European Market Update 2/8 - UK Halifax House Prices Rise Unexpectedly in January

- The European indices are currently trading lower after a series of mixed earnings reports ahead of the open. In the UK HSBC issued a profit warning pushing shares lower at the open, while shares of Imperial Tobacco dropped after announced a deal to acquire Commonwealth Brands for $1.9B.
- European government bonds are currently trading slightly lower ahead of the ECB’s interest rate decision today. Over in the UK gilts are also trading slightly to the downside ahead of the BOE’s interest rate decision.
- Swiss CPI for the month of January fell to its lowest level since March of 2004 on a y/y basis at 0.1%. Inflation slowed as retailers cut prices for clothing and shoes for the end of the season. Despite low levels of inflation the SNB has signaled that it intends to raise interest rates at the March 15 meeting on concerns that Franc weakness against the Euro may continue to inflate the prices of imports.
- The German trade balance came in as a surplus of €10.8B, below expectations of €16.5B as import reached their highest level since December of 2005, and exports slowed more than expected. The drop in German exports is the latest sign that the German economy may be cooling, following industrial production, and manufacturing orders data that fell sharply below expectations.
- Swedish industrial production surged during the month of December to 2.5% M/M, its highest level since June of 2005, and 10.3% Y/Y, its highest level since January of 2001. Production grew as companies boosted output to meet increasing demand due to a rise in consumer spending, as well as increasing exports to Germany, Sweden’s largest trading partner. Additionally the activity index level continued its upward trend reaching a new all time high yet again.
- In the UK Halifax house prices remained unchanged at 9.9% y/y above estimates of 9.6%, maintaining their highest level since March of 2005. House prices rose 1.3% M/M brining the average house price in the UK to £188,623.
- Overnight the Sedlabanki, otherwise known as the Icelandic Central Bank, left interest rates unchanged at 14.25% as expected. In an unannounced decision the Saudi Central Bank raised rates by 30 bps to 5.50%.
- At 7:00 ET the Bank of England will announce its interest rate decision. Although the BOE is widely expected to keep interest rates unchanged at 5.25%, a recent poll of 50 economists showed that 8 economists (16%) see the BOE raising rates by 25bps to 5.50%. Some analysts speculate that, after last month’s decision, the BOE will not raise rates again, while others see last month as an indication that the BOE will take preemptive strikes to combat inflation when deemed necessary. According to an article published in the Scottsman, the shadow MPC voted 5-4 in favor of a hold. Recall that last month the shadow MPC accurately voted for a hike.
- At 7:45 ET the European Central Bank will announce its interest rate decision. Widely expected to leave interest rates unchanged at 3.50%, a recent poll showed that out of 40 surveyed economists, every economist expects that the ECB will leave interest rates unchanged. Investors will be awaiting the post decision conference, which will commence at 8:30 ET, look for the ECB’s Trichet to signal when the next interest rate hike may occur.
- In a quiet session on the energy front crude oil futures are currently trading lower after a government report showed that oil supplies are sufficient to meet winter demand. Note in additional energy related news, Russia’s Gazprom announced overnight that it has not made any formal bids for Centrica in the UK. Separately, Centrica announced overnight that it would be reducing gas prices by 17%.