Carry Trades Come Close to Erasing Tuesday Losses (page 2 of 2)

The cracks are showing however with industrial production falling 0.7 percent in September. For the ECB, what matters the most is which gets out of hand faster; growth or inflation. If oil prices resume their rise and take out $100 a barrel, the central bank may have no choice but to raise interest rates. On the other hand if growth starts to slow materially, which it could if the US financial sector gets hit by another wave of major subprime losses. In the more immediate future, we are expecting Eurozone GDP tomorrow; both French and German GDP are expected to be strong.

UK Consumer Prices are Hot
UK consumer prices were much stronger than expected today but that was not much of a surprise given the sharp rise in producer prices reported yesterday. This was the first time since June that the annualized pace of inflation growth has surpassed the Bank of England's 2 percent target. The gains were unsurprisingly led by oil, food and air travel. Even though there are troubles in other parts of the UK economy, the latest inflation readings should be concerning to the central bank and eliminates any prospect of a near term interest rate cut. Meanwhile house prices fell to the lowest level in 2 years last month adding to the evidence that the property market in the UK is cooling. Tomorrow we are expecting UK employment data and the Quarterly Inflation report. Although the labor market is expected to hold steady, we could see a nice rise in average earnings.

2 Percent Moves in Australian and New Zealand Dollars
The Australian, New Zealand and Canadian dollars are all stronger today despite the drop in commodity prices thanks to better than expected economic data and an overall increase in risk appetite. Even though the Australian dollar hit a new 26 year high and the Reserve Bank raised interest rates, Australian business confidence rose last month along with business conditions. New Zealand reported faster growth in both food and general producer prices, retail sales are expected tomorrow. The tight labor market in New Zealand should fuel stronger consumer spending.