- (SW) Sweden sold SEK2B vs. SEK2B Indicated in 3.5% 2022 Bonds; Avg Yield 3.13% v 3.23% prior
- (UK) DMO sold £3.25B in 5% Mar 2025 Gilts; Avg Yield 3.835% v 3.614% prior; Bid-to-cover: 1.25x v 1.6x prior; Tail 1.4bps
- (PO) Portugal Debt Agency (IGCP) sold €1.12B vs. €0.75-1.0B Indicated Range in 3-month Bills; Avg Yield 4.462% v 4.046% prior; Bid-to-cover: 1.9x v 2.0x prior
- Portugal reaches agreement with EU/IMF on €78B rescue package over three years; Parliament still needs to approve the deal
- Over one-third of Russian banks said to have failed stress tests
- Major European PMI Services lower in April; Euro Zone Mar Retail sales declines both MoM and YoY
- Key US employment data out over the next three days with ADP data today with Non-Farm Payrolls on Friday
- ECB and BOE rate decisions on Thursday
- UK 2025 Gilt auction results disappoint
Equities:
FTSE 100 -0.50% at 6054, DAX +0.10% at 7510, CAC 40 +0.20% at 4104, IBEX 35 +0.30% at 10856, FTSE MIB +0.30% at 22365, SMI +0.50% at 6541
- European shares were lower but trading in positive territory weighed down by resources names and high energy costs. Meanwhile a tighter monetary policy from the emerging markets looms ahead. Yesterday Brazil and India continued their tightening cycle while Chinese officials commented today that inflation expectations remain its priority. Corporate earnings were mixed , the big winner being French bank BNP Paribas.
- BNP Paribas [BNP.FR] reported better than expected results, stronger metrics and a substantially lower cost of risk. Bank shrugged risks of a Greek debt restructuring and pledged that it would not raise capital to meet Basel III rules. Markets cheered the results and shares rallied over 2%. BMW [BMW.GE] also rallied after exceeding expectations and unit sales had increased across the board. Company also reiterated its FY11 car target but noted that sales growth rate will likely be slower than Q1.
- Among decliners, Antofagasta [ANTO.UK] reported production numbers after the EU opening. Copper production had raised by 10% but it was lower than the initial target. Siemens [SIE.GE] results were higher than analysts' estimates and raised its revenue forecast which had already been priced in by the markets. In fact, investors had expected a little more from Siemens and shares fell by less than 1%. Swiss cement maker Holcim [HOLN.SZ] also dropped in the session after missing expectations as price hikes could not offset raising costs in raw materials and transportation. The construction industry has lagged since the recession started and Holcim's European peers such as Lafarge and Heidelbergcement also traded down. Standard Chartered [STAN.UK] gave a rather qualitative statement for its Q1 noting stable margins and good momentum in consumer and wholesale banking.
Speakers:
- Members of the Association of Southeast Asian Nations plus China, Japan and South Korea Finance meeting not expected to discuss CNY currency. **Note: Last week an Asian Development Bank (ADB) official commented that there was a growing consensus among major Asian countries to draft an accord for joint appreciation of their currencies.
- Japanese MoF official Tamaki reiterated the view that was watching forex market day by day and that the possibility of intervention in the fx market was unpredictable. He also noted that forex trade was "very thin" given the Golden Week holiday.
- Philippines Central Bank Gov Tetangco commented that it would consider April inflation data (March data came in below expectations) at its monetary policy meeting this week.
- France Fin Min Lagarde commented that commodity price volatility needed to be addressed and that there were "many tools" that could address inflationary concerns
- Portugal economy in 2011 and 2012 is anticipated to contract by 2% with bailout package and imposed conditions. (Note: The Bank of Portugal recently saw 2011 GDP at -1.4% and 2012 GDP +0.3%)
- Moody's analyst commented that Portugal needed a credible deficit reduction plan. The analyst expressed concern over the country's 3-5 year outlook but not so alarmed about its short-term views (although he noted the outlook into H2 2012 was not so great). Portugal needed solve its economic growth problems and cut the deficit to access the markets again.
- S&P commented that the UK housing market was to drift sideways in next 18 months and saw housing prices shedding about 5% in 2011. The rating agency also noted that the specter of interest rate hikes in Europe wouldl sideline home buyers
Currencies/Fixed income:
- Dealers noted that strong Far East demand for Euros among Asian sovereigns helped the EUR/USD to test above 1.4870 during the European morning. Overall the pair continued to be locked within a 150 pip range over the past week between 1.4750 to 1.4900 area but appeared poised to retest 16-month highs.
- The GBP currency continued to struggle after a rash of disappointing data reduced expectations of BoE policy tightening. The EUR/GBP cross tested above 0.90 for 13-mnth highs. The GBP/USD still held above the pivotal 1.6430 level.
- The JPY was softer against the major pairs aided by verbal intervention. Japanese MoF official Tamaki reiterated view that watching forex market day by day and added that the possibility of intervention in the fx market was unpredictable
- The USD had some supportive footing during the Asian session after the Shanghai Composite lost over 2% but that sentiment appeared to evaporate during the European morning.
Geo-Political/In the Papers:
- The EU/IMF and Portugal came to an agreement on the terms of a 3-year bailout package, though the details need to be confirmed with the opposition parties. This will allow Portugal additional time to meet its budget goals. The agreement will include reduction in pension payments though it will not include salary or minimum wage cuts. A related report in the London Telegraph noted that although no figure was disclosed for the bailout, it is believed to be worth approximately €78 billion, which is in line with expectations.
- An article in the Financial Times commented that the continued spike in Greek bond yields has elevated restructuring concerns. The market consensus is that Greece will default in 2012, as it is expected to run out of funds by the second half of next year. There is a rising consensus that voluntary restructuring, such as an extension of bond maturities, may occur by as early as 2011.
- A financial press report noted that the recent declines in silver prices have come amid reports that George Soros' fund and other investment firms are selling gold and silver. The Soros' funds are said to have pared down some of their metals exposures, as they see less deflationary risk, and the firm is not too concerned about inflation. According to the report, the Soros fund has sold 'much' of its precious metals investments. The article adds that the declines in silver prices have also been attributed to higher margin fees.
- According to the Financial Times, approximately one third of Russian banks failed the stress test conducted by the country's central bank. More than 300 out of the approximate 900 banks in the country would see their capital requirements go below the 10% minimum, thus having their licenses revoked. Over 300 banks controlled more than half of the assets in the sector. The government estimated that 8% of loans are non-performing, though analysts note it could be much higher than government predictions. It was also noted that since bank balance sheets are improving, with the central bank slowly placing measures to increase capital requirements, the industry will begin to see some banks acquired, and some close down.
