Expert Analysis of Today's Market

• The dollar rose against most key currencies Wednesday as investors awaited tonight’s historic vote by the US Senate on Treasury’s $700 billion financial-market rescue bill. Today’s ISM US manufacturing report was weak, while European and Japanese economic data also indicated decelerating economic growth. The dollar edged near its highs of mid-September. The fate of the $700 billion rescue package will determine if the greenback can advance beyond these highs. We are cautiously optimistic about the dollar’s prospect. The EUR/USD fell for a third day, currently at important support. Sterling fell on the weak UK manufacturing PMI. The Canadian dollar rose modestly despite lower crude oil prices. The Austrian dollar fell to critical support.
• The USD/JPY fell modestly on high risk aversion with markets awaiting a decision on the US rescue bill. The pair has traded between support in the 104-area and resistance from the downward sloping downtrend. We believe the USD/JPY is in a topping formation, expecting further declines.

Financial and Economic News and Comments

US & Canada

• US companies cut an estimated 8,000 workers from payrolls in September after a 37,000 decline in August, ADP Employer Services estimated. Today’s ADP forecast did not take into account a strike by about 27,000 machinists at Boeing Co. or the job losses following Hurricanes Gustav and Ike. September figures indicate the US continues to lose jobs.
• The Labor Department’s September employment report, scheduled for release this Friday, is forecast to show a ninth consecutive month of shrinking payrolls, the longest streak since the 15 months through May 2002, the period that encompassed the 2001 recession.
• US manufacturing contracted in September at the fastest pace since the 2001 recession. The ISM manufacturing index fell more than expected to 43.5 in September, the lowest level since October 2001, from 49.9 in August, data from the Institute for Supply Management showed. A level below 50 signals contraction. The index components were generally weak: the new orders index dropped to 38.8 in September from 48.3 in August; the production index fell to 40.8 from 52.1; the employment index declined to 41.8 from 49.7. The new orders and production indexes are the lowest since 2001; the employment index is the lowest since 2003. The prices paid index dropped to 53.5 from 77.0, the largest one-month decline on record, reflecting the recent drop in oil and basic material costs; nevertheless, the index above 50 still indicates an inflationary trend. Overall, September ISM figures indicate the US manufacturing sector is in a recession and likely to decline further as new orders were extremely weak.

• US construction spending was flat in August, totaling a seasonally adjusted annual rate of $1.072 trillion, following a revised 1.4% m/m drop in July (previously estimated 0.6% m/m decline for July), the Commerce Department said. Residential construction spending increased 0.3% m/m to $351.7 billion in August, following a revised 3.7% m/m fall in July and a long string of declines. Non-residential construction spending decreased 0.1% m/m in August. Private-sector construction spending fell 0.3% m/m to $759.6 billion in August after dropping 2.4% m/m in July. Public construction spending increased 0.8% m/m in August to $312.5 billion after rising 1.3% m/m in July.
• The Bush Administration intensified lobbying to pressure on Congress to pass the $700 billion financial-market rescue plan. US lawmakers had revived the rescue bill by adding an increase to federal deposit insurance limits and several tax breaks, boostinbg the odds of passage in the House of Representatives. The Democratic and Republican leaders of the US Senate predicted that the $700 billion rescue package would win approval tonight.

Europe

• European manufacturing contracted more than forecast and unemployment rose to the highest in a year. The eurozone manufacturing PMI dropped to 45.0 in September, lower than a previously estimated 45.3, following 47.6 in August, Markit Economics reported. Euro-area unemployment rose to 7.5% in August, the highest since April 2007, from a revised 7.4% in July, according to a separate report.

• Germany’s retail sales climbed the most since December 2006, rising 3.1% m/m in August after falling 1.0% m/m in July, the Federal Statistics Office said. August retail sales fell 3.0% y/y.
• The CIPS UK manufacturing PMI declined to 41.0 in September from 45.3 in August, indicating UK manufacturing contracted at the fastest pace since January 1992, the Chartered Institute of Purchasing and Supply reported. Growth in UK services stagnated for the first time since 2002, stalling in the three months through July, the Office for National Statistics said. Overall, the figures suggest the UK economy has entered a recession.

Asia-Pacific

• Japan’s large manufacturers turned pessimistic about their prospects for the first time in five years in Q3 2008. The Tankan index of confidence among large manufacturers fell to -3 in Q3 from 5 in Q2, a fourth quarterly decline, the Bank of Japan said. The outlook among large manufacturers was also gloomy, falling to -4 in Q3 from 4 in Q2. The non-manufacturing index dropped to 1, below the previous reading of 10. The outlook among non-manufacturing firms declined to -1, below the previous reading of 8. The Tankan all-industries Capex index showed large manufacturers and non-manufacturers plan to increase business investment by 1.7% in fiscal 2008. In the previous quarter, manufacturers and non-manufacturers had expected to reduce spending by 2.4%.

• Australia’s manufacturing contracted for a fourth month in September. The AiG performance of manufacturing index increased to 47.2 in September from 47.0 in August, the Australian Industry Group and PricewaterhouseCoopers said. A reading below 50 signals a manufacturing contraction.

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