Economic Calendar

• Political and debt concerns pertaining to Italy remained the main focus in the market today. News that the Italian PM Berlusconi may resign soon strengthened appetite for risk, however the news was later denied by Berlusconi
• ECB's Mersch said that the ECB constantly discusses the possibility of ending bond-buys if Italy does not meet reform pledges
• Market talk of the ECB buying the Italian government debt helped the Italian/German 10-year government bond yield spread to come off its widest levels
• CHF came under pressure across the board following dovish comments from SNB's Hildebrand allied with an unexpected decline in the Swiss CPI data

• Azumi Pledges More Action After Yen Intervention (Bloomberg)
• Japan to buy more EFSF bonds-Europe fund chief (Reuters)
• Draghi in Battle Mode From Day One at ECB (Bloomberg)
• Berlusconi Stays Defiant as Europe’s Crisis Focuses on Italy Reform Effort (Bloomberg)
• Hu starts key trip to Europe (China Daily)
• Europe will not offer China concessions for aid: Juncker (Reuters)
• Europe Might Have Blown Last Chance to End Its Crisis (Bloomberg)
• Schäuble calls for EU lead on Tobin tax (FT)
• UK faces "economic suicide" if on EU margins – Clegg (Reuters)

• Incoming ECB head gives euro zone pre-summit boost (Reuters)
• Fears Euro Summit Could Miss Final Deal (FT)
• Merkel Puts Rescue Fund to German Vote (Bloomberg)
• Iron ore in record slide as China demand slows (Reuters) BHP, Rio CDS Soar
• MF Global slumps 47% on unexpected loss (FT)
• Bankers fear political moves will kill off CDS (FT)
• EU Banks Warn of Credit Drought in Push for Capital (Bloomberg)
• Analysis: Obama's moves pack political rather than economic heft (Reuters)

Growing optimism over the progress in tackling the Eurozone debt crisis together with higher than expected HSBC manufacturing PMI data from China helped risk-appetite in early European trade. In their weekend summit, the Eurozone officials said they planned to use the EFSF to provide partial guarantees to buyers of new Italian and Spanish bonds, while also creating a special purpose vehicle to attract funds from major emerging countries. These developments provided strength to European equities in early trade, however appetite for risk was dented somewhat as the session progressed, weighed upon by lacklustre manufacturing PMI data from the core Eurozone countries, together with uncertainty surrounding the issue of losses incurred by the private sector investors on their Greek debt holdings. The private sector participants seemed to be willing to take upto a 40% haircut, however Eurozone leaders wanted a 50%-60% loss. This resulted in European equities to come off their earlier highs, which in turn supported Bunds, while the Eurozone 10-year government bond yield spreads widened across the board. Moving into the North American open, the economic calendar remains thin, however Chicago Fed report from the US is scheduled for later in the session, and markets will keep a close eye on developments in the Eurozone.

• The main focus of the market remained on the EU leaders' summit this weekend and next Wednesday, where participants look ahead for further details on the implementation of the EFSF
• News overnight that the EU leaders are considering to increase the lending capacity of the EFSF to USD 1.3trl boosted risk-appetite
• Fitch managing director, Riley, said that the rating agency has no plans to downgrade France, and the upcoming EU summit outcome is unlikely to trigger review of the Italian and Spanish ratings
• ECB's Nowotny said that the ECB discussed cutting interest rate in its last meeting. Also, IFO’s economist Abberger said that the ECB will likely cut interest rate towards 1%, however the timeframe is unclear
• According to German government sources, Eurozone members could tap IMF credit lines without the EFSF involvement

• China inflation dips to 6.1% in September (FT)
• G-20 Said to Weigh Boosting IMF Lending Power to Stem Europe Debt Crisis (Bloomberg)
• German Bankers Argue Against Capital Plans (WSJ)
• State Revenue Under Forecasts to Produce Cuts From New York to California (Bloomberg)
• Germany’s Banks Said to Prepare for Greece Debt Losses of as Much as 60% (Bloomberg)
• Bank’s Bean says will do more QE if needed (FT)
• Banks’ Paths Vary in Greek Write-Downs (WSJ)
• ECB warns against private role in bail-outs (FT)
• China Inflation Wen’s Scope for Easing (FT)

• EU Bank Risks ‘Rapidly’ Growing, Andersson Says (Bloomberg)
• Inside the Fed Fight Over Bond Buys (Hilsenrath)
• France ready to give banks public capital (FT)
• Berlusconi Will Defend Government in Parliament as Confidence Vote Looms (Bloomberg)
• Germany urges treaty to strengthen bloc (FT)
• China's Appetite for Commodities Wanes (WSJ)
• China Exports Slow on ‘Severe Challenges’ (Bloomberg)
• Fed’s Plosser: Operation Twist is fiscal policy (Reuters)

• Senate Passes Measure on China’s Weak Yuan (Bloomberg)
• Meet the next "axis of evil" - Beijing and Moscow to put $1bn each in fund (FT)
• Berlusconi’s future in balance (FT)
• Juncker lists 10 steps to stem euro zone crisis (Reuters)
• Paulson & Co warns of asset redemptions (FT)
• Pimco’s Balls Says Merkel-Sarkozy Plan Isn’t Signal to Buy European Debt (Bloomberg)
• EU banks face higher capital thresholds (FT)
• Europe Must Do More to Resolve Crisis: Geithner (Bloomberg)

• Risk-appetite gathered pace during the European session after Germany and France demonstrated a united front in tackling the ongoing Eurozone crisis. Meanwhile, Russia said that it may help the EU and Spain with the debt crisis, and is ready in principle to buy the Spanish government debt
• S&P affirmed France's ratings at AAA, with a stable outlook, and affirmed Belgium's ratings at AA+, with a negative outlook
• Slovak government party SAS turned down a compromise offer from coalition partners on the EFSF ratification, however the Slovak Parliamentary Budget Committee recommended the EFSF approval
• Weakness in the USD-Index provided support to EUR/USD and GBP/USD
• The governments of Belgium and France agreed to nationalise the Belgian subsidiary of Dexia

• Steve Jobs "may never be equaled" (Reuters)
• Secret panel can put Americans on "kill list" (Reuters)
• Michael Lewis: California and Bust (Vanity Fair)
• Europe’s Rescue Fund is Only Last Resort (Bloomberg)
• EC To Propose Coordinated Action On Bank Recapitalization (MNI)
• SNB Foreign Currency Reserves Climb to Record (Bloomberg)
• Geithner Says Europe Debt Crisis Poses Risk to Global Growth (Bloomberg)
• Repatriation Tax Holiday to Be Proposed by Hagan, McCain (Bloomberg)
• China Tests US With Currency Move (FT)

• Euro Crisis Makes Fed Lender of Only Resort as Funding Dries Up (Bloomberg)
• Germany Slams 'Stupid' US Plans to Boost EU Rescue Fund (Telegraph)
• US Inflation Expectations Lowest for a Year (FT)
• Chinese Banks Raise Cash to Cushion Against Bad Debts (WSJ)
• Banks Wary of Financing Big Projects (FT)
• German Ruling Coalition Faces Tricky Bailout Vote (WSJ)
• Health Insurance Costs Deal Blow to Obama (FT)
• China Warns Asia Not to Hide Behind U.S. Military (Bloomberg)
• Japan Ruling Party Proposes $120B Tax Increase (Bloomberg)

• China’s Developers Face More ‘Severe’ Credit Outlook, S&P Says (Bloomberg)
• Hong Kong’s Tsang Sees ‘Soft Landing’ for Property, Keeps Peg (Bloomberg)
• SEC Eyes Ratings From S&P (WSJ)
• Geithner Predicts Europe Will Step Up on Crisis After Chiding (Bloomberg)
• Big audit firms face Brussels onslaught (FT)
• Fed Officials Express Doubt About Faster Inflation as Tool to Boost Growth (BBG)
• Medvedev fires mutinous finance minister (FT)
• EU urged to probe Hungary mortgage move (FT)
• Anger rises in India over redrawn poverty line (FT)

• Finance ministers and central bank governors of the G20 countries pledged for a strong and coordinated international response to boost global economic recovery
• ECB’s Coene said that the central bank may take action as soon as next month if the economic data continues to disappoint. However, he also said that giving EFSF bank license would not be a good idea. Meanwhile, ECB’s Knot said that a Greek default cannot be excluded
• Kathimerini wrote that several Greek MP’s are resisting a new round of austerity
• The Head of Finnish Parliament said that the use of new EFSF powers should always require parliament approval
• Handelsblatt quoted a German economic professor saying that Germany has EUR 5trl of hidden debt, while Deutsche Bank said co.’s write downs on Greek bonds could be higher than the 21% level foreseen in a July agreement

• Markets remained nervous ahead of a teleconference between Greece and the Troika, which has already been delayed until 1700BST today
• ECB’s Liikanen said that Eurozone growth risks are substantially on the downside, adding that sovereign debt crisis is not just individual countries' problem, but is a systemic Eurozone crisis
• According to a study by the DIW research institute, Germany's 10 biggest banks need EUR 127bln of additional capital
• According to Japan’s Economic Policy Minister, the country may announce outlines of measures to counter the strong JPY as early as tomorrow
• Moody's said it would finish reviewing Italy's sovereign credit rating for a possible downgrade within the next month, adding that Italy faces a challenging economic and financial environment

• Sources close to the situation said during the weekend that Moody's may cut credit ratings of major French banks including Societe Generale, BNP Paribas and Credit Agricole. However, SocGen’s CEO downplayed the news, and ECB’s Noyer said that French banks have no liquidity issues
• German economy minister Roesler didn’t rule out an orderly Greek bankruptcy. However, a German Economy Ministry spokesman said that instruments for an orderly Greek debt insolvency is not currently being readied
• UK’s ICB, in its report, recommended “ring fencing” UK banks’ retail arm, which will incur a cost of between GBP 4-7bln. However, it gave the banks till 2019 to implement those measures