Trading in the London session was pretty lackluster right up until the BOE and ECB rate cuts.  The Bank of England came in and cut rates by a much sharper than expected -150 bps while the European Central Bank disappointed by cutting ''only'' -50 bps.  The statement out of the BOE was dire as the bank noted a very marked deterioration in economic activity coupled with a sharp pullback in inflation.  They also noted weak prospects for business spending and investment going forward.  This leaves further rate cuts on the table up until a terminal rate of about 2.00% or so.

The initial reaction to the more aggressive cuts was to sell GBP.  Cable ran down towards the 1.5720 area before reversing sharply.  The rate cut was then viewed as a positive for economic activity going forward as lower rates are supposed to stimulate growth.  Stocks rallied about 2% while Cable was subsequently taken higher into the 1.6020/30 zone.  It has backed off more than -100 pips from the highs now as the dire statement from the BOE sinks in.  The ultimate direction for the market is still a question but the gloomy economic outlook is hardly a reason to buy stocks.

The ECB has yet to put out its statement as this will come as Trichet begins his press conference at 1330GMT.  The lower than expected -50bps rate cut however saw Euro lower and stocks reverse about -1.5% from the post BOE highs.  EUR/USD was sitting near 1.2770/80 after opening the London session about 100 pips above that area.  For the markets, a dire economic assessment out of Trichet could be the tipping point.  Stocks will not like the doom and gloom and we would expect this would lead to more paring of risk trades.  This would mean lower EUR, GBP and commensurately lower JPY crosses across the board.  Stay tuned!

Upcoming Economic Data Releases (NY Session)   Prior   Estimate

  • 11/6/2008 13:30 GMT Trichet Speaks at ECB Monthly News Conference
  • 11/6/2008 13:30 GMT CA Building Permits MoM SEP -13.50% -1.50%
  • 11/6/2008 13:30 GMT US Nonfarm Productivity 3Q P 4.30% 1.00%
  • 11/6/2008 13:30 GMT US Unit Labor Costs 3Q P -0.50% 2.70%
  • 11/6/2008 13:30 GMT US Initial Jobless Claims 1-Nov 479K 476K
  • 11/6/2008 13:30 GMT US Continuing Claims 25-Oct 3715K 3750K
  • 11/6/2008 15:00 GMT CA Ivey Purchasing Managers Index OCT 61 56
  • 11/6/2008 22:30 GMT AU AiG Perf of Construction Index OCT 31.8 - -
  • 11/6/2008  US ICSC Chain Store Sales YoY OCT 1.00% - -