Despite the possible boost that risk could have received from dovish FOMC minutes and the IMF’s decision to loosen the criteria for its liquidity facilities, risk was heavy overnight as growth worries resurfaced. Tuesday’s soft US GDP figure in addition to a weak PMI print from China both cast doubt on hopes that the non-Eurozone economies would have been able to help the global economy avoid a deep recession. Continue reading →

Investors continued to offload risk trades following yesterday’s sharp declines in Europe. More attention was given to developments in the US as the chairs of the Congressional Super-Committee confirmed that no deal would be possible on fiscal consolidation. Ratings agencies so far have noted that there would be no impact on the US’ standing, as political paralysis appears to have been widely expected. Indeed, this was one of the key reasons behind Standard & Poor’s downgrade of the US this summer and so far their fears have been justified. Continue reading →

Headlines this week are expected to be dominated by further news on debt woes, with the US’ problems adding to the mix. Barring a last-minute breakthrough, we believe it would be hard for the Congressional ‘super committee’ to come up with structural cuts to eat into the US fiscal deficit, thus beginning the process of painful sequesters, as mandated by legislation. Continue reading →

Although G10 FX markets were relatively range-bound during the Asia session, local equities followed US stocks lower. New York Fed President Dudley said the euro is certain to survive the crisis. There was a general lack of commentary about the Eurozone itself though new Italian Prime Minister Monti has cleared a first hurdle by passing a confidence vote in the Italian senate. Continue reading →

Risk appetite faltered just before the Asia session got underway after Fitch warned that contagion from Europe could spread across the Atlantic, and might eventually have negative outlook implications for the ratings of US banks. This undid much of the positivity triggered by a stronger than expected US industrial production report. US headline inflation cooled to 3.5%, while core inflation was steady. Continue reading →

News was thin on the ground during the Asia session, but that did not stop EURUSD falling further to a five-week low. AUDUSD also dropped over 100 pips as risk sentiment remained fragile despite stronger US economic data earlier. The Bank of Japan left monetary policy entirely unchanged as widely expected. EURUSD traded 1.3435-1.3557 and USDJPY 76.98-77.15. Continue reading →

FX price action was relatively subdued in Asia except for a very brief spike higher in USDJPY on the break of 77.00. The pair promptly settled back down, and the absence of rhetoric from Japan afterwards suggests the move was not particularly noteworthy. The AUD also got a brief boost after the RBA minutes from the Oct. 31 meeting revealed that the board seriously considered not cutting the policy rate, but eventually decided to do so. Continue reading →

Investors kept a wary eye on developments in Rome over the weekend but ultimately fears of a disorderly transition in power in Italy proved unfounded. On Saturday evening the Chamber of Deputies passed the 2012 budget law with 380 votes, a comfortable majority, and Prime Minister Berlusconi resigned later in the day. Continue reading →

Investors still appear willing to engage in some tactical risk-on during the Asia session as several points of clarification gave investors reason to be less risk-averse. Firstly, it is now clear that France is still a AAA country and second, Greece now has a technocratic government, with strong hints that Italy could follow. Continue reading →

FX markets consolidated yesterday’s sharp moves overnight but risk appetite stayed broadly weak with Asian equities catching up on the falls in the US and Europe yesterday. Focus will be on the Italian debt markets again after the volatile price action seen yesterday, where yields at all points on the Italian sovereign curve closed above 7% for the first time since the launch of the euro, with the exception of 3m bills Continue reading →

News that Italian Prime Minister Berlusconi could resign soon and the expected establishment of a technocratic government in Greece has helped sooth market nerves somewhat. A lower CPI number in China and hopes of looser policy ahead in the world’s second largest economy has also helped sentiment, though we continue to note that there are several variables in play. Compared to Greece at present, there is a lack of clarity in Italy over who could succeed Berlusconi and the prospect of further uncertainty in the run-up to elections, while a change of government does not automatically mean a country’s fiscal problems would go away. Continue reading →