Expert Analysis of Today's Market

• In NY volatile trading Monday, the dollar and yen rallied against other key currencies, while international stocks and commodity prices tumbled as the credit-market crisis and debt deflation worsened. Gold prices rose as the financial markets entered panic mood with European stocks down the most since 1987 and credit spreads at record levels. The Dow finished at 9955.50, below the 10,000 mark for the first time in four years, with the VIX at historic highs. To remedy the global financial crisis, central banks need to cut interest rates dramatically, preferably in coordinated actions. The Federal Reserve should cut its federal funds rate to 1.0%; the European Central Bank and other central banks should lower their benchmark rates soon. The yen surged against all currencies and the most versus the euro since the inception of the single currency on renewed financial turmoil in Europe.
• The USD/JPY fell on increased risk aversion. Investors are selling risky assets and unwinding carry trades as the outlook for the global economy deteriorates The pair broke support in the 104-area and tested support in the 100-area, before gaining slightly as US stocks closed off their intraday lows.

Financial and Economic News and Comments

US & Canada

• Treasury Secretary Henry Paulson consulted with Federal Reserve Chairman Ben S. Bernanke as stocks fell worldwide to set up the $700 billion financial-rescue program. Paulson also discussed with New York Fed President Timothy Geithner and Wall Street executives. There is a “paramount need for expeditious implementation” of the $700 billion Troubled Assets Relief Program (TARP), the Treasury said.
• The Dow Jones industrial Average fell 369.88 points to finish at 9955.50, below the 10,000 mark for the first time in four years, on global credit-crisis spillover effects.
• Due to declines in both the residential and non-residential sectors, Canada’s building permits plunged 13.5% m/m to C$5.6 billion in August, a level similar to the one seen in March 2008, Statistics Canada reported. Building permits in the residential sector fell 9.3% m/m to C$3.4 billion. The non-residential sector dropped 19.3% m/m to C$2.2 billion. August building permits were down 0.7% y/y. The overall figures suggest Canada’s housing sector activity will likely worsen over the next months.
• Canada’s Ivey purchasing managers index jumped to 61.0 in September from 51.5 in August, beating the consensus estimate of 51.0. The employment index fell to 49.2 in September from 53.0 in August, while inventories slid to 50.8 from August’s 55.6. Supplier deliveries dropped to 44.6 from 55.6. Prices rose to 74.6 from 72.7.

Europe

• Euro-area investor confidence declined more than expected as the Sentix index fell to -27.8 in October from September’s -20.2. Investor expectations dropped to -41.0 from September’s -28.0, indicating market participants expect the financial market to deteriorate further due to the spillover effects of the US financial crisis into the world economy.
• Royal Bank of Scotland Group Plc, the UK’s second-biggest bank, had its credit rating cut for the first time since December 1998 by Standard & Poor’s because the RBS’ financial profile is worsening.

Asia-Pacific

• New Zealand’s budget deficit will be NZ$5.9 billion ($3.9 billion) in the year ending June 30, 2009, amid the economy’s first recession in 10 years and a worsening global financial crisis, compared with the NZ$3.48 billion shortfall predicted in May, the government said. The deficit will widen to NZ$7.3 billion by the 2013 fiscal year.
• Vice Finance Minister Kazuyuki Sugimoto said Japan may tap about ¥3 trillion ($29 billion) of funds from a special account for loans to state-affiliated agencies to limit rising public debt.

FX Strategy Update