By Craig James, Commsec Chief Economist

MORNING REPORT
(US close - 8am AEDT)

Euro zone retail sales fell by 0.7pct in September - the first fall in four months and far weaker than forecasts centred on a 0.1pct decline. But August sales were revised up to +0.1pct from a decline of 0.3pct. And in the UK, the Halifax home price index lifted by 1.2pct in October. In the three months to October, prices were down 1.8pct on a year ago.

European shares were generally lower as investors switched attention to the high debt levels and rising bond yields in Italy. Italian Prime Minister Silvio Berlusconi has clung to power despite significant pressure to resign. The FTSEurofirst index fell by 0.6pct with the UK FTSE lower by 0.3pct and the German Dax was down 0.6pct. But the Italian sharemarket bucked the trend, lifting 1.3pct.

US shares rose in early trade before moving into the red and then recovering in the afternoon session. Shares in consumer electronics company Best Buy fell 3.2pct after the retailer said it was buying the UK Carphone Warehouse Group for $1.3 billion. The Dow Jones lifted 68 points in early trade and then was down 103pts around midday. However at the close, the Dow was up 85pts or 0.7pct, the S&P 500 was up 0.6pct and the Nasdaq was up by 9pts or 0.3pct.

US long-term treasuries rose on Monday (yields lower) on continued concerns about the European debt situation and investors shifted to safe-haven US government bonds. US 2yr yields were largely steady at 0.23pct and US 10yr yields fell by 4pts to 1.99pct.

The Euro and commodity currencies fell in early European trade against the greenback before clawing back losses in US trade. The Euro lifted from lows near US$1.3680 to US$1.3810 and was trading near US$1.3760 in late US trade. The Aussie dollar rose from lows around US102.70c to US103.90c, and was near US103.70c in late US trade. And the Japanese yen held in a very tight range between 77.97 yen and JPY78.17, and was near JPY78.05 in late US trade.

Crude oil prices rose for a fourth straight day on Monday. Traders cited a range of factors as supporting prices including unrest in Nigeria and revived concerns by Western nations on Iran´s nuclear program. Nymex crude oil rose by US$1.26 or 1.3pct to US$95.52 a barrel and London Brent crude rose by US$2.62 or 2.3pct to US$114.59 a barrel.

Base metal prices were lower on the London Metals Exchange on Monday as investors focussed on rising bond yields in Italy. Metals fell up to 2pct but zinc fared best, finishing flat. And the gold price rose in line with oil with the Comex December gold price up by US$35.00 an ounce to US$1,791.10.

Ahead: In Australia, international trade and tourist arrivals data are released together with the NAB business survey. In the US, weekly chain store sales data is released.