European stocks marginally higher in lackluster session

ECONOMIC DATA

- (ID) Central Bank of Indonesia Leaves Reference Rate Decision unchanged at 6.50%; as expected

- (SP) Spanish Industrial Output Y/Y: -11.0% v -16.7% prior, WDA Y/Y: -13.1% v -15.8%e

- (SP) Spain Sept PMI Services: 46.4 v 45.3 prior; highest level since Dec 2007

- (IT) Italian Sept PMI Services: 48.5 v 47.2e

- (FR) French Sep Final PMI Services: 53.2 v 52.2e

- (GE) German Sept Final PMI Services: 52.1 v 52.2e

- (EU) Euro-zone Sep Final PMI Services: 50.9 v 50.6e; PMI Composite: 51.1 v 50.9e

- (SP) Spanish Sept Consumer Confidence: 70.3 v 79.5 prior

- (UK) Sep PMI Services: 55.3 v 54.5e; Highest reading since Sept 2007

- (EU) Oct Sentix Investor Confidence: -12.6 v -11.8e

- (EU) Euro-zone Aug Retail Sales M/M: -0.2% v -0.5%e; Y/Y: -2.6% v -2.4%e

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

- In equities news overnight: With mainland China still sitting out on the back of its national holiday week, European equities opened marginally higher before falling into negative territory, in an attempted continuation of last week's declines. Weekend action saw a flurry of political and central bank events with Greece holding a snap election, Ireland approving the Lisbon treaty and the G7 releasing a repetitive communiqué regarding currency fluctuations. Corporate news over the weekend was busy as well with special volume seen in banking and mining sectors. For miners, speculation regarding Anglo [AAL.UK] taking a partner in a S American iron mine, approval for Rio's [RIO.UK] Mongolian JV and comments regarding a sizeable rare-earth mineral site in Greenland all made the press. In financials, HSBC [HSBA.UK] warned of a second dip in global financials and Standard [STAN.UK] reportedly walked away from discussion regarding buying ex-ABN Amro assets off RBS [RBS.UK]. Negative trading levels were corrected past 3:50EST following the release of Euro zone and German PMI figures for Sept. These reads, ahead of expectations broke trading levels and pushed all three bourses back into positive territory. Equities since 3:50EST have been trending lower and remain just above the unchanged mark as of 5:30EST on lighter than average volumes.

-In individual equities: Aviva [AV.UK] Confirms IPO of Dutch unit Delta Lloyd to complete in Nov 2009; to list on Euronext Amsterdam. || Standard Chartered/RBS [RBS.UK] Talks with Standard Chartered regarding sale of Asian assets have broken down - WSJ. || Anglo American [AAL.UK] Chinese steel firm Baosteel has offered £1B for 30% stake in group's Rio based iron ore operation - Observer. || HSBC [HSBA.UK] CEO Goeghegan remains under the belief that financial sector will see second global slump -FT. || Vallourec [VK.FR] Likely to report FY09 Net around €500M v €447Me - L'Expansion. || ArcelorMittal [MT.NV] May pull out of a $20B project for construction of two steel plants in India - FT interview citing company Chairman. || Deutsche Bank DBK.GE: CEO Ackermann continues to believe 25% pretax ROE target is possible -Spiegel. ||

- Speakers: ECB's Weber commented that fiscal consolidation in Germany should begin by 2011 at the latest and that the country had very limited room for tax cuts || ECB's Wellink stated that the central bank might begin withdrawal of stimulus measures ahead of interest rate increases . he cautioned that confirmation of economic recovery can only be made in second half of 2010 || ECB Nowotny noted that the current level of Euro was not a threat at this time and currency developments warrant no immediate action. He noted that he saw positive economic growth over the next two quarters and into 2010. ECB has steady hand on policy but must be watched closely. Everyone was watching fx movements closely || Russian Central Bank's First Dep Chairman Ulyukayev commented that Q3 net capital outflows below $10B. he noted that the CBR had the scope to cut interest rates again this year but was unlikely to increase the current pace. Lastly he noted that the current Ruble currency rate was not cause for concern || French Budget Min Woerth commented that tax receipt decline could increase deficit but noted that France was capable of an average annual growth rate of about 2.5%, which would reduce the deficit by one percentage point of GDP a year by 2011 || Investors George Soros noted that the US economic recovery to be 'slow' and that the ECB could exit stimulus measures at a faster pace than Fed || Japanese PM Hatoyama commented that he did not see economy as fully recovering following declines in unemployment rates ||

- In Currencies: USD remained softer in sentiment against the European and commodity-related currencies post G7 as the summit failed to directly mention specific currencies, which fueled selling interest in the USD. G7 did state that excessive volatility was not welcomed in currency price action. The dollar held a steady tone through out the European morning with EUR/USD consolidating in a 1.4610 to 1.4650 range. Dealers did note some 'substantial' Euro buy stops building above the 1.4680 area.

Spot Gold maintained a constructive tone above the $1,000/oz level which aided the CAD and AUD currency pairs.
Australian Dollar firmer ahead of Tuesday central bank meeting with a small minority of analyst possible looking for a 25bps rate hike to 3.25%.

- In Fixed Income: Bond markets have been exceptionally quiet this morning in Europe with thin volumes in government issues and no corporate issuance to speak of. The German yield curve is a touch steeper whilst Gilts and Treasuries have experienced a bout of flattening. European peripheral government bonds have uniformly firmed up against Bunds following Ireland's yes vote on the Lisbon treaty. Short sterling futures and short dated Gilts have noticeably been subject to selling after the BoE widened the list of eligible institutions to apply for reserve accounts. The market appears to be interpreting the move as a means of providing the BoE with another tool to ensure it is able to reign in excessive credit growth, when the day comes to shift to a tightening bias

- In Energy: IAEA's El-Baradei noted over the weekend that Iran had agreed to nuclear inspections of an enrichment facility starting Oct 25 ||

- In commodities: Kazakhmys [KAZ.UK] Reportedly might lower its 2009 copper output by almost 10% according to a Kazakh regional official. Article noted that the Kazakh company would make repairs at its Zhezkazgan smelter. The company did plan to increase gold output by 10.3% and silver by 1.2% in 2009 ||SPDR Gold Trust ETF holdings rise to 1,096.55 tons from 1,095.33 tons prior

- In the papers: According to IAEA documents, Iran may have already tested a detonation system capable of fitting into a nuclear warhead of a medium-range missile in a Times. Report is said to present evidence that the country has researched and tested equipping components of a nuclear payload that can be delivered on medium-term missile Shahab-3

NOTES

- NYU Prof Roubini: Equity prices rising too much too fast; unemployment to continue rising

- China equities remain on holiday through Thursday

- G7 communiqué: Reiterates standard comments regarding disorderly currency movements. Does notes global economy remains fragile as employment levels are not improving.

- Japan Fin Min Fujii: Might "take action" if Yen moves in a 'biased' direction; but had no comment on if Yen's latest move is 'biased'

- European PMI Services continue to high multi-quarter highs

Looking Ahead:

Q3 earnings start Wed with Alcoa; Australia Central bank decision on Tuesday

- 8:00 (HU) Hungarian Central Bank Minutes

-10:00 (US) ISM Non-Manf. Composite: 50.0e v 48.4 prior

-13:00 (US) Treasury to sell $7B in 10-year TIPS reopening

Americas Macro

- 10:00 (MX) Mexico Sept IMEF Non-Manufacturing Index: 52.0 expected versus 51.3 prior