European Market Update: Slowing Growth Concerns ahead of European Interest Rate Decisions

. ***Data***

- (SW) Riksbank raised interest rates by 25bps to 4.75%, as expected

- (ID) Indonesian Central Bank raised interest rates by 25bps to 9.25%, as expected

- (FR) Q2 ILO Unemployment Rate: 7.6 v 7.5%e; Mainland Unemployment: 7.2% v 7.2%e; Unemployment Change: +19K v - 13Ke

- (IT) August Retailers' Confidence: 106.5 v 98.4 prior; Services Survey: 7 v -8 prior

- (NE) August CPI: M/M 0.2% v 0.1%e; Y/Y 3.2% v 3.1%e.

- 4:00 (UK) August HBOS Plc house prices : M/M consensus expectations are -1.8% ; The prior number was -1.7%; YoY: Consensus expectations are -10.7%; The prior number was -8.8%

- 5:00 (SW) Sweden to Sell SEK500M 1.0% 2012 I/L Bonds

- 6:00 (GE) July Factory Orders: M/M -1.7% v 0.3%e ; Y/Y -0.7% v -2.2%e;

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

- Natexis [KN.FR] Priced rights offering at €2.25/per share, and seeks to raise €3.7B || British Petroleum [BP.UK] shares were firmer after it reached an accord with AAR Billionaires regarding the TNBP.RU jv. The WSJ also reported that Board of the jv will be restructured and that CEO Dudley to resign by the end of the year || Unilever [UNA.NV] Appointed Paul Polman as new CEO || Boeing [BA] Machinists Union voted to reject Boeing's final 3 year contract offer ||Telefonica [TEF.SP] agreed to buy an additional 5.7% stake in China Netcom || Veolia [VIE.FR} traded lower on market talk that hold EDF may sell its 3.89% stake in co. || BG Group [BG.UK] traded higher on market talk that Exxon [XOM} was interested in a stake.

- ECB's Wellink stated that the financial crisis is not over at this time and expected it to last into 2010. He Noted that Dutch economy can get through the economic crisis if wage-inflation spiral remains under control.

- Fitch noted that Japan's Sovereign Credit Rating was not likely to be impacted by the election of a new PM and that China's fiscal outlays will not impact the country's rating

- (KS) South Korea Foreign Minister Yu stated that an envoywas being sent to China to discuss North Korea nuclear program.

(KS) South Korea Central Bank Chief Lee stated that it has a significant investment in Fannie and Freddie GSE's paper. He Added that August rate hike was necessary and noted that CPI could decline toward the end of 2008

- (AU) Australia Treasury Sec Swan commented that domestic demand has slowed

- Kazakhstan Gov announced a planned mineral extraction tax for exports starting in 2011

- (SW) The Riksbank raised its interest rates by 25bps to 4.75%, as expected. The Swedish Central Bank added that it Expected to hold the repo rate at 4.75% for the rest of 2008. The bank lowered its GDP estimates for 2009 through 2010.

It now sees 2008 GDP at 1.4% v 2.1% prior view; 2009 GDP seen at 0. 8% v 1.2% prior view. The bank also made mild comments on the inflation front. With 2008 CPI steady at 3.9%, unchanged from prior view and lowering the 2009 CPI outlook to 3.2% v 3.5% prior view coupled with 2010 CPI at 2. 0% v 2.3% prior view.

In Fixed Income supply (SP) Spain sold EUR1. 98B in 3-year bonds avg yield 4.345%, Bid-to-cover . (FR) France sold €1. 195B 4.0% Apr 2015 OAT, avg yield 4.21%, bid-to-cover 2.34x; sold €2.965B 4.0% Apr 2018 OAT, avg yield 4.36%, bid-to-cover 1.9x; sold €1.045B 4.0% Oct 2038 OAT, avg yield 4.71%, bid-to-cover 2.08x

- In currencies, dealer noting that the recent spat of positive USD momentum is beginning to show some signs of waning. The EUR/USD trading back above the 1.45 handle and GBP/USD up 80 pips on chatter of Middle Eastern bids and potential M&A flows. There was talk that reserve diversification may resurface. Crude oil prices are higher as well. The oil to EUR correlation remains the dominant driver of the EUR/USD relationship.

·*** NOTES ***

Central bank rate decisions and employment data will be the main ficus as the BOE, ECB report later this morning. No surprises are expected. The Swedish rate hike highlighted the possible danger of slowing economic growth. The 8:30am ET ECB press conference will see if Trichet can say or do today that would not weaken the euro currency.

Dealers noting that maintaining a “hard line� will not fool the market as a tightening bias in a slowing growth environment is fatal for a currency. The UK house prices data showed that prices fell at the fastest annual pace in 25year.

Looking ahead for the NY morning:

- 7:00 (UK) BOE RATE ANNOUNCEMENT: Consensus expectations are for rates to remain unchanged at 5.00% ; T

- 7:45 (EU) ECB RATE ANNOUNCEMENT: Consensus expectations are for interest rates to remain unchanged at 4.25%;

- 8:15 (US) Aug ADP Employment Change: Expectations are for -30K v +9K prior

- 8:30 (EU) ECB Press conference begin

- 8:30 (US) Q2 Final Nonfarm Productivity: Expectation 3.5% v 2.2% prior

- 8:30 (US) Q2 Final Unit Labor Cost: Expectations are for 0.0% v 1.3% prior

- 8:30 (US) Initial Jobless Claims: Expectation 420K v 425K prior; Continuing Claims expected at 3.420M v 3.423M prior