European Market Update

Risk appetite increases on interest rate cuts and hope for more; Carry-related currency pairs mirror stock movement

ECONOMIC DATA

(GE) German ILO Sept Unemployment Rate: 7.1% v 7.2%

(UK) Oct Nationwide House Prices M/M: -1.4% v -1.5%e; Y/Y: -14.6% v -14.7%e

(FR) French Sept Producer Prices M/M: -0.4% v -0.2%e; Y/Y: 6.1% v 6.4%e

(SP) Spanish Sept Retail Sales Y/Y: -7.2% v -6.2%e
(SP) Spanish Oct Preliminary CPI EU Harmonized Y/Y: 3.6% v 3.7%e

(DE) Danish Sept Unemployment Rate: 1.6% v 1.7%

(GE) German Oct Unemployment Rate: 7.5% v 7.6%; Unemployment Change: -26K v Consensus expectations are -10Ke

(IT) Italian Aug Large Industry Employment Y/Y: -0.5% v -0.3% prior.

(NO) Norwegian Oct Unemployment Rate: 1.7% v 1.7
(NO) Norwegian Sept Retail Sales M/M: -0.4% v 0.2%e; Y/Y: 0.5% v 1.5%e;

(EU) Oct Business Climate Indicator: -1.34 v -0.91e;
(EU) Euro-zone Consumer Confidence: -24 v -20e; Economic Confidence: 80.4 v 86.0e; Industrial Confidence: -18 v -14e; Services Confidence: -6 v -2e

Kuwait Central Bank cuts benchmark rate by 25bps to 4.25%

Bahrain Central Bank cuts rates by 125bps to 3.50%

UAE Central Bank leaves Repo rate unchanged at 1.5%; does not follow FE rate move

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

In equities: Deutsche bank [DBK.GE] DBK.GE: Reports Q3 Net €414M above the consensus loss of €154M expected. Its Net Interest Income was also better at €3.06B versus €2.56B estimates; Net revenues €4.40B compared to €4.15Be. its Tier 1 capital ratio came in at 10.3% versus 9.3% q/q. Q3 writedowns amounted to €1.2B. Marked Down total €8.5B to date from financial market crisis. It noted that new accounting rules saved firm €845M in writedowns. It sees FY08 Revenues down in low-mid single digits. Sales and trading market conditions saw sharp deterioration, sees conditions continuing in Q4. The CEO stated that he saw progress on leverage by year end, challenging environment for banks, notes difficult credit conditions|| Volkswagen [VOW.GE] Reported Q3 Net €1.2B above estimates of €1.04B. Revenues at €28.9B above estimates of €27.6B. the company reaffirmed FY08 targets. For 9-month Net €3.73B v €3.55Be, Rev €85.4B v €83.3Be, and Worldwide deliveries of 4.8M || BASF [BAS.GE] Reported Q3 Net €758M versus €720M estimates. Revenues came in at €15.77B, which was better that €15.2B estimates|| Continental [CON.GE] Reported Q3 Net Profit of €2.41M versus €38M estimates with revenues of €5.89B v €5.99B estimates. It noted that it saw signs of significant slowdown in all markets || Royal Dutch Shell [RDS.A] Reported Q3 Net Profit $8.45B above $7.37B estimates. Rev $131.57B compared to $90.7B y/y. The company declared $0.40/shr dividend || Alcatel-Lucent [ALU.FR] Reported Q3 Adj Net €41M v €59.2Me; Rev €4.07B v €4.03Be. The company guided FY08 Rev growth down to low single digits. The CEO: In addition to the ongoing CDMA decline, we saw a reduction in spending by certain customers in developed markets, especially in fixed access and terrestrial optics|| Bourbon [GBB.FR] Reported Q3 Sales €239.5M v €200.4M y/y. CEO stated that comfortably ahead of the growth targets set for the first year of the Horizon 2012 plan and the euro/dollar exchange rate now has a positive effect on income. || Straumann Holding: [STMN.SZ] Reported 9-months Rev CHF589.2M v CHF602Me. Lowered its fiscal year 2008 forecast for net revenue to 15-17% growth in local currencies and now sees FY Op Margin at 25% and net profit margins at 20% || Ipsen [IPN.FR] Reported Q3 €237.7M v €224.1M y/y. the company reaffirmed FY08 target Op Margin of 20.5% -22% || British American Tobacco [BATS.UK} BATS.UK: Reported Q3 Net £657M versus £652M estimates. Its , Revenues were €3.2B just above estimates of £3.06B. The firm saw no discernable effect from current credit crises and noted that its Q3 premium brand sales up 7% || WPP [WPP.UK] WPP.UK: Reports Q3 Revenues of £1.71B versus £1.48B y/y. It stated that meeting FY op margin target of 15.5% would not be easy. Its Like-for-like growth across the quarter was similar in all three months, although below original expectations. || Novo Nordisk [NOVOB.DE] Reported Q3 Net DKK2.66B versus DKK2.53B estimates. It revenues DKK11.25B v DKK11.23B estimates. It guided FY Op profit growth 32-35% || Lonmin [LMI.UK] Provided Q4 production update and noted that it saw a more challenging outlook. Q4 refined platinum production came in at 228.9K oz and Q4 Platinum group metals output 425.8K oz, down 17% y/y; metal sales 1.4M oz. The company targets 2009 Platinum sales broadly in line with 2008

Speakers: Poland Central Banker Noga: To maintain Polish interest rates stable through Q1 2009. he added that Poland would need rate cuts in order to adopt Euro || Spain Fin Min Solbes stated that slower inflation gives ECB scope for more interest rate cut rates || Japanese Gov't unveiled a ¥26.9T economic package. It would expand bank bailout scheme from ¥2T coupled with tax breaks on equities trading, capital gains and dividends. The package also contained ¥5T in new spending. PM Aso stated that: Japan's banking system is relatively stable but global financial market turmoil will impact real economy || UK's Darling reiterated the view that CPI will come back to target of 2.% helped by the drop in oil prices|| Fin Min Nakagawa stated size of construction bond sale as yet undecided, package to be funded with Zaito special account || IMF's Strauss-Kahn expressed confidence that volatility in markets will eventually settle down

In Currencies: The appetite for risk resurfaced in Asia as evident by the surge in the Far East equities and firmer Carry-related pairs. USD remained closely tied to the performance of equity markets as higher equity prices viewed as a USD and JPY negative. The Nikkei spiked higher by over 9% today after Tokyo announced a major new economic stimulus package. The BOJ is expected to cut rates by 25bps on Friday to 0.25%. The USD is off its worst levels from the session. The spread between the US and German bond spread remains under 100bps, perhaps one factor to brinf EUR/USD off its highs of 1.3297 to current level of 1.3070

In Fixed Income: US treasuries were sold off across the board with the curve exhibiting a flattening bias the 2y note +72bps to yield 1.604% , and the 10y at 3.91% (+51ps). Gilts were at their steepest levels, with the 2-10 spread reaching a 1 yr high at 141bps. || Ahead of the Italian auction , the pressure on European peripherals is not easing, with dealers noting the yield on the Greek 10 year is firmly through the 150bps level over Bunds , and as wide as 165bps in early trading.

NOTES

Equity markets maintain a firmer tone post Fed. The Funds rates now revisit the 1% level and the economic outlook remains a concern and traders noting that access to credit remains the key focus moving forward, especially into year-end. The FED's arragement to provide $30Beach to the central banks of Brazil, Mexico, South Korea and Singapore, was a first to emerging market nations. The US Q3 advanced GDP figure is not expected to be positive. The BOJ rate decision is expected tomorrow and growing expectations for a rate cut there. The question is whether the European central banks would follow suit. U.K. house prices dropped by the most in at least 17 years in October added to the glum economic outlook. Nikkei was up just 10% for the session. Emerging markets are not out of the woods just yet. Dealers noting that Russia's international reserves dropped $31B last week, the biggest decline this year to its currency and banking system from the global financial crisis.

Looking Ahead: US Corporate earnings continue to stream in with CBS, CL, CVS, D, EK, IP, IT, MOT, MRO, MYL, WMI ans XOM all expected to report before the US equity open

6:30 (BE) Belgian Oct CPI. M/M there are no consensus expectations for this number; The prior number was 0.16% . Y/Y there are no consensus expectations for this number; The prior number was 5.46%.
8:30 (CA) Canadian Sept Industrial Product Price: M/M consensus expectations are -0.4%; The prior number was -0.2%
8:30 (CA) Canadian Sept Raw Materials Price Index M/M consensus expectations are -5.0% ; The prior number was -7.7%
8:30 (US) Q3 GDP. Q/Q consensus expectations are -0.5%; The prior number was 2.8%
8:30 (US) Q3 Personal Consumption Index . Consensus expectations are -2.4%; The prior number was 1.2%
8:30 (US) Q3 GDP Price Index. Consensus expectations are 4.0% ; The prior number was 1.1%
8:30 (US) Q3 Core PCE Q/Q. Consensus expectations are 2.5%; The prior number was 2.2%
8:30 (US) Initial Jobless Claims w/e Oct 25. Consensus expectations are 475k.; The prior number was 478k
8:30 (US) Continuing Claims w/e Oct 18. Consensus expectations are 3.74M; The prior number was 3.72M

Supply

6:00 (IT) Italy to sell up to €1B in 2015 floaters, €2.5B in 4.25% 2011 BTPS; €3.5B in 4.5% 2019 BPTS
6:30 (UK) DMO to sell £4B in 4% 2016 Gilts
13:00 (US) Treasury to sell $24B in 2.625% 5yr T-Notes

Speakers

7:15 (NE) ECB's Wellink to address Dutch Parliament
8:30 (US) Fed's Kroszner to speak in New York

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