The Usd was slightly weaker in the Asian session, after a strong rally yesterday. EurUsd, in choppy trading, jumped between 1.3300 and 1.3360, while UsdJpy rose in early trading to 102.16, before slipping down to 101.43 (carry trades followed a similar pattern). The US equity markets continued to rally, with the S&P 500 up 4.7% and Asian regional stock indexes are following with Nikkei up 3.39%. VIX fell a whopping ‐24.0% to 52.97 and gold fell to $793.82oz, as confidence continues to filter back into markets. Participants were broadly encouraged by the flood of official speak and corresponding markets reaction (interbank lending rates continue to fall), shaping a general sentiment that a global financial meltdown has been averted. The market widely embraced Fed Bernanke’s comments yesterday, specifically when he endorsed the idea of a second round of fiscal stimulus.

New Zealand’s CPI q3 came out in line with market expectations, rising by 1.5% q/q and 4.1% y/y. Although inflation rose to an 18‐year high at 1.3% q/q and above RBNZ expectations, the central bank expect that additional deterioration in the global economic growth prospects will help ease the pressure and is free to address the sharp down domestic downturn. We continue to expect the RBNZ to cut rates by 100bp this week. In a speech by RBA Governor Stevens, which really contained no real revelations, did highlight his view that “the likelihood of a global (financial) catastrophe has declined over the past couple of weeks.” In addition, the RBA minutes, which encapsulated the surprise 100bp cut (to 6.00%), were released. It is interesting to note that originally a 50bp cut was recommended, but staff upgraded to 100bp on the day of the meeting. However, due to the fluid landscape not much should be drawn from these minutes.

Today, the Central Bank of Canada is expected to cut interest rates but the market is split as to 25bp or 50bp. However, we are expecting a larger cut of 50bp. The central bank has already lowered rates 50bp, as part of the coordinated reduction. The BoC recently stated that slower global growth would weigh on Canadian exports, while credit conditions in Canada have tightened significantly and inflation expectations have decreased. A combination which favors a more aggressive accommodative monetary policy.

ACM USA
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