European Summary
European equities got slammed for a second consecutive day off heightened banking concerns and JPMorgan’s prediction that Lehman may post an additional $4bln in credit-related write-downs. This particularly hurt banking stocks, as Barclay’s fell 5.4% and Societe Generale fell 4.2%. CIBA fell 17%, its worst decline since its ’97 IPO, after revealing an unexpected Q2 loss. The DJ Eurostoxx fell 2.6%, the FTSE 100 fell 2.4% and the DAX fell 2.35%. Better-than-expected ZEW confidence data out of the EU and Germany failed to curb today’s sell-off.
European bonds also came under selling pressure despite the rout on equities with the German 10yr bund, down 0.19%, improving its yield 2bps to 4.16% following higher than expected July PPI data from Germany. The 10yr gilt is marginally higher with a yield of 4.587% after the BOE’s Besley forecast UK CPI to return to around 2% by late ’09.
EUR/USD spent most of the session in the red, despite the higher than expected Germany PPI data, but has trended higher since and is currently near session highs, just under the 1.4780 handle. Cable also spent most of the European session in the red, falling as low as 1.8537, but has since rebounded to flat on the day at 1.86659. GBP/JPY, down 0.4% to 204.60, continues to face selling pressure going into the afternoon session.EUR/GBP is up 0.5% to 0.7919, EUR/CHF is flat at 1.613 and GBP/CHF is down 0.5% to 2.0375.
Tomorrow’s European data includes June Construction Output, expected to gain 0.2% on the month while the y-o-y reading is expected at -1.1%. Tomorrow’s UK data includes minutes from the BOE August policy meeting, July Public Sector Finance and the July M4 money supply.