NEWS / Foreign Exchange

European Market Update

• *** ECONOMIC DATA ***
• GE Sep Retail Sales: M/M 2.3% v 0.8%e || Prior revised from ??“1.4% to ??“1.6% |||| Y/Y ??“2.2% v ??“0.6%e || Prior revised from ??“2.2% to ??“2.1%
• The monthly recovery in German retail sales was much greater than expected as the continued decline in unemployment began to bolster consumer spending. The m/m rise was supported by notable gains in all subcomponents, with food/drink/tobacco rising to 3.4% from ??“1.2% in August, clothes/shoes/leather rising to 3.4% from 0.2%, and furniture rising to 2.7% from ??“0.4%. According to the Bundesbank, seasonally adjusted retail sales rose by 1.6%, compared to ??“0.5% in August. Third-quarter total retail sales were 1.2%, down from 1.9% in the second-quarter.
• UK Oct Nationwide House Prices: M/M 1.1% v 0.2%e || Y/Y 9.7% v 8.5%e
• According to Nationwide, the average home prices rose to ??186K during the month of October. Nationwide chief economist Earley said that the stock of unsold homes is still relatively low, and is providing some residual support to prices. Early added however that most leading indicators of housing market activity are continuing to weaken.
• FR Oct Consumer Confidence: -22 v ??“22e
• Consumer confidence declined to a 7-month low in October amid the rise in oil prices as well as increased worries that financial market developments with hinder European economic growth.  Most notable, component wise, was a 2 point decline in the buying-propensity sub-component, as well as a 3 point decline in the future inflation worries subcomponent. The future unemployment situation subcomponent remained unchanged.
• FR Sep Producer Prices: M/M 0.4% v 0.3%e || Prior revised from 0.2% to 0.1% |||| Y/Y 2.7% v 2.5%e
• Unlike some of the other producer prices data seen in Europe over the past couple of weeks, French producer prices did not post large gains on the back of higher energy prices. While the energy products component rose to 1.0% m/m from ??“0.5% in August, this was only enough to push the headline reading slightly ahead of estimates as a larger gain was undermined by a decline in the agricultural industry subcomponent.
• SW Oct Consumer Confidence: 17.7 v 16.0e
• SW Oct Economic Tendency Survey: 110.0 v 109.3 prior || Prior revised from 109.3 to 109.1
• NO Sep AKU Unemployment Rate: 2.5% v 2.5%e
• NO Sep Retail Sales: M/M 1.5% v 0.5%e || Y/Y 7.4% v 6.1%e
• Norwegian retail sales exceeded analyst expectations as the recent decline in unemployment fostered increased spending.
• EU Sep Unemployment Rate: 7.3% v 6.9%e || Prior revised from 6.9% to 7.4%
• EU Oct CPI Estimate: 2.6% v 2.3%e [two-year high]
• The Euro-Zone CPI estimate rose to a two-year high during the month of October. The rise seems to support another rate hike, especially granted the recent rhetoric from ECB members that have been pointing out inflationary risks, and hinting that the ECB will continue to do what is necessary to maintain price stability. Although majority of analyst expect the ECB to keep rates on hold at 4.00% at the November 8 policy-setting meeting, it is likely that this data, along with other data releases in the Euro-Area will be considered during the meeting.
• EU Oct Business Climate Indicator: 0.87 v 1.03e || Prior revised from 1.09 to 1.08
• EU Oct Consumer Confidence: -6 v ??“5e || Prior revised from ??“ to ??“6
• EU Oct Industrial Confidence: 2 v 2e
• EU Oct Economic Confidence: 105.9 v 106.5e || Prior revised from 107.1 to 106.9
• EU Oct Services Confidence: 18 v 19e
• IT Oct Preliminary CPI: M/M 0.4% v 0.2%e || Y/Y 2.1% v 2.0%e
• IT Oct Preliminary Harmonized CPI: M/M 0.8% v 0.4%e || Y/Y 2.3% v 2.0%e
• *** SPEAKERS/COMMENTS ***
• ECB Weber: Reiterates that risks to price stability have increased [newspaper interview]
• ECB Weber: Reiterates that further action may be warranted [newspaper interview]
• GE VDMI: Says that German machinery orders were +7% y/y in September vs. +14% in August
• FR Budget Minister: Reiterates FY08 growth forecast of 2.25%
• *** FIXED INCOME/FX/COMMODITIES/ERRATUM ***
• USD/GBP Seeing general Dollar weakness ahead of the FOMC interest rate decision in the US this afternoon. Following stronger than expected nationwide house prices in the UK the GBP, once again, pushed to new 26-year highs against the Dollar
• Front month crude oil is currently off of highs seen at the beginning of the week following comments by a Goldman Sachs analyst yesterday. Recall that the analyst recommended taking profits in oil. The analyst said that oil market risks are more balanced, and forecasted crude oil prices at $80/barrel by the first-quarter of 2008
• European fixed income futures, which were relatively quiet ahead of the FOMC decision due later today, dropped sharply upon the release of the Euro-Zone CPI estimate for the month of October, which came in at a multi-year high of 2.6%, above estimates of 2.3%. The release adds to the case for another interest rate hike.
• Germany sells ?‚¬4.508B in 4.25% 5-Year Bobl S151s with an average yield of 4.05% and a bid-to-cover of 1.7x. The bid-to-cover compares to 1.91x on the previous auction. The auction was scheduled for a total sale of ?‚¬5.0B.