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Looking Ahead: NY's Morning Headlines

Stocks Surge In Higher Volume As Fed Cuts Interest Rates More Than Expected IBD http://license.icopyright.net/user/viewFreeUse.act?fuid=MjIxODQ4Nw== Fed Slashes Rates To Near 0%, Makes Historic Policy Shift IBD http://license.icopyright.net/user/viewFreeUse.act?fuid=MjIxODQ5MQ== Fed Cuts Rates Near Zero to Battle Slump WSJ http://online.wsj.com/article/SB122945283457211111.html?mod=todays_us_page_one SEC Chief Admits to Failures in Madoff Case FT http://www.ft.com/cms/s/0/92bd4c68-cbd7-11dd-ba02-000077b07658.html

FX Update- EUR/USD

EUR/USD peaked at 1.3842, levels last seen on October 3, after taking out another round of stops at 1.3800. Good buying from a large U.S. account was noted from 1.3795, though after quickly moving to 1.3830, the pairing was pushed briefly back under the figure by rumored Asian name sellers. From there though, those who missed the boat on the initial move over the figure were waiting on the bid, and subsequent buying took the euro to its highs. Given the volume of stops cleared out on Tuesday, and the scope of recent EUR/USD gains, we suspect a case of sell-the-fact may kick in unless news from the FOMC is shocking in nature.

ANALYSIS: Fall in UK Inflation Small, But Deflation Fears Loom Large

The fall in the annual UK inflation was smaller than many had anticipated, but deflation fears still loom large, with many analysts looking for the Consumer Price Index (CPI) to turn negative by the summer of 2009. The annual CPI rate fell to 4.1% in November from 4.5% in October. Average trade forecasts were calling for a fall below the 4% level, but weak petrol and fuel costs were offset by stubborn food-price inflation. "Recent drops in agricultural commodity prices suggest that food prices will soon fall sharply, while the cut in VAT should combine with weak inflation to turn negative next summer," said Jonathan Loynes, chief European economist at Capital Economics. Retail prices fell to an annual rate of 3%, a 2-1/2-year low, versus 4.2% in October. It's the largest deceleration since 1991, as retailers are compelled to push promotions and offers discounts to lure consumers, who are spooked by the equity and property selloff. "Inflation expectations are plunging, wage moderation is continuing and latest surveys clearly show that companies' pricing power is being increasingly undermined by sharply weakening demand and intensifying competition," said economist Howard Archer with IHS Global Insight. "These factors seem certain to markedly outweigh the inflationary impact of the very weak pound." However, stripping out food and energy, the 'core' rate actually rose a tenth of a percent to 2%, making at least one analyst skeptical about talk of deflation. "The case for talking about and stressing disinflationary pressures is not a strong one," said Monument Securities' Marc Ostwald.

Preview: November US PPI

â�¢ November Headline PPI is expected to fall 2.5% following a 2.8% decline in October â�¢ November Core PPI is expected to be unchanged following a 0.4% increase in October Lower energy prices are once again expected to be the largest factor in the expected drop in November PPI. Energy prices are expected to fall up to 13% following a 12.8% decline in October, which included a 24.9% drop in unleaded prices. November petroleum import prices fell 25.8%. There are also downside risks from lower food prices over the period, which could reflect a larger drop than the 0.2% reported in October. The November Ag-Price Index fell 7.8%; November Food, Feed and Beverage import prices fell 5%; and Ag export prices tumbled 7% in November. Core producer prices are expected to be left unchanged in November, reflecting an possible unwind from the higher than expected 0.4% increase in October. The November Core PPI data comes with a heightened risk of uncertainty given the introduction of new model year prices for vehicles. New model year vehicle pricing estimates tend to fall below seasonal expectations, and given current market conditions this is likely the case in the November PPI report.

US Pertinent Press

Detroit Big Three Rescue Plan Passed FT http://www.ft.com/cms/s/0/2ba67446-c6eb-11dd-97a5-000077b07658.html Graft Case Touches Jackson Jr WSJ http://online.wsj.com/article/SB122892517879794913.html?mod=todays_us_page_one Fighting Foreclosures, FDIC Chief Draws Fire NYT http://www.nytimes.com/2008/12/11/business/11bair.html?_r=1&ref=todayspaper Stocks Notch Gains In Up And Down Day As Auto Industry Bailout Draws Criticism IBD http://license.icopyright.net/user/viewFreeUse.act?fuid=MjE3NDUyNA== Senate Republicans Threaten Filibuster To Stall Auto Bailout IBD http://license.icopyright.net/user/viewFreeUse.act?fuid=MjE3NDUyNw== China's Economy on a Slippery Slope WSJ http://online.wsj.com/article/SB122890027913294421.html?mod=todays_europe_page_one FT http://www.ft.com/cms/s/0/704c10ca-c69f-11dd-97a5-000077b07658.html Bank of Korea Surprise 100bps Rate Cut FT http://www.ft.com/cms/s/0/9437b93a-c726-11dd-97a5-000077b07658.html The Greek Tragedy Continues WSJ http://online.wsj.com/article/SB122890933231894513.html?mod=todays_europe_page_one IHT http://www.iht.com/articles/2008/12/10/europe/10greece-strike-cnd.php 14,000 Jobs Axed as Rio Tinto Battens Down the Hatches WSJ http://online.wsj.com/article/SB122889222804694335.html?mod=todays_europe_page_one Industrial Production Slowdown in France, Italy WSJ http://online.wsj.com/article/SB122893763732695361.html?mod=todays_europe_page_one

FX Update: European Outlook

The USD has made a decided move lower amid a frenzy of stop related selling, and move of the same seems likely as financial markets adjust risk premiums following a notably improved (for now) mood in stock markets. Our EUR/USD technical page targets 1.3190. Cable is finding some respite, but the axis of sterling weakness has merely shifted to the EUR/GBP leg this week, which seems likely to remain the case given expectations for more aggressive BOE rate cuts. The JPY has weakened too, though any renewed lurch to risk aversion would quickly return the low-yielding, creditor-nation currency back to a firmer footing against most other currencies. Stock markets have been encouraged in part this week by the progress of the US auto bailout plan on Capitol Hill, though potential disappointment looms as the easy success in the House of Representatives is not likely to be matched in the Senate as Senate Republicans are expected to be a much more difficult hurdle. US data will be of some interest today as the calendar includes initial jobless claims, trade, and import and export prices.

Looking Ahead: NY's Morning Headlines

Stocks Notch Gains In Up And Down Day As Auto Industry Bailout Draws Criticism IBD http://license.icopyright.net/user/viewFreeUse.act?fuid=MjE3NDUyNA== Senate Republicans Threaten Filibuster To Stall Auto Bailout IBD http://license.icopyright.net/user/viewFreeUse.act?fuid=MjE3NDUyNw== Graft Case Touches Jackson Jr WSJ http://online.wsj.com/article/SB122892517879794913.html?mod=todays_us_page_one Fighting Foreclosures, FDIC Chief Draws Fire NYT http://www.nytimes.com/2008/12/11/business/11bair.html?_r=1&ref=todayspaper

Jesse Jackson Jr. Identified as "Candidate Number 5" in Blagojevich Case --ABC News

Associates for "Candidate Number 5" allegedly offered up to $1mln to the Illinois governor for the Senate seat.

ZEW Economic Sentiment Index Set to Decline

The ZEW economic sentiment index for December is expected down to -56 from -53.5 in November but remain higher than -63 reading in October. The currnet situation indicator is seen plummeting to -61 from -50.4 last month, which was the lowest reading since November 2005. No matter were one looks, virtually all the news about Europe's largest economy is bad. Whether it be German industrial orders and production, retail sales or any other growth indicator, they are all pointing south. With Germany in recession, the doomsayers are lining up with some pretty scary predictions. Perennial pessimist Norbert Walter, Deutsche Bank Chief Economist, said last week the economy could shrink by as much as 4% next year; his best-case-scenario sees a contraction of 1%. Since most of the analysts and economists will have returned their ZEW surveys before last week's historical 75bps cut by the ECB, what optimisim the move could have added will first be seen in January's results. The ZEW warned last month that the slight rise in the main index was "not a turning point." More than likely it was a brief respite in the bottom hunting that is currently en vogue in global economies and markets.

Preview: ZEW Dec Economic Sentiment Seen Falling to -56