Expert Analysis of Today's Market

• The dollar and yen fell versus other key currencies as risk aversion decreased and international stocks rose overnight, but later pared losses when US stocks fell in late New York trading. Money-market spreads were lower after the US joined the UK, Germany and France in offering to buy stakes in banks to restore confidence in the global financial system. Sterling advanced following the news that UK inflation accelerated to the fastest pace since 1997. The Canadian dollar reversed earlier gains as crude oil fell. The Australian dollar pared overnight gains despite a big stimulus package.
• The USD/JPY pared gains as US stocks fell a day after the stock market’s biggest rally since the 1930s. The pair has recently traded between the 99-handle support and the 103-handle resistance. The pair failed to break the 103 resistance today as investors worried about the current credit crisis and the possibility of a deepening US recession. The USD/JPY’s long-term trend is still down, but further tests of resistance are possible before moving lower. There are supports at 99.00 and 96.00.

Financial and Economic News and Comments

US & Canada

• The Treasury, Federal Reserve, and FDIC are taking “decisive actions to protect the U.S. economy, to strengthen public confidence in our financial institutions, and to foster the robust functioning of our credit markets,” today’s joint statement read.
• According to the joint statement, three important actions include: 1) “Treasury is announcing a voluntary capital purchase program. A broad array of financial institutions is eligible to participate in this program by selling preferred shares to the U.S. government on attractive terms that protect the taxpayer.” 2) “Secretary Paulson signed the systemic risk exception to the FDIC Act, enabling the FDIC to temporarily guarantee the senior debt of all FDIC-insured institutions and their holding companies, as well as deposits in non-interest bearing deposit transaction accounts. Regulators will implement an enhanced supervisory framework to assure appropriate use of this new guarantee.” 3) “Federal Reserve has announced further details of its Commercial Paper Funding Facility (CPFF) program, which provides a broad backstop for the commercial paper market. Beginning October 27, the CPFF will fund purchases of commercial paper of 3 month maturity from high-quality issuers.”

Europe

• Eurozone industrial production rose 1.1% m/m in August following July’s revised 0.2% m/m decline, Eurostat said. The August IP fell 0.7% y/y after July’s revised 1.2% y/y drop.

• Germany’s investor confidence slumped for the first time in three months in October due to the current global credit crisis, with the ZEW German economic expectations indicator dropping to -63 in October, weaker than expected and near July’s record low of -63.9, from -41.1 in September, data from the ZEW Center for European Economic Research showed. The current economic situation indicator plunged to -35.9 from September’s -1.

• The UK consumer-price index jumped a more-than-expected 5.2% y/y in September, indicating UK inflation quickened the most since records began in 1997, following August’s 4.7% y/y rise, the Office for National Statistics said. The CPI increased 0.5% m/m in September after rising 0.6% m/m in August. The core CPI rose 2.2% y/y, the fastest pace since at least 1997, following August’s 2.0% y/y increase.
• UK retail price inflation accelerated to 5.0% y/y in September after rising 4.8% y/y in August. Excluding mortgage interest payments, it rose 5.5% y/y, the fastest rate since 1992, following August’s 5.2% y/y rise.

• UK house prices fell 3.4% y/y in August 2008 after contracting 0.3% y/y in July, the Department for Communities and Local Government said. House prices in London fell 3.6% y/y, while house prices in the UK, excluding the capital, slipped 3.4% y/y.
• European Central Bank President Jean-Claude Trichet urged a return to “discipline” of the Bretton Woods system. “Perhaps what we need is to go back to the first Bretton Woods, to go back to discipline,” Trichet said after his speech at the Economic Club of New York. “It’s absolutely clear that financial markets need discipline: macroeconomic discipline, monetary discipline, market discipline.”

Asia-Pacific

• Japan’s consumer confidence remained near a record low in September with the Japanese sentiment index rising to 31.4 from August’s 30.1, which was the lowest since the survey began in 1982, the Cabinet Office said.

• Japan’s domestic corporate goods prices fell 0.4% m/m in September after declining 0.1% m/m in August, according to the Bank of Japan’s corporate goods price index. Export prices fell 2.7% m/m in September following August’s 0.3% m/m increase, while import prices dropped 6.7% m/m following August’s 2.4% m/m increase. The CGPI rose 6.8% y/y in September, below August’s 7.2% y/y gain. Export prices declined 1.1% y/y, while import prices climbed 20.0% y/y in September.
• Australia’s business conditions remained relatively stable in September despite the global financial turmoil, with the NAB business conditions measure increasing to -1 in September from -3 in August, according to the National Australia Bank’s monthly business survey. However, the business confidence measure declined to -8 from August’s -7.

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