Earlier this week, the central banks around the world gathered and collectively decided to cut interest rates for their respective countries in order to slow a fast moving global financial meltdown. The initial reaction in the markets was one of surprise more than anything else. Unfortunately, the move did little or nothing to inspire confidence in the strongly risk averse markets.

Thursday, the US stock market had an afternoon selloff that sent the Dow below 9,000 for the first time in five years, falling 678.91 points. Twenty stocks fell today for each one that rose on the New York Stock Exchange.

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The U.S. trade balance improved in August broadly in line with market expectations. The trade gap narrowed to -US$59.1 billion following the prior month’s -US$61.3 billion (revised from -US$62.2 billion), while the market was expecting a -US$59.0 reading. Excluding petroleum, however, the trade gap widened.

The improvement in the trade gap stemmed largely from a fall in petroleum as imports of crude oil fell 15.5% month-over-month. The price per barrel fell from US$124.7 in July to US$120.0 in August. Crude imports were also down on a volume basis falling to 308 million in August from 342 million in July.

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Carry trades are back and confidence is somewhat restored in the markets after interest rate cuts were witnessed across the globe. Majors are rising across the board and the yen is falling once again now that many believe that the surge the yen has seen in the past week was too rapid.

The ECB today added to the plan as it decided to offer banks with unlimited cash and increased interest paid on overnight deposits as well as adding $100 billion to the financial system. We see the pair currently finding difficulty in breaching the support level at 1.3650 as it is also the 14 an 20 day moving average on the four hour charts. But as the pair lacks enough bullish momentum we could witness a slight rebound from the mentioned levels to the 1.37 levels. The high for today remains at 1.3784 while the low is at 1.3579.

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Another day full of action we had yesterday, when 7 Central Banks decided to do a coordinated rate cut in order to bring some liquidity in the banks and some kind of stability after the recent turmoil.

The banks of England, Euro zone, America, Canada, China, Switzerland, and Sweden acted all in a desperate way to restore the negative sentiment that is already been established ,and the reaction immediately afterwards was mixed. The currencies moved up and down for most of the day and the stock markets acted in the same manner. It is interesting to mention that traders although initially welcomed the move, are still skeptical as to what the next day will bring and until we see the confidence back in the markets, things will remain the same.

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Unemployment Claims (Weekly) Actual 478k, Expected 475k, Previous 497k (Revised from 498k)

Release Explanation: This report provides the number of people claiming new unemployment benefits and the number of people who are continuing to claim unemployment benefits. Both metrics are provided in weekly and in 4-week moving average form. Very important that economic forecasts are based on the labor market. Economic strength builds from the willingness/confidence of firms to hire, without a strong labor market growth is hard to achieve. Over time the Employment Data will affect all economic releases, it does however take time for labor trends to form. A currency will strengthen or weaken in-line with the other releases that the Employment Data impacts, rather than as a knee-jerk reaction to these numbers printing. Economists tend to look more at the 4-week numbers because weekly numbers can be volatile although the market reacts to the headline numbers initially.

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US wholesale inventories jumped 0.8 percent in August, as foreign and domestic demand wanes. Indeed, the ratio of inventory to sales hit 1.1, the highest since March as nearly every component showed building supply levels along with weaker sales. In fact, wholesale sales contracted for the second consecutive month in August by 1.0 percent, led by durable goods such as lumber and hardware, while nondurable goods like apparel and farm products dropped as well. This does not bode well for next week’s Advance Retail Sales report, especially amidst other indications of faltering consumer spending.

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Overall: The negative tone established by Mr. Paulson’s speech late Wednesday afternoon looked to have carried over into credit markets and Wall Street. The Treasury warned against expecting a quick resolution of the credit crisis and said that more banks could fail. Also helping to dampen sentiment was the mostly lukewarm response to the unprecedented and coordinated global easing of policy rates by the major central banks.

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