TRade the News Market Internals update at 10:30ET

***Economic Data***

– (EU) ECB: €2.28B borrowed in overnight loan facility v €4.8B prior; €181.9B parked in deposit facility vs €172.1B prior
– (GE) Germany Sept Producer Prices M/M: 0.3% v 0.2%e; Y/Y: 5.5% v 5.5%e
– (SZ) Swiss Sept Trade Balance (CHF): 1.8B v 810M prior; Real Exports M/M: +3.4% v -6.9% prior; Real Imports M/M: 1.2% v -0.3% prior
– (IN) India Primary Articles WPI w/e Oct 8th: Y/Y: 11.2 v 10.6% prior; Food Articles WPI Y/Y: 10.6% v 9.3% prior
– (RU) Russia Gold & Forex Reserve w/e Oct 14th: $517.7 v $510.4B prior
– (DE) Denmark Oct Consumer Confidence: -6.6 v -4.0e
– (JP) Japan Sept Convenience Store Sales Y/Y: -4.0% v +7.9% prior
– (AS) Austria Aug Producer Price Index M/M: -0.2% v 0.0% prior; Y/Y: 3.2% v 3.6% prior

– European shares headed lower and are trading in negative territory ahead of the Oct 23 summit. The much-awaited meeting of EU officials risks to disappoint, once again, investors who have placed great hopes on a solution. While a 6th disbursement for Greece is likely to be approved, the key dividing questions remain the banks’ recapitalization plans and a larger PSI.
– Actelion [ATLN.SZ] fell about 3.6% to the lowest level since May after expecting a negative growth due to pricing pressure and competitive pressure in the US. Nestle [NESN.SZ] missed expectations for revenues but raised its guidance to a ‘over-performance against our 5-6% long-term organic growth range’. Nestle noted that Swiss franc strength hurt sales by 15%. On the other hand, Ericsson [ERICB.SW] beat estimates but missed on margins. Shares rallied at about 3.5%

Speakers:

– Draft guidelines on EFSF was presented to German lawmakers with the EFSF aid said to focus on financial sector repair as presented at the July 21st Leader Summit. The draft noted that bank recapitalization loans were seen as a last resort to preserve stability with distressed banks with systemic risks eligible. Banks receiving EFSF aid would have to restructure. The draft had guidelines allow for limited leveraging through commercial banks and limited EFSF primary market bond purchase to 50% of total issue
– IMF said to be at odds with EU/ECB on sustainability on Greek debt as it sought aclearer picture before releasing next aid trance. However, the pending Troika EU/IMF/ECB report was still expected before the end of the week and held up due to disagreements regarding debt sustainability. The remains confidence that the next loan payment would be made.

– EU’s Barroso reiterated the view that critical decisions lie ahead in days leading up to the EU Leader Summit on Oct 23rd. He did add that it could have an EFSF decision on Sunday and expressed confidence can reach “ambitious” deal. He reiterated “comprehensive” response was needed for the current crisis and must reinforce EU firewalls.

– There has been a growing acceptance among Euro zone states that deeper private sector involvement (PSI) might have to be forced instead of optional
– ECB’s Stark commented that the ECB warned against forced private sector. Haircut and insolvency would become more expensive for EU taxpayers than the method taken so far but any Euro exit would be extremely costly for taxpayers. He noted that the pace of Greek reforms slowed to near standstill since 2010 and linked to discussions over PSI. He reiterated view that not up to ECB to bail out countries and stressed public consolidation was the only way forward. Hoped the EFSF could soon operate in the secondary markets.

– Germany Finance Ministry commented that there was still no agreement on whether and how to leverage EFSF facility with further debate needed on EFSF bond purchases in primary and secondary markets. There was a consensus on EFSF bank loans and precautionary measures
– Greek lawmaker Papandreou: 6th tranche from IMF is at risk
– Fitch noted that EU proposals could accelerate disintermediation. US money fund exposure to EU banks fell to new lows with Canada current the largest country exposure.
– China Foreign Ministry reiterated its belief that the EU countries would unite to tackle its economic difficulties and that China was willing to cooperate with EU to expand investment
– India PM’s econ adviser Rangarajan commented that inflation remained above the acceptable range of 4.0-5.0% and that pushing economic growth above 9.0% would increase inflation. Rate policy had a role in curbing supply-driven prices. He noted that he was not in favor of raising taxes in current fiscal year to meet deficit target.

– BOJ Osaka Manager commented that he was sensing regional economic slowdown and rising uncertainty as overseas economic slowdown started to hit regional economies since summer period
– Moody’s: Reiterates Japan needs stability and continuity in policy; next FY budget was key for sovereign ratings and that a double-dip recession was the worst case scenario for Japan
– Russia Central Bank First Deputy Chairman: Sees no immediate need to change interest rates

Currencies/Fixed Income:

– The price action in FX markets continued to be led by developments in Europe ahead of the weekend EU summit. While the Asian session presented a more defensive tone on risk appetite, the EUR/USD tested session lows of 1.3670 after press report circulated that IMF was at odds with the EU and ECB on the sustainability of Greek debt and sought a clearer picture before releasing the next aid tranche. However, confidence remain abundant that the next loan payment would be made and further aided by optimism from EU’s Barroso that the Leaders could have an EFSF decision on Sunday with an “ambitious” deal. The circulation of the EFSF draft document also helped to sooth over risk aversion sentiment and enabled the EUR/USD to test above 1.38 ahead of the NY morning

**Looking Ahead***

– AFME European Government Bond Conference in Brussels
– (EU) Euro Zone Finance Minister meeting
– (GR) Greece Parliament vote on austerity
– 6:45 (EU) EU Barnier
– 7:00 (GE) German Chancellor Merkel
– 7:00 (BR) Brazil Oct IBGE CPI IPCA-15 M/M: 0.5%e v 0.5% prior
– 7:00 (TU) Turkey Central Bank Interest Rate decision: Expected to maintain the Benchmark Repo Rate at 5.75%

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