• Markets:

    −Swedish industrial production data released this morning was even worse than feared. According to Statistics Sweden, industrial production declined 4.1% m/m (-5.0% y/y) in September. The monthly drop in industrial production was even more than twice as bad as the most pessimistic forecasts according to a survey on Bloomberg and after the weak Swedish data is market currently pricing in a 18bps cut from the Riksbank in December (see chart on page 2). We think that today’s weak data has increased the probability of a December rate cut from the Riksbank considerably, and going forward we still see near-term upside potential in both EUR/SEK and NOK/SEK as market could price in even further cuts in 2013.

    −EUR/USD got some support yesterday after Mario Draghi signaled that a rate cut from the ECB is certainly not imminent, see Flash Comment ECB meeting: No plans for further easing, 8 November, and EUR/USD managed to regain its losses from yesterday despite the sell-off in US equities. However, the US fiscal cliff and the postponement of the new Greek rescue plan are both factors that currently weigh on EUR/USD. Furthermore, the horrible industrial production data from France released this morning, which declined 2.7% m/m and 2.5% y/y, mirrors the equally bad German production data released earlier this week and indicates that economic activity in Europe currently is declining at a rapid pace. This will also weigh on the EUR and we continue to see risks skewed to the downside in EUR/USD in the short term.

    −USD/JPY has dropped significantly ahead of the Japanese Q3 GDP data release which is due on Monday and on the back on US fiscal cliff concerns. We are more or less in line with the consensus estimate (-0.9% q/q) and expect a weak Q3 GDP number. But while the US fiscal cliff could continue to weigh on risk sentiment, we think that downside risks are limited due to the ongoing aggressive monetary easing from BoJ. Hence, we still expect USD/JPY upside to unfold on a 3 to 6 months horizon and we still prefer to position for a move higher in USD/JPY by entering a 3M bullish seagull. A zero cost structure can be entered by selling a 3M USD/JPY 78.80 put, buying 3M USD/JPY 79.80 call and selling 3M USD/JPY 84.00 call (indicative, spot ref.: 79.36).