The equity markets experienced unprecedented price swings this week as investors were unsure how to digest weak economic data hitting the markets. Among major releases, declining retail sales confirmed the present economic slump and headline CPI registered flat. Falling crude oil prices, which dipped below $70 a barrel this past week, have helped to moderate inflation.

Major stock market indexes gained ground this week, with the S&P 500 Index up nearly 5%. However, there was no improvement in the investment-grade or high-yield credit markets as spreads on both instruments soared once again to historic levels. The continued themes of risk reduction, deleveraging and forced selling are exacerbating the problem.

The major central bank initiatives to ease credit pressures may be having some effect, as LIBOR eased off of its highs from the start of the week. LIBOR is an important measure as it reveals the cost of unsecured borrowing by banks and globally $360 trillion in debt is tied to this interest rate measure.

Governments and central banks around the globe continue major initiatives aimed at resolving the current financial crisis.

Below are key U.S. government initiatives taking place just this past week:

• On Monday, the U.S. Treasury Department gave further details on its plans for the $700 billion bailout. The five major initiatives are buy troubled mortgage-backed securities, buy mortgages from regional banks, insure mortgages and mortgage-backed securities, buy equity stakes in a number of major financial institutions, and lastly help delinquent borrowers to stay in their homes.
• On Tuesday, Bush announced bold plans for the Treasury to purchase up to $250 billion (of the $700 billion bailout package) in equity shares from nine targeted banks, the largest of which are Bank of America, Citigroup, JPMorgan Chase and Wells Fargo.

Other major events/economic data shaping this week:

• Retail sales dropped 1.2% in September, marking the third consecutive monthly decline. Over the year ending September, retail sales fell 1% — the first yearly decline since 2002.
• Industrial production sank 2.8% in September on the heels of a 1% decline in August.
• Housing starts continued their downward trend with a 6.3% decline in September to an 817,000 annual rate. Single family starts, included in this measure, plummeted 12%.
• Consumer sentiment pulled back to just above mid-summer levels — a much weaker showing than expected by economists.
• Expectations of further rate cuts persist, with the futures market pricing in a quarter to one-half percent rate cut at the next Federal Reserve scheduled meeting Oct. 29.
• Volatility remained greatly elevated this week, and one prominent benchmark of volatility, the VIX Index, hit a new intra-day record of more than 81 – nearly four times the historical average.