Euro-zone Industrial New Orders provided a snapshot of the strength of the Euro-zone economy before the onset of the last few weeks’ turmoil. Across the entire Union new orders recorded a 4.9% MoM and +14.0% YoY rise. The monthly growth was more than double the forecast of +2.0% while the annualized rate was forecast to be around 12.4%. This does suggest that the European economy, while moderating, entered the whirlpool in a healthy condition and it is no wonder that Trichet confirmed that the ECB’s stance was still that current levels of interest rates are still accommodative. This should over time provide the Euro with an uplift following last week’s slide. Even in the U.K. the CBI Industrial Trends survey identified a still buoyant manufacturing sector with order levels at 12 year highs. Total Orders saw a sizeable jump to +9 which is the highest in just over 12 years. Forecasts had actually been looking for a decline of -3. Export Orders also registered a higher level at -3 against forecasts of -8. However, the CBI commented that price pressures remain with their report stating, “While price pressures in the manufacturing sector have not gone away, the Bank of England can take some comfort from the expected slowdown in output growth as recent monetary policy appears to be having its desired impact. With the recent turmoil in world stock markets and the risk of spillover into economic activity, the Bank should continue to hold steady on interest rates” And on a day when several banks including Lehmans and HSBC cut jobs in their mortgage lending departments the general market expectation is for the Fed to next cut the Fed Funds rate over the coming days or weeks. Recently the Richmond Fed’s Poole stated that only a calamity would force the Fed to cut rates. However, most currently accept that the market appears to have calmed market jitters for now. Indeed, market participants have been alerted to the Thursday Discount Rate window at which the Fed cut the Discount Rate last week. Activity during the window will help the market gauge liquidity. Today, four major US banks - Bank of America, Citigroup, J.P.Morgan Chase and Wachovia announced they have borrowed USD 500mn each from the discount window and suggested other banks also begin borrowing directly from the Fed to increase financial market liquidity. However, credit has been much tighter and this could slow business decisions argue some traders with a change in perception of credit risk. This re-evaluation will take some while to complete and until then the markets will remain nervy and quick to react. However, the FX market appears to be returning to normal with yesterday generally quiet but not seeing any return to last week’s directional trades. Indeed, this morning has seen USDJPY break above the 115.78 level that should bring further gains as more valiant funds begin the process of carry trades again. The rally is likely to be a little choppy but overall a fairly swift rally back to above 119.00 should develop over the coming weeks. The European currencies look set for further consolidation and two-way business is more likely to keep the Dollar in a broad trading range. However, while the European currencies may gain a little over the coming 1-2 weeks the underlying direction is now Dollar bullish to the end of the year. More later when the analysis is complete. Economic releases expected from Asia today are: The Bank of Japan is due to announce its rate decision
The Bank of Japan Monthly Report is due to be published | 
