10 Factors Affecting FX, Bonds and Equities

1. Euro FX came alive when Russia detected the launch of two missiles from the Mediterranean – later announced as a joint Israeli/US exercise.

2. Traders jumped into perceived safe-haven of the JPY and CHF on the headline (expect more “cry wolf” trades). Other risk sensitive currencies like the Aussie and Cable pared overnight gains.

3. The AUD found support as Governor Stevens at the RBA kept their benchmark interest rate unchanged at +2.5%. In the communiqué, the forward guidance no longer signals a clear dovish bias and the phrase “inflation outlook could provide some scope to ease policy further” was removed.

4. The Pound has remained stronger on the day after UK construction PMI rose (59.1) at the faster pace in six-years. It has followed on from a good manufacturing release yesterday and bodes well for tomorrows August services PMI.

5. US Treasury yields are playing catch up this morning after the US labor holiday. The benchmark 10-year has backed up +3bps to +2.83% and in line with yesterday’s weakness in the core European bond market, pushed lower after stronger than expected PMI data from China on the weekend.

6. As to be expected, both crude and gold spiked on the Russian missile report – they have since managed to pare the gains on a joint military exercise notice. The market price action indicates the vulnerability of current commodity market positioning. The total net speculative length of WTI and Brent has reached an all time high.

7. Bullion remains range bound despite its traditional role as the ultimate “liquid safe haven asset.” It seems that many investors have opted to wade to the sidelines ahead of a slew of US economic data coupled with the threat of geopolitical and event risk.

8. US stock futures are looking for a solid opening to the new week and new month. US’s ISM data hits the spotlight. Last month’s 4.5 point surge (to 55.4) was exaggerated by seasonal adjustment. Analysts expect the August seasonal factors to be more normal.

9. The Microsoft Nokia announcement should be the center of equity attention.

10. OECD warns that global growth could be weakened further on emerging market turmoil. Analysts are beginning to slash 2013/14 Indian growth rates. The OECD is warning that the already subdued growth rates could be weakened further if the strong outflow of capital from emerging economies persists.

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