• *** ECONOMIC DATA ***
  • FR Oct CPI: M/M 0.2% v 0.2%e || Y/Y 2.0% v 2.0%e
  • FR Oct CPI Harmonized: 0.3% v 0.3%e || Y/Y 2.1% v 2.1%e
  • FR Oct CPI Ex-Tobacco Index: 115.37 v 113.35e
  • French consumer prices were in line with expectations, with the y/y core reading at its highest level since August 2006. Consumer prices were bolstered by higher food and energy prices during the month of October, pushing the y/y CPI reading to the key 2.0% mark watched by the ECB. Recall that the y/y reading on the preliminary German CPI for the month of October was 2.4%. With key inflation readings from the two biggest Euro-Zone economies testing the ECB’s target level, it remains apparent that inflationary pressures are still an issue in the Euro-Zone, and these pressures will perhaps push the ECB to continue its fiscal tightening policy.
  • SP Q3 Preliminary GDP: Q/Q 0.7% v 0.6%e || Y/Y 3.8% v 3.7%e
  • The quarterly reading declined to its lowest level since the second-quarter of 2004, while the y/y didn’t stray too far from 5+ year highs made in the first-quarter of the year. According to some analysts GDP slowed as the Spanish housing boom began to cool down, while the high Euro FX rate weighed on exports, and higher interest rates began to set in.
  • IT Q3 Preliminary GDP: 0.4% v 0.4%e || Y/Y 1.9% v 2.0%e
  • The pace of Italian economic growth increased during the third-quarter, but sell shy of estimates on a y/y basis. Italian economic growth was bolstered by a rise in consumer spending during the third-quarter.
  • UK Oct CPI: M/M 0.5% v 0.4%e || Y/Y 2.1% v 2.0%e || Core 1.5% v 1.7%e
  • UK Oct RPI: M/M 0.4% v 0.4%e || Y/Y 4.2% v 4.2%e || Ex-Mortgage 3.1% v 3.0%e
  • UK Oct Retail Price Index: 208.9 v 208.7e
  • Headline consumer prices rose by slightly more than expected during the month of October, with the key y/y figure rising by more than expected, while the core y/y reading, which was expected to rise, remained unchanged. As seen else where consumer prices were boosted by a sharp rise in energy prices, with the petrol & oil goods component rising to 11.7% from 2.9% in September, while food rose to 5.1% from 4.2% in September. Discounting food, energy and tobacco, core CPI remained unchanged in October, seeming to pinpoint food and energy prices as the key inflationary components, as observed in the Euro-Zone. With a divergence in the headline and core y/y prices the initial reaction was confusing, but market participants seemed to focus on the core reading, perhaps indicating that some believe that problem of high energy prices will be short lived.
  • GE Nov ZEW Economic Sentiment: -32.5 v –20.0e
  • GE Nov ZEW Current Situation: 70.0 v 7.0e
  • EU Nov ZEW Economic Sentiment: -30.0 v –20.0e
  • The headline sentiment reading on the German ZEW survey declined to its lowest level since February 1993 weighed down by record oil prices, and a record Euro exchange rate. Following the release a ZEW official said that lower oil prices, or inflation under 2.0% would allow the ECB to cut interest rates, adding that the high Euro exchange rate is the most important reason for the weak outlook, once again bringing the focus in the Euro-Zone back to energy prices and the Euro FX level.
  • *** SPEAKERS/COMMENTS ***
  • PO Finance Minister: The Portuguese economy is coping well with the Euro FX rate
  • PO Finance Minister: Current European forecasts have taken into account current Forex levels
  • GE Deputy Finance Minister: Does not expect further problems with banks in Germany after WestLB
  • GE Deputy Finance Minister: Financial turmoil is lasting longer than expected
  • SW Riksbank Minutes: The October rate decision for a 25bps hike was unanimous
  • SW Riksbank Minutes: Riksbank is inclined to support a higher interest rate path
  • GE ZEW’s Schmidt: The high Euro is the most important reason for the weak outlook
  • GE ZEW’s Schmidt: Lower oil prices, or inflation under 2.0% would allow for an ECB interest rate cut
  • GE ZEW’s Schmidt: The German economy is still relatively favorable
  • GE ZEW’s Schmidt: The weak Dollar makes business more difficult
  • GE ZEW’s Schmidt: The impact of the credit crisis has caused a downward correction in expectations
  • GE ZEW’s Schmidt: Economic developments may lose considerable speed
  • *** FIXED INCOME/FX/COMMODITIES/ERRATUM ***
  • Front month crude oil prices are currently trading lower in the session and sit below the $94 handle after the IEA came out and cuts the 2007 global demand growth forecast to 1.2% from1.5%. The IEA also cut the 2008 global demand growth to 2.3% from 2.4%, weighing down on front month future contracts. Ahead of the OPEC summit this weekend the Saudi oil minister reiterated that production levels will not be a topic at the meeting, but the comments had little effect on prices as the comment was in line with much of the OPEC rhetoric seen last week.
  • USD The US Dollar was mentioned a few times overnight. The UAE Central Bank governor said overnight that while the Dollar peg served well in the past, the UAE is now at a crossroads due to Dollar deterioration. The Governor did note that there are no plans to unilaterally drop the USD peg. Following the ZEW survey a ZEW economist said that the weak dollar makes business more difficult, adding that the high Euro FX rate is hurting German exports.
  • Currency trading has been driven by the Yen crosses today. The Yen is softer overall following the Bank of Japan’s decision to keep interest rates on hold at 0.50%. Additionally strength in the front month S&P contract seems to be causing a bit of weakness in the Yen carry trades.
  • European fixed income futures opened lower in the session, but made a brief move into positive territory following a weaker than expected reading on the current situation component of the November ZEW survey in Germany and the Euro-Zone. Similarly, long-gilt futures also made their way into positive territory after a weaker than expected reading on Core CPI for the month of October.
  • GR The Greek PDMA sold €1.68B in 3.40% 2009 bonds with an average yield of 3.98% and a bid-to-cover of 3.61x overnight. The cover compared to 5.42x at the previous auction. Today’s auction brought the amount outstanding for the issue up to €6.852B.

By: John J. Phillips IV