FX Overnight Briefing

Financial News - US & Far East

• U.S. equities dropped
• Stronger dollar
• Bank of Japan may signal ready to join G7 action
• Nikkei hit 5-year low below 10,000
• Reserve Bank of Australia cut cash rate by 100 bp

Today's Main Events

• NOK Industrial Production
• DEM Factory Orders
• EUR ECB's Trichet speaks
• USD Minutes of September 16th FOMC Meeting
• USD ABC Consumer Confidence

American Time Zone:

U.S. equities dropped

U.S. stocks dropped, driving the Dow Jones Industrial Average below 10,000 for the first time in four years, after bank bailouts in Europe widened and commodities producers slid on concern global growth is slowing.

Equities fell worldwide, erasing more than USD 2 trillion in market value. Bank of America Corp. and Merrill Lynch & Co. fell more than 6 % after the German government led a bailout of Hypo Real Estate Holding AG and BNP Paribas SA bought parts of Fortis, Belgium's largest financial-services company.

Chevron Corp. declined more than 3 % as oil traded below USD 90 a barrel. The Dow jumped 430 points from its intraday low on speculation the Federal Reserve will cut interest rates to unfreeze credit markets.

Stronger dollar

Dollar gained again on global deleveraging, despite the plunge in US equity markets. Buck likely to continue making new highs vs. EUR and GBP this week.

Dollar/yen fell along with lower US equities, and yen is likely to remain firm as long as the current turmoil persists.

Biggest (and only) winner against USD on the day was JPY, while biggest losers were ISK, AUD, KRW, BRL, and TRY. EM and high yielder currencies remain under pressure, and this is likely to continue through Q4 due to heightened global growth risks and risk aversion. Commodities were broadly lower on the day, weighing on the commodity currencies.

USD/MXN made new record high at 12.00. Most EM currencies ended off the lows, but outlook remains poor.

Far East Time Zone:

Bank of Japan may signal ready to join G7 action

The Bank of Japan may signal on Tuesday whether it sees a need for further major central bank action on the global financial crisis, and there is speculation it could even cut a secondary interest rate to spur bank lending.

Speculation that the Group of Seven rich nations would agree on a coordinated response, including rate cuts, to the financial turmoil reached fever pitch on Monday and helped Wall Street erase some of its biggest intraday losses on record.

The BOJ finishes a two-day policy review on Tuesday and is expected to keep interest rates on hold at 0.5 %, with core inflation at a decade high.

But there is speculation in the bond market that it could cut the rate at which it lends to commercial banks, in the face of the crisis that has shaken lenders from New York to Hong Kong.

Bank failures in the United States and Europe are shattering confidence in Japan's export markets, accelerating an economic slump that already bears the hallmarks of a recession.

Nikkei hit 5-year low below 10,000

Fears surrounding the global financial crisis drove Japan's Nikkei stock average down more than 5 % on Tuesday to a fiveyear low below 10,000, before some bargain hunters emerged to erase some of the losses.

A stronger yen, holding near a six-month high against the dollar hit on Monday, hurt exporters such as Canon Inc and automakers, whose earnings have been badly undercut by the worsening economy overseas.

At 0109 GMT the benchmark was down 3.5 % at 10,106.16. The broader was down 3.8 % at 961.33.

A sense that the shares had now become cheap prompted some light bargainhunting that lifted the Nikkei from a low of 9916.21, it's lowest since December 2003.

Reserve Bank of Australia cuts cash rate 100 basis point to 6.00 %

Australia's central bank cut its benchmark cash rate 100 basis points to 6.0 percent on Tuesday, a greater-than-expected cut as turmoil in global markets clouded the economic outlook while tightening financial conditions.

The Reserve Bank of Australia's (RBA) easing, announced following its monthly policy meeting, was the second in as many months, and the first move of that magnitude since December, 1994.

AUD/USD fell from 0.7200 to 0.7000 after the rate announcem

Jyske Markets - FX Research
http://www.jyskebank.dk/finansnyt

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