NEWS / Foreign Exchange

European Market Update

• *** ECONOMIC DATA ***
• SP Sep Industrial Output wda: 0.6% v 0.9%e || Prior revised from 0.6% to 1.6%
• SP Sep Industrial Output nsa: -1.3% v 0.6% prior [lowest since April 2006] || Prior revised from 0.6% to 1.6%
• The work day adjusted reading for Spanish industrial output fell below estimates of 0.9%, declining to 0.6% from the upwardly revised reading of 1.6% in August as all three of the major components posted declines. The Consumer goods component declined to ??“0.4% from 1.9%, while the capital goods component declined to 4.8% from 5.3%, and the intermediate goods component declined to ??“0.6% from 0.3%.
• SP Oct Services PMI 52.5 v 52.4 prior
• Component wise the Spanish services PMI was pretty well balanced with the increase in prices charged to 52.2 from 50.7 in September making up for some of the declines in other components. The business expectations component declined to 63.7 from 65.6 in September for its lowest reading in nearly 6 years.
• IT Oct Services PMI 55.3v 54.3e
• The Italian services PMI exceeded expectations as all components, with the exception of the outstanding business component, posted a m/m rise. The largest m/m gain was seen in the input prices component, which rose to 64.8 from 60.7 in September
• FR Oct Services PMI 58.5 v 57.3e
• Similar to the Italian services PMI, the French services PMI exceeded expectations as most of the components posted m/m gains, with the largest gains seen in the input prices and outstanding business components, which rose to 61.8 and 57.8 from 57.8 and 5.7 in September respectively.
• GE Oct Services PMI 55.1 v 54.9e
• The German services PMI exceeded expectations as well, but by a smaller margin than Italy and France. Component wise, the largest rise was seen in the new business component, which rose to 54.5 from 52.1 in September. Notably, the prices charged component declined to 51.6 from 53.4 in September.
• EU Oct Final Services PMI: 55.8 v 55.6e
• EU Oct Final Composite PMI: 54.7 v 54.5e
• The final reading on the Euro-Zone services PMI exceeded expectations, boosted by larger than expected gains in Italy, France, and Germany. Component wise all components posted m/m gains, with the exception of business expectations, which declined to 60.3 from 60.9 in September. The largest gain was seen in the outstanding business component, which rose to 52.7 from 51.9 in September.
• EU Sep PPI: M/M 0.4% v 0.3%e || Y/Y 2.7% v 2.65e || Prior y/y revised from 1.7% to 1.8%
• Producer prices were able to edge out consensus expectations during the month of September bolstered by a rise in energy prices. The energy component rose to 1.0% m/m from ??“0.5% in August, and rose to 1.0% y/y from ??“0.4% in August. Excluding energy however the m/m reading declined to 0.2% from 0.3% in August, while the y/y ex-energy reading rose to 3.1% from 3.0% in August. The disparity between the all-inclusive and the ex-energy readings serves to highlight energy as an upside price risk, as often acknowledged by ECB members in the recent run-of ??“the-mill rhetoric. Continued signs of inflationary pressures from energy prices could serve as a catalyst for a future ECB rate hike, but, according to some, that is debatable given the current Euro strength.
• EU Sep Retail Sales: M/M 0.3% v 0.6%e || Prior revised from 0.1% to 0.0% |||| Y/Y 1.6% v 2.2%e || Prior revised from 1.0% to 0.8%
• Euro-Zone retail sales rose by less than expected during the month of September. A strong rise in Germany was unable to offset declines posted elsewhere in the Euro-Zone. On a m/m basis, food products rose to 0.4% from 0.2% in August, while non-food products rose to 0.3% from ??“0.1% in August. The y/y food products reading declined to ??“0.1% from 0.2% in August, while the non-food products reading rose to 2.5% from 1.2%.  The lower-than-expected rise in retail sales resulted from slow growth in food-product prices, perhaps signaling that food prices will not present any great upside price risks in the near-term.
• GE Sep Factory Orders: M/M ??“2.5% v ??“0.3%e || Prior revised from 1.2% to 1.9% |||| Y/Y 1.1% v 6.2% || Prior revised from 4.0% to 4.5%
• The notoriously volatile factory orders posted significant declined during the month of September, with upward revisions to the back month. Component wise, declines were well balanced, with significant declines seen in all of the 6 subcomponents. The autos/auto parts component posted the smallest decline, buoyed by a rise in domestic orders during the month.
• *** SPEAKERS/COMMENTS ***
• BOE King: It will be several months before banks return to normal
• BOE King: Time is needed for banks to reveal sub-prime losses || The situation now is different fro August
• BOE King: It was evident from the start that Northern Rock would need ??30B in funding
• GE Tax Commission Source:  2007 government tax revenue is seen ?‚¬5.0B above estimates given in May
• GE Tax Commission Source: 2008 government tax revenue is seen ?‚¬3.0B above estimates given in May
• *** FIXED INCOME/FX/COMMODITIES/ERRATUM ***
• EUR/USD reaches a new all time high above 1.4530
• USD The US Dollar index declined to a new all time low below 76.220
• USD/CAD continues to push new multi-year lows as the CAD firms on the back of strengthening oil prices
• USD/CHF trades 2007 lows overnight
• Analyst notes that the general trend in overnight trading has been a weaker Dollar as commodity prices rise causing commodity currencies to go bid, as well as a weaker Yen on the back of higher equity markets.
• Spot silver reaches its highest level since May of 2006 as spot gold pushes new 28-year highs overnight on continued safe haven flows due to market uncertainty about where the next big sub-prime loss may be reported.
• UK DMO sells ??2.25B in December 2030 gilts with an average yield of 4.677% and a bid-to-cover of 2.09x. The auction had a 0.9bps yield tail, and a 12-tick price tail. The bid-to-cover compares to 1.68x on the previous auction.
• Fixed income futures have spent the duration of today??™s session in the red, with the somewhat strong cover on the 2030 gilt auction failing to buoy long gilts as equity markets trade slightly higher. Futures gained upward momentum following the much weaker than expected factory orders in Germany.
• Equity market strength followed a number of earnings reports ahead of the open, most of which were positive. One of the most watched was perhaps Swiss Re, which reported better than expected results, lending upside to equity markets until the next sub-prime victim steps forward (or tells the truth).