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Russia's Medvedev: Intl Cooperation Needed on Financial Crisis

Russian President Dmitry Medvedev called for "urgent joint action" to tackle the financial market crisis.Â Russian stock markets have plummeted in recent days, sparking numerous halts in trading to slow down the decline.

FX Update: European Outlook

The RBA's mammoth 100bp rate cut -- its biggest since 1992 -- has set a precedent and boosted speculation for a coordinated round of global rate cuts to counter recessionary winds. That saw Australian stocks rally and Asian markets pare losses. Commodities, which fell limit down in Shanghai trading, managed to find a footing. In the FX world, the relaxation in risk aversion saw the USD, JPY and CHF give back some of their recent gains versus the AUD and the main European currencies, though lower global rates are likely to ultimately benefit the US currency more. As Fed members Bullard, Fisher and Evans implied on Monday, the US monetary policy cycle is already at its outer limits in terms of effectiveness (real rates are negative). Focus will remain on the unfolding crisis, and currency moves are likely to reflect the ebb and flow of risk aversion. European data today are likely to reflect the weakening economic picture, which can only get worse with money markets remaining near frozen, while a Bernanke speech and Sep-16 FOMC minutes highlight the US calendar.

FX Update: Cable Steady

Cable held steady close to 1.7500 versus overnight lows of 1.7408 amid reports of Asian reserve management demand from early European trade. Meanwhile, GBP/JPY and GBP/CHF are also relatively stable, trading close to 180.00 and 2.0000 respectively. RBA's aggressive 1% rate cut overnight has predictably fueled coordinated rate cut speculation, although the individual nuances of each national economy may argue for a less aggressive hand from the BOE. The Bank has already cut 75 bps and while the calls for 50 bp grow louder, most are still calling for a 25 bp move. The market will focus on August industrial production ahead, which will underline how rapidly the UK economy is cooling, which will keep rate cuts hopes at fever pitch ahead of Thursday's BOE MPC decision. Elsewhere, the UK Times said the Treasury may take a GBP 50 bln stake to shore up high street banks

FX Update: Yen Gains Amid Turmoil

JPY buying accelerated amid more banking sector fears. There was speculation of potential UK government funding in UK banks, while Iceland's Landsbanki went in to receivership and Italy's Unicredit came under more heavy selling amid speculation of balance sheet problems. Meanwhile, Deutsche Bank also fell 10% on talk of capital increase, but this was dismissed as nonsense by a financial source. The turmoil in the market saw USD/JPY fall from 103.00 down to 101.48, while EUR/JPY retreated to 137.27 lows and GBP/JPY moved back in to 176.50 from levels above 180.00. JPY should remain supported in the near-term, with flight to quality trading and general unwinding of long standing carry trades expected to support. Japanese officials will not be happy over protracted JPY gains, but appear to accept that the market is going through a broad based restructuring of long-term risk/leverage.

FX: Flight To Quality Supports Swissy

CHF remained supported by global risk aversion, with EUR-CHF trading on a heavy footing underneath the 1.5500 handle, although it has held up since it rebounded from Monday's 1.5377 lows. Meanwhile, USD-CHF is trading ahead of 1.1400, with the dollar benefiting on selling interest via the European majors, although it trades below the 1.1485 highs seen in Asia and in Monday's session. The CHF should benefit from further unwinding of leverage positions, although hopes for a coordinated round of rate cuts has tempered fresh gains.

Markets Report

European indices shook off early losses to trade higher amid reports major UK banks may ask the government to buy stakes in an attempt to shore up liquidity. The FTSEurofirst gained 0.8%. The FTSE 100 future rose 0.6%. The DAX future added 1.3%. The CAC future was up 1%. UK banks fell sharply, with RBS at one point off nearly 40% on a slew of reports that it, Lloyds, HBOS and Barclays are mulling stake sales to the UK government. Iceland took control of its second largest bank, and the country's currency hit new lows against the euro. Reports say Iceland took a EUR 4bln loan from Russia to shore up its cash position. Russia denied the report. VW skyrocketed 48% on reports Porsche will take a controlling stake in Europe's largest automaker by 26 November. Economic data was mixed. UK August industrial production dropped for the sixth straight month, the longest such run in 30 years. German August industrial orders rose 3.6% m-o-m, the first increase in nine months. Y-o-y orders plunged 7.6%. The UK banking crisis hammered sterling early in the session, and trading remained highly volatile. Cable was down 0.1% after falling to a 30mth low in intraday trading. EUR/GBP added 0.5%. GBP/JPY was was off 0.2%. EUR/USD added 0.5%. Bonds eased as equities returned to the green. The Bund future dropped 8 ticks to 117.09. The 10yr Bund yield rose 1bp to 3.77%. The 10yr Gilt yield was up 2bps to 4.24%. The 10yr JGB yield added 9bps to 1.47%. The 10yr T-note yield gained 4bps to 3.5%. Oil rallied on dollar declines and an unexpected 100bp cut by the RBA overnight. WTI was up 3.2% at $90.60 after a brief stint above $91. Brent added 2.4% to $85.77.

US Opening Comments

US equities are following European stocks modestly higher, perhaps on optimism the FED will start buying commercial paper to unfreeze the $1.6trln funding market. Australia cut its benchmark rate by one percentage point, the biggest cut in 16 years, and central banks around the globe injected funds to bring borrowing rates down after they spiked higher overnight. Dow futures are up 0.5%, S&Ps are up nearly 1%, and Nasdaq futures are 1.4% higher. Bonds are firmly in negative territory with the 30yr down 0.4% and the 10yr down 0.6%. The short end has seen selling as well, with the 3-month bill yield up 11bps to 0.61%. The dollar is taking a hit â�� USD Index down 0.5% â�� as EUR and GBP recovered somewhat from yesterdayâ��s massive sell-off. EUR/USD is up 0.75% and Cable is up 0.2% as of this writing. JPY has pared gains from y/day with USD/JPY up 0.4%, EUR/JPY up over 1%, and GBP/JPY up 0.6%. The energy complex has also flipped after y/dayâ��s losses, with Crude up 3.3% in premarket trade. Unleaded is up 2.2% and Heating Oil is up 2.3%. Gold is trading up $15 at $881/oz. At 8:55am EDT, Johnson Redbook Retail Sales will be released. Minneapolis FED President Stern speaks about the repercussions of financial shocks in Illinois at 11am. FED Chairman Bernanke follows at 1:15pm with a speech on the economic outlook and financial markets. At 2pm, minutes from the FOMC meeting on September 16 are released. At 3pm, August Consumer Credit is expected to increase $5bln.

US Opening Comments

US equities are following European stocks modestly higher, perhaps on optimism the FED will start buying commercial paper to unfreeze the $1.6trln funding market. Australia cut its benchmark rate by one percentage point, the biggest cut in 16 years, and central banks around the globe injected funds to bring borrowing rates down after they spiked higher overnight. The fed funds bid-ask is 4% at 5%. Dow futures are up 0.5%, S&Ps are up nearly 1%, and Nasdaq futures are 1.4% higher. Bonds are firmly in negative territory with the 30yr down 0.4% and the 10yr down 0.6%. The short end has seen selling as well, with the 3-month bill yield up 11bps to 0.61%. The dollar is taking a hit â�� USD Index down 0.5% â�� as EUR and GBP recovered somewhat from yesterdayâ��s massive sell-off. EUR/USD is up 0.75% and Cable is up 0.2% as of this writing. JPY has pared gains from y/day with USD/JPY up 0.4%, EUR/JPY up over 1%, and GBP/JPY up 0.6%. The energy complex has also flipped after y/dayâ��s losses, with Crude up 3.3% in premarket trade. Unleaded is up 2.2% and Heating Oil is up 2.3%. Gold is trading up $15 at $881/oz. At 8:55am EDT, Johnson Redbook Retail Sales will be released. Minneapolis FED President Stern speaks about the repercussions of financial shocks in Illinois at 11am. FED Chairman Bernanke follows at 1:15pm with a speech on the economic outlook and financial markets. At 2pm, minutes from the FOMC meeting on September 16 are released. At 3pm, August Consumer Credit is expected to increase $5bln.

Crude Update

Crude hovered around the 91 handle during premarket trading but shot lower as the NYMEX opened. Support the key $90 handle held, and Crude rocketed higher in the first 15 minutes of trading. Although Crude rose above yesterdayâ��s high of 92.68, it could not breach resistance at the $93 handle. Sellers sent Crude back towards the 90 level and it is currently up 3.5% to 90.91.

Crude Update

Crude hovered around the 91 handle during premarket trading but shot lower as the NYMEX opened. Support at the key $90 handle held, and Crude rocketed higher in the first 15 minutes of trading. Although Crude rose above yesterdayâ��s high of 92.68, it could not breach resistance at the $93 handle. Sellers sent Crude back towards the 90 level and it is currently up 3.5% to 90.91.