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European Market Update: Market Participants Focus on Lower Core CPI in the UK
*** ECONOMIC DATA ***
Â· SP Q3 Labor Costs: 4.2% v 3.9% prior
Â· SZ Oct Adjusted Retail Sales: 2.2% v 5.2%e
Â· UK Nov CPI: M/M 0.3% v 0.3%e || Y/Y 2.1% v 2.2%e || Core 1.4% v 1.6%e
Â· UK Nov RPI: M/M 0.4% v 0. 3%e || Y/Y 4.3% v 4.2%e || Ex-Mortgage 3.2% v 3.1%e
Â· UK Nov Retail Price Index: 209.7 v 209.6e
Â· EU Oct Trade Balance: â‚¬6.1B v â‚¬3.5Be || Prior revised from â‚¬3.1B to â‚¬3.7B
Â· EU Oct Trade Balance sa: â‚¬3. 0B v â‚¬4.0Be || Prior revised from â‚¬3.9B to â‚¬3.6B
Â· *** SPEAKERS/COMMENTS ***
Â· ECB Stark: Inflation to peak in the coming months then fall
Â· ECB Stark: US subprime has not affected Euro Zone so far, but not immune
Â· ECB Stark: Cannot exclude turbulence on economy
Â· ECB Stark: European economy is not immune to US slowdown
Â· ECB Stark: Sees risk that inflation will push up wage demands
Â· *** FIXED INCOME/FX/COMMODITIES/ERRATUM ***
Â· Front month crude oil futures are currently in positive territory in the session, but are off of their best levels. On the commodity front Gazprom began production at its Yuzhno-Russkoye field overnight, while strikes in France hindered output at five Total refineries. There were also reports of a small spill at a Conocophilips pipeline in Alaska, which caused the company to shut down the 134K bpd Kiparuk well.
Â· On the currency front the Cable moved lower following the lower than expected reading on core CPI in the UK as market participants speculate that the BOE could lower rates again. The Dollar was mixed against the Euro as the ECB's Stark tempered his usual hawkish tone with a mild inflationary outlook. The Canadian Dollar is off of its best levels ahead of its CPI data largely as a result of tech retracement. The Yen is slightly softer following the Japanese Government's monthly report. Carry trades are steady as global equity markets consolidate recent losses.
Â· Inflation data in the UK was the standout event on the data front overnight (as expected). While headline CPI readings were in line with expectations, and RPI readings were slightly ahead, market participants seemed to focus on the core reading, which fell below estimates. Consensus expectations forecasted core CPI rising to 1.6% in November from 1.5% in October. The core reading instead declined to 1.4%, its lowest reading in 13 months.
Â· European fixed income futures are trading in positive territory at the moment. Futures opened higher, but reversed gains after the European indices began to rise at their open. Futures have since recovered and are in the middle end of their session range. Over in the UK long-gilt futures spent some time in negative territory, but gained some upward momentum following a lower than expected reading on the core CPI for the month of November.
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