Equity Selling Continues

Market Brief

The Usd was stronger in the Asian session, as risk appetite took a serious hit. US equity markets collapsed, with the Dow down 7% and 10 year yields dropped by 16bps. Weak data in China , UK Germany PMIs & US manufacturing ISM, combined with subdued public address by Bernanke and Paulson, weighed on investor sentiment. In addition, an announcement by the BoJ that they would hold an unscheduled monetary policy meeting today just added to the markets nervousness. The EurUsd traded from 1.2688 down to 1.2565, while UsdJpy, in a choppy session, traded from 93.82 to 92.89. Asian regional indexes are significantly lower across the board and European stocks have opened lower. Crude prices continue to slide with gold trailing right behind, as fear of a global slowdown becomes the focus once again. Given the renewed bout of risk aversion and safe haven buying, we expect the Usd, Jpy and Chf to outperform.

The BoJ will initiate plans to make it simpler for firms to acquire funding, with exact details to be decided at today's meeting. Initial reports hints the CB will create a special lending facility which will be open to lower rated corporate bonds. There is considerable speculation on whether monetary policy will be discussed.

In Australian, the RBA cut rates by 100bp (we expected 75bp) to 4.25%. In the statement accompanying the decision the RBA noted recent stability in global financial markets but the global outlook was still deteriorating and monetary policy is now expansionary. On the data front retail sales printed higher than expected and the current account deficit contracting by more than predictable. Australian retail sales rose by 0.7% m/m in October on a seasonally adjusted basis, following a contraction of -1.1% m/m in Sept. However, in the current environment risk aversion trumped data and AudUsd weakened to 0.6336 from 0.6481.

On this light calendar day European markets will be watching Oct. euro-zone producer price inflation. After reaching 9.2% in July, we expect price inflation to continue to slow.

ACM FOREX

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