NEWS / Foreign Exchange

European Market Update

• *** ECONOMIC DATA ***
• SZ Oct Unemployment Rate: 2.6% v 2.5%e
• SZ Oct Unemployment Rate sa: 2.6% v 2.6%e || Prior revised from 2.6% to 2.7%
• Swiss unemployment unexpectedly rose on an unadjusted basis, and declined from an upwardly revised back month reading on an adjusted basis, as expected. Despite the small movements in either direction, the Swiss economy remains strong, helping to maintain unemployment rates near 5-year lows.
• GE Sep Trade Balance ?‚¬18.1B v ?‚¬16.0Be
• GE Sep Current Account: ?‚¬15.4B v ?‚¬12.1Be || Prior revised from ?‚¬9.1B to ?‚¬8.8B
• GE Sep Imports: -2.6% v ??“0.8%e || Prior revised from 5.6% to 4.5%
• GE Sep Exports: 0.7% v 0.4%e || Prior revised from 3.0% to 2.4%
• The German trade balance for the month of September rose by more than expected as imports declined by more than expected, and exports rose by more than expected, showing that, thus far, the Euro??™s rise has not had any significant dampening effect on German exports, nor the German economy.
• UK HBOS House Prices: M/M ??“0.5% v 0.5%e || Y/Y 8.9% v 9.4%e
• House prices posted their first consecutive monthly decline since May of 2005, as higher interest rates being weight down on demand. The average price of a home declined slightly to ??197.2K. 
• SW Sep Industrial Production: M/M ??“0.6% v 0.5%e || Prior revised from ??“0.7% to ??“0.5% |||| Y/Y 1.1% v 2.9%e || Prior revised from 2.4% to 2.8%
• SW Sep Industrial Orders: M/M 5.8% v ??“3.5% prior || Prior revised from ??“3.5% to ??“3.1% |||| Y/Y 1.7% v 2.6%e || Prior revised from 2.6% to 2.4%
• SW Sep Activity Index Level: 121.4 v 121.1 prior
• *** COMMENTS/SPEAKERS ***
• GE Has no plans to push G-7 on the Euro [wires citing sources]
• GE German government will not pressure hte ECB about Euro FX
• GE ECB's independence is highly valued [wires citing sources]
• GE There are some concerns arond the economic impact of the strong Euro [wires citining sources]
• GE Surprised on how well the firms are coping with the strong Euro [wires citing sources]
• GE Japanese and Chinese FX continue to be a source of concern [wires citing sources]
• PBOC Official: PBOC sees 2007 GDP above 11% and CPI around 4.5%
• PBOC Official: Will enhance Yuan flexibility
• PBOC Official: To use price tools to stabilize inflationary pressures
• PBOC Official: Expresses concern over a possible fallout from the US sub-prime situation
• PBOC Official: Oil prices may continue to rise
• IT Conindustria Economist: The Euro rise is likely to continue || Sees FX intervention at some point
• IT Conindustria Economist: The ECB should hold interest rates steady || Says the next action is likely to be a cut.
• *** FIXED INCOME/FX/COMMODITIES/ERRATUM ***
• The spread between the 10-year Bund and the 10-year OLO has widened today, moving back towards 5-year highs made in August as the political unrest in Belgium continues to create and air of uncertainty over the nation??™s future. Four-party talks to form a new government, which have been in progress for 150 days following the June elections, appeared to be on the verge of collapse after Dutch-speaking politicians approved splitting up the Brussels Halle Vilvoorde electoral region - effectively stripping voting rights from 120 000 francophone voters. The vote has heightened media speculation that the 177-year-old nation is heading for a break-up, despite the fact that polls show that most Belgians want unity.
• European fixed income futures are moving lower in the session, but currently sit in positive territory as equity markets attempt to stage a come back after opening sharply lower.
• There is some consolidation in FX markets following Dollar losses yesterday as the Euro broke 1.47 briefly.
• Commodity markets are relatively calm following inventory data in the US yesterday. Front month crude remains well off highs made just above $98 yesterday. Crude did gain some momentum after the OPEC secretary general reiterated that OPEC will not discuss the possibility of any output hikes at the November meeting, but suggested that OPEC will assess the situation at its December meeting.
• France sold ?‚¬2.26B in 4.25% October 2017 OATs with an average yield of 4.25% and a bid-to-cover of 2.912x. The auction brought the amount outstanding for the issue up to ?‚¬22.26B. The cover compared to 3.98x at the previous auction.
• France sold ?‚¬745M in 4.00% April 2055 OATs with an average yield of 4.47% and a bid-to-cover of 3.832x. The auctions brought the amount outstanding for the issue up to ?‚¬13.625B. The cover compared to 2.53x at the previous auction.
• Markets are currently awaiting two interest rate decisions today. The Bank of England??™s interest rate decision is due out at 7:00et today. The BOE is widely expected to keep interest rates on hold at 5.75%. Despite expectations, the Shadow MPC voted 6-3 to keep rates on hold, with the three dissenting members voting to cut rates by 25 basis points. Only 3 of 61 surveyed economists forecasted an interest rate cut at today??™s meeting. Note that, in the event of a 6-3 vote the BOE may release a statement along with its decision. The ECB is due out with its interest rate decision today at 7:45et. With all economists in a recent survey predicting that the ECB will keep rates unchanged at 4.00% today the focus seems likely to fall upon the post-rate announcement press conference hosted by the ECB??™s Trichet. Spectators will be looking for any indication on whether or not the ECB will continue to raise rates in order to fight inflation, and if to, when. The post-announcement press conference commences at 8:30et.

By: John J. Phillips