European Market Update

(UK) Oct Nationwide House Prices M/M: 0.4% v 0.0%e; Y/Y: 0.8% v 0.5%e

(SW) Sweden Oct Swedbank PMI Survey: 49.8 v 47.2e

(TU) Turkey Oct Manufacturing PMI: 53.3 v 51.5 prior ; 7-month high

(DE) Denmark Sept Retail Sales M/M: 0.0% v -0.4%e; Y/Y: -1.2% v +0.2% prior

(NO) Norway Oct PMI SA: 50.8 v 53.7e

(EU) ECB: €3.3B borrowed in overnight loan facility v €2.9B prior; €216.9B parked in deposit facility vs €248.1B prior

(SZ) Swiss Sept Real Retail Sales Y/Y: -0.9% v -1.9% prior

(CZ) Czech Oct Manufacturing PMI: 51.7 v 52.3 prior

(HK) Hong Kong Sept Retail Sales Value Y/Y: 24.1% v 28.5%e; Retail Sales Volume Y/Y: 15.2% v 20.6%e

(SZ) Swiss Oct PMI Manufacturing: 46.9 v 47.7e

(SA) South Africa Oct Kagiso PMI: 50.5 v 49.8e

(UK) Oct PMI Manufacturing: 47.4v 50.0e

(UK) Q3 Advanced GDP Q/Q: 0.5% v 0.3%e; Y/Y: 0.5% v 0.4%e

(UK) Aug Index of Services M/M: 0.3% v 0.0%e; 3M/3M: 0.4% v 0.5%e

(SA) South Africa Q3 Unemployment Rate: 25.0% v 26.0%e

(DE) Denmark Oct PMI Survey: 43.6 v 55.2 prior

Fixed Income

(SA) South Africa sold total ZAR2.1B vs. ZAR2.1B indicated in 2031 and 2036 bonds

(DE) Denmark sold total DKK2.14B in 2016 and 2021 bonds

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Notes/Observations:

The decision by Greece to call a referendum brings into focus how the political process is undermining broader euro-area solutions

China will not ride to the rescue of the euro zone - FT

China's official PMI data weakened in contrast to the improvement in the HSBC/Markit headline release

Limited release of European PMI Manufacturing Surveys die to "All Souls Day' holiday but generally softer than expectations

RBA cuts its interest rates by 25 bps (as expected)

UK Q3 Advanced GDP slightly exceeds tepid expectations

Equities:

FTSE 100 -2.5% at 5404, DAX -4% at 5895, CAC 40 -3.9% at 3119, IBEX 35 -3.8% at 8613, FTSE MIB -4.8% at 15,251, SMI -2.1% at 5608

European shares plunged this morning taking cue from Asian and US selloff. Greek PM Papandreou unexpectedly called for a referendum regarding EU's latest bailout, therefore letting Greek people decide the course. He also expressed confidence that the voters would support him to proceed with the economic reforms. The move is seen as particularly risky given that the bailout packaged and debt writedown are hugely unpopular among the Greek population. Miners dropped on a weaker Chinese PMI.

In corporate earnings, Credit Suisse [CSGN.SZ] dropped over 10% after missing expectations. Earnings, which included an accounting gain, had nevertheless risen on a yearly basis. Investment bank reported a loss of €190M while private wealth segment also dropped 30% compared to last year. Credit Suisse also announced that it would cut jobs by 3% globally. Danish bank Danske Bank [DANSKE.DE] also missed expectations and announced job cuts. The bank remains concerned about economic developments, especially in Ireland. Barclays [BARC.UK] also dropped after UBS downgraded the stock following its earnings.

Speakers:

Greece Fin Min Venizelos admitted to hospital following complaints of abdominal pains

German ministry commented on Greece with the second bailout by year-end continuing to be a goal. It noted that the Greek referendum was a domestic matter and declined further comment regarding the referendum.

Japan PM Noda commented in an addressing parliament that BoJ underwriting bonds could cause rates to rise and rvising BOJ law could lead to a loss of trust in monetary policy

China Vice Foreign Min Guoping commented that Russian PM Putin and Premier Wen discussed energy cooperation and that both countries were working hard to complete a gas agreement

UK Chancellor Osborne commented The UK economic scenario made more difficult by the situation within the Euro Zone. Recent UK GDP data was promising and better than other parts of Europe.

German BGA Export group: The Greece referendum is a fatal sign for the markets and destroys faith in Europe

OPEC Gen Sec Al-Badri: Unlikely to discuss Iraq production quota until end-2012

Currencies:

The greenback was firmer during the European morning but off its best levels. The decision by Greece to call a referendum brings into focus how the political process was undermining broader euro area solutions. The USD accelerated as risk aversion dominated amid euro zone uncertainty and growth concerns after mixed leads from China manufacturing PMI risk aversion set in. The degree of uncertainty was reflected by various peripheral spreads with Italy and Belgium both hitting fresh EMU record levels against the 10-year German Bund.

The EUR/USD tested the 1.3675 level before steadying. The 1.3640-50 level proved to be a formidable support over the last two weeks and served to hold again in today's session

The GBP/USD hovering below its one-month hourly uptrend line just ahead of its Q3 advanced GDP data and failed to move above the 1.5970 level despite the slightly better GDP reading. The GBP was more focused on the weaker PMI Manufacturing data.

Japanese authorities did not intervene in either the Asian or European session. The USD/JPY pair hovered around the pivotal 78.00 level

EUR/CHF moved from 1.2140 to test 1.2200 on chatter that the SNB was checking rates

Political/ In the Papers:

The Greek Prime Minister Papandreou announced that his government will hold a confidence vote, which expected Friday following a three-day parliamentary debate beginning Wednesday. In addition, the Socialist government also announced a referendum on a new European aid package. The decision on whether or not to adopt the new aid package will rest with the voters. The referendum is expected to be in December or January according to Greek ministers Venizelos (finance) and Kastanidis (justice).

The UK think tank Institute for Public Policy Research (IPPR) said the OBR (Office for Budget Responsibility) might lower its economic growth forecast later this month. The institute said the situation is shaping up to be the longest recession the UK has ever seen.

The Telegraph's Ambrose Evans-Prichard noted that the Italian/German ten-year yield spread is nearing the level which could require LCH to raise margin requirements. During yesterday's session the spread hit 410bps. If LCH raises margin requirements, then this could lead to further selling of Italian bonds. The EFSF recently scaled down a €5 billion debt auction for this week. Its planned debt issuance could be met with tepid demand citing banker sources.

The Irish opposition party Fianna Fail (FF) called for the Irish Prime Minister Kenny to contact the new ECB President Draghi in an attempt to halt full repayment of the €715 million unsecured Anglo Irish Bank bond. The FF spokesperson said there was a fundamental issue of equity in the EU at stake. Greece was being granted a haircut of 50% of its sovereign debt held by European banks while the ECB is attempting to force Ireland to repay in full unsecured, unguaranteed bonds owed by failed Irish banks. Irish opposition parties Sinn Fin and Fianna Fail has consistently criticized the government's refusal to seek reductions in the debt burden.