Canada's headline inflation rate dipped to a lower-than-expected 2.6% in October, Statistics Canada reported, against forecasts for a drop to 3.1%. On a monthly basis, the consumer price index shrank by a seasonally adjusted 0.5% as gasoline prices tumbled sharply from September. On a non-seasonally adjusted basis, the total CPI decreased 1.0% month-over-month. Analysts had expected a 0.6% decline.

The core inflation rate, which excludes the eight most volatile components including gas, mortgage interest and fresh fruits and vegetables, was unchanged from September, in line with expectations, and was +1.7% on an annual basis, somewhat lower than the +1.9% forecast.

"This lower than expected report, with notable weakness in a variety of core components adding to the deep dive in gasoline, gives the all-clear signal to the Bank of Canada to continue cutting rates," noted Douglas Porter, deputy chief economist from BMO Capital Markets.

Meanwhile, BMO chief economist Sherry Cooper urged the Canadian government Friday to move quickly and decisively to stimulate the country's economy. "Canadians have been far too sanguine thinking that we would be cushioned from the crisis in credit and the global recession," she said in a research note.

"Just as Washington is taking extraordinary steps to ballast financial institutions, non-financial businesses, households, and state and local governments, Ottawa should be preparing for a worst case scenario."

In the United States, equity markets surged after NBC News reported that Barack Obama will ask Timothy Geithner to succeed Henry Paulson as Treasury Secretary. The announcement is expected Monday and is expected to include Hillary Clinton as Secretary of State and Bill Richardson as Commerce Secretary. Geithner is the current head of the New York Federal Reserve and the man who engineered the rescue of Bear Stearns.

Canadian natural gas sales fell 3.8% in September compared to the same month last year, Statistics Canada reported. Sales totalled 4.5 billion cubic metres, down from 4.7 billion in September 2007. Commercial sales increased while both residential and industrial sales declined year-over-year.

There were no major data releases in the U.S., though shares of Citigroup continued to plummet, falling below $4 a share Friday after the firm's CEO said he has no plans to break up the company. Shares initially rose early in the day on a report that the banking giant was considering breaking up and selling part of its operations.

Speakers in the U.S. included Philadelphia Federal Reserve President Charles Plosser (voter), who said he expects growth in the U.S. economy to be anemic well into the first half of 2009. Plosser also said that the Federal Reserve will address the Fed funds target issue and that it was the excess liquidity that the Fed put into the system that has had the unintended effect of lowering the rate below the Fed's target of 1%.

Chicago Fed President Charles Evans echoed those comments, saying he expects to see a substantial downturn in the U.S. economy well into 2009, with a recovery taking root in 2010-2011. He predicted the PCE price index will come in at 1.4%-1.7% and that he expects it to remain "consistent with price stability."

In terms of data, regional and state unemployment rates took a turn for the worse in October, as 38 states and the District of Columbia recorded over-the-month unemployment rate increases, five states registered decreases, and seven states had no change. The national unemployment rate was 6.5% in October, having advanced four-tenths of the month and by 1.7% over the year.

U.S. mass layoff actions, involving 50 or more employees from a single firm, came in at a seasonally adjusted 2,140 in October, lower than the previous month's record 2,269 actions, the U.S. Bureau of Labor Statistics reported. The number of mass layoff events this October decreased by 129 after the prior month's total hit a seven-year high. The total number of workers involved was 232,468 in October, below the previous month's 235,681 total.

In overseas news, both euro zone manufacturing and services purchasing managers indexes hit new lows, causing some economists to say the worst may be in store for the euro zone. According to preliminary estimates from Markit Economics, the euro zone manufacturing purchasing managers index fell to a record low in November, coming in at 36.2, down from both the 40.5 print expected and October's 41.1 level. The services PMI for the euro zone slipped to 36.2 for the month, the lowest level in the history of the survey.

By Stephen Huebl, This email address is being protected from spam bots, you need Javascript enabled to view it , with contributions from Geoff Matthews, This email address is being protected from spam bots, you need Javascript enabled to view it , Patrick McGee, This email address is being protected from spam bots, you need Javascript enabled to view it , Steve Stecyk, This email address is being protected from spam bots, you need Javascript enabled to view it , Todd Wailoo, This email address is being protected from spam bots, you need Javascript enabled to view it , edited by Nancy Girgis, This email address is being protected from spam bots, you need Javascript enabled to view it

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