- RBA Unexpectedly Cuts Rates by a Full Percentage Point: The Reserve Bank of Australia surprised markets by cutting rates by a full percentage point on Tuesday to 6.00% from 7.00%. A consensus forecast had predicted the bank to cut by only 50 basis points to 6.50%. In his statement on monetary policy, bank governor Glenn Stevens said the unusually large move was due to recent changes occurring in the balance of risk, and a need to reduce borrowing costs. Still, he said, the actions taken by the bank are not a pattern that will be followed in future decisions. To back up his decision, the governor cited the weakening in global financial markets and economies, along with the likelihood that Australia's Asian trading partners will soften demand, which will mean a decline in terms of trade.

- Russia to Lend Landsbanki €4 Billion: Following the announcement from Iceland's central bank that it has entered into receivership and has been taken control of by Iceland's Financial Supervisory Authority, Russia said it has opened talks to lend the bank €4 billion in an effort to add needed liquidity into the financial system. According to Iceland's Landsbanki, the loan will last three to four years, at a cost of 0.5% more than the current Libor rate. Earlier on Tuesday, the central bank reported that it had loaned €500 million to Kaupthing Bank, the country's largest bank.

- Bank of Japan Holds Target Rate as Expected: As was widely expected, the Bank of Japan kept rates on hold at 0.50% at its monetary policy meeting on Tuesday. The bank said the decision was unanimous and that its overall "sluggish" assessment of the economy was unchanged. The bank said that going forward, the economy should return to a moderate growth path, and that inflation will remain at current levels for some months before levelling off. The bank said it will guide monetary policy flexibly going forward, and noted that a prolonged loose policy will lead to a swing in the economy should downside risks falter.

- Uncertainty, Downside Growth Risks Delaying Recovery, Says BOJ's Shirakawa: Bank of Japan Governor Masaaki Shirakawa said increasing downside growth risks may lead to the Japanese economy taking longer than expected to recover. He also noted the rising level of uncertainty in the economy. "The timing of the recovery may be delayed slightly compared with our initial expectations," the central banker said in a press conference following the Bank's decision to leave its benchmark rate unchanged at 0.5% on Tuesday. However, Shirakawa also said that falling commodity prices are helping the economy, as well as accommodative monetary conditions.

- Fed's Bullard Says Changing Rates is Not the Answer: Monetary policy in the U.S. does not need to be changed right now, said Federal Reserve Bank of St. Louis President James Bullard in an interview with Reuters on Monday. He said cutting interest rates is not the right way to solve a financial crisis, and that such actions do not accomplish anything during times of market volatility.

- Slovenia to Soon Feel Effects of Market Turmoil, Says ECB's Kranjec: Bank of Slovenia Governor Marko Kranjec believes that Slovenia will feel soon feel the effects of tightening credit conditions as economic activity in the country begins to moderate. "The main hit of the financial crisis is expected to be felt in the real economy as expansion slows," the central banker said in an interview with TV Slovenija on Monday. "The turmoil may cause banks to tighten credit and affect the real economy."

- ECB's Kranjec Says More Firms Will Fail: There will be more victims in the financial market crisis, but some markets are exaggerating, according to Slovenian Central Bank President Marko Kranjec. "The financial crisis is far from over," said Kranjec in a press conference in Ljubljana. The euro zone is not yet in recession and the ECB is monitoring the situation very closely, he said, adding that Growth in the euro zone is near zero.

- ECB's Noyer Says French Banks Are "Solid": Bank of France Governor Christian Noyer stressed that French banks are "solid" and that none are close to declaring bankruptcy. "None of them risk going bankrupt or even running into serious difficulty," Noyer said on Europe 1 radio on Tuesday. The French central banker added that, while no mass withdrawals had been noted, deposits would be "preserved" and that no French bank will be allowed to fail. The French government has the means to support its banks, Noyer said.

- ECB's Bini Smaghi Says Inflation Pressures "Less Important": European Central Bank Executive Board member Lorenzo Bini Smaghi said that inflation pressures have become "less important", while the economic slowdown has gotten worse, Reuters reported, citing an Italian radio interview.

- Slowing Growth, Market Rout Dominating Euro Zone Outlook, Says ECB's Constancio: European Central Bank Governing Council member Vítor Manuel Ribeiro Constâncio said that the slowing economy and effects from the current financial crisis are the dominant concerns regarding the euro zone's economic outlook. "Monetary policy in the euro area has been subject to a great pressure to avoid a price spiral," Constancio told reporters in Luxembourg. "Contributing to the pressure that monetary policy was subjected to, there was a particularly uncertain macroeconomic scenario but which is now dominated by the cooling economy and by financial instability."

- Current Financial Crisis is Unprecedented, Says ECB's Ordonez: There is no precedent to this financial turmoil, European Central Bank Governing Council member Miguel Angel Fernandez Ordonez said, adding that the global economy is facing a crisis of "enormous proportion" and will barely recover next year. Giving testimony before the Spanish Parliament, Ordonez added that emerging economies will also feel the effects of the financial crisis as banking activities slow due to tightening credit access and illiquid assets still on balance sheets. Despite the downside risks to economic growth due to the current market turmoil, Ordonez said inflation risks have not yet disappeared.

- Restoring confidence during the crisis is the "main issue", Irish Finance Minister Brian Lenihan told reporters in Luxembourg. Speaking ahead of the euro zone finance ministers meeting in Luxembourg, Lenihan also said that a €100,000 deposit guarantee is "an issue under consideration" in the euro zone and added that Ireland would welcome such a proposal. "To restore confidence among depositors is very important," Lenihan said. An increase in guarantees is only one element in the solution."

- Austrian Wholesale Price Inflation Slows to 4.2% Year-Over-Year in August: Austrian wholesale price inflation decelerated to 4.2% year-over-year in August from July's 7.4% level, according to Statistik Austria. In month-over-month terms, the wholesale price index fell 0.9% in August following July's 2.4%. August's decline pushed the three-month average rate down to -0.7% from the 1.4% level seen in the three months to August.

- UK Industrial Production Index Falls Below Expectations in August: UK industrial production fell 0.6% in September, triple the 0.2% decline expected, the Office for National Statistics (ONS) reported. September's fall deepens the 0.4% decline seen in the previous period. On an annualized basis, industrial output fell 2.3% in September, down from both the 2.0% contraction expected and the 1.9% decline seen in August. The ONS also reported that manufacturing output saw some stronger-than expected declines, falling 0.4% in September month-over-month. This fall overshoots the 0.2% contraction expected and seen in August. In yearly terms, manufacturing in the UK lost 1.9% compared to September 2007, down from both the 1.6% decline forecast and the 1.4% contraction seen in August.

- German Factory Orders Surprise to the Upside in August Month-Over-Month: German factory orders surprised to the upside, rising 3.6% on a monthly basis in August, the German Economics Ministry said. Economists had expected a much more modest gain of 0.5% following July's 1.3% decrease, revised up from -1.7%. "This was the first positive monthly growth since November 2007, but one swallow does not make a summer and the German economy is far from out of the woods as far as recession fears are concerned," Calyon Credit Agricole senior FX strategist Stuart Bennett said in a research note.

- Swedish Government Sees Net Inflows of SEK 54.04 Billion in September: The Swedish government recorded a net cash inflow of SEK 54.04 billion in September, according the Swedish National Debt Office, up from both the SEK 40 million surplus seen in the previous months and the SEK 19.4 billion inflow seen in September 2007. Disaggregating the figures, the primary borrowing requirement was recorded at SEK -54.3 billion, while interest payments came to SEK 216 million.

- Norwegian Industrial Production Falls Far More Than Expected in August: Norwegian industrial production fell 5.7% in August in seasonally adjusted terms, overshadowing the 0.5% loss expected and erasing the 0.3% gain seen in the previous period, according to Statistics Norway. Meanwhile, July's increase was revised up from an initial estimate of 1.2%. Year-over-year, industrial output declined 6.1%, down significantly from July's 1.9% increase. The statistics agency also reported that manufacturing production fell 0.3% in August from July following the previous period's flat growth rate figure. Economists had expected a 0.5% decline in the output level. Meanwhile, July's figure was revised down from an initial estimate of +0.1%. In annualized terms, Norwegian manufacturing saw a gain of 2.8% in August, down from both the 3.3% increase expected and the 3.6% rise seen in July, revised down from an initial estimate of 3.7%.

- Japanese Leading, Coincident Indexes Fall in August: Japan's leading composite index fell to 89.3 in August, according to preliminary estimates from the Economic and Social Research Institute in Japan, up from the 89.2 expected, but down from July's 91.4 level.

- Australia's Construction Sector Suffers in September: Australia's construction sector plummeted in September, hitting its lowest level this year. The Australia Industry Group's performance of construction index saw a fall to 31.8 from 43.1 in August on Monday.

- Japanese Economics Minister Reassures National Economy Not so Bad: Japanese Economics Minister Kaoru Yosano said that Japan's economy is healthy compared to the turmoil seen in the United States. He said Japan's financial sector is particularly healthy. Yosano spoke to reporters following a cabinet meeting on Tuesday in Japan.

- Bank of Indonesia Raises Key Rate 25bps to 9.50%: The Bank of Indonesia announced on Monday that it would raise its main interest rate 25 basis points to 9.5%. The rise marks the sixth month in a row where the bank has decided to increase its rate by 0.25%.

IN THE PRESS:

- RBS Shares Extend Sharp Losses: As European equities continue to melt under the pressures of the financial crisis, the Royal Bank of Scotland has approached the UK government for a capital injection, the Financial Times reports. The government has reportedly opened negotiations with a number of institutions over the possibility of government intervening more directly to stem the bleeding.

- Fed to hold CDS clearance talks: The Financial Times reports that investors are hoarding cash in expectations of payouts on nearly $400 billion in credit default linked derivatives. The news comes as the New York Fed organizes meetings to discuss the creation of a clearing house for credit default swaps.

- BofA to raise $10bn in capital The Financial Times says the Bank of America is planning to raise $10 billion in capital and cut its dividend in half in an effort to weather the financial market crisis. The move comes of the heels of a $1.2 billion third quarter profit announcement.

- EU Fights Irrelevance in Crunch: As European Union leaders fail to reach a consensus on how to react to the financial market turmoil, The Wall Street Journal reports that Austria, Denmark, and Sweden have been added to the list of independent nations offering more solid guarantees to their respective banking systems.

- CNBC Says Fed Could Announce Commercial Paper Facility: According to Steve Liesman of CNBC, the U.S. Federal Reserve is considering establishing a facility that would allow the central bank to purchase commercial paper. An announcement could come as early as Tuesday.

Richmond Fed's Lacker: Recession Yes, Rate Cuts No: In an interview with the Wall Street Journal on Monday, Richmond Fed President Jeffrey Lacker said the U.S. economy is most likely in recession, but that monetary policy easing may not be the answer. "It looks pretty likely that this is going to be declared a recession," Lacker said. "So far, this has been a mild slowdown, but some of the things I was apprehensive about earlier in the year are weakening," Lacker said, citing business investment, nonresidential construction and consumer spending.

IN THE MARKETS:

At 7:08 EDT:

The euro was up 0.82 cents to 1.3584 USD.

The U.S. dollar was up 0.49 cents to 1.1043 Canadian Dollars.

The U.S. dollar was up 17.40 cents to 101.99 Yen.

The pound sterling was down 0.06 cents to 1.7435 USD.

The Australian dollar was down 0.76 cents to 0.7146 USD.

The U.S. dollar index was down 35.10 points to 81.32.

The U.S. ten-year note was up 78.1 ticks to 117.19 with yields up 4.8 bps to 3.50%.

The German ten-year bund was down 18.0 ticks to 116.99 with yields up 1.1 bps to 3.76%.

The British ten-year gilt was down 34.0 ticks to 113.75 with yields up 3.6 bps to 4.25%.

The Australian ten-year bond was up 0.5 ticks to 94.93 with yields down 5.8 bps to 5.06%.

The Japanese ten-year government bond was down 27.0 ticks to 138.03 with yields up 5.8 bps to 1.44%.

The Eurostoxx was trading up 16.72 points to 2539.51.

The FTSE 100 was trading up 50.41 points to 4639.60.

The Dax was trading up 25.03 points to 5412.04.

The Nikkei closed down 317.19 points to 10155.90.

The Australian ASX closed up 78.30 points to 4618.70.

The Hang Seng closed down 878.64 points to 16803.76.

The Shanghai Composite closed down 15.90 points to 2157.84.

Dow Jones Futures were up 60.00 points to 10024.00.

S&P 500 Futures were up 11.50 points to 1064.75.

WTI Crude oil is up $ 3.37 to $ 91.18 per barrel.

ECONOMIC DATA:

JP Bank of Japan Monetary Policy Meeting 0.50% vs. Exp: 0.50% Prior: 0.50%

NZ NZIER Business Opinion Survey 3Q -19 vs. Prior: -64

AU AiG Performance of Construction Index September +31.8 vs. Prior: +43.1

JP Official Reserve Assets September +$995.9B vs. Prior: +$996.7B

AU Reserve Bank of Australia Interest Rate Decision 6.00% vs. Exp: 6.50% Prior: 7.00%

JP Leading Index CI August Preliminary +89.3 vs. Exp: +89.2 Prior: +91.4

JP Coincident Index CI August Preliminary +100.7 vs. Exp: +100.7 Prior: +103.5

GB Industrial Production (M/M) August -0.6% vs. Exp: -0.2% Prior: -0.4%

GB Industrial Production (Y/Y) August -2.3% vs. Exp: -2.0% Prior: -1.9%

GB Manufacturing Production (M/M) August -0.4% vs. Exp: -0.2% Prior: -0.2%

GB Manufacturing Production (Y/Y) August -1.9% vs. Exp: -1.6% Prior: -1.4%

DE Factory Orders (M/M) (SA) August +3.6% vs. Exp: +0.5% Revised: -1.3% Prior: -1.7%

DE Factory Orders (Y/Y) (NSA) August -7.6% vs. Exp: -4.7% Revised: -0.3% Prior: -0.7%

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