GR) Greece PM Samaras and Greece Fin Min Stournaras agree in principal to €11.5B in budget cuts - financial press

***Looking Ahead***
***All times listed for economic events are denominated in Eastern Standard Time (Add 4 hours for GMT equivalent)

- 06:00 (UK) Sept CBI Industrial Reported Sales: No est v -3 prior
- 06:00 (DE) Germany Sept CPI Bavaria M/M: No est v 0.4% prior; Y/Y: No est v 2.5% prior
- 06:30 (US) Daily LIBOR Fixings
- 07:00 (US) MBA Mortgage Applications w/e Sept 21st: No est v % prior
- 07:30 (CL) Central Bank's Traders Survey
- 08:00 (DE) Germany Sept Preliminary Consumer Price Index M/M: No est v 0.4% prior; Y/Y: No est v 2.1% prior
- 08:00 (DE) Germany Sept Preliminary CPI EU Harmonized M/M: No est v 0.4% prior; Y/Y: No est v 2.2% prior
- 09:00 (CA) Canada Aug Teranet/National Bank House Price Index M/M: No est v 0.7% prior; Y/Y: No est v 4.8% prior; HPI: No est v 155.28 prior
- 09:00 (MX) Mexico Aug Preliminary Trade Balance: No est v -$426.9M prior
- 09:30 (UK) Deputy PM Clegg speaks at Party Conference
- 09:45 (UK) BOE to buy £1.0B in 2019-2025 Gilts in reverse Auction
- 10:00 (US) Aug New Home Sales: No est v 372K prior
- 10:30 (US) Weekly DOE Crude Oil Inventories
- 11:00 (US) Fed to purchase $4.25-5.00B in Notes
- 11:30 (CA) Canada's Chief Trade Negotiator Verheul for Canada/EU Speaks
- 12:00 (FR) France Aug Net Change in Jobseekers: No est v +41.3K prior; Total Jobseekers: No est v 2.987M prior
- 13:00 (US) Treasury to sell 5-Year Notes

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