EU Market Update: German IFO survey exceeds expectations with Business Climate improving for the first time in 7 months



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EU Market Update: German IFO survey exceeds expectations with Business Climate improving for the first time in 7 months

23.11.2012 12:07 Friday
***Economic Data***
- (RU) Russia Narrow Money Supply w/e Nov 19th: 7.24T v 7.18T prior
- (DE) Germany Q3 Final GDP Q/Q: 0.2% v 0.2%e; Y/Y: 0.4% v 0.4%e; GDP wda Y/Y: 0.9% v 0.9%e
- (DE) Germany Q3 Domestic Demand: 0.0% v 0.0%e; Government Spending: 0.4% v 0.2%e; Private Consumption: 0.3% v 0.2%e; Capital Investment: +0.2% v -0.1%e; Construction Investment: 1.5% v 0.8%e; Exports: 1.4% v 1.0%e; Imports: 1.0% v 0.5%e
- (FR) France Nov Business Confidence Indicator: 88 v 87e; Production Outlook Indicator: -40 v -53e; Own-Company Production Outlook: -7 v -9 prior
- (ES) Spain Oct Producer Prices M/M: -0.1% v -0.1% prior; Y/Y: 3.5% v 3.8% prior
- (TW) Taiwan Oct Industrial Production Y/Y: 4.6% v 2.6%e; Commercial Sales Y/Y: -0.7% v +0.3%e
- (TW) Taiwan Q3 Final GDP Y/Y: 1.0% v 1.0%e
- (EU) ECB: €2.0B borrowed in overnight loan facility €1.9B prior; €228.8B parked in deposit facility vs. €226.3B prior
- (AT) Austria Sept Industrial Production M/M: -1.6% v +1.0% prior; Y/Y: 2.3% v 3.8% prior
- (DE) Germany Nov IFO Business Climate: 101.4 v 99.5e (first MoM rise in 7 months); Current Assessment: 108.1 v 106.3e; Expectations Survey: 95.2 v 93.0e
- (IT) Italy Sept Retail Sales M/M: 0.1% v 0.0%e; Y/Y: -1.7% v -1.1%e
- (MA) Malaysia Oct CPI Y/Y: 1.3% v 1.3%e
- (UK) Oct BBA Loans for House Purchase: 33.0K v 32.0Ke

Fixed Income:
- (IN) India sold total INR130B vs. INR130B in 2020, 2025 and 2041 bonds
- (ZA) South Africa sold ZAR800M in I/L 2022, 2038 and 2050 Bonds


- Cyprus said to have reaches agreement on bailout with EU/IMF/ECB troika; deal is seen at around €17B
- Taiwan Cabinet plans to propose stock market measures by end of 2012; no further details were provided; Equity markets end session +3.1% for largest gain in 12 months
- Japan LDP (opposition) Leader Abe backs off FX intervention threat; Not thinking of currency intervention to weaken the JPY currency
- More speculation that China could again widen the CNY currency trading band
- German Nov IFO Business Climate beats expectations and registers first MoM increase in seven months
- German Upper House (Bundesrat) rejected tax treaty on undeclared Swiss accounts
- Various Northern European leaders see no chance of budget deal at today's EU Summit; need another meeting to work out issues

-Indices: FTSE 100 +0.1% at 5,798, DAX unchanged at 7,247, CAC-40 -0.1% at 3,495, IBEX-35 -0.5% 7,836 at, FTSE MIB -0.4% at 15,496, SMI +0.2% at 6,692 , S&P 500 Futures +0.1% at 1,390

- Trading levels were relatively benign following the Thanksgiving holiday in the US. Stocks entered the session broadly in the green on slow, but positive progress reports on a Greece bailout. An S&P downgrade of Spanish banks, which hinted at a further downgrade to Spain's sovereign rating pushed European indexes into the red. The markets then bottomed on better than expected German IFO data, pushing back to the flat line. Later in the session, markets rallied into the green as further details of Greek bondholder concessions were released. The Cyprus stock market was up 8.6% after reaching a bailout deal with the Troika.

- Individual movers included: Evotec (EVT.DE) received CIR accreditation from the Ministry of Education and is trading +1% after the news. EADS (EAD.FR) is down 2% after the German government reported an interest to buy a 3% stake in the company directly from the French govt. Delta Llyod (DL.NL) is down 2% after the sale of its German activities to Nomura cancelled were cancelled. Alcatel Lucent (ALU.FR) rose to almost €1 when they announced they are seeking a possible loan from Goldman Sachs, but the stock has since traded lower, down 1.3% on the day. Hochschild (HOC.UK) is down 2% after announcing delays to the Inmaculada and Crespo construction projects. Outotec (OTE1V.FI) is up 6.7% after increasing medium term sales targets.

- IFO Economists commented that the German economy was holding up despite crisis and that exports of German firms to Asia and US were going very well and that industrial orders were stabilizing. It did note that companies were holding back on investment due to uncertainty over EMU crisis. It cautioned that German Q4 GDP would be even weaker than Q3, possibly negative (**Note German final Q3 GDP came in at +0.2% earlier today)
- ECB chief Draghi commented from keynote speech in Frankfurt that 2012 had been quite intense year for the ECB but defended that its actions had been proactive in handling the crisis. ECB had ensured price stability in both directions and stressed this mandate would not be compromised in the future. ECB looked into ways to separate supervision from monetary policy and added that central bank independence must be safeguarded. The noted that OMT and ESM had helped to calm markets and reiterated that ECB was ready to implement its OMT bond buying scheme if needed and that govt must implement reforms
- German Chancellor Merkel and Finland PM reiterated view that a second summit might be necessary on EU budget
- Netherlands, Swedish, Finnish and UK PMs reiterates their view that EU leaders were a long way away from any budget deal with much work still needing to be done
- Belgian PM di Rupo simply noted that the main problem on EU budget talks was that there was not enough money
- France Labor Min Spain commented that the French labor market would likely to remain bad for several months
- SNB Zurbruegg stated that the CHF currency would weaken towards a more realistic level once the Euro zone uncertainties diminished (in line with SNB view)
- S&P affirmed France's AA+ sovereign rating with a negative outlook. It noted that France was determined to carry out budget and structural reforms but continued to see a one-in-three chance of sovereign cut in 2013
- France Fin Min Moscovici reaffirmed govt plans to implement ambitious reforms and boost economic growth
- German Bundesbank member Lautenschlaeger stated that he expected the US to introduce Basel III but if the country opted out of Basel III, then the EU would need to revisit US bank branches in the EU
- German Regulator Bafin commented that giving ECB power to veto bank mergers was a topic currently being discussed
- Hess State Fin Min Schaefer: Germany may lose up to €13B in 2013 without Swiss tax deal
- German Upper House (Bundesrat) rejected tax treaty on undeclared Swiss accounts after opposition party members considered the treaty too lenient on tax evaders
- Czech President Klaus reappointed central bank members Hampll and Tomsik for new 6-Year Term on Board, effective Dec 1st 2012 (**Note: Terms were set to expire on Nov 30th)
- Netherlands Bureau for Economic Policy Analysis (CPB): Sept Global trade volume +0.8% y/y

- The EUR/USD pair hot fresh 3-week highs in the session following the better German IFO survey but had some difficulties holding above the 1.29 handle as the NY morning approached. Dealers noted that the market appeared to be 'plenty of EUR longs against the JPY and USD pairs heading into the key German data . One dealer noted that the Euro gains appeared to be hampered by a sovereign account.
- The Yen currency continued to strengthen in session after LDP opposition leader Abe changed his FX intervention rhetoric. During the Asian session Abe stated that he was not thinking of currency intervention to weaken the JPY currency and wanted the BOJ to address strong yen through monetary policy. The USD/JPY pair tested 82.07 before stabilizing while EUR/JPY cross probed the 105.70 area.

***Looking Ahead***
***All times listed for economic events are denominated in Eastern Standard Time (Add 5 hours for GMT equivalent)

- (EU) EU Leaders continue Summit on Bloc's Seven-Year Budget
- (CO) Colombia Central Bank Interest Rate Decision: Expected to leave the Overnight Lending Rate unchanged at 4.75%
- 06:00 (IC) Iceland to sell Bonds
- 06:10 (UK) DMO to sell combined £2.5B in 1-month, 3-month and 6-month Bills
-06:30 (DE) ECB member Weidmann
- 06:30 (EU) Daily Libor Fixing
- 06:30 (IN) Weekly India Forex Reserves
- 08:00 (PT) Bank of Portugal Monthly Economic Indicators Report
- 08:30 (CA) Canada Oct Consumer Price Index M/M: 0.1%e v 0.2% prior; Y/Y: 1.0%e v 1.2% prior; Consumer Price Index: No est v 122 prior
- 08:30 (CA) Canada Oct Core CPI M/M: 0.2%e v 0.2% prior; Y/Y: 1.2%e v 1.3% prior
- 09:00 (MX) Mexico Oct Unemployment Rate: 4.9%e v 5.0% prior
- 09:00 (BE) Belgium Nov Business Confidence: -13.5e v -13.5 prior
- 09:00 (MX) Mexico Q3 GDP (Constant $) Y/Y: 8.1%e v 8.5% prior; Current Account: -$2.9Be v $440M prior
- 14:00 (AR) Argentina Oct Supermarket Sales Y/Y: No est v 13.3% prior

- (ES) Catalonia regional election