The AUD has opened this morning above 1.0300 after another positive day on Friday on equity markets both in Europe and the United States, on the belief a recapitalisation plan for European banks will be announced next weekend.

Australia: Adding to the optimism was better than anticipated US retail sales figures for September. The focus of the financial markets continues to be the EU meeting next weekend. The G-20 meeting in Paris this past weekend plainly stated that they expected next week's meeting to "decisively address the current challenges through a comprehensive plan".

As always it is too early for the specific details but the markets clearly expect that there will be a major recapitalisation of European banks, a further write down of Greek sovereign debt of up to 50% and a further boost to the EFSF and the role they might perform by supporting the European sovereign debt markets. The AUD has benefitted from this optimism and the cross rates against all the major currencies have improved in the last week.

China's inflation data released on Friday was similar to expectations with a figure of 6.1% yoy for September which was slightly down from the 6.2% in August. We may see a lowering of reserve requirements for the Chinese banks in the next few months to encourage more lending to certain sectors.

Tomorrow the RBA minutes for October will be released along with Chinese GDP, industrial production and retail sales. Although these events could move the AUD we expect all markets to be dominated by sentiment of what the likely outcome will be in the EU.

Majors: US equity markets were stronger on Friday with the Dow up 1.5% to 11,644, S&P 500 1.7% to 1,225 after the NASDAQ outperformed by 1.8%. With European markets all stronger by roughly 1% an additional catalyst was the rise of 1.1% in retail sales in the US for September which was better than the 0.7% expected and the best in seven months.

Contrary to this was the University of Michigan consumer confidence survey for October which fell again to 57.5 from 59.4. The outlook index fell again to 47 which is at its lowest level since 1980. As we have seen so often in recent months, the recovery of the

US economy would be best described as mixed and uncertain. With optimism in the equity markets continuing, crude oil closed approx. 3% higher at over US$86 a barrel for WTI and US$112 for Brent. Gold rose slightly to US$1680 an ounce as the USD was weaker and the EUR traded above 1.3800.

Economic Calendar
17 OCT AU New Motor Vehicle Sales SEP
JN Industrial Production AUG
US Empire Manufacturing OCT
UK Nationwide Consumer Confidence