European Market Update

PMI Manufacturing continue to post record low readings; Global recession concerns set to unleash a rash of aggressive central bank rate cuts this week

ECONOMIC DATA

(JP) BOJ to hold extraordinary policy meeting on Dec 2nd to discuss flexibility in funding

(IN) India Oct Exports Y/Y: -12.1% v 10.4% prior; Imports Y/Y: 10.6% v 43.3% prior

(GE) Oct Retail Sales M/M: -1.6% v 0.5%e; YoY: -1.5% v -0.3%e

(SW) Swedish Swedbank PMI: 33.1 v 38.0e

(SP) Spain Nov Manufacturing PMI: 29.4 v 34.6 prior; lowest reading on record

(HK) Oct Retail Sales Value Y/Y: 0.3% v 3.4%e; Volume Y/Y: -4.3% v -0.8%e

(SZ) Swiss Nov SVME Purchasing Managers Index: 35.2 v 45.6e, all-time low reading

(IT) Nov PMI Manufacturing: 34.9 v 36.5e, lowest reading on record

(FR) France Nov PMI Manufacturing: v 37.9e, lowest reading on record

(GE) Nov PMI Manufacturing: 35.7 v 36.7e; lowest reading on record

(EU) Nov Final PMI Manufacturing: 35.6 v 36.2e

(NO) Norway Oct Retail Sales M/M: -0.9% v -0.5%e v; Y/Y: -0.5% v 0.7%e

(UK) Oct Final M4 Money Supply M/M: 2.8% v 2.3% prior; Y/Y: 15.3% v 15.1% prior
(UK) Oct Net Consumer Credit: £0.8B v £ 0.5Be; Net Lending: £ 0.5B v £ 1.8Be
(UK) Oct Mortgage Approvals: 32K v 32Ke
(UK) Nov PMI Manufacturing: 34.4 v 39.7e

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

In equities: Aer linges [AERL.UK] 28% holder Ryanair offered to acquire rest of company for €1.4/shr in cash and noted that the entities would continue operating as separate companies || Wavecom [AVM.FR] AVM.FR: Gemalto to withdraw, revise offer for company || Xstrata [XTA.UK} To implement further Ferrochrome production cuts; Suspended an additional 5 furnaces, totaling 500K tons of capacity. Stated it woul not lay-off workers || Land of leather [LAN.UK] Received several unsolicited approaches but added that no certainty that offers will be forthcoming || St Ives [SIV.UK] Reported 13-week sales were up3% y/y, and that results were in line with prior expectations || Balfour beatty [BBY.UK] Announced the acquisition of Colledge Trundle and Hall for £2.85M in cash || Bavarian Nordic [BAVA.DC] Reaffirmed its FY outlook was inline with prior expectations || KPN [KPN.NV] Getronics unit to sell Verkoop Business Solutions to Total Specific Solutions but no financial details disclosed. It expected the sale to close in early 2009 || Merck KGAA [MRK.GE] EU approved added Erbitux use in head and neck tumors treatment || Repsol [REP.SP] Holder Saycr stated that it would continue to negotiate sale of stake || Logica [LOG.UK] Awarded global IT agreements with two Nordic multinationals || Aberdeen Asset Management {AND.UK] Reported FY08 Adj Pretax £60.5M v £23.7M y/y, Rev £430.1M v £347.8M y/y. AUM £111.1B v £95.3B || y/y. || X5 X 5 [FIVE.UK] Reported Q3 Net loss $14.7M v loss $4.7Me, EBITDA $191M v $177.8Me, Rev $2.19B v $2.18Be. || Sacyr [SYV.SP] Selling Itinere motorway unit to Citigroup for €7.9B. forr 3.96/share. Details of sale to come in regulatory filing not yet published. Saycr continuing to negotiate sale of stake. || Wavecom [AVM.FR] Gemalto to withdraw, revise offer for company. Informed the French Financial Markets Authority (AMF) of its intent to withdraw its offer for Wavecom or to adjust the terms of its offer if the resolutions submitted to the Wavecom general shareholders meeting of 8 December 2008

Speakers: ECB's Orphanides stated that he saw signs of longer economic slowdown within Euro-Zone taking place and that the impact of global financial market crisis on real economy has started to intensify. Lastly he added that he hopes worst was over for financial market crisis || BoJ Gov Shirakawa: Carefully watching forex market developments and impact on economy and reiterated G7 view that sharp currency movements are undesirable. He noted some downward pressure on economy could rise and that core CPI could fall temporarily in FY09 || Former India's Fin Min Chidambaram: Reiterates 2008 GDP in range of 7% to 8% || Polish Central Banker Filar stated that Polish rate cuts would not help economy significantly and adde d that he saw unemployment rising although not drastically. Polish ERM-2 without political consensus is risky || Czech Central Bank Chief Tuma stated that he did not expect any surprise interest rate cuts and added that the central bank has some room to maneuver on its rate policy || China PBOC spokesperson noted that its currency would continue to be reformed and intent on bring stability to Yuan || German Chancellor Merkel stated that Germany maintained every option open to combat global economic crisis || Bank of Italy stated that its country's bank had net sales Credit Default Swaps (CDS)s in H1 2008 valued at €9.6B

In Currencies: EUR/GBP cross was firmer by 150 pips. EU's Barroso said the financial crisis has prompted UK officials to acknowledge the merits of the Euro and those who mattered were thinking about adopting the currency. The session saw a firmer JPY against the major pairs. Risk aversion was one factor in the strengthen JPY. Dealers attributed JPY strength to Japanese tax panel comments. Specifically Tax Panel stated that Japan should not tax the income that companies earn overseas and dealers saw the move encouraging firms to repatriate more funds back to Japan and increase domestic capital spending. The BoJ announced it would hold an emergency on Tuesday regarding corporate funding issues and unlikely to cut their interest rates. BOJ GovShirakawa stated earlier in the session that reducing rates closer to zero could impede the flow of funds in the money market. || China's CNY fell the most since a fixed exchange rate ended in 2005 on speculation policy makers will seek a weaker currency

In Fixed Income: The Dec Bund contract hit fresh contract highs of 122.00 as the European yield curves continued to steepen.

In Energy: The slowing global economy begs the question exactly how low oil could go? How low can it go ? Opec surprisingly decides no cut. Doesn't matter. They all cheat anyhow. || Sec Gen El-Badri stated that OPEC would take 'action' at its December meeting in Algeria due to oversupply. He reiterated that $75/bbl is 'reasonable' price at this time and that OPEC was looking at $70-90/bbl range. Thus OPEC would cut output at its December meeting ||

NOTES

As the month of December begins, the catalyst for market moving events appears not to be in any holiday mood. On the data front the Euro-Zone manufacturing PMI generally registered record lows for the series as each country reported. There are a slew of central bank interest rate decisions to occur this week with Australia, New Zealand, ECB and BOE all expected to cut rates as the global economy exhibits sign that the real economy is being impacted from the financial market crisis. The slowing global economy begs the question exactly how low oil could go? Front month NYMEX crude futures down $2.50 per barrel to $51.90 area ahead of the NY morning.

Chatter circulating that the Chinese central bank would hold a policy meeting this week and could seek a weaker CNY currency as growth concerns mount. India's export fell on month over month basis for the first time in seven years. An emergency BOJ meeting was confirmed to discuss its country's corporate liquidity needs. - Equity markets continue their volatility after displaying some of its largest two and four day move in a generation. Year-end funding and hedge fund redemption concerns will be of key interest. Dealer chatter circulating that Paul Tudor Jones has suspended withdrawals at its main fund in a restructuring move.

The political tensions appear to be rising between India and Pakistan following the terror attacks in Mumbai last week

Looking Ahead:

8:00 (BR) Nov Brazil Trade Balance: $1.17Be v $1.21B prior
8:30 (CA) Sept GDP M/M: 0.2%e v -0.3% prior
8:30 (CA) Q3 GDP Annualized: 1.1%e v 0.3% prior
10:00 (US) Nov ISM Manufacturing: 37.0e v 38.9 prior; Prices Paid: 32.0e v 37.0 prior
10:00 (US) Oct Construction Spending M/M: -1.0%e v -0.3% prior v -0.3% prior

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