European Market Update: BOE signals more rate cuts could come; UK Claimant count is the highest MoM change since Dec 1992

*** ECONOMIC DATA ***

- (SP) Spanish Oct CPI M/M: 0.3% v 0.4%e; Y/Y: 3.6% v 3.6%e

- (SP) Spanish Oct CPI Core M/M: 0.9% v 0.9%e; Y/Y: 2.9% 2.9%

- (SP) Spanish CPI EU Harmonized M/M: 0.3% v 0.3%e; Y/Y: 3.6% v 3.6%

- (SW) Swedish Oct AMV Unemployment Rate: 3.3% v 3.2%

- (UK) Oct Claimant Count Rate: 3.0% v 3.0%; Jobless Claims Change: 36.5K v 40ke (Claimant count is the highest MoM change since Dec 1992)

- (UK) Sept Average Earnings inc Bonus 3mths/Y: 3.3% v 3.3%; Ex Bonus 3mths/Y: 3.6% v 3.6%e ) Avg Earnings growth weakest since July 2003)

- (UK) Sept ILO Unemployment Rate (3mths): 5.8% v 5.8%e (highest level since Q1 2000)

- (UK) Sept Manufacturing Unit Wage Cost. 3mths /Y: % v 2.6% prior

- (EU) Euro- zone Sept Industrial Production M/M: % v -1.8%e; Y/Y: % v -1.2%e

- (CH) China Oct M2 Money supply Y/Y: 15.0% v 15.2%; M1 Money Supply Y/Y: 8. 9% v 9.4% prior; M0 Money Supply Y/Y: 10.6% v 9.3% prior

- Pakistan Central Bank raised discount rate by 200 bps to 15% from 13%

- UK Quarterly inflation report: Inflatiion to fall 'well below' the 2% target; sess economy contracting for most of 2009

*** SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM ***

- In equities news overnight: Swiss Life [SLHN.SZ] Reported Q3 premiums of CHF3.08B v CHF3.44B y/ and announced a halt to its share buyback program. The company also cut its dividend payment for 2008. It added that it would not achieve 2008 net profit target of CHF1.8B-CHF1.9B v CHF1.81Be and declined to give new guidance. It now sees a a clear loss in 2008 continuing operations. Lastly the company noted that it significantly cut its balance sheet risk over the last few weeks|| ING [INGA.NA] Reported Q3 Net -€585M v €2.31B y/y. Company noted that the pressure on asset prices would continue to produce negative results into 2009. The firm added that it had enough reserves to absorb further credit market shocks|| Unicredit [UCG.IT] Reported Q3 Net €551M versus €531.8M estimates and revenues of €6.75B compared to €6.2B estimates. It Q3 Core Tier 1 Ratio was at 5.7% before capital increase || K+S [SDF. GE] Reported Q3 Adj Net of €502.2M versus €358.1M estimates with revenues of €1.44B above concensus estimates of €1.33B. It guided FY08 Rev "just under" €5.3B v €5.21Be|| EDF [EDF.FR: Reported 9-months Rev €45.6B versus €45.3B estimates. It noted thatthe Credit crunch had not impacted the company in a significant way and it confirmed its FY08 EBITDA guidance of +3% y/y

- Guides Adj profit inline with 2007 || Holcim [HOLN.SZ] Reported Q3 Net CHF673 below estimates of CHF698M. The firm It Rev CHF6.91B versus analyst estimates of CHF6.96B. It noted a sharp drops in demand in US, UK and Spain announced announce the closing of facilities in those countries. It noted a decline in Russian demand in Q3. It added that it saw 2008 trading below views. || NiCox [COX.FR] naproxcinod shows highly significant reduction in daytime blood pressure versus naproxen || Groupe Danone [BN.FR] Reportedly to invest $3B in Southeastern Turkey || Scottish & Southern [SSE.UK] Reported H1 Adj Pre-tax £302.6M just below estimates of £317Me with Rev £9.19B in line with its 9.2B estimates. Company noted that it had been able to issue some £1B in commercial paper and added it was seeking liquidity facilities of £100M. || Veolia [VIE.FR] Reported 9- month Rev €26.32Bin line with the €26.22B estimates. Natixis [KN.FR] KN. FR: Refuted press speculation regarding €1B trading loss in Oct but did noted that it sufferedan investment bank write-down of €250M in October and added that markets conditions were extremely difficult. || Maersk [MAERSKB. DE] Reported 9-month Net DKK17.7 compared with DKK16.7B estimates with revenues in line at DKK231B versus DKK230B estimates. The company revised lower its FY rev to DKK310B from DKK320B prior || Sanofi-Aventis [SAN.FR] Reportedly Russia selects co's polio vaccine. || Alitalia [AZA.IT] EU approves Italian rescue of company but states €300M loan must be repaid || Barclays [BARC.UK] Spokesman: Discussed planned share sales to MidEast investors with talks being constructive and ongoing.

- Speakers: BoE's King stated that UK Inflation will fall sharply in 2009, but inflation rates are dependant on level of the GBP. He noted that the BOE is prepared to cut rates again if needed . The economic and financial crises has had devastating effect on economy, there are few historical parallels to current situation ||Reportedly German Engineering talks reached a preliminary deal for staggered wage hike of 4.2% - unconfirmed reports

||Denmark Central Bank: Pressure on DKK appears to be over. Sees 2009 Denmark GDP growth around flat and expected further drop in property prices but added that the housing market should hold up if no large increase in the country's unemployment.. lastly he noted an economic cost of being outside Euro-Zone || Spain Econ Sec Vergara sees Spanish inflation below 3% by end of 2008 || || ECB's Orphanides: World financial crisis affects liquidity raising || German Council Advisors (Wise men) : Revised its 2008 GDP estimate lowers to 1.7% from 1.9%, ads saw further room for ECB interest rate cuts || Economy Minister Leuthard noted that Global economic outlook has deteriorated and that the Swiss govt needs to release CHF550M to assist companies from its reserves.



- In Currencies: Risk aversion crept back into the market as Russian equity exchanges continue to hobble along. EYUR/USD opened in Europe at 1.2630 but declined back towards the 1.2515 level as the morning wore on. The GBP exhibited additional weakness following the dovish BOE quarterly inflation report. GBP/USD at 1.5250 with GBP/JPY approaching the 148.00 level. Fortis analyst Amended its ECB and BoE rate forecasts and noted that it saw more aggressive rate cuts by both with BoE and ECB cutting rates to 1.5% during the course of 2009. This compares to prior forecasts of 2.5% for both BoE and ECB. Weaker oil and metals causing the CAD and AUD to soften. NYMEX crude hit fresh 20 month lows below the $58 level vaulting USD/CAD back above the 1.21 handle and AUD/USD in the mid .65 area.

- In Energy: NYMEX front month crude hit fresh 20 month lows below $58 per barrel || Tullow Oil [TLW.UK]Guides its 2008 Oil production below prior expectations at 67K bpd || Russian Fin Min Kudrin forecasted 2009 avg oil price of $50 per barrel || Iran's Parliament plans 2009 budget on $40 to $50 oil price (Note: Iran depends on crude rev for 80% of its income). Price would reduce country's vulnerability to price fluctuations || IEA issued its World Energy outlook for 2030 expecting Saudi Arabia oil production at 15.6M bpd and Russian oil production at 9.5M bpd

- In Fixed Income: Fixed Income was bid across the board after developments in the UK and Russia.

The Russian CDS spread widended over 100bps to trade firmly though the 700bps handle, after Russia widened Rouble rates to 27.47 per dollar, and 34.63 per Euro. The Micex and RTS exhanges were both suspended limit down, until Thursday. Gilt futures rallied to their highest levels since early 2006 at session highs of 114.52, up 70 ticks on yesterday's close . The cash curve was at its steepest this month with the 2y down 13bps to yield 2.42%, the 10y down 8bps to yield 4.14%, and the 2y10y spread though 171bps. ||The itraxx Indices initially opened narrower before widening, with the Crossover index back though 800bps, and the investment grade Europe Index 6bps higher at 150bps. ||Germany sold €7B of the new 3.75% Jan 2019 Bunds, with a slightly lower than expected bid to cover of 1.31



*** NOTES ***

The European equity markets opened about 2% higher and some risk appetite seemed to be gaining some momentum. China Oct retail sales number seemed to put aside some of the global recession concerns for the time being. LVMH Moet Hennessy [MC. FR] noted that it saw 'dynamic growth' in China with no signs of a slowdown. However, the euphoria evaporated as continued concerns over Eastern Europe and Russia crept back into sentiment. The Russia RTS exchange was off over 11% after several suspensions of trading. The USD/RUB hit a 3-year high. The upcoming G20 summit could spark some volatility but yesterday Brazil's president Lula warned that any concrete result in tackling the global market crisis likely not forthcoming. The BOE stated that it saw UK inflation falling 'well below' its 2.0% target rate, thus signaling more interest rate cut to come.

- Looking Ahead:

- No Scheduled US or Canadian data for Wednesday

- 10:00 (US) Treasury Secretary Paulson speaks on TARP

- 11:00 (US) Fed's Kohn speaks at 10th anniversary celebrations of Luxembourg's Central Bank. ECB's Trichet, Stark and EU's Juncker are also expected in attendance

- 13:00 (US) Treasury to sell $20B in new 3.625% 10y notes due Nov 2018