French Consumer Spending Takes a Hit

In equity news overnight American Ecology (ECOL) announced a 20% increase to its quarterly dividend, bringing the dividend up to $0.18/share. Bunge (BG) announced an 11.8% increase to its quarterly dividend, bringing the dividend up to $0.19/share. AtheroGenics' (AGIX) ARISE trial results published in the Lancet show that the study missed its primary endpoint in diabetes. Expro [EXR.UK] has received a £1.7B or £15.25/share cash bid from Halliburton. Recall that on 5/18 the Telegraph wrote that Halliburton (HAL) may was mulling a £1.8B for the company. British Energy [BGY.UK] announced overnight that talks with Suez [SZE.FR] have ended.

In the newspapers, the Wall Street Journal’s Heard on the Street section looked at Lehman's (LEH) reliance on one-time gains overnight, noting that some investors are questioning Lehman's earnings report from the prior quarter as some are asking whether its profit was due to some one-time items. According to Cinco Dias, Cintra Concesiones de Infraestructuras [CIN.SP] holder Grupo Ferrovial [FER.SP] boosted its stake in the company from 65% to 68%. According to a piece in FT Alphaville Friends Provident [FP.UK] In talks with bidders for the sale of its 52% stake in F&C.

In energy news overnight, ENI’s (E) Indonesian unit announced that it has been awarded exploration rights for a block in part of Indonesia’s Kasuri oil area, while Cnooc (CEO) was awarded exploration rights for the South East Palung Aru block. The Wall Street Journal noted overnight that part of the recent rise in oil prices is due to short covering by energy producers and others betting against a decline in prices. The article said that some oil producers who entered into futures contracts to sell oil are finding they locked in prices at as little as half of what oil currently trades in the spot market. The article adds that some speculators misjudged the top of the oil market. The Wall Street Journal wrote overnight that some US lawmakers are looking to end bans on domestic drilling. Oil drilling is not currently allowed on most of the waters off of Florida's coast, the East coast and the West Coast. In the Independent Jeremy Warner wrote that oil prices will eventually decline, but not without considerable collateral damage. As the world economy slows, Warner wrote, the best guess remains that oil and other commodity prices will follow the usual cyclical pattern of eventually falling back to more affordable levels. As energy and fuel bills rise, consumption is likely to suffer across the board, threatening a return to the "stagflation" of the 1970s. Even so, the West isn't as dependent on oil as it was back then and, as I say, per capita consumption of energy in the developed world is already so high that it can easily be reduced without causing undue hardship. The pain caused in the developing world is, on the other hand, likely to be much more extreme. Here there is little room for reduced energy consumption. As higher energy and food prices eat into already squeezed family budgets, there is the threat of serious economic and social dislocation. As with all bubbles, it is impossible to know when prices will correct. The oil price could as easily go to $200 a barrel before once more returning to earth. Yet return it certainly will if it succeeds in pushing the global economy into recession.

In fixed income related news, according to the Financial Times, Pimco's Gross has almost tripled his holdings of mortgage debt to more than 60% of his fund. Gross said he has decided to invest more in mortgage debt due to the US government's implicit guarantee of Freddie Mac and Fannie Mae. The Financial Times noted overnight that UK banks are moving away from lending to commercial property developers leading to increased margin calls. The Telegraph wrote overnight that Economists continue to doubt the strength of UK retail sales data, noting that some economists believe that official data is providing a rosier picture than reality. Some economists believe that official retail sales figures are failing to capture the impact the credit crisis is having on the consumer. The Royal Bank of Scotland updated its ECB rate forecast overnight and now predicts that the ECB will hold rates in 2008, and cut rates in 2009.

On the speaker front, according to wires citing a newspaper article, the ECB's Weber reiterated overnight that he sees no Leeway for an ECB rate cut. The French budget minister said overnight that France is not immune from a US slowdown, adding that Euro FX movements have calmed down. The EU’s Almunia said overnight that he sees Euro-Zone inflation levels around 3.0% in 2008. The ECB’s Bonello said overnight that it is important that wage demands do not lead to an inflation spiral, adding that the ECB sees inflation rising in 2008, and closer to 2.0% in 2009.

On the data front, the French consumer spending data for the month of April was notably lower than expected with the y/y reading falling to its lowest level since November of 1997 on the back of declines in both the cars, and the textiles/leather components. Preliminary first-quarter GDP in the UK was in line with consensus expectations at 0.4% q/q and 2.5% y/y. First quarter exports were 0.0%, below estimates of 1.0%, while imports were -0.6%, below estimates of 0.5%.

Looking ahead, things are pretty quiet ahead of the extended weekend. On the data front April existing home sales data is due out at 10:00 ET. There is no new supply scheduled in the US today, nor are there any central bank speakers scheduled. Furthermore, no notable earnings reports are due this morning.