NEWS / Foreign Exchange

European Market Update

• *** ECONOMIC DATA ***
• GE Sep ILO Unemployment Rate: 8.1% v 6.1%e || Prior revised from 6.1% to 8.3% [NOTE NEW METHOD]
• GE The reported results do not compare to consensus estimates for the German ILO unemployment as new European Union Harmonized method was implemented in September. According to the Federal Statistic Office ILO employment rose by 36K in September, hence dropping the unemployment rate to 8.1% from the revised reading of 8.3% for the month of August.
• GE Oct Unemployment Change: -40K v 30Ke || Unemployment Rate: 8.7% v 8.7%e [Lowest since June 1993]
• GE Sep Real Wholesale Sales: M/M ??“0.2% v ??“0.9% prior || Y/Y ??“1.7% v 1.2% prior
• FR Sep Housing Starts: 12.9% v 13.3%e
• FR Sep Housing Permits: 3.2% v 0.1% prior
• FR Q3 Manufacturing Survey Demand Outlook: 14 v 17 prior|| Foreign Demand Outlook 10 v 16 prior
• French industry demand was strong during the third-quarter, but declined from levels seen during the second-quarter. Although the outlook remains fairly favorable, some analysts believe that Euro FX levels could impact industry demand to a greater level during the fourth-quarter.
• SP Oct Preliminary Harmonized CPI Y/Y: 3.6% v 3.1%e [14-Month High]
• The y/y reading on Spanish retail sales was notably higher than estimates, striking a 14-month high. Keeping in mind that the figures are quite volatile, the can be largely attributed to the recent rise in energy prices.
• SW Riksbank raises interest rates by 25bps to 4.00% as expected
• As expected Riksbank raised interest rates by 25bps for its third consecutive interest rate hike. The announcement was followed by some hawkish rhetoric forecasting that interest rates could rise another 25bps by the 1H of 2008. Riksbank also boosted its inflation forecasts for 2008 and 2009, while cutting its 2008 growth forecast.
• SW Sep Retail Sales: M/M 2.6% v 0.9%e || Prior revised from ??“0.9% to ??“1.2% |||| Y/Y 9.9% v 7.5%e || Prior revised from .9% to 7.3%
• Swedish retail sales rose by more than expected during September, but remained in line with their general, volatile trend. Retail sales rose as a decline in unemployment along with tax reductions fostered an increase in consumer spending.
• IT Sep PPI: M/M 0.5% v 0.2%e || Prior revised from 0.1% to 0.2% |||| Y/Y 3.5% v 3.1%e || Prior revised from 1.9% to 2.1%
• As seen elsewhere, Italian producer prices exceeded consensus estimates driven by energy prices during the month of September. Component wise there were a few gains and losses in the produce price index, however the oil component rose to 4.6% m/m from ??“1.8% in August, and rose to 12.7% y/y from ??“2.6% in August, obscuring the much smaller movements in the other components.
• SZ Sep UBS Consumption Indicator: 1.992 v 1.932 prior || Prior revised from 1.932 to 1.950
• SL Slovakian Central Bank keeps rates on hold at 4.25% as expected
• *** SPEAKERS/COMMENTS ***
• FR INSEE: Industry demand was supported in Q3 || Foreign demand declined slightly but remained dynamic
• FR INSEE: Industrialists see a slight decline in overall demand in Q4
• FR INSEE: Competitiveness eroded slightly in European markets
• SW Riksbank: Forecasts the repo rate at 4.25% by 1H of 2008
• SW Riksbank: Forecasts CPI at 2.9% in 2008 vs. the previous forecast of 2.3% || Forecasts CPI at 2.4% in 2009 vs. the previous forecast of 2.3%
• SW Riksbank: Forecasts GDP at 2.8% in 2008 vs. the previous forecast of 3.0% || Forecasts GDP at 2.9% in 2009 in line with its previous forecast
• ECB Wellink: The ECB remains concerned about inflation
• ECB Wellink: The slowdown in growth is likely to be greater than forecast
• ECB Wellink: Growth risks may dampen inflation, but oil and food prices may boost inflation
• ECB Wellink: Says that he is not concerned about the Euro FX rate || EMU exports are doing well
• ECB Welling: The current weighted Euro FX rate should not be exaggerated
• GE Labor Market Rep: The German labor market is not impaired by oil prices nor by the Euro??™s surge
• *** FIXED INCOME/FX/COMMODITIES/ERRATUM ***
• IT Sells ?‚¬2.5B in 3-year 4.50% 2010 bonds with an average yield of 4.09% and a bid-to-cover of 1.416x. Brings the total amount outstanding for the issue up to ?‚¬11.5B. The bid-to-cover compares to 1.45x at the previous auction.
• IT Sells ?‚¬2.5B in 10-year 4.50% 2018 bonds with an average yield of 4.47% and a bid-to-cover of 1.475x. Brings the amount outstanding for the auction to ?‚¬9.5B. Bid-to-cover compares to 1.35x at the previous auction.
• IT Sells ?‚¬1.0B in floating rate notes with an average yield of 4.16% and a bid-to-cover of 1.47x.
• EUR/SEK Following the expected 25bps interest rate hike as well as some hawkish commentary from Riskbank, forecasting rates at 4.25% by the first-half of 2008, the EUR/SEK dropped below the 9.2000 handle
• The USD is showing a little bit of strength across the board ahead of Wednesday??™s interest rate decision as market participants begin to consider the likely outcome of the FOMC??™s decision. While, initially, some analysts were forecasting either a 25bps or 50bps interest rate cut at this week??™s meeting, profit taking has began in some of the USD pairs as many analysts??™ views have shifted to rule out a 50bps rate cut, considering now either a 25bps rate cut, or the possibility of no action in the face of inflation, especially the recent inflation in commodity prices.
• Fixed income futures are trading lower in the session. Futures were off of their worst levels following comments from the ECB??™s Wellink with market participants paying particular attention to Wellink??™s comment about the economic slowdown being greater than forecasted, despite Wellink??™s note that the ECB remains concerned about inflation.
• Commodities are trading lower in the session as a bit of profit taking in US Dollar pairs has lead the Dollar higher ahead of Wednesday??™s interest rate decision. The Qatari Oil Minister said overnight that a further increase in crude oil supplies will not help to lower oil prices, reiterating that geopolitical factors and refinery issues are responsible for high oil prices. The OPEC president said overnight that he does not think that oil will pass the $100/barrel mark soon, reiterating that an output hike is not on the agenda at the mid-November summit.