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European Market Update: Middle Eastern Central Banks Follow the Fed
Â· *** ECONOMIC DATA ***
Â· FR Oct Current Account: -â‚¬2.7B v -â‚¬2.3B prior
Â· UK Nov Claimant Count Rate: 2.5% v 2.6%e || Prior revised from 2.6% to 2.5%
Â· UK Nov Jobless Claims Change: -11.1K v -5.0Ke || Prior revised form -9.9K to -10. 6K
Â· UK Oct Average Earnings Including Bonus: 4.0% v 4. 2%e
Â· UK Oct Average Earnings Excluding Bonus: 3.6% v 3. 7%e
Â· UK Oct ILO Unemployment Rate: 5.3% v 5.4%e
Â· UK Oct Manufacturing Unit Wage Cost: -0.1% v 0.1% prior || Prior revised from -0. 1% to 0.2%
Â· EU Q3 Employment: Q/Q 0.3% v 0.5% prior || Prior revised from 0.5% to 0.6%
Â· EU Q3 Industrial Production: M/M 0.4% v 0.2%e || Prior revised from -0.7% to -0.8% |||| Y/Y 3.8% v 3.7%e || Prior revised from 3.5% to 3.3%
Â· SZ Dec ZEW Expectations: -29.7 v -28.9 prior
Â· *** SPEAKERS/COMMENTS ***
Â· FR Financial Minister: Reiterates FY08 Forecast of 2.0%-2.5%
Â· EU Almunia: Market turbulence has hurt European growth prospects
Â· EU Almunia: Inflation has strong pressure including oil and food prices
Â· EU Almunia: It is not a secret that the USD needed adjustment
Â· EU Almunia: Reiterates that China need to speed up currency flexibility
Â· GE Deputy Economic Minister: Sees no dramatic revision of the 2.0% GDP forecast in 2008
Â· GE Deputy Economic Minister: The Euro and the credit squeeze are risks
Â· GE Chemical Union: Recommends wage hike of 6.5%-7.0%
Â· US Treasury's Paulson: Faster Yuan rise is in China's best interests
Â· US Treasury's Paulson: Yuan issue will be with us for some time
Â· US Treasury's Paulson: There is more risk if China moves too slowly on Yuan reforms
Â· US Treasury's Paulson: There is no evidence that a faster Yuan rise has hurt the Chinese economy
Â· *** FIXED INCOME/FX/COMMODITIES/ERRATUM ***
Â· European fixed income futures are trading lower across the board. According to the minutes from the GEMMs' meeting with the DMO GEMMs showed support for a bias towards I/L gilt supply. Views were mixed on the use of switch offers to build up short and medium supply. A large number of GEMMs said that there is structural demand for longs. Additionally, some GEMMs called for the restoration of remit flexibility and relaxation in the DMO's standing repo facility. In new supply today Germany sold â‚¬6.42B in new 4.00% 2-year schatz with an average yield of 3.88% and a bid-to-cover of 1.7x. The bid-to-cover compares to 4.0x seen at the previous auction. In the UK the DMO sold Â£950M in 1.875% November 2022 I/L gilts with an average yield of 1.39% and a bid-to-cover of 1.98x. The bid-to-cover compares to 2.17x at the previous auction. The current auction brings the amount outstanding for the issue up to Â£3.32B.
Â· On the data front the November claimant count rate in the UK declined to 2.5%, its lowest level since April of 1975. Average earnings data fell short of estimates, but remained within its recent range. The data failed to cause and big reactions, but did weigh down slightly on March gilts. In the Eurozone industrial production was slightly ahead of estimates, but wasn't all too impressive, and had little impact across markets.
Â· A number of central banks took action on rates overnight in wake of the Fed's 25 bps rate cut yesterday. The UAE central bank cut its o/n repurchase rate by 25 bps to 4.25%. The Qatari Central Bank raised its reserve requirement by 50 bps to 3.25%, and cut its deposit rate by 25 bps to 4.00%. The Saudi central bank cut its reverse repo rate by 25 bps to 4.00% but left its benchmark repo rate unchanged at 5.50%. The Kuwaiti Central Bank left its discount rate unchanged at 6.25%. The Bahrain Central Bank cut its one- week deposit rate by 25 bps to 4.00%. The Hong Kong Monetary Authority cut its base rate by 25 bps to 5.75%.
Â· On the commodity front, with the aid of some forecasts by Goldman Sachs crude oil was able to push into positive territory just before the European equity market open, however crude has since lost its momentum. Goldman boosted its 2008 average price forecast for WTI crude from $85/barrel to $95/barrel, noting that crude oil prices may reach $105/barrel by the end of 2008. Goldman also boosted their NYMEX gas price forecast to $9.60/BTU. Goldman noted that inflation and politics raise oil investment costs. Copper futures are currently trading lower, and have been since the Asian trading session. Goldman Sachs cut its 2008 copper price forecast from $9,000 to $7,500 overnight, however this did not seem to weigh down on copper prices as they were already weak.
Â· In the currency markets the US Dollar is somewhat firmer following comments from a PBOC official ahead of the open noting that China is in favor of a strong Dollar. The Yen is maintain a soft tone as the S&P trends higher, while the commodity currencies are firmer on the back of a rise in oil prices.
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