Euro

BOJ's Sagano on the wires suggested that providing US Dollars was the key to unlocking markets. He said the lack of Dollar funds has spilled into the Euro and the Yen.

• Interbank transactions remain scarce.
• Japan's economy stable relative to the West, but market stress will remain for the time being.

The markets are orderly for the holiday so far. The price action suggests a positive feeling from the weekend events.  The world united and plans were implemented to free up some capital to financial institutions. Morgan Stanley seems to be moving forward again.  Clearly, the world is not out of the woods but the bullets have been used to stabilize the situation.

The European Central Bank's Noyer had the following comments before the European open:

• No comment on market rumor of coordinated interest rate cuts.
• Sees extraordinary level of volatility in financial markets; but does not believe the markets will crash.
• He noted no French bank is close to failure and added the French government will not allow any bank to fail.
• G8 should meet and discuss the financial crisis.
• Does not see signs of people withdrawing funds from banks.
• Says G8 meeting to discuss the turmoil would be a positive action, to show governments are working together.
• Growth in France is close to zero at the moment.

The PMI Services final reading for September was released for the major industrial nations of Europe and for the Euro-Zone in aggregate. The readings were as follows:

• Italian PMI- Survey:48.1      Actual:49.4
• French PMI- Survey:50.4      Actual:50.1
• German PMI- Survey:49.3    Actual:50.2
• Euro-Zone PMI- Survey:48.2 Actual:48.4

This data release was generally higher than expected and the markets generally had a muted reaction, as the world awaits the release of the US employment report and the vote by the US House of Representatives on the bailout plan approved by the US Senate yesterday.

The release of the September Manufacturing Purchasing Managers Index (PMI) for Germany, France and Italy, as well as the Euro Zone came in as follows:

The Euro - Zone CPI estimate is usually an important economic release, but especially in this market. With the world looking at the European Central Bank to ease in the coming months and futures are pricing in a rate cut more aggressively in recent weeks, an inflationary indicator like CPI should go a long way to helping the ECB determine whether they believe that has become an appropriate measure, particularly with the ECB's hawkish rhetoric for the past year. The release which was expected at 3.6% for September came in as expected. Once again the Euro has had a limited reaction to this flat data reading.

Euro Zone PMI Manufacturing expected at 47.3 for the September forecast came in worse than expected at 45.3, the worst reading since December of 2001. The PMI Services release expected at 48, came in slightly better at 48.2 . The overall PMI Composite was also weaker, expected at 47.8 came in at 47. These releases have continued the negative mood on the Euro this session, after the currency had a tremendous run against the USD during NY Trading yesterday.

The Bank of France Business Sentiment came in better than expected at 94 versus the 92 forecast and prior month reading. The Euro has had minimal reaction to this data.

The European Union lowered the 2008 GDP growth forecast to 1.3% from 1.7%, and advised of significant downgrades in 2009 on the growth front. The EU also raised it's 2008 inflation forecast to 3.6% from 3.1%. These are very negative revisions from the Euros perspective, making it difficult to raise rates in order to curb inflation, because rate cuts are needed to sustain growth.

The European Central Bank's Trichet spoke at the European Parliament, his speech had the following highlights: