European Market Update

Germany is 'officially' in recession; IEA slashes 2009 world oil demand on global recession concerns

ECONOMIC DATA

(GE) German Q3 Preliminary GDP Q/Q: -0.5% v -0.2%e; Y/Y: 0.8% v 1.0%e; GDP NSA: 1.6% v 1.6%; First recession in 4 years

(FR) French Oct CPI M/M: -0.1% v -0.1%e; Y/Y: 2.7% v 2.6%e
(FR) French Oct CPI - EU Harmonized M/M: -0.1% v -0.1%e; Y/Y: 3.0% v 2.9%e
(FR) French CPI Ex Tobacco Index: 118.49 v 118.31e
(FR) French Sept Current Account: -€4.0B v -€3.8Be

(SZ) Swiss Oct Producer & Import Prices M/M: -0.6% v -0.6%e; Y/Y: 2.9% v 2.9%

(NE) Netherlands Sept Trade Balance: 3.0B v 1.7Be
(NE) Netherlands Sept Retail Sales: 1.4% v 1.1% prior

(SW) Swedish Oct Unemployment Rate: 5.7% v 6.0%

(IT) Italian Oct Final CPI (NIC incl tobacco) M/M: 0.0% v 0.0%e; Y/Y: 3.5% v 3.5%e
(IT) Oct Final CPI - EU Harmonized M/M: 0.5% v 0.5%e; Y/Y: 3.6% v 3.6%e

(EU) ECB to published November Monthly Report

IEA lowered its 2008 and 2009 world demand growth forecasts

(BZ) FGV Inflations IGP-10 M/M: 0.73% v 0.95%e

(SZ) Swiss Nov ZEW Expectations: -88.5 v -93.5e

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

In equities news overnight: Siemens [SIE.GE] Reported Q4 Net loss €2.42B worse than estaimtes of a loss €1.61B. Its core operating profit of €1.49B was also below consensus estimates of €1.85B. Revenues came in at €21.6B above €21.26B estimates. The company reaffirmed its FY09 guidance for core Op Profit target of €8.0B to €8.5B. Q4 Orders were €22.2B compared to estimates of €21.7B. || BT Group [BT.UK] Reported Q3 EBITA (ex-items) £1.43B above the £1.36B estimates. Revenues were £5.3B compared to consensus of £5.5.24Be. The company announced that it would cut 10K jobs (9% of the workforce) by the end of the year || || Tecnip [TEC.FR] Reported Q3 Net €121.1Mabove estimates of €111.3Me. Revenues came in at €1.93B compared to €1.86B estimates. Company Guided FY Rev €73B v 74.56B and FY Op Margin above 8%. Its Q3 backlog was€7.72B versus 9.41B y/y while the order intake was €1.55B v €1.93B y/y. || Celesio [CLS1.GE] Reported 9-month Net of €192.7M and Revenues of €16.29B. It sees trading in line with expectations and confirmed its FY outlook || Zurich Financial [ZURN.SZ] Reported Reports Q3 Net $154M v $253Me, Op Profit $636M v $1.24Be; The company noted that it is not currently buying back shares under current program. 9-month Net $2.8B v $2.8Be; Gross written premiums $29.9B v $37.8Be; ROE 14.5% y/y. It noted that results were achieved despite the impact of particularly adverse circumstances during the Q3, including net capital losses for shareholders of $1.1B and catastrophe losses attributable to hurricanes Gustav and Ike in the of $595M || GDF Suez [GSZ.FR] Reported 9-month EBITDA €10.4B above the €9.9Be. Revenues at €58.8B versus €50B y/y. Company confirmed FY08 EBITDA growth target of 10%. || SAB Miller [SAB.UK] Reported H1 Net $1.42B well above estimates of $1.03B. Revenues were $11.2B versus $10.11B estimates. || AstraZeneca [AZN.UK] Received EU Regulatory Approval For Seroquel (for the treatment of major depressive episodes in bipolar disorder) || Premier [PMO.UK] Provided update in which it was on track to meet target of 50K boepd by end 2010. It noted that production year-to-date averaging 36,800 boepd . || Freenet [FNT.GE] Reportedly had put its sale of DSL business on hold according to the German press || Finmeccanica [FNC.IT] Reported Q3 Net €88M below €96.3M estimates. Revenues €3.26 versus €3.51B estimates. || Sns Reaal [SR.NV] Reportd Q3 Net -€88M; will not pay 2008 final dividend. Dutch Fin Min says will inject €750M into firm; SNS Reaal to pay coupon of 8.5%. Dutch Fin Min says to nominate 2 members to supervisory. || Celesio [CLS1.GE] Reports Q3 net €69.2M v €70.6Me, Rev €5.36B v €5.42Beconfirms FY outlook. Sees trading in line with expectations. || Premiere AG [PRE.GE] Reports Q3 net -€89.1M v -€32.5Me; Rev €244.6M v €258.6Me. Guides 2008 EBITDA to be negative in the range between €40M-€60M. Q3 subscribers 2.41M v 2.54M y/y. Talks With Banks On Debt To Conclude By Year End. CEO: will not give outlook for 2009, says company can do better. || ING [ING] EU approved the Dutch Gov't €10B capital injection into the company

Speakers: The ECB monthly report noted that the economic crisis will demand for a 'protracted period'. The report largely echo's the Nov 6th ECB press conference following the 50bps interest rate cut to 3.25%. ECB sees inflation falling below 2.0% in course of 2009. It revised its 2009 GDP forecast to 0.3% from 1.3% prior; with inflation view cut to 2.2% from 2.6% prior. ECB now sees 2008 GDP forecast to 1.2% from 1.6% prior and inflation at 3.4% from 3.6% prior. || BoE Sentence stated that its MPC would consider more rate cuts at its December policy meeting. He did note it does take time for prior interest rate cuts to have any impact on the economy. The important thing to note is that monetary policy had shifted. He added that deflation was becoming a priority || German Econ Min Glos noted that Germany faced a difficult and lasting crisis, effects of recent crisis not reflected in today's Q3 GDP figures. He added that Q4 figures were unlikely to be better than Q3 negative reading || (JP) BoJ's Nakamura stated that Central banks must consider all policy options. He noted that conditions did not warrant immediate policy action but added BOJ is carefully watching profit outlooks at financial companies || EU's Almunia: Hedge funds will be subject to more regulation || HKMA's Yam: Fund repatriation and carry trade unwind are behind the HKD demand || Russia YTD Budget surplus at RUB2.75T; roughly 7.8% of GDP on cash basis according to its Finance ministry || OECD forecasted that the U.S., Japan, and eurozone economies would contract in 2009. OECD noted that both the US and Japan had limited scope for more interest rate cuts. OECD noted that the concept of deflation was remote hypothesis but added it could happen if financial markets situation worsens || Brazilian Central Bank revises rules on additional reserve requirements for time, demand, and savings deposits, noting that the move would free up to BRL40B into banking system. Also the central bank noted that it would allow banks to use bonds to meet reserve requirements

In Currencies: The USD and JPY continue to reflect the equity price movements. The carry-related pairs rebounded from Asian lows after the RBA defend once again defended the A$. AUD/JPY cross up 100+pips from lows of 60.45, EUR/JPY up 2 big fugues near the 120 area while USD/JPY tries to maintain its footing above the 96 level. The JPY also retracing after Japanese press report that the BOJ could cut interest rates following next weeks Japanese GDP result on Monday. GBP/USD probed fresh 6-year lows below the 1.4805 level before retracing above 1.49.

In Energy: IEA sharply revised its 2008 and 2009 world oil demand growth forecasts. IEA slashed its 2009 World oil demand forecast by 670k bpd to 86.5M BPD and now sees '09 demand growth at 0.4% v 0.8% prior. This is the third time that the IEA lowered its 2009 demand growth forecast. It cut FY08 forecast by 330k bpd to 86.2M bpd. The amount of the reductions were 'in-line' with recent analyst estimates' IEA cited recent IMF report for sharp downward revisions to 2008 and 2009 growth forecasts. Crude did test below the $55 handle prior the IEA report on concerns that the state of the global economy would continue to weigh on oil prices. Dec WTI traded as low as $54.47 in the electronic session. || The Iranian OPEC min reiterated the view that oil prices were too low. || Reportedly OPEC may have full meeting in Egypt on Nov 29 (which corresponds to the for OAPEC (Arab) members meeting)

In Fixed Income Supply:

In the papers: NY Times discussed the possible benefits of bankruptcy for co. Article noted that some experts note that while bankruptcy would be painful, it could be preferable to a government bailout that may only delay, at considerable cost, the wrenching but necessary steps G.M. needs to take to become a stronger, leaner company. Article noted that although G.M.'s labor contracts would be at risk of termination in a bankruptcy, setting up a potential confrontation with its unions, the company says its pension obligations are largely financed for its 479,000 retirees and their spouses.

NOTES

The concerned over the slowing global economy continued its wrath through Asia. China Industrial-Output Growth was the slowest in 7 Years : Chinese factory sector was feeling the drag as export growth had lost momentum in the face of weakening in global export demand. Germany's Q3 preliminary GDP data confirmed that the country is now in a 'technical' recession, its first in 4 years. IEA cut its 2009 global demand growth for the third straight month, citing the recent IMF report as its catalyst (on Nov 6th IMF stated that all G7 economies would contract in 2009 except Canada). The ECB monthly report echoed the Nov 6th ECB press conference following the 50bps interest rate cut to 3.25%; thus leaving the door open for another rate cut in December. The Russian Central Bank spent another $9B last week to defend the Rouble. This come after the central bank sold a record $40B in October. The MICEX was suspended and awaiting regulator requests t reopen after encounter another session of losses. The global growth concerns will now focus today's U.S. initial claims and tomorrow's US retail sales data, which are expected to also affirm the economic slump. Markets will begin to focus on the upcoming G20 meeting this weekend. The hope is for some sort of coordinated action on the fiscal front. There is a lot of room for disappointment here as well. Walmart {WMT] to report prior to the US equity open.

Looking Ahead:

7:00 (US) MBA Mortgage applications w/e Nov 7th. There are no consensus expectations for this number; The prior number was -20.3%
8:30 (CA) Canadian Sept International Merchandise Trade. Consensus expectations are C$4.8B ; The prior number was C$5.8B.
8:30 (US) Sept Trade Balance. Consensus expectations are -$57.0B; The prior number was -$59.1B
8:30 (US) Initial Jobless Claims w/e Nov 8th. Consensus expectations are 480k; The prior number was 481k.
8:30 (US) Continuing Claims w/e Nov 1st. Consensus expectations are 3.825M; The prior number was 3.843M
10:00 (GE) ECB's Weber scheduled to speak in Frankfurt
12:00 (US) Philadelihpia Fed's Plosser speaks in Pittsburgh
12:00 (EU0 ECB's Quaden to speak in Belgium.
14:00 (US) Oct Monthly Budget Statement. Consensus expectations are -$200B; The prior number was -$56.8B

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