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FX markets got a dose of exactly what it did not need today, bad economic news from China. China’s HSBC flash PMI dropped back below the critical 50 threshold, to 48 in November. While the correlation between recession in the manufacturing sector and a PMI read below 50 is mild, clearly the downside side risk to the Chinese economy has increased. Regional equity markets took a hit on China’s…

Risk sentiment is lower however, conviction remains light and FX trading fickle. We suspect that risk are skewed to the downside and continue to fade risk rallies. As was widely expected, the media outlets are reporting that the US “super committee” has failed to reach an agreement on $1.2tn in new spending cuts. The formal announcement is expected in the US session today. The news that the…

The global conversation has clearly shifted across the pond to the US deficit debate with the current news flow being far from helpful regarding risk appetite. Headlines suggest that the US bi partisan “super committee” will fail to agree on the targeted $1.2trn spending cuts. With markets expecting a forthcoming statement from co-committee chairs, risk appetite was lower across the board, with…

Fx markets remain hostage to shifting headlines and persistent evidence of contagion in european debt markets. Deeply concerning to traders is the aggressively rising funding costs across europe. Yesterday’s spanish 10yr bond auction came in at 6.975 (out pacing the recent Italian auction), while bid to cover was an uninspired 1.54. In Italy, the new technocratic government, lead by Prime…

It’s a familiar cycle playing out once again in the financial markets. Last week the doom and gloom appeared to subside with the installation of a new Prime Minister in Greece and the promise of imminent political change in Italy. This week, Italy has also resolved its political limbo and installed Mario Monti at the head of a new technocratic government; yet we are already beginning to see the…

Another day where the lack of news suggesting any progress in the European sovereign crisis, translated into further pullback for risk correlated FX trades. There are clear signs Eurozone fears have increased and contagion spreads unchecked. While Italy and Greece seemed to have successfully instituted new technocratic governments, and Greece and Spanish short term auctions went off without any…

The optimism generated from the departure of Silvo Berlusconi quickly drained from FX markets. It was the slow realization that nothing had fundamentally changed and that the problems that affected the Eurozone were still without a solution. EURUSD drifted down to 1.3575 from 1.3661. USDJPY was relativity unchanged around the 77 handle, except for rogue spike mid Asia although there was no signs…

FX markets remain hostage to political uncertainties in the Eurozone, specifically significant developments in Greece and Italy. Last week in Greece and now in Italy, parliaments scrambled with urgency to install more technocratic focused governments that are committed to implementing the difficult austerity measures demanded by the EU, ECB and IMF. The expectation that politics in these two…

FX markets continued to be directed by news headlines and markets rumor making for highly volatile trading environment. Yesterday what looked like an official communiqué out S&P seem to have suggested that France had lots it AAA status. Obviously confusion reigned in the bond market and French vs. German yield spread widen to 165bp. After about an hour S&P reaffirmed Frances AAA rating…

There was a high level of disbelief as Italian yields ripped through the 7.00% barrier with not so much as a peep from European policy makers or the ECB. At this point we need to be asking is Italy really too big to fail. In last night’s US republic primary debate the candidates echoes what we suspect is the general feeling in the USA, which is Europe needs to bailout Europe. There are…