European Market Update

(SZ) Swiss Aug Unemployment Rate: 3.6% v 3.6%e; Unemployment Rate (Seasonally Adj): 3.8% v 3.7%e

(HU) Hungary July Preliminary Trade Balance: €240.7M v €500Me

(TU) Turkey July Industrial Production WDA M/M: 0.3% v 8.7%e; Y/Y: 8.9% v 10.2% prior; Industrial Production NSA Y/Y: 8.6% v 8.0%e

(SW) Sweden Aug Budget Balance (SEK) 8.4B v 12.5B prior

(AS) Austria Aug Wholesale Price Index M/M: 1.4% v -0.5% prior; Y/Y: 5.6% v 5.0% prior

(DE) Denmark July Industrial Production M/M: 1.4% v 1.2% prior; Industrial Orders M/M: -22.1% v 23.0% prior

(CZ) Czech Q2 Current Account: -€1.2B v €737.9M prior

(NO) Norway July Industrial Production M/M: -2.9% v -1.7% prior; Y/Y: -7.8% v -4.4% prior
(NO) Norway July Industrial Production Manufacturing M/M: +0.1% v -0.8%e; Y/Y: 6.6% v 7.2% prior

(TT) Taiwan Aug Total Trade Balance: $2.3B v $2.2Be; Total Exports Y/Y: 26.6% v 25.0%e; Total Imports Y/Y: 28.0% v 28.5%e

(HK) Hong Kong Aug Foreign Currency Reserves: $261.4B v $260.7B prior

(GR) Greece Aug Consumer Price Index Y/Y: 5.5% v 5.4%e; CPI EU Harmonized Y/Y: 5.6% v 5.5%e

(IC) Iceland Aug Preliminary Trade Balance (ISK): 2.4B v 4.6B prior

(SA) South Africa Aug SACCI Business Confidence: 87.6 v 84.3 prior

Fixed Income

(DE) Denmark sells DKK3.7B in 4.0% 2019 Bonds; Avg Yield 2.35%

(EU) ECB allots €153.7B in its main 7-day and allots €37.9B in its 35-day refi operation at fixed 1.0%

(SA) South Africa selss total ZAR2.1B in R203 and R207 bonds

Sold ZAR1.1B in R203 bonds; Clearing yield 7.70%

Sold ZAR1.0B in R207 bonds; Clearing yield 7.90%

(AS) Austria Debt Agency (AFFA) sells total €1.75B in 2019 and 2026 Bonds

Sells €1.1B in 4.35% 2019 RAGBs; avg yield 2.522% v 3.733% prior; Bid-to-cover: 2.47x v 1.38x prior

Sells €650M in 4.85% 2026 RAGBs; avg yield 3.090% v 3.826% prior; Bid-to-cover: 2.43x v 1.52x prior

(HU) Hungary Debt Agency sells HUF60B in 3-Month Bills v HUF50B target; Avg Yield 5.53% v 5.47% prior; Bid-to-cover: x v 2.7x prior

(UK) DMO sells £800M in 0.75% Index-linked 2047 Gilts; avg yield 0.570% v 0.666% prior; Bid-to-cover: 2.04x v 2.40x prior

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Equities:

As of 5:15am ET (9:30 GMT) Euro Stoxx 50 Index -0.9% at 2,728; DAX Index -0.6% at 6,115; CAC-40 Index -1.1% at 3,645 and FTSE 100 Index -0.8% at 5,395

Banking sector declined today following a WSJ article which noted that European stress tests understated some major lenders' holdings of risky government debt. As expected, Barclays [BARC.UK] named Bob Diamond as new CEO who would succeed John Varley. Shares traded down 3.2%

In UK names, Greene King [GNK.UK] provided a trading update noting LFL sales within Greene King Retail are +4.4%, and LFL sales within Belhaven Retail are +3.3%. Company remained cautious on the economic outlook. Whitbread [WTB.UK] also provided a trading update noting a growth of 7.9% in LFL. In follow-up comments, the CEO said that the FY would be in line with expectations but expected lower growth rates in H2. Energy name Dragon Oil [DGO.UK] in its drilling update announced the completion and initial testing of the Dzheitune (Lam) 28/147 development well

Speakers:

BoJ Shirakawa reiterates the view at the post rate decision press conference that the BOJ was closely watching impact of yen's rise on Japanese economy. The BOJ chief also reiterate that Japan will not react to short-term movements in either forex or equities. The BOJ always considering various policy options and would act in a timely and appropriate way when deemed necessary. He explained that the BOJ would take the most appropriate action by examining the merits and drawbacks of various options but conceded that Monetary authorities could not control forex rates

Japan Fin Min Noda also reiterated prior gov't stance that Japan would take appropriate measures on fx when deemed appropriate . he again expressed concern about yen currency's impact on corporate profits.

Sweden's National Debt Office stated that it would unwind a SEK50B position established back in 2009 within one year. It noted that the SEK currency might further appreciate but believed the current currency level was 'normal'. In May of 2009, the government instructed the debt management office to buy up to SEK50B in exchange for euro as it believed the Swedish crown was undervalued.

ECB member Bini-Smaghi commented that a new crisis was risked due to poor coordination by governments and stressed that global policy focus is too short-term orientated.

German BGA Trade Association raised its 2010 Real Wholesale Forecast to 6.5% from 4.0% prior view. The Assoc also raised 2010 Non-wholesale forecast to 10.0% from 5% prior. It now forecasts Germany's 2010 GDP growth of +3% and range 2011 in a range between +1.25-1.5%

China govt advisor: Emerging economies were less reliant on US dollar and were de-pegging from the US economy

Currencies/Fixed Income:

All roads seemed to come back to the Euro in the session as numerous press articles weighed upon the currency's sentiment over the last 24 hours. The WSJ article that questioned the reliability of the recent European bank stress tests coupled with an FT article that the 10 largest German banks needed about €105B in fresh capital to comply with Basel III. Portugal Banks borrowing from ECB at record €49.1B, up 0.6% m/m. On the other side of the coin Greek July bank deposits declined to €212.3B v €216.5B m/m (7th consecutive decline). The EUR/USD tested 1.2750 while EUR/JPY probed the 107 handle before consolidating ahead of the NY morning

European peripheral spreads widen in session led by Greek/German 10-year Gov't Bond which widen to almost 940bps (higest May 7th). Other key areas reflected similar moves highlighted by the Spread between Portuguese/German 10-year Gov't Bond moving above 340bps (wider by almost 10bps_ and the spread between Spain/German 10-year Gov't Bond back above 170bps area. Dealers attributed the sentiment o PIMCO's Bosomworth, was commented that there was still a substantial risk that Greece could default

Japanese officials continued their barrage of verbal intervention after the BOJ maintained a steady policy earlier in Asia today.
USD/JPY continued to probed the 15-year lows established last month at 83.57 but continued chatter that Japan's Post Office Kampo was 'defending' the level yet again.

In the Papers-Geopolitical:

Commenting on Greece, PIMCO's Bosomworth stated that he continues to see substantial risk that the country could default. He believes if the country is insolvent and could face problems if its borrowing costs remain high. In addition, he states that in the most optimistic scenario, the debt would rise to more than 140% of GDP.

The British Office of Fair Trade published its aggregates market study, noting that the aggregates sector is substantial, with a turnover in 2008 of £4.8bn. Aggregates is a sector with high barriers to entry, increasing concentration at the local level, and Government involvement in the form of a national system of control over outputs. The study will look at all of these factors to determine how they influence competitive conditions and whether the market delivers good value for money to tax payers and end consumers as the cost of aggregates flows through to the construction of essential infrastructure.

The Wall Street Journal reported that European Bank stress tests understated some of the banks' holdings of sovereign debt.

According to WSJ analysis some banks excluded some sovereign bonds from their totals, and many lowered the totals to account for short positions they were holding. It should be noted that reportedly that CEBS faced heavy pressure from national regulators and politicians in Europe to format the stress tests in a way that would show a healthy banking system.

Notes/Observations

Safe haven bid appear to return as September brings back full participation in the markets

Greek sovereign default concept re-surfaces

European Banks still face problems in regards to their capital ratios

Australia forms a new Gov't with Gillard back at the helm

Both Australia and Japanese central banks maintain steady interest rate policy but RBA noted that the outlook was uncertain

Looking Ahead

(RU) Russia Aug Official Reserves: No est v $477.1Be

(RU) Russia Aug YTD Budget Level (RUB): No est v -538.8B prior

(RU) Russia July Trade Balance: $12.5Be v $12.5B prior- (BE) Belgium's Planning Bureau Updates Inflation Forecasts

(PO) Portugal July Industrial Sales M/M: % v 0.2% prior; Y/Y: % v 10.5% prior

6:00 (GE) Germany July Factory Orders M/M: % v 0.5%e; Y/Y: % v 20.6%e

7:00 (EU) ECB to drain €61.0B in 7-day Term Deposit Tender

8:30 (CL) Chile Aug Trade Balance: $925.0M v $1.0B prior; Total Exports: No est v $5.8B prior; Total Imports: No est v $4.8B prior

8:30 (CL) Chile Aug Copper Exports: No est v $3.2B prior

11:00 (HU) Hungary Aug YTD Budget Balance (HUF): No est v -997.5B prior

11:00 (US) Fed to Purchases Notes/Bonds

13:00 (US) Treasury to sell $33B in 3-Year Notes

17:00 (US) ABC Consumer Confidence w/e Sept 5th: No est v -45 prior

23:00 (CH) China Government Bond to Sell 1-Year Bonds