UK Retail Sales Beat Expectations; PMI Readings Remain Below 50

DATA
SZ July Trade Balance: CHF2.37B v CHF2.0Be
FR Aug Preliminary Manufacturing PMI: 45.1 v 47.0e
FR Aug Preliminary Services PMI: 48.5 v 47.5e
GE Aug Advanced Manufacturing PMI: 49.9 v 50.5e
GE Aug Advanced Services PMI: 50.6 v 52.1e
SW July Unemployment Rate: 5.8% v 5.9%e
EU Aug Advanced Manufacturing PMI: 47.5 v 47.0e
EU Aug Advanced Services PMI: 48.2 v 48.0e
EU Aug Advanced Composite PMI: 48.0 v 47.7e
NO Q2 GDP Q/Q: 0.6% v 0.4%e
UK July Retail Sales: M/M 0.8% v -0.2%e || Prior m/m revised from -3.9% to -4.3% |||| Y/Y 2.1% v 1.8%e
UK Q2 Total Business Investment: Q/Q -1.9% v -0.7%e || Y/Y 1.9% v 3.1%e
SZ Aug ZEW Expectations: -79.6 v -76.9 prior
IC July Wage Index: M/M 0.7% v 0.4%e || Y/Y 9.1% v 8.6%e

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM
In equity news overnight Continental [CON.GE] concluded an investment agreement with Schaeffler overnight. Schaeffler has committed to increase its offer price from ?70.12/share to ?75.00. Schaeffler will limit its position to a minority stake in Continental for a period of 4 years. [Shares were 0.33% in early trading]. Persimmon [PSN.UK] reported 1H net income of ?26.4M, down from the ?197M seen a year ago. Revenue for the 1H was ?998M, in line with consensus estimate, and down significantly from the ?1.51B see a year ago. Persimmon sold 5501 units v 8002 units a year ago, while the cancellation rate of 33% was an improvement from the 40% seen in 1H07. [Shares were 2.2% in early trading]. Eurasian Natural Resources [ENRC.UK] reported H1 net income of $1.34B overnight, above the $1.18B consensus, and revenue of $3.44B, up from the $1.86B a year ago. ENRC said that they see continued cost pressures through H2, noting that they do not see a repeat of Q2 price increases. The company is focused on controlling costs and acquisition opportunities. [Shares were 4.8% in early trading]. Arques [AQU.GE] reported a Q2 net loss of ?22.3M, down from a profit of ?7M a year ago, and revenue of ?1.3B, a giant step up from the ?457.7M seen a year ago. Arques said that they see a significant reduction in debt and considerable reduction in cashflow in 2008. Arques also guided FY08 revenue of ?6.0B, above the ?5.87B consensus, and EBITDA of ?200M, above the ?176.7M consensus. Although ahead of consensus, the EBITDA guidance was a big drop from the previously issued guidance of ?275M. [Shares were -9.8% in early trading]. Nordea [NDX1.GE] reported 1H pretax of ?17.7M, up from ?14.7M a year ago, and revenue of ?466M, up from ?323M a year ago. Net income was flat y/y at ?13.4M. Nordea also noted an order backlog of ?3.3B, up form the ?1.B in 1H07, and confirms its FY08 targets. [Shares were 2.5% in early trading]. Holcim [HOLN.SZ] reported Q2 net income of CHF696M, well below the CHF775.5M consensus, EBIT of CHF1.23B, below the CHF1.39B consensus, and revenue of CHF6.96B, in line with estimates. The company noted that it sees the positive orders situation continuing. The CEO later added on the company's conference call that the company is evaluating potential takeover targets as valuations have come down. The CEO added that there is a need to increase product prices. [Shares were -3.3% in early trading].

In the newspapers, according to the Financial Times Iceland's Baugur Group [BAUG.IC] may still be interested in buying Debenhams [DEB.UK] and Saks (SKS). FT Deutschland wrote overnight that Deutsche Bahn [DBHN.GE] plans to acquire Romania's Romtrans for ?80M. The Wall Street Journal was cautious on shares of Cemex (CX) in the Heard on the Street column, noting that the company's high debt levels, and exposure to derivatives could weigh down shares. Citing a study conducted by the University of Saarland Handelsblatt wrote overnight that German companies with bulging cash positions are vulnerable to hostile takeovers.

In energy news overnight the Times noted that Iceland plans to offer offshore drilling licenses. Accprdomg to the article 'several British groups and StatoilHydro, of Norway, are among those considering submitting bids in January for about 100 exploration licenses. They cover 40,000sqkm of ocean more than 300km northeast of Iceland and south of the Norwegian Jan Mayen islands. The new licenses will run for up to 16 years and, if they prove successful, would allow for production for 30 years. The region is relatively unexplored, although a joint preliminary study conducted by Norway and Iceland in the 1980s offered evidence of the existence of oil-bearing rocks. The results of an additional seismic survey carried out this summer will be published at an investor conference in Reykjavik on September 4 and 5. About 100 delegates from oil companies are expected to attend the conference. '

On the speaker front the German Finance Minister said overnight that the government's 2008 GDP growth forecast of 1.7% is 'safe'. The ECB's Wellink said in an interview with Financieele Dagblad overnight that banks are over-reliant on central bank financing, noting that they must find alternative funding. Wellink added that liquidity infusions were adequate reaction, but cannot be expected to continue. Furthermore Wellink said that high oil prices continue to pressure growth trends. Wellink asserted that the ECB is monitoring all developments, and said that the ECB sees some second round effects. Investor Jim Rogers said overnight that the commodity drop is a correction in the bull market, adding that the bull market will continue due to short supply. Rogers noted that he is considering buying metals again.

NOTES
PMI readings were weaker overnight, with the German manufacturing PMI breaking just below the key mark of 50 for the first time in three years as both the output and new orders components contracted. Continued signs that the German economy will not prove to be completely resilient in the face of an economic slowdown perhaps suggest that the ECB will have to cut interest rates in early-to-mid 2009 if developments progress upon the current downward path. The poor PMI readings in both France and Germany were able to save the European fixed income futures from a technical slide in early trading causing them to bounce off of the unchanged level, saving them from a dip in the red. Despite this the futures seemed to have their heart set on the red, and eventually made their way into negative territory. Over in the UK better than expected retail sales temporarily pushed long-gilts back to the middle end of their trading range for the session, while the December short sterling contract fell into positive territory after dropping eight ticks before bottoming out. Elsewhere the chatter amongst dealing desks overnight seemed to focus on the USD/EUR. With the Euro hovering near the 1.48-handle there have been some arguments that the pair appears to have an upward bias, seeming to stem from the thought that the 'Dollar rally' has slowed down just as fast as it started. Dealing desks have also noted that, after narrowing to its lowest level since around July 12th at around 154bps, the spread between the 2-year note and the 2-year schatz has widened by about 24bps over the past week to 178bps. The move is seen as lending support to a stronger Euro with 1.50 in the crosshairs.

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