European Market Update:Italian bond auction results reflects the old reality as the 2022 BTP yield climbs above 6% to fresh EMU record high

Economic Data

- (RU) Russia Narrow Money Supply Narrow w/e Oct 24th: 6.47T v 6.44T prior

- (FI) Finland Q3 House Prices Q/Q: +2.1% v -1.0%e; Y/Y: 2.6% v 1.8%e

- (FR) France Sept Consumer Spending M/M: -0.5% v 0.0%e; Y/Y: -1.3% v -0.7%

- (SP) Spain Q3 Unemployment Rate: 21.5% v 20.9%e

- (SP) Spain Oct Preliminary Consumer Price Index Y/Y: 3.0% v 3.0%e; CPI EU Harmonized Y/Y:3.0% v 2.9%e

- (HU) Hungary Sept Unemployment Rate: 10.7% v 10.7%e

- (SW) Sweden Oct Manufacturing Confidence:-7 v-5e; Consumer Confidence: -7.5 v -6.4e; Economic Tendency Survey: 94.3 v 96.0e

- (SW) Sweden Sept Retail Sales M/M: -0.2% v 0.3%e; Y/Y: -0.6% v -0.2%e

- (RU) Russia Central Bank (CBR) leaves Refinancing Rate unchanged at 8.25%, as expected

- (IT) Italy Sept Hourly Wages M/M: 0.3% v 0.0% prior; Y/Y: 1.7% v 1.7% prior

- (NO) Norway Oct Unemployment Rate: 2.4% v 2.5%e

- (SZ) Swiss Oct KOF Swiss Leading Indicator: 0.80 v 1.00e

Fixed Income

- (IT) Italy Debt Agency(Tesoro)sold € 6.9Bvs. €4.75-7.50B indicated rangein 2014, 2019 and 2022 bonds

- Sold €3.08B in 4.25% July 2014 BTP; Avg Yield 4.93% v 4.68% prior; Bid-to-cover:1.35x v 1.36x prior

- Sold €871M in 4.25% Sept 2019 BTP; Avg Yield 5.81% v 4.03% prior; Bid-to-cover:1.62x v 1.35x prior

- Sold €2.98B in 5.0% March 2022 BTP; Avg Yield 6.06% v 5.86% prior; Bid-to-cover: 1.27x v 1.37x prior (record high yield)

- Sold €1.0B in Oct 2017 CCEeu, Yield 5.59%

- (IN) India sold total INR150B vs. INR150B indicated in 2017, 2022, 2027 and 2040 bonds

- (SA) South Africa sold total ZAR800M in I/L 2017, 2028 and 2033 bonds

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Equities:

FTSE 100 +0.10% at 5721, DAX +0.50% at 6369, CAC 40 -0.10% at 3365, IBEX 35 -0.20% at 9251, FTSE MIB -1.2% at 16,748, SMI +0.50% at 5850

- European shares continued to rally on the back of the positive sentiment provided by the Eurozone agreement to the Greek crisis on Wednesday. Banks continued to lead the rally.

- In corporate earnings, Electrolux [ELUXB.SW] rose over 5% after beating expectations. However, the company lowered outlook for European and North American markets due to slumping demand. Total [FP.FR] financials showed that earnings and revenues had increased on a yearly basis and was confident that in an environment where conditions remain favorable for Upstream and refining margin are slightly improved.

Speakers:

- China Vice Fin Min Zhu Guangyao commented that the details on expansion of European bailout fund still remained unclear and that China would NOT discuss EFSF bond purchases at upcoming G20 Summit although China supported a strong and prosperous Europe. Lastly the upcoming November G20 summit would be of great importance to the global economy

- China PBoC officialcommented that it was an urgent task for G20 to restore confidence in the markets. He stressed that advanced countries should increase savings and increase competitiveness of exports while emerging market economies should reduce precautionary savings. Countries affected by the debt crisis should significantly reduce its deficits while major reserve-currency nations should preserve stability of own currencies. Lastly he noted that China would gradually liberalize capital account as planned

- China Banking Regulatory Commission (CBRC) Chairman Liu Mingkang stated that China had not considered if it would allow local banks to assist EU and had not looked at any specific measures to help EU. China was waiting for details to decide on investing in the EU bailout fund. Lastly China Trade Balance to be less than 3% of GDP in 2011.

- France Fin Min Baroin: Intermediate VAT was being talked about

- The German Constitutional Court temporarily suspended a special parliamentary committee from making decisions in urgent EFSF matter on behalf of law officials in the Bundestag (lower house).During the prior trading sessions, a German lawmaker filed a complaint with the court; the complaint stated that the special committee violated basic German law transferring authority from a full session of the Bundestag to a committee regarding the budget. A full budget committee, or full session in the lower house would now be require regarding bailout matters, drawing out the process.

- Japan cabinet office official commented that the third extra budget would likely to raise GDP by 1.7% and create 600K jobs

- European Investment Bank (EIB): Will not provide support for the bank guarantee but offering 'technical expertise' to the bank debt plan

Currencies/Fixed Income:

- Overall the price action was generally muted on Friday following the steep rise in risk appetite on Thursday which highlighted an extension relief rally in both stocks and commodities after the EU Leader Summit presented the long awaited master-plan. However, the Italian bond auction did put a kink in the recent atmosphere of euphoria particularly with the 2022 BTP bond yield moving to a fresh EMU high of 6.06%.

- Looking ahead to next week the G20 Summit in France will bring up recurring themes echoed throughout the financial crisis of rebalancing the global economy and the need to address the currency reserve issue. The EU planned its basic theme for upcoming G20 with calls for China to make a FX rate pledge and for the US to cut its deficits

Political/ In the Papers:

- Following the comprehensive agreement on the European Financial Stability Fund (EFSF) in Europe, the British press reported that China could play a hand by contributing approx €70.5 billion ($100 billion) towards the EFSF. According to Sky News, two senior Chinese government advisers told the FT it was "very likely" to contribute money towards the stability fund. The officials added that any contribution would have strong guarantees, and would depend on the participation from other nations. The reports came following a discussion on Thursday between French president Sarkozy and Chinese leader Jintao, where they pledged to cooperate to help the global economy. Note that China holds approximately $3.2 trillion in reserves, of which 25% are in EUR.

- The Telegraph's Ambrose Evans-Pritchard said the debt agreement does not solve the EU's fundamental problems. The EU will continue to deal with issues including the lack of a fiscal union, and differences in the competitiveness of countries in the North and South. The austerity measures could continue to depress growth in countries including Italy, Spain and Portugal.

- French President Sarkozy said that it was a mistake to have allowed Greece into the euro zone. The financial press reported that he thought Greece was not ready for membership when it joined in 2001, and used false economic figures to gain entry. He was, however, confident Greece can emerge from its debt crisis, thanks to the deal reached by EU leaders.

- The Italian Treasury confirmed its plan for direct offering of government bonds to retail investors in 2012. The treasury was studying whether to offer online new products targeting retail investors or existing bonds. Earlier press reports hinted that Italy was considering online retail trading for bonds.

Looking Ahead

- (CO) Colombia Central Bank Interest rate Decision: Expected to leave the Overnight Lending Rate unchanged at 4.50%

- (MX) Mexico Sept YTD Budget Balance (MXN):No est v -172.5B prior

- 6:00 (BR) Brazil Oct FGV Inflation IGP-M M/M: 0.6%e v 0.7% pror; Y/Y:7.0%e v 7.55 prior

- 6:00 (IR) Ireland Sept Retail Sales Volume M/M: No est v -0.4% prior; Y/Y: No est v -3.6% prior

- 7:00 (SA) South Africa Sept Budget Balance (ZAR):No est v -5.4B prior

- 8:00 (CL) Chile Sept Industrial Production Y/Y: 3.5%e v 1.7% prior; Industrial Sales Y/Y: 0.8%e v 2.9% prior

- 8:00 (CL) Chile Sept Unemployment Rate: 7.3%e v 7.4% prior

- 8:00 (CL) Chile Sept Total Copper Production: no est v 427.4K tons

- 8:00 (CL) Chile Sept Retail Sales Y/Y: 8.5%e v 9.1% prior

- 8:30 (US) Q3 Employment Cost Index: 0.6%e v 0.7% prior

- 8:30 (US) Sept Personal Income: +0.3%e v -0.1% prior; Personal Spending: 0.6%e v 0.2% prior

- 8:30 (US) Sept PCE Core M/M: 0.1%e v 0.1% prior; Y/Y: 1.7%e v 1.6% prior; PCE Deflator Y/Y: 3.0%e v 2.9% prior

- 9:00 (BE) Belgium Q3 Preliminary GDP Q/Q: No est v 0.5% prior; Y/Y: No est v 2.3% prior

- 9:30 (EU) ECB calls for bids in 8-Day Main Refinancing Tender

- 9:55 (US) Oct Final University of Michigan Confidence: 58.0e v 57.5 prelim

- 10:00 (MX) Mexico Central Bank Monetary Policy Minutes

- 11:00 (US) Fed to buy $8.00-9.00B in Notes