Monday Blues

Asian equities took hard the failure of the G20/IMF/World Bank to produce anything concrete.  The MSCI Asia-Pacific Index fell nearly 2.5% to new 16-month lows.   This comes on top of the 7.1% loss last week.    Foreing investors have been persistant sellers of Asian equities this month.  Between South Korea and Taiwan alone the outflow is near $4 bln.  Indonesia and Thailand account for another $1 bln outflow.  Out of the more popular markets in the region, only India has recorded inflows this month. 

Europe opened weak but has recovered smartly.   The markets were already recovering when Germany reported a fairly resilient IFO.  The main catalyst for the recovery seems to be some sense that Greece will get its next tranche of aid and Europe is moving to substantially increase the firepower of the EFSF, even though it may not take place until November.   

The euro was sold to new 11 year lows against the yen and 8 month lows against the dollar in Asia before staging a recovery.  The euro briefly dipped below JPY102 and moved back above JPY103 in Europe.  Additional near-term gains toward JPY103.50-JPY104 seem likely.    The euro slipped though last week's low near $1.3385 to about $1.3365.  After the stops were triggered, no fresh selling materialized and the euro rebounded toward $1.3480.   There is potential toward $1.3550. 

The BOE's Broadbent comments underscore the shift in opinion reflected in the recent MPC minutes in a more dovish direction.  In particular, new asset purchases was a close call, heightening ideas a move can take place as early as Oct.  The key issue does not appear to be inflation per se, but growth and indeed the lack thereof.   Sterling recorded the year's lows last week near $1.5330. It traded almost to $1.5520 today, last Thursday's high.    Although hourly momentum indicators are a bit stretched, there is potential toward $1.5580.   A close above $1.5510 day, the 5-day moving average, but also help stabilize the near-term technical tone. 

US data risks disappointment.  The Chicago Fed National Index is likely to pick up economic softness, evenhough Q3 GDP looks like it will come in in the 2-3% range.  New homes sales are likely to have remain depressed and the decline in oil prices would seem to increase the chances of a weak Sept Dallas Fad manufacturing survey.    This backdrop may encourage further consolidation/correction in the foreign curerncies today.