ECONOMIC DATA

- (GE) Sept Saxony CPI: M/M: -0.1% v -0.4% prior;. Y/Y: 3.0% v 3.3% prior

- (GE) Sept Brandenburg CPI: M/M: -0.1% v -0.3% prior; Y/Y: 2.8% v 3.1% prior

- (GE) Sept Hesse CPI: M/M: 0.1% v -0.4% prior;. Y/Y: 3.3% v 3.4% prior

- (GE) Sept CPI - North Rhine Wes M/M: 0.0% v -0.4% prior. Y/Y: 2.6% v 2.9% prior.

- (GE) Sept CPI - Bavaria M/M: -0.1% v -0.3% prior;. Y/Y: 3.0% v 3.1% prior

- (GE) Aug Import Price Index M/M: -0.8% v -1.0%e; Y/Y: 9.3% v 9.1%e;

- (FR) Sept Consumer Confidence Indicator: -44 v -47e;

- (FR) Q2 Final GDP Q/Q: -0.3% v -0.3%; Y/Y: 1.1% v 1.1%e

- (SP) Spain July House Transactions Y/Y: -26.3 v -29.6% prior; Mortgages on Houses Y/Y: -28.7% v -37.70% prior; Mortgages-capital loaned Y/Y: -28.6% v-37.00% prior

- (IT) Aug Hourly Wages M/M: 0.1% v 0.2%e; Y/Y: 4.2% v4.3%e

- (SZ) Sept KOF Swiss Leading Indicator: 0.62 v 0.54e

- (UK) Aug Land Registry Price M/M: -1.9%; Y/Y: 4.6% (largest MoM decline since series began)


SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

- In equities news overnight: TeliaSonera AB [TLSN.SW] Acquired controlling interests in Spice Nepal Private Limited and Applifone Co Limited in Cambodia for SEK3.2B. It expects to complete the transaction on October 1, 2008, and to consolidate the mobile operations in Nepal and Cambodia. || Heijmans NV [HEIJ.NV] Announced streamlining plans for upcoming months in strategic review with its primary focus on the Dutch markets and stating that it would not pursue growth targets in Belgium, Germany || Xstrata [XTA.UK] Increased its stake in Australia's Extract resources to 14.4% from 13.1% prior. Merck KGAA {MRK.GE] EU panel recommended Kuvan for approval as an oral treatment for hyperphenylalaninemia in patients with phenylketonuria or tetrahydrobiopterin deficiency. Final decision on the granting of marketing authorization would be made within 67 days. || Fortis [FORB.BE] FORB.BE: Belgium Regulator stated that it was to look into Thursday share drop in the company, but added it was not launching any formal investigation. CEO stated that its stock price reflects market uncertainty and declines in the stock price do not reflect company fundamentals. He added that the bank had enough liquidity and solvency ratio above requirements

| Koenig Bauer [SKB.GE] Lowered itss 2008 outlook; Guides FY Revenue to €1.5B from €1.6B prior forecast. -The company now forecasted a pretax loss rather than a previously forecasted profit of €63.2M. It now plans to reduce printing sheet machine capacity as demand expected to remain weak in the longer term. Alitalia [AZA.IT] Reportedly Germany's Luftansa has interest in the co. Lufthansa's CEO is in Italy following an invitation from the Italian government. TheCEO also in talks with labor representatives of Alitalia. || Nokia [NOK1V.FH] Reportedly the company is to announce its first touch screen phone on Oct 2nd.

- Speakers: ECB's Papademos: Reiterated concern over secondary effect of inflation. Noted it was unclear whether recent developments will hurt economy. Noted that the ECB interest rate outlook was surrounded by an exceptional high degree of uncertainty (comment made in response to questions on potential ECB rate cut). Market turmoil likely to make slowdown more protracted, uncertainty on outlook has grown but continues to expect a gradual recovery in the course of 2009. Reiterated that the ECB would perform the necessary actions to ensure price stability. ||French Budget Min stated that the country's 2008 deficit would be higher than previously expected , putting the revised figure at €49B deficit and adding that 2009 budget deficit would likely be around €52B. However, he still noted that a return to budget balance by 2012 remained a possibility. The minister saw the 2009 GDP growth in range of 1.0% to 1.5%. He forecasted that the debt to GDP would be 65.3% in 2008 and at 66..0% in 2009. || (AU) Australia Treasury Swan commented that AOFM could now invest in AAA RMBS securities would to invest A$4B. The official cited that the RMBS market liquidity has evaporated and that the move was targeting smaller banks and home lenders. || Polish Central Banker Filar stated that the Central Bank could lower its inflation target. || China Industry Group stated it saw: China 2008 stainless steel output to reach 8M tons, demand at 7M tons ; and noted that rising labor costs led to relocations of factories into Vietnam. || Merrill Lynch analyst lowers Russian GDP forecast; cuts Russian 2009 GDP forecast to 5.8% from 7%. Also lowered the 2008 GDP growth forecast to 7.4% from 8%. || JP Morgan lowered its forecast for US quarterly GDP to 0.0% from 0.5% prior.

- In Currencies: The USD maintained a firmer tone against the European pairs, but was lower against the Japanese Yen as risk aversion remained the dominant topic as the US bailout package stalls in Congress. Carry-related pairs were lower as CHF and JOY were purchased and the US yield curve flattened. EUR/USD lower by 70 pips at 1.4590 while the GBP/USD was trading at 1.8370 area (down 50 pips from opening levels in Asia). EUR/JPY cross off 160+ pips to test 153.80 and EUR/CHF was lower by 25 pips at the 1.5890 area. The commodity currencies were softer as well as lower oil and gold price action resulted from the stronger USD. USD/CAD at 1.0370 while the AUD/USD traded at 0.8265 area. The chatter in the dealing rooms continued to contemplate the possibility of a coordinated rate cut by G7 central banks if a US bailout plan is enacted. There were several analysts who revised their ECB interest rate forecasts. Soc Gen revised its 2009 ECB interest rate view and now foresees three interest rate cuts starting beginning in March. Soc Gen previously forecasted that the ECB would remain on hold for 2009. Barclays Analyst also revised its ECB interest rate view and now expects ECB to start cutting rates in December and a total of three- interest rate cut by the ECB before end of H1 2009.

- In Energy: National Hurricane Center provided an update on Tropical storm Kyle is slightly stronger and could become a hurricane by Saturday. The storm is currently about 510 miles S-SW of Bermuda and is not threat the Gulf of Mexico. || Turkish Army reportedly killed several PKK combatants in Southern Turkey || Indonesia Energy Min: To make biodiesel mandatory by Jan 2009 || Venezuela and Russia hold discussions over possible bilateral energy agreement. Gazprom [GAZP.RU] Signed a memorandum of understanding with Venezuela's Petroleos de Venezuela SA on joint exploration.

- In Fixed Income Supply: (IT) Italy sold €750M in I/L 2035 bonds; avg yield 2. 58%, bid-to-cover 2.30 times on Friday. The central banks are releasing the results of the USD liquidity operations. BOE tat it allotted $10.0B in overnight repo with a 1.24x bid-to-cover and $30B in the 1-week repo operation with a 1.06x bid-to-cover.

Credit Crunch: European Central banks announced additional liquidity operations. FED increased its swap lines with Foreign central banks to total $290B from $277B prior as the swap line with ECB by raised by$10B and SNB by an additional $3B. Also the ECB, SNB and BoE announced joint European 1-week liquidity operations in FED, which were intended to address quarter end liquidity pressures. The central banks reiterated that they would take additional measures if necessary. ||ECB stated that €2.77B was used at its marginal lending facility on Thursday. ||Australia's Treasury Swan stated that AOFM can invest in AAA RMBS securities, to invest A$4B, noting that its RMBS market liquidity has disappeared. The move is targeting smaller banks and home lenders.

NOTES

The central banks continue to plow liquidity into the market as the current situation may have been made more difficult after talks in Washington failed to reach accord on a $700B bank rescue plan (TARP). The market had been expecting a possible announcement before the end of US trading on Thursday. Compounding the situation was news that bank JPMorgan Chase had taken over Washington Mutual for $1.9 billion as WM thrifts were seized by federal regulators. One dealer pointed out how 'illogical' the market can get at times noting that the credit default swap for McDonalds is currently trading below that for the US Treasury 10-year note. Global grow concerns continue to bubble are several notable institutions lowers selective GDP outlooks. Merrill Lynch cut its view for 2009 Russian GDP forecast to 5.8% from 7% prior and JP Morgan lowered its US quarterly GDP view to 0.0% from 0.5% prior view. Oil lower as a result of the global economic outlook. New Zealand confirmed it is in recession with negative growth last quarter. Equity markets reflecting the delay in the US bailout package as the S&P is off 1.7% in pre market to trade at 1192; the US yield curve steeper with the 2-year note at 4.21% and the 10-year at 3.78%.

Looking ahead:

- 8:30 (US) Q2 Final GDP (Annualized) Q/Q: Consensus expectations are 3.3%; The prior number is 3.3%.

- 8:30 (US) Q2Final Personal Consumption: Consensus expectations are 1.7%; The prior number is 1.7%.

- 8:30 (US) Q2 Final GDP Price Index: Consensus expectations are 1.2%; The prior number is 1.2%.

- 8:30 (US) Q2 Final Core PCE Q/Q: Consensus expectations are 2.1%; The prior number is 2.1%.

- (GE) Sept CPI - Baden Wuerttemberg M/M: 0% v -0.3% prior;. Y/Y: % v 3.2% prior

- (GE) Sept Consumer Price Index M/M: % v -0.2%e; Y/Y: % v 2.8%e

- (GE) Sept CPI - EU Harmonized M/M: % v -0.2%e; Y/Y: % v2.9%e;

- 10:00 (US) Sept U. Of Michigan Confidence: Consensus expectations are 71.0; The prior number is 73.1.