European Market Update

OIL probes $53.50 as Cairo meeting unlikely to implement output cuts; BOE voted 9 to 0 to cut rates by 150bps back on Nov 6th; more cuts likely needed

ECONOMIC DATA

(SP) Spanish Q3 GDP Q/Q: -0.2% v -0.2%e; Y/Y: 0.9% v 0.9%e

(SZ) Swiss Oct Money supply M3 Y/Y: 2.1% v 1.5%

(UK) Bank of England Minutes: Voted 9 to 0 to cut rates by 150bps on Nov 6th

(EU) Sept Construction Output M/M: % v 0.1% prior; Y/Y: % v -2.5% prior

(BZ) Brazil Oct Unemployment Rate: 7.5% v 7.5%

(UK) CBI November Industrial Trends: -38 v -39 prior

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Equities: Novartis [NOVN.SZ] Announced Plans for EU filing of Rasilez, Diovan Combo in 2009, US filing by end of 2008 || Experian [EXPN.UK] Reported H1 Net $258M v $225M y/y, EBIT $476M v $463Me, Rev $2.02B v $1.79B y/y. Targets are broadly maintaining margins and profit growth and was well placed to grow through economic cycle || Scania [SCVA.SW] Signed accord with Iraqi Gov't for planned vehicle production of trucks and buses. It Expected production to begin in Q3 of 2009 || DSM [DSM.NV] To sell DSM Deretil in management buyout; financial details not disclosed. || Amlin [AML.UK] Provided an interim management report and noted that its trading outlook was now 'in marked contrast' versus 3 months ago . It put hurricane losses at $20-25B and noted that it expected demand for reinsurance to rise || Party Gaming [PRTY.UK] Reported Q3 Rev $117.7M. Noted that talks with Department of Justice are continuing and confident that its FY EBITDA would be in line with estimates || AstraZeneca [AZN.UK] Stated that its Phase III Zactima Zodiac and Zeal studies show advantages for Vandentanib in combination with chemotherapy in patients with lung cancer || Dana Petroleum [DNX.UK] Reported FY08 production +30% y/y with Production will be 39-40K BOEPD in FY2008 || Teva [TEVA] Received first US approval for Pulmicort Respules generic; commences commercial launch || Barclays [BARC.UK] Concessions to investors will fail to repress shareholder revolt - FT

According to the report , measures announced yesterday including offering existing investors the opportunity to invest in £500M of preferred securities with 14% annual interest until 2019 (originally offered to Gulf investors), and waiving of executive bonuses, have failed to quell shareholder's concerns || SIG [SHI.UK] Provides interim report: Cutting 900 jobs and closing 65 trading stations, sees FY results at the lower end of prior guidance. || Imperial Energy [IEC.UK] Announces progress at Kiev-Eganskoye reserve; conditions for ONGC share offer satisfied. 18 new wells expected to be on-stream by end of Jan 2009. || Solarworld [SWV.GE] Reportedly Solar World has offered to buy 4 Opel plants in Germany

Speakers: ECB Trichet: World is in a difficult period and that global financial system has 'a lot of defects'. The crisis will take time to resolve and a joint effort is needed|| ECB's Ordonez: Current financial situation is 'extraordinarily complex'; Spain's inflation outlook 'improved significantly' || Polish Central Banker: Too early to cut interest rates; more analysis of Oct data necessary || RBA Governor Stevens noted that the Chinese economic slowdown may be worse than expected but saw improvements by late 2009. he noted that the Australian central bank has ample scope to ease rates and stressed that other central banks must be prepared to take additional action if necessary. || Norway Central Bank (Norges) stated that financial markets have improved but access to credit remains limited . It saw uncertainty high in future economic development but that risk premiums were expected to fall in coming quarters. Norway was in better economic condition than most other countries and added that the economic slowdown was expected to lower inflation in towards mid-2009|| Russian Fin Min Kudrin stated that he saw significant slowing of inflation in coming quarters; and that Russia could start cutting interest rates in H2 of 2009

In Currencies: The BOE minutes added little surprise that the vote was 9-0 back on Nov 6th to cut interest rates by 150 bps, but took notice of the scope for more interest rate cuts. Dealers noted that UK Sonia now implying over 95% chance of 100bps cut at Dec BOE meeting. GBP is steady against its major pairs as this cut rate expectorations had seemed to be priced in. GBP/USD was at 1.4995 and EUR/GBP trading at 0.8410. The JPY was somewhat firmer against its major pairs as equity prices continue to be the main driver of its price action. The Nikkei and European equity softness keeping the JPY on a firm tone but CHF remained soft against its major pairs. The rebound in the mid-European morning in S&P and European bourses saw the USD and JPY pairs retrace from earlier strength

Dealers taking noting of some potential 'shifts' in the Russian Central bank. Russian Gold/Forex reserves fell over the last two months as Central Bank sold $57.5B to support Ruble . It noted that its reserves comprised of Reserves made up of 45% in US dollars, 44% Euros, 10% in British Pounds, 1% Japanese Yen. The increase in GBP could have some implications in maintaining the basket content. One dealer pointed out that the increase in GBP reserves would suggest that the Russian Central Bank would purchase the ruble to support, which in turn meant more selling of GBP and EUR pairs.

Energy: OPEC President Khelil: OPEC Cairo summit unlikely to make an output decision. OPEC should not act before making sure prior cuts have been applied. He noted that OPEC could lose credibility if it makes new decisions without enforcing previous ones. He noted that OPEC has lost approx $700B due to falling crude prices|| Dealers noting that the last break below the $50 in front month NYMEX cruse was back in Jan 2007 and the last WEEKLY close below that $50/barrel occurred during May 16th 2005 || China to reform oil price mechanism within three weeks - Chinese press ||

Commodities: Citigroup analyst: Base metal prices could fall by up to 20% in 2009 || Antofagasta [ANTO.UK] Maintains Chile investment plan. President Awad: does not foresee delays in projects as the global economy slows, and sees some costs falling.

In Fixed Income Germany tapped an additional €4B of the 4% 2013 Bobl's , with an average yield of 2.78 and a bid to cover of 1.9, in line with the prior. German fixed income has rallied across the board all monring, with better buying of the Bund, (down 8bps to yield 3.57%) resulting in bull flattening of the yield curve. Gilts meanwhile, are only marginally flatter from yesterdays levels, buying across the board leaving the curve relatively unchanged from its steep shape

Credit Crisis: De-leveraging continues as hedge funds encounter worst 2-month performance in the last 8-years. Oct Hedge funds that invest globally -4.5% v -5% prior month according to Eurekahedge PLC. with YTD global hedge fund performance -12%. Investors withdrew a net total of $62.7B from hedge funds in Oct with industry declining by $110B to $1.65T of assets . Citigroup analyst stated that assets could fall to $1T by mid-2009. About 350 hedge funds shut down in H1 2008, up 16% Y/Y with an estimated 700 that could go out of business by the end 2008 || Fitch noted that Turkish banks confront a challenging short-term outlook || Irish PM Cohen stated that Ireland would look at all options on bank capital ratios in order to limit taxpayer expense

Notes

Global economic concerns continued to weigh on sentiment. RBA Governor Edey noted that its forecast to great deal of uncertainty, monetary/fiscal stimulus to provide cushion and added that forecasted significant further broad based slowing of the Australian economy. Dealers also noting the recent comments fro US Tsy Sec Paulson in which TARP was not a 'panacea' for all economic difficulty nor a stimulus package. Emerging markets continue to bubble as Ecuador mulling the idea is a potential debt moratorium. Russia Central bank noted that its Gold/Forex reserves fell over the last two months by some $57.5B in order to support Ruble . OPEC President Khelil comments getting attention this session as he noted that the Cairo summit in late Nov would unlikely to make an output as the Dec would be the most important as it would have all compliance data

During the NY session dealers and traders will focus on the Fed minutes and CPI data. Any continued softness in US housing should start to build prospects for the next 50 bp cut from the Fed. Jan Fed fund futures fully pricing in a 50bps cut by end of 2008 to 0.5% and a 12% chance of a 65bps cut.

Looking Ahead:

7:00 (US) MBA Mortgage Applications w/e Nov 14. There are no consensus expectations for this number; The prior number was 11.9%
8:30 (CA) Canadian Sept International Securities Transactions. Consensus expectations are -C$1.35B; The prior number was -C$0.73B.
8:30 (CA) Canadian Oct Leading Indicators. M/M consensus expectations are -0.3% ; The prior number was -0.2%
8:30 (US) Oct Consumer Price Index. M/M consensus expectations are -0.8%; The prior number was 0.0%. Y/Y Consensus expectations are 4.0% ; The prior number was 4.9%.
8:30 (US) Oct CPI Ex Food & Energy. M/M consensus expectations are 0.1% ; The prior number was 0.1%. Y/Y Consensus expectations are 2.4% ; The prior number was 2.5%.
8:30 (US) Oct CPI Core Index sa. There are no consensus expectations ; The prior number was 216.956 .
8:30 (US) Oct Consumer Price Index NSA. Consensus expectations are 216.700; The prior number was 218.783
8:30 (US) Oct Housing Starts. Consensus expectations are 780k ; The prior number was 817k . Oct Building Permits. Consensus expectations are 774k; The prior number was 805k
9:00 (US) Fed's Kohn speaks on Monetary Policy at Cato conference
12:30 (US) Treasury's Kashkari speaks on emergency Economic Stablilization Act in Washington
10:35 (US) weekly energy inventories
14:00 (US) FOMC Minutes from Oct 28-29 Meeting

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