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European Market Update: Markets Quiet Following Yesterday's Rate Decisions Â· *** ECONOMIC DATA ***
Â· GE Dec Wholesale Price Index: M/M -0.5% v 0.4%e || Y/Y 5.1% v 6.1%e
Â· UK Nov Industrial Production: M/M -0.1% v 0.1%e || Prior revised from 0.4% to 0.5% |||| Y/Y 0.4% v 0.5%e
Â· UK Nov Manufacturing Production: M/M -0.1% v 0.1%e || Y/Y 0.1% v 0. 4%e
Â· *** COMMENTS/SPEAKERS ***
Â· Dresdner updated its ECB forecast and now predicts that the ECB will cut rates to 3.75% in 2008. Dresdner previously saw the ECB at 4.00% in 2008.
Â· *** FIXED INCOME/FX/COMMODITIES/ERRATUM ***
Â· On the commodity front standard bank said that gold prices may exceed $1,000/oz in 2008, while Goldman Sachs updated its short-term price forecast. Goldman forecasted gold at around $900 in six months, and back down to $800 in 12 months. Elsewhere Deutsche Bank updated its WTI and Brent oil price forecasts boosting the 2008 outlook from $80/barrel to $85/barrel, and the 2009 outlook from $75/barrel to $80/barrel.
Â· Fixed income futures are trading lower in the session in what some analysts are calling a minor correction following an impressive rise from two and a half month lows seen a couple weeks back. In France the AFT announced overnight that they will sell Â¬5.0B- Â¬5.5B in new 3.75% January 2013 BTAN on January 17. In new supply Italy sold Â¬3.0B in 4.25% October 2012 BTPs with an average yield of 4.04% and a bid-to-cover of 1.52x, and sold Â¬2.0B in 5.00% August 2039 BTPs with an average yield of 4.97% and a bid-to-cover of 1.35x.
Â· Elsewhere front month S&P futures are trading lower in the session following an article in the NY Times speculating that Merrill Lynch will post $15B in write downs when they report next week. The European indices are lower across the board but off of their worst levels. In a letter addressed to shareholders UBS said ahead of today's open that 2008 will be a difficult year for the financial service industry. Credit Suisse cut its view on the European semiconductors to 'market weight' from 'overweight'
Â· In currencies, the European session began with unwinding of carry trade positions as risk adverse sentiment returned to the market following the AXP write off announcement and word of Merrill's upcoming Q4 subprime- related write down of $15B. The CHF and JPY were firmed as the S&P 500 futures traded lower. EUR/CHF tested 1.6250. EUR/JPY back below the 161 handle. Overall the USD was steady to firmer against the major European currencies. The commodity currencies are showing a bit of divergence as CAD maintains a soft tone and the AUD is firmer. GBP remains a heavy tone in another volatile session. GBP hit fresh nine-month lows against the USD below the 1.95 level before retracing. EUR/GBP continues to hit fresh all- time highs above the 0.7580 area.
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