Expert Analysis of Today's Market

• In NY trading Monday, the dollar was lower versus most key currencies but higher against the pound and Australian dollar. Investors are reluctant to take any big bets ahead of tomorrow’s FOMC interest-rate decision meeting. We expect the Fed to cut rates 25 basis points and reassure the market that the FOMC remains concerned about the risk of inflation and the cut is in response to increased risk of an economic slowdown. The credit crunch should be addressed by a lowering of the discount rate. We expect a 50 basis-point decline in the discount rate. This will help financial institutions in crisis without causing general inflationary pressures and further misallocation of resource.


• Sterling fell below $2 for the first time this month as thousands of depositors pulled money from UK bank Northern Rock. The EUR/GBP rallied last week and significantly broke the long-term downtrend on the weekly chart. Northern Rock Plc received the biggest emergency bailout in 30 years from the Bank of England. The GBP/USD dropped on speculation the turmoil in the financial markets will prevent the BOE from raising interest rates. The pair is overbought, but we think it will move higher. We are selling 1 unit of GBP/USD and buying 1 unit of EUR/USD.

Financial and Economic News and Comments

US & Canada

• Manufacturing activity in New York slowed in September, the New York Federal Reserve Bank said. The NY Fed manufacturing index fell to 14.7 in September from 25.1 in August. New orders fell to 13.6 from 22.2. The index for shipments fell to 5.1 from 28.8. The employment index rose to 18.2 from 11.6; however, the average workweek fell to 9.6 from 16.1. The prices-paid index rose to 35.1 from 34.4 in August. The index of activity in the next 6 months showed continued optimism. The future general business condition index inched lower to 48.8 in September from 50.4 in August. Overall, the report shows continued expansion at a lower rate.


• Former Fed Chairman Alan Greenspan sees a larger decline in housing prices and greater downside risks to the US economy from the credit turmoil. He also feels interest rates will need to be raised long-term as a result of gathering inflationary pressures.


• International investors unexpectedly bought a net C$1.5 billion ($1.46 billion) of Canadian securities, Statistics Canada said. They bought a net C$2.47 billion of Canadian stocks, reversing about half of the sales they made in May and June.

Europe

• The first estimate for the euro-area trade balance with the rest of the world in July 2007 was a 4.6 billion euro surplus, compared with +1.1 billion in July 2006, Eurostat reported. The June 2007 balance was +7.6 billion, compared with +1.6 billion in June 2006. In July 2007 compared with June 2007, seasonally adjusted exports fell 0.5%, while imports rose 3.6%.


• ECB Vice President Lucas D. Papademos said he sees upside risks to price stability, growth scenario intact, but risks on growth to the downside. He said the ECB Sept. 6 assessment is still valid.

Asia-Pacific

• Asia’s developing economies will expand faster than earlier estimated in 2007 and 2008, and are well placed to weather any US slowdown and turmoil in global credit markets, the Asian Development Bank said. Growth in Asia excluding Japan and Australia is forecast to be 8.3% in 2007, beating an earlier March estimate of 7.6%. The region will expand 8.2% in 2008, faster than an earlier forecast of 7.7%, the ADB said.

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