EU Market Update: Spain bond yields remain higher following auction results, as traders now look to comments out of Draghi

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EU Market Update: Spain bond yields remain higher following auction results, as traders now look to comments out of Draghi

04.10.2012 12:02 Thursday
***Economic Data***
- (CH) SWISS Q2 INDUSTRIAL PRODUCTION Y/Y: 4.6% V 1.4% PRIOR
- (UK) SEPT HALIFAX HOUSE PRICE INDEX M/M: -0.4% V 0.4% PRIOR; 3M/Y: -1.2% V -0.9% PRIOR
- (NL) NETHERLANDS SEPT CPI M/M: 0.4% V 0.5%E; Y/Y: 2.3% V 2.5%E
- (NL) NETHERLANDS SEPT CPI EU HARMONIZED M/M: 0.5% V 0.1% PRIOR; Y/Y: 2.5% V 2.5% PRIOR
- (IN) INDIA SEPT MARKIT SERVICES PMI: 55.8 V 55.0 PRIOR
- (HK) HONG KONG AUG RETAIL SALES VALUE Y/Y: 4.5% V 5.8%E; RETAIL SALES VOLUME Y/Y: 3.2% V 3.5%E
- (HK) HONG KONG SEPT HOME SALES M/M: HK$40.4B V HK$39.7B PRIOR
- (UK) Sept New Car Registrations +8.2% y/y to 359.6K units
- (ID) Indonesia Sept Forex Reserves m/m: $110.2B v $109.0B prior
- (EU) ECB: €954M borrowed in overnight loan facility v €2.4B prior; €279.3B parked in deposit facility vs. €296.9B prior

Fixed Income:
-(ES) SPAIN DEBT AGENCY (TESORO) SELLS €3.99B V €3.0-4.0B INDICATED IN 2014, 2015 AND 2017 BONDS; Sells €1.99B v €3.94B prior in 3.75% 2015 Bono Bonds; Avg Yield: 3.956% v 3.845% prior; Bid-to-cover: 1.98x v 1.56x prior; Max Yield 4.028% v 3.919% prior; Tails 7.2bps v 7.4bps prior (only tranche with comparable priors after OMT bond purchasing announcement by the ECB)
-(FR) FRANCE DEBT AGENCY (AFT) SELLS €7.98B V €7.0-8.0B INDICATED IN 2018, 2022 AND 2041 BONDS (OAT)
- (HU) Hungary Debt Agency (AKK) sells total HUF47.5B in 2015, 2017, and 2022 bonds
- (ID) Indonesia sells IDR7.5T v IDR5.0T indicated in 3-month, 1-year, 11-year, 16-year and 21-year bonds

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

-EUR/USD remains in $1.28-1.30 range ahead of ECB meeting
-Spanish bonds underperform, as the auction of 2014, 2015 and 2017 bonds was again weighted towards the shorter maturities which would be covered by the ECB's OMT bond buying program; Additionally, in the 2015 tranche Spain paid a higher yield vs the prior auction held in late Sept.
-Equity markets pare gains amid renewed concerns that Greece's next aid payment could be delayed until Nov.
-AUD continues to underperform on weaker economic fundamentals, as retail sales miss expectations
-Oil, Gold gain amid geopolitical tensions between Turkey and Syria.

***Equities***

-Indices: FTSE 100 -0.30% at 5,806, DAX -0.40% at 7,295, CAC-40 -0.50% at 3,390, IBEX-35 -0.30% at 7,800, FTSE MIB -0.60% at 15,447, SMI -0.10% at 6,600, S&P 500 Futures +0.20% at 1,448

-Following the higher open, European equity markets are currently moving lower, led by the Italian FTSE MIB. Banks are currently trading mixed ahead of the ECB, while energy firms are lower following Wednesday's sharp decline in oil prices. Event risks for later in the session include rate decisions out of the ECB and BoE and the US Fed minutes.

- UK retailer Halfords [HFD.UK] is higher by over 12%, after the company said it expects its FY profits to be at the upper end of its previously announced range. Ted Baker [TBK.UK] has traded higher by over 2%, after releasing its H1 results. Coal and iron ore miner, Evraz [EVR.UK] has traded lower as it announced plans to acquire an 82% stake in Russia's Raspadskaya, which is one of the firm's key suppliers. Educational technology firm, Promethean World [PRW.UK] has lost over 30%, after disclosing a profit warning.
In Switzerland, shares of dental implant manufacturer Nobel Biocare [NOBN.CH] are lower by over 6%, as the company lowered its FY EBIT forecast. Fiat Industrial [FI.IT] has lost over 1%, amid reports that the firm's planned merger with CNH is facing delays. Lottomatica [LTO.IT] is higher by more than 2% on a contract award. Dutch technical services firm, Imtech [IM.NL] has traded higher by over 1%, after the company disclosed a 10-year cooperation agreement with Airbus. German steelmaker ThyssenKrupp [TKA.DE] has gained over 2%, amid renewed speculation that South Korea's Posco is interested in the Steel Americas unit. Daimler [DAI.DE] has outperformed the overall DAX index, amid speculation that Abu Dhabi's sovereign wealth fund (Aabar) is looking to transfer its remaining stake in the company. Plastic container producer Gerresheimer [GXI.DE] has moved lower by more than 1%, after reporting weaker than expected results. In Belgium, shares of pharmaceutical firm Ablynx [ABLX.BE] are higher by more than 5%, as the firm disclosed data related to its rheumatoid arthritis (RA) treatment. In Spain, Enagas [ENG.ES] is lower by more than 3%, as a ~5% stake was placed in the company.

- FTSE 100 movers (Tate & Lyle +1.6%, Carnival +1.25%, Next +1.2%, Polymetal +1%; Evraz -3.8%, BHP -2.1%, Johnson Matthey -2.1%, BP -1.8%, BG Group -1.4%)
- CAC-40 movers (Safran +3.1%, Renault +0.80%; Technnip -2.3%, St. Gobain -2.1%, Cap Gemini -1.8%, ArcelorMittal -1.7%, France Telecom -1.7%)
- DAX movers (ThyssenKrupp +2%, BMW +0.70%, Volkswagen +0.70%; HeidelbergCement -2.6%, Deutsche Telekom -2%, Lanxess -1.8%, BASF -1.6%, RWE -1%, Linde -1.1%)
- IBEX-35 (Inditex +1.7%, Sacyr +1.6%, Gamesa +1.4%, Amadeus +1%; Enagas -3.5%, Bankia -3%, Acerinox -2.5%, Endesa -1.8%, Repsol -1%)
- FTSE MIB movers (Lottomatica +1.7%, Finmeccanica +1.3%; Fiat Industrial -2.7%, Tenaris -2%, Ferragamo -1.8%, Enel Green Power -1.5%, Telecom Italia -1.3%)
- SMI movers (Swiss Re +2%, Adecco +1%; Syngenta -1.1%, Julius Baer -1.1%, Credit Suisse -1%, Swatch -1%)

Speakers:
- South Africa Chamber of Mines denies reports its reopening wage talks in gold and coal mining sectors.
-US Mission to UN Agencies said agricultural markets are functioning; meeting of G-20 rapid response forum not need at this time.
-EU official said Greece to run out of cash by mid-Nov at the latest. There is no decision on Greek aid at upcoming Eurogroup meeting on Oct 8th, an emergency Eurogroup meeting in late Oct is possible.
-Japan Econ Min Maehara reported that BoJ foreign bond buying would not be considered intervention.
-Japan MoF's Nakao confirms that China and South Korea officials will attend IMF meeting in Tokyo next week.
-Japan Govt pension Investment fund (GPIF) report that they are studying possible investments in Infrastructure, private equities, and property, but not considering Hedge Funds.
-Turkey Central Bank said tax hikes will add 0.66% to annual inflation if it is fully reflected in consumer prices.
-France Fin Min said the govt is ready to change certain 2013 budget measures impacting small business.
-Turkey govt said Syria crisis threat to its security and wants Parliamentary approval for military operations outside its borders.
-Hungary Chief negotiator Varga said Hungary can finance itself without IMF loan.- (ES) Germany Fin Min Schaeuble reiterates Spain unlikely to need a bailout, though Germany could be open to supporting an aid program if necessary - Japan press; Decision will come after a close examination of Spain's latest fiscal consolidation proposals.

Currencies:
-EUR/USD holds steady around $1.2940, about 20 pips off its high for the session ahead of ECB rate decision. This marks the 3rd consecutive day of gains against nearly all its counterparts. Markets will look for some more insight to last month's OMT announcement, without it we could see a slide back towards the $1.28 level. GBP/USD broke the key $1.6100 level, the later BoE rate decision is expected to have little change as new stimulus was announced last month, so this is expected to be a non-event. Movements are more in line with overall risk sentiment. AUD/USD had a quieter session following a volatile start to the week, with the unexpected rate cut and poor trade figures. Aussie and its crosses has bounced off their lows coming slightly off its support of $1.0175. USD/JPY continues on its bender to the upside, with today marking its 5th consecutive day of gains. Resistance seen around ¥78.85, the dollar strength was fueled by Japanese investors buying net ¥1.54T worth of foreign bonds this past week (this is the largest purchase since August 2010). Tomorrow will see BoJ's rate decision and the next major catalyst for the yen.

Political/ In the Papers:
-(CY) Cyprus request for aid totals €11B, includes €5B to recapitalize banks, remainder to be used through 2015 for debt and bills
-(CY) Cyprus govt counters Troika bailout terms with an increase to VAT, staggered wage cuts for civil servants and increased taxes on private sector earnings - Cyprus press
- (EU) EU lawmakers facing dealine threats on Mersch ECB board pick - financial press
- (JP) Japan buys record amount of milling wheat in one month tender - financial press
- (PT) Portugal's largest union CGTP called for a strike on Nov 14th over austerity - Portugal press
- (DE) German Econ Min Roesler: Will to support a request by Spain for a bailout - German press
- UCG.IT: CEO to meet foundation shareholders on Oct 9th to discuss issues including the firm's dividend - Italian Press
- POM.FR: Planning to cut 110 jobs in France - financial press
- EAD.FR: UK Shareholder Associations want investors who own shares in BAE through nominee accounts to be able to vote on the proposed merger - US financial press
- KRFT: Trades in company made from 9:30am to 9:31am yesterday cancelled after being deemed erroneous - financial press
-TKA.DE: South Korea's Posco said to have submitted expression of interest for Steel Americas - financial press
- (DK) Denmark calling for even further economic and fiscal integration between EU countries, what is currently there needs to be revamped - Borsen citing draft doc for EU summit in 2-weeks
- (EU) Europe Banking Authority (EBA): Major EU banks raised €205B in fresh capital since December stress test; 4 banks still below capital requirements; Four banks have not met capital requirements including Banca Monte Dei Paschi (Italy), Bank of Cyprus PCL, Cyprus Popular Bank, and Slovenias Nova KBM; Banks are being asked to create appropriate capital plans to meet CRD IV requirements.
- (EU) EU Barroso: The EU summit in June clearly agreed ESM mechanism should be able to directly recap banks once the new supervisory mechanism is in place
- (EU) EU's Van Rompuy wants run by a number of ideas on the participates of the EU Summit on Oct 18th +19th including a dedicated budget tool that will help to strengthen structural reforms and cushion economic shocks - Les Echos
- According to IMF Chief Economist Blanchard, the global economy may take until at least 2018 to recover - London Telegraph
- (FR) France starts to layout how it will reduce the cost of labor and increase competitiveness - Les Echos
- (GR) Greece Fin Min Stournaras: Gap with Troika over cuts remains fairly large, working hard to reach a compromise ahead of the eurogroup meeting
- (GR) Greece Fin Min Stournaras: Greece has no disputes with the Troika; Greece does not need additional bailout funds - German press
- (GR) Follow Up: Troika wants Greece to accelerate spending cuts it will make in 2013 by more than €1.0B - ekathimerini
- (PT) Portugal Fin Min Gaspar: Expecting to meet budget goals this year with more austerity measures necessary; raising income tax rates, imposing tax surcharge, and adding Tobin tax; Notes that the luxury property tax and capital taxes will be implemented this year; Considering issuance of medium term debt; Notes the swap performed Wed was at 5.12% yield on Oct 2015 bond; Forecasts 2012 GDP contracting 3%, 2013 GDP contracting 1%; measures worth 3%/GDP will be needed for 2013, some measures will need to be accelerated in 2013; Forecasts unemployment rate at 16.4% in 2013 vs prior forecast of 16%
- (ES) Spain Catalonia region Pres Mas: Sovereign bailout for Spain is inevitable - financial press
- (ES) IMF's Lagarde reportedly prepared to help Spain if request is made of the IMF - France press
- (ES) Officials from certain AAA-rated euro zone countries have warned Spain that national parliaments will demand tough conditions for any bailout - Telegraph's Ambrose Evans-Pritchard
- (ES) Germany Fin Min Schaeuble reiterates Spain unlikely to need a bailout, though Germany could be open to supporting an aid program if necessary - Japan press; Decision will come after a close examination of Spain's latest fiscal consolidation proposals.

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

- 06:30 (PL) Poland to hold exchange offer Auction
- 06:30 (US) Daily Libor fixing
- 07:00 (UK) Bank of England (BOE) Interest Rate Decision: Expected to leave both Interest Rates and Asset Purchase Target unchanged t 0.50% and £375B respectively
- 07:00 (ZA) South Africa Aug Electricity Consumption Y/Y: No est v -2.0% prior; Electricity Production Y/Y: No est v -1.1% prior
- 07:30 (US) Sept Challenger Job Cuts: no est v 32.2K prior; Y/Y: No est v -36.9% prior
- 07:45 (EU) ECB Interest Rate Decision: Expected to leave the main 7-day Refi Rate unchanged at 0.75%
- 08:00 (US) Oct RBC Consumer Outlook Index: no est v 50.4 prior
- 08:00 (RO) Romania to sell Bonds
- 08:30 (US) Initial Jobless Claims: 365Ke v 369K prior; Continuing Claims: no est v 3.271M prior
- 08:30 (EU) ECB chief Draghi holds Monthly Press Conference following Interest Rate Decision
- 09:00 (MX) Mexico Sept Consumer Confidence: no est v 97.6 prior
- 09:30 (US) Weekly Commercial Paper statistics
- 10:00 (BR) Brazil Aug CNI Capacity Utilization: no est v 81.6% prior
- 10:00 (CA) Canada Sept Ivey Purchasing Managers Index Seasonally Adj: no est v 62.5;
- 10:00 (US) Aug Factory Orders: -2.2%e v +2.8% prior
- 10:00 (US) Durable Goods revisions
- 10:30 (US) Weekly EIA Natural Gas Inventories
- 11:00 (US) Treasury refunding announcement for 5-year, 10-year and 30-year bonds
- 14:00 (US) Minutes of FOMC Meeting
- 17:00(CO) Colombia Sept Producer Price Index M/M: No est v 0.5% prior; Y/Y: no est v 0.1% prior
- (JP) Bank of Japan (BOJ) Interest Rate Decision: Expected to leave the Target Rate unchanged at 0.10%

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