Continuation of Norway oil strike pushes crude prices higher in session

EU Market Update: Continuation of Norway oil strike pushes crude prices higher in session; Market poised for key European rate decisions Thu, 05 Jul 2012 5:46 AM EST

Economic Data

- (RU) Russia Gold & Forex Reserve w/e Jun 29th: $512.9B v $513.1B prior

- (UK) Jun Halifax House Prices M/M: +1.0% v -0.2%e; 3M/Y: -0.5% v -0.8%e

- (NL) Netherlands Jun CPI M/M: -0.5% v -0.1% prior; Y/Y: 2.1 v 2.1% prior

- (NL) Netherlands Jun CPI EU Harmonized M/M: -0.6% v -0.2% prior; Y/Y: 2.5% v 2.5% prior

- (SE) Sweden May Service Production M/M: +1.9% v -2.1% prior; Y/Y: +2.3% v -0.4%e

- (UK) Jun New Car Registrations Y/Y: 3.5% v 7.9% prior

- (TW) Taiwan Jun Foreign Exchange Reserves: $391.2B v $389.3B prior

Fixed Income:

- (ES) Spain Debt Agency (Tesoro) sold ?3.0B vs. ?2.0-3.0B indicated range in 2015, 2016, and 2020 Bonds - Sold ?1.24B in 4.00% July 2015 Bono; Avg Yield 5.086% v 5.457% prior; Bid-to-cover: 2.28x v 3.18x prior; Maximum Yield 5.197% v 5.510% prior, tail: 11.1bps v 5.3 bps prior

- Sold ?1.01B in 4.25% Oct 2016 Bono; Avg Yield 5.536% v 5.353% prior; Bid-to-cover: 2.56x v 2.56x prior; Max Yield 5.621% v 5.443% prior; tail 8.5 bps v 9.0 bps prior

- Sold ?747M in 5.85% Jan 2022 Bono; Avg yield: 6.430% v 6.044% prior; Bid-to-cover: 3.18x v 3.29x prior; Max Yield 6.505% v 6.121% prior; tail 7.5bps v 7.7 bps prior

- (FR) France Debt Agency (ATF) sold total ?7.83B vs. ?7.0-8.0B indicated in 2019, 2022 and 2023 Bonds

- Sold ?1.75B in 3.75% Oct 2019 OAT; Avg Yield 2.02% v 2.48% prior; Bid-to-cover: 3.63x v 2.74x prior

- Sold ?4.671B in 3.00% Apr 2022 OAT; avg yield 2.53% v 2.46% prior; Bid-to-cover: 1.93x v 2.02x prior

- Sold ?1.405B in 4.25% Oct 2023 OAT; avg yield 2.70% v 3.50% prior; Bid-to-cover: 2.55x v 3.23x prior

- (HU) Hungary Debt Agency (AKK) sold HUF55B in 12-Month Bills; Avg Yield 7.26% v 7.39% prior; Bid-to-cover:1.90 x v 2.15x prior

- (HU) Hungary Debt Agency (AKK) sold HUF7.5B in Floating Rate 2015 Bonds at 95.54, bid-to-cover: 2.58x Debt Agency (AKK) to sell Bonds

- (IE) Ireland Debt Agency (NTMA) sold ?500M vs.?500M in 3-month Bills; Avg Yield 1.80%; Bid-to-cover: 2.8x

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

***Notes/Observations***

- Australia posts its 5th consecutive monthly trade deficit.

- Dealers note that China 'Beige Book' private survey showing pick up not seen in official statistics

- Both BOE and ECB expected to adjust their monetary policies today

Equities

- Ahead of interest rate decisions from the BoE and ECB, European equity indices opened the session mixed. Spain's IBEX-35 has underperformed, as Spain sold 2015,2016 and 2022 bonds. In the banking sector, German and French banks have outperformed, while Spanish banks have lagged their peers.

- GKN [GKN.UK] is trading higher by over 10%, after the company disclosed that it would acquire Volvo Aero. Barclays has moved between gains and losses, as Moody's cut the company's standalone credit outlook to Negative from Stable. Man Group [EMG.UK] continues to be weighed down by speculation that the firm could disclose a profit warning. Volkswagen [VOW3.DE] has gained over 4%, while Porsche [PAH3.DE] is higher by ~1.5% on the plan by Volkswagen to acquire the remaining 50.1% stake in Porsche which it does not currently own. Praktiker [PRA.DE] is higher by ~4%, as the company reached an agreement with shareholders related to restructuring measures. Shares of Finmeccanica [FNC.IT] have risen by over 4%, while Ansaldo [STS.IT] is higher by ~3% on speculation that Siemens could bid up to ?1.3B for Ansaldo Energia. Barry Callebaut [BARN.CH] has declined by over 2%, following the release of its 9-month sales report.

Speakers:

- Norway oil industry group commented that Norway to lock out 6.5k workers from July 10th

- Statoil prepares to shut down Norwegian shelf output and saw lost revenues from production halt at approx NOK520M/day

- Norway Labor Ministry stated that the oil lockout was legal, decline to say if govt will intervene

- Netherlands officials commented that they were judging secondary market bond purchases ahead of debate in parliament and reiterated its hesitant stance on the secondary market bond purchases.

- Finland Fin Min Urpilainen stated that it anticipated long, hard collateral discussions and negotiations with Spain to begin next week with a possible agreement seen in August

- Greek Taskforce head commented that Greece needed a national exports' facilitation strategy

- Greece Pasok leader Venizelos (coalition) reiterated the view that the Greek people rejected unilateral actions and the country needed a realistic framework

- Spain's Foreign Min commented that the country to provide more concrete measures to meet deficit target in the next few days

- Hungary Central Bank reiterated its stance that the Govt tax on the Central bank might violate EU rules

- Japan BoJ Regional Economic Report raised its economic view in all 9 regions of the country (first time since Oct 2009). Most regions saw a mild economic recovery with capex picking up or increasing. It also noted that 7 regions saw consumption picking up. Smaller number of branch managers mentioned concerns regarding JPY currency rise

- Japan Vice Fin Min Fujita commented that Japan must still continue to monitor Europe. He expected the BOJ to consider recent economic stability and global situation in deciding its policy

- Mexico Central Bank Gov Carstens commented that 2012 GDP growth of 4.25% was now less likely while inflation would likely to slow to target this quarter. He also noted that the neutral monetary policy position remained adequate (Note: Mexico has left the Overnight Rate steady at its last twenty-seven policy meetings)

- Singapore's sovereign wealth fund Temasek exec commented it remained cautious on European investment opportunities and that the region contagion risk was potentially significant. The fund was looking for opportunities in the energy and resources sectors. It anticipated sluggish US economic growth, though no double dip recession and that a hard landing in China was not likely.

- Indonesia Central Bank stated that its IDR currency (Rupiah) to encounter less pressure in H2 as conditions improved in Europe

- UN Food & Agricultural Organization (FAO) reported June Food Price Index M/M: 201 v 205 prior (lowest level since Sept 2010, third consecutive decline). The FAO cut its outlook for 2012-13 wheat crop by 2.1M tons to 678.3M tons

Currencies:

- The FX markets were subdued ahead of the expected rate decisions from the BOE and ECB. The EUR/USD languished just above the 1.25 level ahead of the NY morning. The JPY exhibited a slightly firmer tone as well. Some of the keen dealers believing the ECB might cut by as much as 50bps to have the Euro weaken to support growth in the region with 1.20 mention as an 'acceptable level' if achieved in an orderly way.

- The last BOE decision was accompanied with a PBoC rate action as well and dealers ponder whether the current environment was ripe for a coordinated move by the global central banks. The 7am window is a favorite to make such powerful statements in the past.

- Spanish 10-year gov't yield maintained a higher sentiment aroud the 6.50% level in the session even though the auctions results were viewed as constructive.

Political/ In the Papers:

- The press reported that Greek creditors were seen taking a hard line. So far Greece has delivered very little, failing to close unnecessary agencies, reform tax code, privatize state assets, or lay off public workers. The IMF Chief Lagarde said she was "not in the negotiation or renegotiation mood at all". Note that Greece could run out of money if they don't receive additional bailout funds by the end of the summer.

- According to the Spanish press, Spain requires an additional ?10B in order to meet the 5.3% deficit goal this year due to a shortfall in revenue shortfall. Central government expected non-interest income to grow 19.1% this year but it has instead fallen 0.1% creating an additional revenue shortfall. Without the extra ?10B, there could be a budget gap at 6.2% instead of 5.3% by the end of year 2012 (corporate tax rev has fallen 63% from 2007 to 2011).

- Data released by the Bank of England show that Q1 mortgage debt in Britain was down by ?8.8B. According to the BoE, data indicate households are putting more money into the housing market, through deposits or mortgage repayments for example, than they are taking out, with a cumulative ?122B injected since the summer of 2008.

- The former Bank of England member Goodhart warned against further QE by the BoE; recommending instead cutting rates to 0.25%. In the Times, Goodhart was reported to have stated that QE is harming the economy. He also suggested the BoE should begin private sector bond purchases, as opposed to gilts, and that it should intervene in the mortgage market through whatever channels they think would be technically best.

- The Forsa poll conducted on June 27 and 28 revealed that while a large majority of Germans do not want to give EU more authority, there is also strong support for the euro currency. Just fewer than 75% of Germans were against the idea of a Federal Europe under which Berlin would cede more sovereignty to EU institutions, 59% were against handing budgetary powers to Brussels. Over two thirds opposed joint euro zone debt liability (euro bonds).

Looking Ahead

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

- EU/IMF/ECB Troika to return to Greece

- (US) Jun ICSC Chain Store Sales Y/Y: No est v 1.7% prior

- 06:00 (EU) OECD Q2 GDP Q/Q: No est v 0.3% prior

- 06:00 (IE) Ireland May Industrial Production M/M: No est v 1.7% prior; Y/Y: No est v 2.8% prior

- 06:00 (MA) Malaysia Central Bank Interest Rate decision: Expected to leave the Overnight Rate unchanged at 3.00%

- 06:00 (DE) Germany May Factory Orders M/M: 0.0%e v -1.9% prior; Y/Y: -6.0%e v -3.8% prior

- 06:30 (PL) Poland to Hold Exchange Offer Auction

- 07:00 (UK) Bank of England Interest Rate Decision: Expected to leave Interest Rates unchanged at 0.50% and Increase Asset Purchase Target by ?50B to ?375B

- 07:00 (US) MBA Mortgage Applications w/e Jun 29th: No est v -7.1% prior

- 07:00 (BR) Brazil Jun FGV Inflation IGP-DI: 0.6%e v 0.9% prior

- 07:30 (US) Jun Challenger Job Cuts Y/Y: No est v 66.7% prior

- 07:45 (EU) ECB Interest Rate decision: Expected to cut the Main Refi rate by 25bps to 0.75%

- 08:00 (RO) Romania to Sell Bonds

- 08:00 (US) Jul RBC Consumer Outlook Index: No est v 46.1 prior

- 08:15 (US) Jun ADP Employment Change: 100Ke v 133K prior

- 08:30 (CL) Chile May Economic Activity Index M/M: 0.1%e v 0.5% prior; Y/Y: 4.5%e v 4.8% prior

- 08:30 (US) Initial Jobless Claims: 385Ke v 386K prior; Continuing Claims: 3.300Me v 3.296M prior

- 08:30 (EU) ECB chief Draghi post rate decision press conference

- 9:30 (BR) Brazil Jun Vehicle Production: No est v 280.8K prior; Vehicle Sales: No est v 287.5K prior; Vehicle Exports: No est v 26.7K prior

- 09:30 (US) Commercial paper outstanding

- 10:00 (HU) Hungary Jun YTD Budget Balance (HUF): No est v -344.1B prior

- 10:00 (US) Jun ISM Non-Manufacturing. Composite: 53.0e v 53.7 prior

- 10:00 (BR) Brazil May CNI Capacity Utilization: 80.9%e v 81.0% prior

- 11:00 (US) Treasury 3-year, 10-year and 30-year refunding announcement

- 11:00 (US) Weekly DOE US Crude Oil Inventories

- 12:30 (EU) ECB member Weidmann

- 18:00 (FR) `Friends of Syria' Support Group Meets in Paris

Source: http://www.fxstreet.com/fundamental/analysis-reports/european-market-update/2012-07-05.html

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