Market Brief

Risk aversion continues to dominate Asian session trading following Friday’s weak Wall Street close. The selloff in risk correlated trades has been driven primarily by the discouraging US payroll numbers, however, two other reports contributed to the lingering negative sentiment. First was the news that initial exit polls from German local elections Sunday suggests that Chancellor Merkel’s ruling party is losing support over their handling of the EU sovereign debt crisis and slowing domestic economy. Second, was a media headline citing an unidentified senior IMF economist stating that Greece would likely face a “hard default” well before March 2012. The statement comes on the heels of speculation that discussions between Greece and the IMF have broken down. Within the G10, the USD extended its gains from Friday with the exception being against safe haven trades, JPY and CHF. EURUSD gapped lower as the German news hit the wire, quickly falling to 1.4136 from 1.4220. USDJPY initially rallied but as support from USD buying elsewhere dissipated and the pair dropped to 76.96. AUDUSD was unable to regain losses despite optimistic Q2 company operating profit and Q2 inventory data taking the pair to 1.0563 from 1.0620. Currently the market is still pricing in a small chance of a rate cut at tomorrow’s RBA policy announcement. Bearishness was clearly the dominate trend across asset classes as regional equities weakened with Nikkei down -1.85%, Hang Seng falling -2.72%. Crude wti dropped -1.23% to $85.38bll and Silver fell -0.38% to $43.10. Given the US Labor Day holiday trading activity should be confided to the European session. In the Eurozone, August composite PMI is expected to be revised down to 50.9 from 51.1 while EU retails sales is expected to come in a flat 0.0% from 0.7%. In the UK, markets are looking for services PMI to ease to 54.3 vs. 55.4 prior reading.

By
M.Zohaib Gadit
Forex Trading Consultant