European Market Update

Speculation that Turkey has reach an accord with IMF aids risk appetite

ECONOMIC DATA

(UK) Dec Nationwide House Prices M/M: 0.4% v 0.3%e; Y/Y: 5.9% v 5.6%e (Eighth straight monthly increase and largest YoY rise in house prices since Nov 2007

(RU) Gold & Forex Reserves w/e Dec 25th: $437.7B v $440.5B prior

(TU) Turkey Oct Industrial Production M/M: 3.2% v -0.1% prior; Y/Y: -1.4% v -8.7% prior

(HK) Hong Kong Nov Gov't Monthly Budget (HKD): 17.9B v 8.0B prior

(IS) Israel Q3 Preliminary GDP: 3.0 v 2.2% prior

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Equities: The German equity markets were closed while the UK and French stocks saw their opening levels gains of 0.6% erode as the day progressed and approached the NY morning just barely positive.

Speakers: An Indian Central Bank deputy official commented that the RBI would wait until the scheduled Jan 29th policy meeting for review of any potential interest rate move China President Hu Jintao commented that China had rebounded from the global crisis but would maintain policy continuity and increase its policy flexibility in 2010. China to target relatively fast economic growth. It would maintain an active fiscal policy and appropriately loose monetary stance next year as the country was still facing effects of global crisis. China would focus on the quality of economic growthh ECB's Bini Smaghi commented that growth is not likely to return to pre-crisis levels stressing that sectors such as construction, auto, and finance would never return to their pre-crisis growth levels. He expected unemployment to continue rising in the coming months. He preferred the role of central banks to diminish next year French Fin Min Lagarde commented that France would redraft carbon tax to address legislators concerns. She reiterated thatQ4 GDP would improve sequentially from the 0.3% last registered Taiwan Central Bank reiterates that it would closely monitor capital inflows and check funds that do not match their stated purpose BoE Q4 credit conditions survey: More willing to lend to households in Q4; expects to see slight increase in Q1 next year

Currencies: Emerging market relief seemed to provide the basis for the price action on Thursday as the year and decade came to a close. The USD entered the European session on a weaker tone attributed to rising risk appetite that Turkey had reached an accord with the IMF. Additionally press speculation that Hungary would meet its 2009 budget deficit target of 3.9% to GDP to meet conditions attached to its €20B IMF led bailout.

The EUR/USD probed the 1.4440 level with the GBP extended its recent 12 hour rally another 80 pips to test 1.6150. The GBP has now advanced some 300+ pips since testing 1.5830 area on Wednesday due to alleged M&A related flows that Hershey could raise Cadbury bid by £3B. The pound saw some of its upward momentum wane after the BOE credit conditions report improving conditions but situation remained difficult.

China's currency ended 2009 weaker against the USD by 0.1% compared to the CNY appreciating by over 7% back in 2008.

Fixed Income: Gilt yields are lower across the term structure on the final day of the year, with better buying in the long end producing a flatter curve. The benchmark 10y Gilt has pulled back from its highest levels of the year and is poised to end 2009 about 100bps higher than where it started. UST's are slightly softer in the final hours of trading, with the 10y Note inching towards 3.80%, an increase of roughly 260bps from the end 2008 when yields were at record lows.

Energy: Chinese press noted that China might not announce on-grid prices for domestic solar power in the near term citing that the government would not be able to subsidize solar power projects due to their high costs.

In the papers: Risk appetite received a boost during the European session. An article in the Turkish paper Milliyet noted that a loan accord between Turkey and the IMF was imminent. The article noted that a two-year deal was expected to be signed in January. Turkey and the IMF have been locked in negotiations since the previous $10B stand-by accord expired in May 2008. The Turkish Gov't had blamed stringent IMF conditions for the delay. The article noted that Turkey's government would now clinch a loan deal as the IMF agreed to Turkey's conditionsNote: Markets has previously expected a three-year IMF deal worth as much as $50B. Nepsazabadsag in Hungary reported that the country would meet its 2009 budget deficit target of 3.9% to GDP. Article noted that December surplus target of about 131B forint was exceeded by as much as 60B forint. The Finance Ministry will publish the December and full-year budget balance on January 5th. Hungary needs to limit its 2009 budget deficit to 3.9 % of GDP and lower it to 3.8% in 2010 to meet conditions attached to its €20B IMF led bailout.

Notes:

US issued warning of possible terror threat for Indonesian island of Bali (seen of prior attacks)

Risk appetite finds optimism in session aiding commodities and hitting dollar

European markets to close early, but full day for US equities

Looking Ahead:

• (RU) Russia Q3 Current Account: $ v $15.2Be
• 6:30 (IN) India Q3 Current Account: -$4.8Be v -$5.8B prior
• 8:30 (US) Initial Jobless Claims: 460Ke v 452K prior; Continuing Claims: 5.1Me v 5.076M prior
• 9:00 (BE) Belgium Nov Budget Balance YTD: No est v -€10.5B prior
• 10:00 (US) Dec NAPM Milwaukee: 56.0e v 57.0 prior

Trade The News Staff
Trade The News, Inc.

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