EU Market Update: Spanish bonds outperform, as bailout speculation persists

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EU Market Update: Spanish bonds outperform, as bailout speculation persists

02.10.2012 12:13 Tuesday
***Economic Data***
- (EU) EURO ZONE AUG PPI M/M: 0.9% V 0.6%E; Y/Y: 2.7% V 2.6%E
- (UK) SEPT PMI CONSTRUCTION: 49.5 V 49.9E
- (ES) SPAIN SEPT NET UNEMPLOYMENT M/M: +79.6K V +57KE
- (ZA) SOUTH AFRICA SEPT NAAMSA VEHICLE SALES Y/Y: 1.4% V 9.4% PRIOR
- (RO) ROMANIA AUG RETAIL SALES M/M: 0.7% V 0.6% PRIOR; Y/Y: 4.7% V 4.4% PRIOR
- (RO) ROMANIA AUG PRODUCER PRICES M/M: 1.3% V 0.9% PRIOR; Y/Y 7.2% V 5.7% PRIOR
- (HU) HUNGARY JULY FINAL TRADE BALANCE: €431M V €457.5M PRELIM
- (UK) SEPT NATIONWIDE HOUSE PRICES M/M: -0.4% V 0.0%E; Y/Y: -1.4% V -0.6%E
- (AU) AUSTRALIA SEPT RBA COMMODITY PRICE INDEX AU: 90.1 V 89.2 PRIOR; COMMODITY INDEX SDR Y/Y: -14.9% V -14.7% PRIOR
- (EU) ECB: €2.4B borrowed in overnight loan facility v €2.05B prior; €294.9B parked in deposit facility vs. €315.8B prior

Fixed Income:
- (AT) Austria Debt Agency (AFFA) sells combined €1.32B v €1.32B indicated in 2019 and 2044 bonds
- (BE) Belgium sells total €3.01B vs. €2.8-3.2B indicated in 3-month and 6-month Bills
- (CH) SWITZERLAND SELLS CHF748.7M V CHF747.8M PRIOR IN 3-MONTH BILLS, AVG YIELD -0.221% V -0.221% PRIOR
- (EU) ECB ALLOTS €102.9B V €117.4B PRIOR IN 7-DAY MAIN REFINANCING TENDER AT FIXED 0.75%
- (HU) Hungary Debt Agency (AKK) sells HUF60B vs. HUF45B indicated in 3-Month Bills; Avg Yield 6.44% v 6.63% prior; Bid-to-cover: 2.36x v 1.60x prior
- (UK) DMO SELLS £3.5B IN 1.75% SEPT 2022 GILTS; AVG YIELD 1.765% V 1.825% PRIOR; BID-TO-COVER: 1.87X V 1.82X PRIOR; TAIL 0.1BPS V 0.2BPS PRIOR
- (ZA) South Africa sells total ZAR2.1B vs. ZAR2.1B indicated in 2023, 2041 and 2048 bonds

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

- Unemployment in Spain continued to rise in Sept
- Spanish bonds outperform, as bailout speculation persists
- EUR/USD remains in 1.28-1.30 range ahead of Thursday's ECB meeting
- AUD underperforms following RBA rate cut, bond market reaction more subdued.

***Equities***
-Indices: FTSE 100 +0.10% at 5,827, DAX +0.40% at 7,357, CAC-40 +0.10% at 3,426, IBEX-35 +1% at 7,863, FTSE MIB +0.90% at 15,672, SMI +0.20% at 6,624, S&P 500 Futures +0.50% at 1,444.50
-European equity indices opened the session lower, following the gains seen on Monday's session. Markets have since pared losses, amid the decline in Spanish bond yields. The best performing index on today's session has been Spain's IBEX-35, followed by the Italian FTSE MIB. European banks are trading mixed, as UK and French financials have underperformed, while German banks are outperforming. Resource related firms are trading mostly higher, tracking the gains in oil and copper prices.

- UK-listed bathroom materials firm Woseley [WOS.UK] has moved between gains and losses after disclosing its FY results and special dividend payment. Alstom [ALO.FR] is lower by over 6%, as the company announced a plan to raise €350M in capital. Food distributor Bonduelle [BON.FR] is higher by approx. 1.5%, after releasing its FY results.
In Germany, Brenntag [BNR.DE] is lower by over 2% on a share placement. Audio/video products firm Loewe AG [LOE.DE] has declined by over 7%, as the company guided its Q3 sales lower y/y. German insurer Talanx [TLX.DE] has moved between gains and losses on its first day of trading. Danish shipping firm Torm [TORM.DK] has risen by over 25%, as the company reached a restructuring agreement with its bankers. Shares Austria's Erste Bank are lower by over 1.5% on a share placement.
- FTSE 100 movers (RBS -2.9%, Lloyds -2.7%, ARM Holdings -1.8%, Standard Chartered -1.5%, Schroders -1.5%; Babcock International +3.3%, Randgold +2.5%, Wolseley +2%, United Utilities +1.6%, IAG +1.6%)
- DAX movers (Commerzbank +1.7%, Deutsche Bank +1.1%, E.ON +1%, K+S +1%, RWE +0.90%; Bayer -1.1%)
- IBEX-35 movers (Mediaset +2.2%, ACS +2.1%, Amadeus +2%, Fomento +1.7%, Endesa +1.7%; Banco Popular -1.2%, Bankia -1.1%)
- FTSE MIB movers (A2A +3.9%, Finmeccanica +3.3%, Mediolanum +1.6%, Lottomatica +1.6%, Exor +1.4%)
- CAC-40 movers (France Telecom +1.6%, Veolia Environmental +1.4%, Unibail +1.4%, EDF +1.3%, Carrefour +0.90%; Alstom -5.5%, Solvay -1.3%, ArcelorMittal -1.3%, St. Gobain -1.1%, Alcatel-Lucent -1.1%)
- SMI movers (Swiss Re +1.6%)

Speakers:
-UN Food and Agriculture Organization (FAO) reported that it's too early to tell if there is another food crisis, should refrain from export bans.
-Russia Fin Min Siluanov said there are no plans for tax increases outside of the oil industry, will be mild increase in excise taxes in 2012.
-Spain Social Security Chief Burgos said Spain will comply with law on increasing pensions.
-Russia Econ Min Belousov said Russia needs to support exports more, needs 4.0-4.5% GDP.
-Swedish Riksbank corporate survey report that Swedish companies see weaker growth ahead and a strong Krona is benefitting retail sales.
-Bank of Korea (BoK) member said growth of 2% is likely for 2012, capital inflow risks have increased since sovereign upgrade.
-EU's Almunia reported he is checking if DHL and FedEx would rival UPS/TNT.
-Hungary Central Banker Bartfai-Mager commented that the current rate cut cycle is cautious and sees a CPI target of 3% is attainable by Q2 2014.
-Russia Central Bank Ulyukayev said he sees 2013 Borrowing at RUB606B and doesn't rule out raising rates at Oct 5th meeting.
-Finland Fin Min Urpilainen reported that the domestic economic situation is difficult. The Govt will not force municipal mergers - local media.

Currencies:
- EUR/USD traded in about a 40 pip range with little major economic catalyst, dealer chatter crossed when it was trading around $1.2910 that one of the large investment banks was in buying. EU yields were slightly lower, which also helped the single currency higher. Could expect a run higher if EUR/USD breaks $1.2960, the 3-day high, with the next resistance around $1.2360. Fitch cut the BoE's outlook to negative, affirmed AAA, GBP/USD seemed little bothered, it also traded in about a 40 pip range, making fresh highs after 9 GMT to $1.6170. USD/CHF stayed in a 20 pip range, benefiting from some safe haven flows, EUR/CHF hovered right around CHF1.21 (SNB target). AUD/USD held right around $1.03 for the entire European session after the RBA in a surprise decision cut its rate by 25bps.

Political/ In the Papers:

-(RU) Georgia early election results show the Opposition in the lead - financial press
-BNO: Goldman thinks oil could hit $130 due to Iran tensions- FT
-(IR) Iran rial falls to new low against dollar amid international sanctions and internal turmoil - financial press
-(GR) First indications of Greece 2013 bookings from overseas are "encouraging"; Bookings from UK are 7% higher y/y - ekathimerini
-(DE) Germany said to be considering a plan to subsidize electric cars after the next general election - financial press
-(CY) Cyprus ruling party has rejected the bailout demands made by Troika - ekathimerini
-(DE) Germany spokesperson: Germany is not pushing Spain one way or the other on request for aid - German press
-(CH) Switzerland's Young Socialist Party supports a bill which would limit speculation by banks related to agricultural commodities - financial press
-(ES) Catalonia Leader Mas: Statehood doesn't mean total independence - ABC
-(ES) Spain Social Security Chief Burgos: Will wait until Nov to see if it is acceptable to raise Social Security payments - El Pais
-Ablynx [ABLX.DE]: Announces development pact with Merck, eligible for up to €448M in milestone payments
-(ES) Spain said to be prepared to ask for a sovereign bailout, but Germany said to be encouraging Madrid to wait before doing so - financial press; Under one scenario, Spain could submit the request this weekend; euro zone fin mins may discuss Spain request at the upcoming meeting in Luxembourg next Monday; Note: In early Sept, it was reported that Rajoy could delay any bailout request until after the Galicia regional elections which are due to be held on Oct 21st (Spanish Press).

***Looking Ahead***
***All times listed for economic events are denominated in Eastern Standard Time (Add 4 hours for GMT equivalent)
- 06:30 (US) Daily Libor Fixing
- 07:00 (FI) EU's Semeta speaks in Helsinki
- 07:00 (EU) ECB announces allotment in 7-Day Term Deposits
- 07:30 (EU) EU's Kroes speaks at Telecom Conference in Brussels
- 07:45 (US) ICSC Chain Store sales
- 08:00 (BR) Brazil Aug Industrial Production M/M: 2.3%e v 0.3% prior; Y/Y: no est v 2.9% prior
- 08:55 (US) Weekly Redbook Retail Sales
- 09:00 (EU) Weekly ECB Forex Reserves
- 09:30 (SG) Singapore Sept Purchasing Managers Index: No est v 49.1 prior; Electronics Sector Index: no est v 50.7 prior
- 09:45 (UK) BOE to buy back £1.0B in 2027-2060 Gilts via reverse auction
- 09:45 (US) Sept ISM New York: No est v 51.4 prior
- 10:00 (DK) Denmark Sept Foreign Currency Reserves (DKK): No est v 514.4 prior
- 10:00 (MX) Mexico weekly International Reserves
- 10:30 (UK) DMO to announce size of upcoming Gilt auctions
- 11:30 (US) Treasury to sell $40B in 4-Week Bills
- 16:00 (NZ) New Zealand PM Key T China business summit
- 16:30 (US) Weekly API Crude Oil Inventories
- 17:00 (US) Sept Total Vehicle Sales: 14.40Me v 14.46M prior; Domestic Vehicle Sales: 11.40Me v 11.54M prior
- 21:00 (CN) China Sept Non-manufacturing PMI: no est v 56.3 prior


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