It seems to be a race to see which Cbank will have Ã¢â‚¬ËœzeroÃ¢â‚¬â„¢ interest rates first. Governor King surprised everyone yesterday, and NFP is expected to surprise us this morning. Employment and growth destruction is morphing at a phenomenal rate. The real economy is yet to feel the Ã¢â‚¬Ëœtrue pinchÃ¢â‚¬â„¢ of the credit debacle, but the signs are there and the next few months will be an eye opener to many. Policy makers will have to continue to force rates lower for the foreseeable future.

The US$ is weaker in the O/N trading session. Currently it is lower against 12 of the 16 most actively traded currencies, in a Ã¢â‚¬ËœwhippyÃ¢â‚¬â„¢ trading range.

Policy makers are answering the call. European Cbanks collectively slashed lending rates to try and head off a deeper recession. The BOE reduced its key rate by the most in 16-years to 3%. Trichet and his policy makers lowered by 50bp to 3.25%, while at an unscheduled meeting the Swiss matched by the same margin to 2%. With respect to the BOE, market expectations were for a 50bp cut, not a bold a move as the one we witnessed. No one expected 150bp because of the possibility of spreading panic into the market. Analysts continue to predict further cuts over the coming months, but the next cut will probably be delivered in the 1st Q of next year. Cbanks are perfectly aware that it takes a few quarters to see the first effects of more accommodative policy on the real economy. One should expect the timing of the next rate move to be led by confidence indicators and expectations surveys, along with the usual credit and market conditions. Governor King sounds very downbeat on the prospects for growth and he reiterated that inflation risks have receded. UK growth points to one of the most severe recessions in half a century and justifies KingÃ¢â‚¬â„¢s action and views. Trichet is already leaning towards further rate cuts after yesterdayÃ¢â‚¬â„¢s decision. He said he cannot rule it out because the global financial crisis may lead to an extended economic slump. His following statement was dovish and expects prices to stabilize next year. Risks to growth remain skewed to the downside. It has been difficult for the ECB to back peddle from its hawkish tone 2 months ago; they really could not cut deeper this time, if they had done so they would have lost a lot of credibility. But, they have finally deviated from their inflation stance and not a moment too soon.

No ray of sunshine from US data again yesterday, we registered the highest continuing jobless claims in a quarter a century. US job markets are showing signs of deteriorating at a faster pace than either of the two previous recessions. Continuing claims surged to 3.84m from an upwardly revised previous weeks reading of 3.7m. Analysts note that continuing claims remain highly correlated with the unemployment rate and now anticipate an Ã¢â‚¬ËœuglyÃ¢â‚¬â„¢ NFP number this morning (-250k). Other data does not bode well for this am. The deterioration in US productivity growth strengthens the risks of Ã¢â‚¬Ëœaggressive job shedding in the months aheadÃ¢â‚¬â„¢. Digging deeper, economy-wide output per hour worked grew by +1.1% in 3rd Q. Stronger or faster than anticipated, but downward revisions to previous quarters negate this. A bit of an eye open was that hours worked fell -2.7%, which is the fastest pace of shedding to date. As a result, productivity adjusted labor costs rose sharply (+3.6%), and analysts point out that this will be dealt with going forward by employers.

The US$ currently is lower against the EUR +0.78%, GBP +1.10%, CHF +0.48% and JPY+0.35%. The commodity currencies are stronger this morning, CAD +0.37% and AUD +0.78%. Surprisingly stronger than expected Canadian building permits (+13.4%) gave the loonie a temporary boost in the morning session yesterday, but alas, like all commodity currencies pared most of the weekÃ¢â‚¬â„¢s earlier gains as both equities and commodities slumped. A lower PMI reading (52.2 vs. 61) obviously did not help the situation. The market is trying to decipher the depth of the BOE and ECB cuts; will it have any impact in the medium term? Traders are waiting patiently for this morningÃ¢â‚¬â„¢s North American employment numbers. Any further downside for the black-stuff and we will be revisiting the highs of the week once again.

The AUD$ found some traction in the O/N session as global equities rebounded and the perception that the Fed will need to slash interest rates again soon to combat a deepening recession Ã¢â‚¬Ëœstate sideÃ¢â‚¬â„¢. In recessionary times, commodity currencies trade under pressure and the AUD is no different. Despite having a weekly advance, traders remain better sellers on rallies for now (0.6708).

Crude is higher O/N ($62.37 up +160c). No surprises yesterday, Crude prices mirrored the fall of global equities. The erosion of future demand continues to have a chokehold on the black stuff pricing. The trading range has been Ã¢â‚¬Ëœto and froÃ¢â‚¬â„¢ all week settling close to a new 19- month low. Oil and equity markets continue to trade under pressure in the course of a deepening concern that the economic slowdown is hurting corporate earnings. From its highs at the beginning of the summer oil has managed to retreat close to 60% and is threatening to break further on the downside. Some traders see the black stuff retreating back to the $50 level once again. This will only heighten the urgency amongst OPEC members. Weaker US fundamental data and this weeks unexpected EIA report remains bearish in the short term for crude. All this despite the IEA saying yesterday that Ã¢â‚¬Ëœoil-import prices will rebound to an average of $100 a barrel between 2008 and 2015 and that the threat of a supply crunchÃ¢â‚¬â„¢ remains. The market is basically digesting the borrowing rate cuts this week and trying to comprehend what this will do to demand in the medium term. The weekly EIA report showed that US gas supplies rose +1.12m barrels to 196.1m w/w vs. an expected +650k. Inventories of crude rose +54k barrels to 311.9m. Analysts had forecasted a rise of +1m barrels. Euro-land has already declared the region’s economy has entered a recession and will stagnate next year. Rate cuts last week by the three biggest oil users, the US, China and Japan, has so far failed to inspire confidence that a recession can be avoided. Global equities and OPEC wanting to meet again next month has provided little support. OPEC indicated that they may call a new meeting if prices fail to react to the -1.5m barrel-a-day output cut it announced last month. LetÃ¢â‚¬â„¢s see how investors will interpret a surprising NFP. Same theme but a different day, Gold found no traction yesterday after weaker US data had convinced investors that due to the state of the US economy, it will eventually reduce demand for commodities. In this mornings session with the greenback under pressure, traders have been happy to own the Ã¢â‚¬Ëœyellow metalÃ¢â‚¬â„¢ as an alternative investment.

The Nikkei closed 8,583 down -316. The DAX index in Europe was at 4,846 up +32; the FTSE (UK) currently is 4,325 up +53. The early call for the open of key US indices is higher. The 10-year Treasury yields eased 1bp yesterday (3.70%) and are little changed O/N. Traders main focus this week was to unwind the steepener. There was very little action ahead of this mornings NFP numbers. But, the long end of the curve remains better offered as traders prepared for the US government’s auctions of $55b of debt next week. All bets are off, until after 8.30am.

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