Risk Aversion Lower As Italian 10 Year Yield Declines

French rating confirmed at AAA; Papademos new Greek PM; Italian 10 year yield declines and UK price pressures started to ease. Market turns to UoM consumer confidence.

Risk aversion is somewhat lower in the ongoing session with most currencies trading within relatively tight range against the USD. Major European equity indices are higher by about 0.5%.

World financial markets calmed down after French rating was affirmed at AAA and former ECB vice president Lucas Papademos was selected as a new Greek PM. German chancellor Merkel's confirmation that there are no plans to create a two level Eurozone as was speculated over the past few turbulent days also helped.

Italian senate will vote on the austerity measures today and the government announced that it will meet on Saturday. PM Berlusconi said that he would resign after the budget bill was approved and the speed of changes imply that the probability that the new government could be installed over the weekend is high. Italian 10 year yield trades around 6.66% and German-Italian 10 year spread declined to 4.86%.

In the UK, annual PPI input prices declined -0.8% in October from previous +1.8% (14.1% y/y from 17.7% y/y). Output prices stayed unchanged m/m and declined to 5.7% from 6.3% y/y. Both annual input and output readings showed declines and were lower than expectations indicating that inflationary pressures could indeed start to disappear which could consequently increase the chances of more QE. GBPUSD trades near session lows around 1.5910.

The liquidity during the US session could be low and movements erratic as the US celebrates Veterans Day and Canadian banks are closed due to Remembrance Day.

Despite the holidays, 9:55 am ET will bring November UoM consumer confidence that is seen higher at 61.5 from previous 60.9.

The volatility could increase at 1:15 pm when FED governor Janet Yellen speaks about financial stability in Chicago.

Patrik Urban