Markets are still digesting the whopper of a US budget deficit released yesterday. The figure has ballooned by close to $1tln over the pat year, staggering for even the US . Currently roughly 51% is held by overseas investors and of that number half is held by Japan and China. Interestingly, while the markets ponder how long foreign appetite for US assets will continue, the Fed happily extends its balance sheet and US government spending rages on. The good news from the US perspective is that by looking at TIC data there seems to be little decay in demand from sovereign names. The GBP continues to outperform, despite yesterday's retail sales coming in much softer than expected at 0.0% on the month and 2.4% annualized (0.5%m/m, 2.8%y/y expected), although last month's print was revised slightly higher. Today’s UK GDP release will be important fo the GBP direction. There has been a shift within the BoE towards solid economic data (like today's GDP) since other indictors such as PMI have been less predictive. Today’s GDP could greatly increase the probability of additional policy easing in November and in our mind GBP selling.

Yesterday's Riksbank Rates were left unchanged at 0.25%, but the accompanying statement struck a distinctly dovish tone with the markets. It reiterated that rates would remain on hold until Autumn 2010, and affirmed that a further SEK100bn would be offered to banks, disappointing those who hoped the financial system may have recovered sufficiently to negate the need for further liquidity injections. The USDSEK rallied sharply to a high of 6.9396 (aided somewhat by a recovery in the USD), but has since pared back gains to 6.8200.

Todays main highlights (aside from the aforementioned UK GDP), will be a slew of European PMI data along with the IFO, whilst the US schedule features Existing Home Sales and speeches from the Fed’s Bernanke and Kohn.

G10 Advancers and Decliners vs USD
Global Indexes Current Level % Change
Nikkei 225 Index10,282.99+ 0.15
Hang Seng Index22,537.94+ 1.47
Shanghai Index3,091.87+ 1.32
FTSE futures5,183.50- 0.84
DAX futures5,834.00+ 1.03
SMI Futures6,454.00+ 0.79
S&P future1,092.30+ 0.13
World Markets Current Level % Change
Gold1,062.00+ 0.17
Silver17.68+ 0.11
VIX20.69- 6.88
Crude wti81.48+ 0.35
USD Index75.20+ 0.12
 Todays Calender Estimates Previous Country / GMT
Flash manufacturing PMI, index Oct50.049.3EUR / 07.58
Flash services PMI, index Oct51.350.9EUR / 07.58
Flash composite PMI, index Oct0.2 (-4.6)51.1EUR / 07.58
German IFO business climate, index Oct92.091.3EUR / 07.58
German IFO current assessment, index88.087.0EUR / 07.58
German IFO business expectations, index96.395.7EUR / 07.58
Preliminary Q3 GDP, % q/q (y/y) Q3---0.6, -5.5GBP / 08.30
BBA mortgage approvals, k Sep--38.1GBP / 08.30
Industrial orders, % m/m Aug1.22.0, -25.4EUR / 09.00
Existing home sales, mn Sep5.405.10USD / 12.30
Fed Chairman Bernanke delivers address at a Boston----USD / 12.30
Fed Vice Chairman Kohn (FOMC voter) speaks-----USD / 15.30
Currency Tech

R 2: 0.9475
R 1: 0.9345
CURRENT: 0.9268
S 1: 0.9115
S 2: 0.8985

R 2: 1.0650
R 1: 1.0585
CURRENT: 1.0508
S 1: 1.0380
S 2: 1.0267

S 2: 138.70
S 1: 137.85
CURRENT: 137.69
R 1: 134.75
R 2: 135.21

R 2: 13.178
R 1: 13.089
CURRENT: 12.901
S 1: 12.795
S 2: 12.765