NEWS / Foreign Exchange

European Market Update

• *** ECONOMIC DATA ***
• GE Nov GFK Consumer Confidence: 4.9 v 6.5e || Prior revised from 6.8 to 6.7
• The GFK consumer confidence reading dropped by more than expected to a 7-month low as the income expectations component declined to ??“0.7 from 2.3 in October, and the willingness to buy component decline to ??“12.9 from ??“2.4 in October. The economic outlook component declined slightly to 39.1 from 40.7 in October despite the larger declines in the other components. Many analysts have attributed the decline in confidence to the strong Euro as well as fears that economic growth will slow next year in light of slowing growth in the US.
• SP Q3 Unemployment: 8.03% v 7.90%e
• Spanish unemployment rose during the third quarter but remained near multi-year lows. Component wise, the largest change was seen in the unemployed portion of the workforce, which rose by 1.81% q/q, while the inactive component declined by 0.2% q/q.
• SZ Sep Producer and Import Prices: M/M 0.3% v 0.3%e || Y/Y 2.5% v 2.9%e
• Swiss producer & import prices unexpectedly declined in September, reaching their lowest m/m level since November of 2005. The unexpected decline is significant as the SNB has recently noted that input prices and import prices would be a focal point due to concerns about follow through into inflation in the future. Recall that, yesterday, the SNB??™s Hildebrand said that the SNB would react if FX moves were to boost inflation.
• Swiss producer & import prices: Component wise, in the breakdown of import prices, 20 of the 24 components posted a m/m decline, with the other four components, capital goods, wood products, machinery, and vehicles remaining unchanged. Component wise, producer prices were more equally distributed posting both gains and losses for the month. The biggest declines were seen in the paper and basic goods components, while the biggest gains were seen in the petroleum produces and furniture components.
• GE Hesse CPI: M/M 0.2% v 0.3% prior || Y/Y 2.3% v 2.3% prior
• GE Hesse, the second of the German states to report CPI for October thus far, posted a m/m decline, while, perhaps more notably, the y/y reading was unchanged at 2.3%, above the 2.0% target level.
• EU Sep M3 Y/Y: 11.3% v 11.4% e || 3-Month Average: 11.5% v 11.6%e
• EU Despite falling below consensus estimates the Euro-Zone M3 readings remained near 28-year highs seen at the beginning of the year. Growth in private sector loans declined to 11.0% from 11.2%, but the decline was too moderate to offer the ECB any read comfort.
• *** SPEAKERS/COMMENTS ***
• EU Juncker: Prefers a strong Euro to a weak one
• ECB Draghi: Italy needs to boost its productivity
• ECB Draghi: Italy needs to cut its public spending
• *** FIXED INCOME/FX/COMMODITIES/ERRATUM ***
• JP Morgan Analyst: Sees gold testing $814/oz in 2008
• JP Morgan Analyst: Boosts 2008 gold, silver, and platinum forecasts
• JP Morgan Analyst: Forecasts a smaller drop in base metals in 2008 than initially forecasted; Notes that a decline is still expected in 2009
• JP Morgan Analyst: Sees precious metals outperforming base metals in 2008
• EUR/CHF: Euro gains momentum against the Franc after Swiss producer & import prices post sharp, unexpected declines. Shall we say carry trade back on?
• USD weak across the board on higher commodity prices as oil breaks $92/barrel on geopolitical tensions, as well as continued concerns around the US sub-prime sector as earnings season is in its peak.
• JPY weaker in the session on the back of strength in European currencies as well as the CPI data in Japan overnight. As the Japanese Economic Minister Ota put it ???the end of deflation has been delayed???
• Italy sold ?‚¬2.0B in 2-year zero-coupon CTZs overnight with an average yield of 3.59% and a bid-to-cover of 1.59x, which compares to 1.45x at the previous auction.
• Fixed Income: Supply will total ?‚¬12.5B in the Euro-Zone next week with Italy scheduled to sell ?‚¬1B in September 2017 BTPei on Monday, as well as ?‚¬2.5B in 3-year BTPs, ?‚¬1.5B in 7-Year CCTs, and ?‚¬2.5B in 10-year BTPs all on Tuesday. Germany is scheduled to top-up the October 2012 Bobl S151 on Wednesday for ?‚¬5.0B.
• Fixed Income: Redemption payments will be seen for ?‚¬12.0Bin Spain next week and ?‚¬14.75B in Italy, while coupon payments in Spain are expected at ?‚¬5.75B and are expected at ?‚¬1.79B in Italy
• Fixed Income: Over in the UK next week the DMO is scheduled to sell ??2.5B in 5.0% March 2018 gilts on Thursday.