Spanish PPI Skyrockets; Something's Rotten in Denmark

DATA
SP July Producer Prices: M/M 1.4% v 0.3%e; Y/Y 10.2% v 9.3%e

SW July Trade Balance (SEK): 9.4B v 9.0B prior || Prior revised to 9.0B form 8.2B

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM
On the equity front an analyst at Morgan Stanley cut their 2008 S&P 500 forecast to 1300 from 1400, lowering the overall 2008 operating eps forecast by 9.3%. StatoilHydro [STL.NO] announced a gas discovery in the Wildcat well off of Luca in the Norwegian Sea estimated at 4Bcm.

In the newspapers overnight the Financial Times wrote that Allianz [ALV.GE] may postpone or cancel the planned breakup of its Dresdner unit. The article notes that Dresdner may be close to being completely sold. A related report in the Times said that Commerzbank may pay ?9B for Dresdner Bank. According to Building Taylor Wimpey [TW.UK] is expected to announce an agreement, which will relax its loan covenants without the need for new equity. The company is expected to outline the deal when it releases its trading update. The Guardian wrote overnight that Bradford and Bingley [BB.UK] is not expected to pay an interim dividend. The article also noted that the company may warn that its final payout could be cut. The Financial Times reported overnight that TPG Capital no longer plans to bid for Paragon [PAG.UK]. According to Le Figaro Airbus [EAD.FR] faces US order cancellations. The article did not cite any sources.

On the speaker front the ECB's Trichet said overnight that unlike the Fed, the ECB had to focus only on inflation while responding to the credit crisis. Trichet noted that we are still in market correction of great magnitude. Trichet pointed out that the ECB had to separate monetary policy from financial stability actions, and noted that the ECB had more liberal framework than Fed on liquidity. Former Bank of England official Willem Buiter criticized the Fed in an interview as being too close to financial markets during the credit crisis. According to an unconfirmed report citing the EBC's Mersch, the ECB will announce changes to the rules governing its money-market auctions in coming weeks.

NOTES
With the UK on a banking holiday, and the calendar nearly void of economic data the European trading session was slow to say the least. Despite this there was one notable piece of economic data on the wires overnight, namely the Spanish producer prices for the month of July. Producer prices rose to their highest y/y level since November of 1984, while the m/m reading was the highest since January of 2006. Three of the four components posted gains in July, with the consumer goods component posting the only decline. As one might expect the largest gain was seen in the energy component following the recent trend. Elsewhere, the Danish consumer confidence for the month of August declined to its lowest level since records began in January of 1994. Ten of the twelve components in the Danish sentiment index posted declines during August, with the largest declines seen the savings and general economic situation components.

While there were no major news bombshells over the weekend there is one story that seems to have been overlooked by most market participants largely due to a lack of publicity. Danmarks Nationalbank, the Danish Central Bank, along with a number of Danish private lenders announced over the weekend a deal to take over Denmark's Roskilde Bank. Roskilde Bank, which received the first bailout from the Danish Central Bank in 15 years in July will be acquired by the Central Bank after no buyers were found. Along with the private consortium Danmarks Nationalbank will inject DKK4.5B (about $890M) into Roskilde Bank. In a separate release, following a revision, Roskilde Bank estimated that it has at least an estimated DKK1.0B in additional writedowns, which is more than double the amount of writedowns that the bank already declared. The two-year swap spread in Denmark, which has been on the rise since mid-May, rose sharply in early trading today, and is currently around 85.6bps, just below the multi-year high of 86.3bps seen mid-year. Regarding the news the Danish Central Bank Governor said overnight that, 'it looks as though Roskilde shareholders have lost their money,' pointing out that shareholders have lost DKK1.0B, and hybrid loan holders have lost DKK2.5B. While Roskilde is relatively small the news reminds us once again that we are not out of the clear yet. Furthermore the bank failure could stir some speculation that some of the Scandinavian banks could be under pressure, however, the lack of bad news (in this vain) out of Iceland may cap such speculation as Icelandic banks were seen as a potential trouble hot spot a few months back.

Looking ahead at some of the more significant data releases expected this week, German IFO data is due out on Tuesday. On Wednesday we will see the release of Icelandic CPI, as well as the Polish interest rate decision. Nationwide house prices in the UK will be key on Thursday, along with the Euro-Zone M3 Money Supply. Finally, Spanish and Italian retail sales data, as well as the preliminary Italian CPI and the Euro-Zone CPI estimate will all be in focus on Friday. In new supply this week the Dipartiment del Tesoro will be busy this week with auctions scheduled for Tuesday, Wednesday, and Thursday. Supply is relatively non-existent elsewhere in Europe, with the exception of Tuesday's auction by the Greek PDMA.

'One person with a belief is equal to a force of ninety-nine who have only interest.' - John Stuart Mill