europe update x3

Frem IGM News Feed

[EMU WRAP] The better news flow for Greece continues for now as reports in Imerisia suggests 82%+ of private GGB bondholders are willing to participate in the debt swap offer that forms part of the 2nd rescue. On this note, ATE bank & Postbank will take part in the offer & will face writedowns of Eur 836/452mn resp. Also, as noted, EU task force head Reichenbach claims Athens is prepared to work with the team & he does not envisage becoming a bankruptcy administrator, while Germany's Roesler opposes a Greek EMU exit & OECD's Gurria reckons the EU has the political will to prevent the crisis from spinning out of control. Next, all eyes will be on the Eurogroup meeting (starts at 7GMT) & Spain's aim to raise Eur 3-4bn with 2019/2020 Obligaciones. 10Y yield gaps vs Bunds are all in with Greece a hefty 60bp tighter at 2297bp, others 2-10bp narrower after the approval of Italy's Eur 54bn austerity measures o/n.

[EU ASSET UPDATE] For the most part, asset opens followed the script with risk-on impulses from Greece/EMU peers giving a fillip for the main bourses, whilst debt futures initially drifted lower. However, as we alluded to before, banana skins are never that far from making an entrance. So right on cue just before cash bourses opened wires reported that UBS will be taking a Usd 2bn hit for unauthorized trading resulting in its shares hammered 8% and held back the Eurostoxx banking index (flat) vs broad-based mainstream gains of 1.2% first thing but the latter now pared to 0.7% (CAC) 0.8% (FTSE) 1.2% (Dax). Other impulses prompted volatility as Dexia said it has the capacity to absorb its exposure to Greece but this news countered by ECB's o/n borrowings which leapt to Eur 3.386bn vs 399mn yest & deposits that also climbed suggesting more hoarding. [BUNDS/GILTS] pared losses, 0-15 ticks up - 136.94/130.29 tops. 07:21 GMT - [EUR/CHF] is heading into the SNB quarterly policy review, at 7.30GMT locked into 1.2050, but the Swiss banking sector has been rocked by news that UBS made a trading loss of Usd 2bln in Q3 due to an unauthorised trade at the investment bank, which is still being investigated. UBS shares have dropped 9% in response. Meanwhile, the Swiss Economy Minister is on the wires saying that the Swiss must not be passive on the strong Franc, but warned that the Chf may stay strong for longer and that there is no all-clear yet on the ccy. He adds that US and European debt is 'worrying'. This may be a bit of political pressure on the SNB to announce more measures to weaken the Chf, but the CB may prefer to keep some ammunition in case there is another large European risk off event. Meanwhile, Q2 Industrial orders rose 2.6% y/y, while production rose 2.3%.

[EMU PERIPHERY] Senior German CDU lawmaker Meister is cited on Reuters saying a Greek exit from the EMU would be absolutely fatal 'for Greece' and he also says even talk about an orderly default has uncontrollable consequences. He reckons Greece is committed to achieving its goals and on that note is not concerned about the much-awaited Troika report. Nevertheless, he urges a quick EMU approval of the EFSF/ESM rescue facilities to regain credibility. Turning to Ireland, PM Kenny said the ESM aid rate cut will help save Eur 650mn per year, while EU Affairs Min Creighton welcomed the EC's plan for issuing a common EMU bond saying it would help calm markets & ensure the survival of the single currency. Turning to Italy, Industry Min Romani reckons China could acquire EU govt bonds given that it has already used part of its vast reserves to buy US debt.