The long-rumoured coordinated central bank rate cuts finally occurred but did little to calm panic-stricken markets as equities bourses around the world collapsed to multi-year lows and some required closure, with VIX registering historic highs above 70 in this Apocalypse Dow. Commercial credit throughout much of the world remained frozen, and the U.S. dollar was unbeatable against all major currencies except the yen. Until credit markets defrost and risk aversion wanes, this trend may continue although short-term corrections could be violent.

The RBA slashed interest rates, not by 50bps but by 100bps, to 6.0%, far exceeding market expectations, the day after the Westpac-MI consumer sentiment index fell 11% from 92.2 in September to 82.0 in October. August housing finance fell by −2.2% ahead of the rate cut and September unemployment rose to 4.3%. AUD/USD lost 14% this forex trading week, collapsing beneath support at 0.7690 and 0.6820 to close at 0.6468.

The Fed joined the coordinated central bank action and slashed rates by 50bps. Exports decreased US$3.4Bn and imports, led by petroleum products, declined US$5.5Bn, leading to a further narrowing of the trade deficit. For August, U.S. consumer credit fell by US$7.9Bn, the first fall in ten years and the largest one since records began in 1943, and wholesale inventories rose by 0.8% in response although pending home sales increased by 7.4% m/m. Nonfarm employment fell by 159K although the unemployment rate remained at 6.1%.

The ECB also slashed rates by 50bps, as did the Swedish Riksbank, while the Swiss National Bank cut by 25bps. In a light data week, final working of the Eurozone’s 2Q2008 GDP saw no change, with a reading of −0.2% q/q and 1.4% y/y. EUR/USD continued a steady decline, falling 2.6% to hit an 18-month low at 1.3413.

As part of the coordinated action, the BoE slashed interest rates by 50bps. U.K. August industrial production fell −2.3% and manufacturing fell −1.9%, both y/y. The NIESR prediction of 3Q2008 GDP shrank −0.2%, October consumer confidence printed at 50, and the trade balance widened to UK£8.238Bn, the largest number since records began in 1697. GBP/USD lost 3.7% and fell briefly below 1.70 for the first time since late 2003, closing at 1.7052, while EUR/GBP whipsawed between 0.8070 and 0.7700, closing at 0.7864.

Although Canadian building permits declined −13.5% between July and August, for September the Ivey PMI ballooned to 61 and unemployment fell to 6.1%, both beating market expectations. August international merchandise trade rose to CA$5.8Mn, but even such strong economic news did not prevent the BoC from joining the coordinated rate cut nor could it stem the slide of USD/CAD, one of the biggest movers at 7.7%. It spiked above strong resistance at 1.1875, respected since February 2007, and closed at 1.1792. AUD/CAD lost 9.2% despite a strong rally midweek, closing at 0.7632.

The Pre-Election Economic and Fiscal Update predicts a significant deterioration in New Zealand’s outlook for growth, with governmental budget deficits forecast until 2018. NZD/USD lost 10.3% for the week, closing at 0.5960, and AUD/NZD also declined severely on the RBA rate cut, ending at 1.0842.

As universally anticipated, the BoJ left interest rates untouched at both their scheduled meeting and during the coordinated action. Machinery orders, a leading indicator for business confidence and employment, fell −20.7% y/y in September. Nevertheless the yen gained against all other major currencies this week, with USD/JPY down 5% to 100.27, EUR/JPY down 6.9% to 134.48, and AUD/JPY down 20% to 64.86.