Speculation that 11 banks failed ECB stress test

EU Market Update: BOE minutes shows vote remained the same but contents a tad more 'dovish'; speculation that 11 banks failed ECB stress test

Notes/Observations

- Japan Sept Trade Balance showed a wider deficit by improving components (-¥958B vs. -¥780.0Be

- Australia Q3 CPI keeps dis-inflation theme on front burner; data roughly in line (Y/Y: 2.3% v 2.3%e) but well below the 3.0% annual rate registered in Q2; likely to keep RBA on hold for the foreseeable future

- Bank of England Minutes yield no surprises with interest rate vote again at 7-2 to keep policy steady; contents appeared more dovish and weigh on GBP currency

Key Economic Data in session

- (ZA) South Africa Sept CPI M/M: 0.0% v 0.2%e; Y/Y: 5.9% v 6.1%e (1st time in 6 months the annual reading was back within SARB target range)

- (UK) Bank of England (BOE) voted 7-2 to leave Interest Rates unchanged at 0.50% (3rd straight month)

- (UK) BOE voted 9-0 to maintain Asset Purchase Target (APT) at £375B

Fixed Income:

- No major issuance in session

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

**Equities***

Indices [Stoxx50 -0.3%, FTSE 100 -0.2% at 6,359, DAX flat at 8,887, CAC-40 -0.1% at 4,077, IBEX-35 -0.3% at 10,119, FTSE MIB -0.3% at 19,008, SMI +0.1% at 8,412, S&P 500 Futures -0.3% at 1,932]

- Market Focal Points/Key Themes: Equity markets open slightly higher following recent gains in US equities, Markets later pare gains amid rise in core government bonds, ECB's Coene plays down speculation related to corporate bond purchases, Mixed corporate reports (Bic below ests, ABB net profit beats, Peugeot sales above ests, British American Tobacco sales below ests, Heineken sales below ests), US morning earnings (Boeing, EMC, Dow Chemical, Glaxo, Biogen), Prelim Oct PMI on Thursday from France and Germany

By Sector

- Industrials [ABB ABBN.CH +2% (Q3 Net profit above ests), Peugeot UG.FR flat (Q3 sales above ests)]

- Consumer Discretionary [Bic BB.FR -7% (Q3 sales below ests), British American Tobacco BATS.UK -4% (9-month sales below ests), Home Retail HOME.UK -3% (strategic update), Heineken HEIA.NL -2% (Q3 sales below ests)]

- Healthcare [Bavarian Nordic BAVA.DK +20% (Ebola agreement with J&J), GW Pharmaceuticals GWP.UK +4% (FDA orphan drug designation)]

- Basic Materials/Resources [Petropavlovsk POG.UK +2% (Q3 gold output +2% q/q); Yara International YAR.NO -1.5% (Q3 profits below ests)] - Technology [Melexis MELE.BE +8% (upbeat outlook), Playtech PTEC.UK +4% (upbeat outlook)]

- Stoxx50 sectors [Energy -1%,Technology -0.6%, Financials -0.6%, Consumer Non-Cyclical -0.5%, Utilities -0.4%, Telecom -0.4%, Industrials -0.3%, Basic Materials -0.3%; Consumer Cyclical +0.2%]

Speakers

- Bank of England Minutes came in at 7-2 for the third straight month; Members Weale and McCafferty again voted for 25bps rate hike. The Majority reiterated their view that an early rate hike might make economy more vulnerable to shocks.

- ECB's Coene (Belgium): Too early to say on more ECB measures; have no concrete plans for corporate bond buying

- EU Commission President-elect Juncker planning to submit investment plan before Christmas and noted that EU budget rules would not be changed but to have a degree of flexibility

- Reports circulated that at least 11 banks from six different countries to fail Euro Zone stress tests (**Note: results due on Sunday Oct 26th)

- ECB decline to comment on number of banks that have been said to fail the stress tests but stated any inference was hightly speculative

- Russia Energy Min Novak: Longer term oil price should return to a range between $90-110 per barrel. To maintain Russia annual oil production at 525M tons

Currencies/Fixed Income:

- Dealers continued to debate the ECB and the potential for further action. Speculation has intensified with ECB extending its covered bond purchasing program into the corporate bond market. The EUR/USD was slightly softer in the session and at 1-week lows at 1.2680 area. On Tuesday respected fund manager (Appaloosa's David Tepper) reportedly recommended shorting the euro currency

- Bank of England Minutes was identical to the prior two months. Some speculation that they could be dovish was brushed off as MCP would not have seen the latest inflation data (Sept CPI) at the time of the meeting. Nonetheless, the GBP currency maintained a soft tone as the contents of the majority within the minutes were considered 'dovish'. The GBP/USD pair was at 1.6030 just ahead of the NY morning

Political/In the Papers:

-(EU) European Commission said to tell 5 euro zone member states that their budget plans will be in breach of rules, including France and Italy

- (PT) Fitch: Portugal's 2015 budget targets are under pressure from weaker economic growth, see risk of fiscal slippage from cyclical adjustments

- S&P report: Germany stimulus package would have limited effect on the rest of the Euro Zone

- (UR) EU's Oettinger: Progress was made in gas pricing talks between Russia and Ukraine, final meeting to take place on Wednesday, Oct 29th

Looking Ahead

All times listed for economic events are denominated in Eastern Standard Time (Add 4 hours for GMT equivalent)

- 05:30 (DE) Germany to sell €2.0B in 2.5% 2046 Bunds

- 06:00 (EU) EU Parliament votes on new Commissioners

- 06:00 (IL) Israel Sept Trade Balance: No est v -$1.8B prior

- 06:00 (IE) Ireland Sept Property Prices M/M: No est v 2.3% prior; Y/Y: No est v 14.9% prior

- 06:45 (US) Daily Libor Fixing

- 07:00 (RU) Russia cancelled planned OFZ Bond auction

- 07:00 (US) MBA Mortgage Applications w/e Oct 17th: No est v +5.6% prior

- 07:00 (UK) Prime Minister's Question Time in House of Commons

- 07:30 (CL) Chile Central Bank's Traders Survey

- 08:15 (US) Baltic Dry Bulk Index

- 08:30 (US) Sept CPI M/M: 0.0%e v -0.2% prior; Y/Y: 1.6%e v 1.7% prior

- 08:30 (US) Sept CPI Ex Food and Energy M/M: 0.2%e v 0.0% prior; Y/Y: 1.8%e v 1.7% prior

- 08:30 (US) Sept CPI NSA: 238.120e v 237.852 prior; CPI Core Index: No est v 238.345 prior

- 08:30 (CA) Canada Aug Retail Sales M/M: 0.0%e v -0.1% prior; Retail Sales Ex Auto M/M: +0.2%e v -0.6% prior

- 09:00 (MX) Mexico Aug Retail Sales Y/Y: 2.7%e v 2.0% prior

- 10:00 (CA) Bank of Canada (BOC) Interest Rate Decision: Expected to leave Interest Rates unchanged at 1.00%

- 10:00 (PT) ECB's Costa (Portugal) speaks on Portuguese Economy at Conference

- 10:00 (PT) Bank of Portugal Dep Gov Neves

- 10:30 (BR) Brazil Weekly Currency Flows

- 10:30 (US) Weekly DOE Crude Oil Inventories

- 11:30 (CA) Bank of Canada (BOC) Monetary Policy Report

- 12:15 (ES) ECB's Linde (Spain) in Madrid

- 15:00 (UK) BOE's Weale at event in Cambridge

- 15:00 (AR) Argentina Sept Trade Balance: No est v $899M prior

- 17:00 (AU) RBA's Stevens speech At Payments Conference

- 21:35 (JP) Japan Manufacturing PMI: 52.0e v 51.7 prior

- 21:45 (CN) China HSBC Manufacturing PMI: 50.2e v 50.2 prior

- (AR) Argentina Oct Consumer Confidence Index: No est v 41.5 prior