• *** ECONOMIC DATA ***
  • GE Oct Final CPI: M/M 0.2% v 0.2%e || Y/Y 2.4% v 2.4%e
  • GE Oct Final CPI Harmonized: M/M .2% v 0.2%e || Y/Y 2.7% v 2.7%e
  • No surprises with the German CPI. The final readings confirm the y/y CPI above the key 2.0%, and put the y/y reading at its highest level since September of 2005.
  • FR Oct Bank of France Business Sentiment: 108 v 105 prior
  • Business sentiment rose to 108 from 105 in September, but remained within its recent rage. The BOF did forecast Q4 GDP at 0.6% along with this release. That is the first Q4 growth forecast that the BOF has provided.
  • SW Oct Unemployment Rate: 5.7% v 5.4%e
  • SP Aug Current Account: -€6.7B v -€9.9B prior
  • UK Oct Retail Sales: M/M –0.1% v 0.1%e || Y/Y 4.4% v 4.8%e
  • This has been quite a week for the UK, a rollercoaster from one big number to another. Unlike figures earlier in the week retail sales fell below consensus estimates and were accompanied by downward revisions to September’s readings. Retail sales were weighed down by a decline in textiles/clothing to –0.5% from 1.3% in September, the result of unfavorable weather conditions for the season according to National Statistics. Food stores also posted a decline, sliding to –0.4% from –0.1% in September.
  • EU Oct CPI: M/M 0.5% v 0.55e || Y/Y 2.6% v 2.6%e || Y/Y Core 1.9% v 1.9%e
  • All readings were in line with expectations. The y/y reading was confirmed at its highest level since September of 2005 bolstered by food and energy prices. The data confirms that inflation remains a problem in the Euro-Zone. If market conditions were different, it is likely that the ECB would have taken action already.
  • SZ Nov ZEW Expectations: -28.9 v –16.0 prior
  • *** SPEAKERS/COMMENTS ***
  • ECB Monthly Report: Upside inflation risks have been fully confirmed
  • ECB Monthly Report: The ECB remains ready to counter second round inflation risks
  • ECB Monthly Report: More information is needed before the ECB can decide on interest rates
  • ECB Monthly Report: Forecasters continue to see 2008 inflation around 2.0%
  • ECB Monthly Report: Cuts 2007 inflation forecast to 2.6% from 2.7%
  • ECB Monthly Report: Cuts 2008 inflation forecast to 2.1% from 2.3%
  • ECB Stark: The ECB is ready to act to counter inflation risks
  • ECB Stark: Inflation risks have risen and intensified recently
  • ECB Stark: Inflation will remain above 2.0% for most of 2008
  • ECB Stark: October inflation was surprisingly high
  • BOF Monthly Bulletin: Inflation worsened significantly in October
  • BOF Monthly Bulletin: The strong Euro limits some price increases
  • BOF Monthly Bulletin: ECB vigilance on inflation is justified
  • BOF Monthly Bulletin: The inflation outlook is not favorable
  • *** FIXED INCOME/FX/COMMODITIES/ERRATUM ***
  • SP sells €1.66B in 3.80% 10-year bonds with an average yield of 4.263% and a bid-to-cover of 2.34x (vs. 1.66x on the previous auction)
  • On the currency front the session has been dominated by Yen firmness on renewed sub-prime jitters after Barron’s published a story about mortgage woes damaging General Electric’s bond fund, and the Wall Street Journal ran an article reporting that UBS could face up to CHF8B in additional writedowns during the fourth-quarter.
  • European equity indices are trading lower in the session following a mixed open centered around the unchanged level. Stocks declined following rumors of sub-prime woes for General Electric and UBS, and declined further following reports of an attack on one of Royal Dutch Shell’s Nigerian pipelines.
  • On the commodity front, front month crude oil futures are currently trading in negative territory in the session. Crude prices, which have receded from their near $100 all-time highs over the past few days, have been trading slightly lower for most of the session. Reports that attackers blew up one of Royal Dutch Shell’s pipeline’s at its Nigerian based Forcados unit took crude from session lows to session highs, but the hype quickly faded after emerging details indicated that a total of less thank 50K bpd would be in jeopardy. Spot gold is trading lower in the session on the back of equity market declines, dragging silver and copper down with it.
  • Fixed income futures are trading higher in the session despite the renewal of the ECB’s hawkish rhetoric. Futures are trading higher on safe haven flows as the sub-prime concerns take center stage once again. Additionally, although hawkish, the ECB once again indicated that it will take a wait and see approach before taking action on interest rates, which they can do as the strong Euro dampens some of the inflationary effects that are present. The ECB’s decision to hold off confirms that market uncertainty has a stronghold on central bank policy, making fixed income the place to be.

By: John J. Phillips IV