Overnight, a myriad of issues, news snippets and data points transpired against riskier asset classes, with the end result being downwards pressure on both the euro and the pound.
Starting in Europe, investor attention remains fixated on Thursday’s ECB meeting, continuing the daily speculation on what might and might not be revealed. There are fears that the level of detail surrounding the ECB’s bond purchase programme will not be sufficient to satisfy the market’s insatiable appetite to ‘know more’, hence the modest overnight retreat in both equities and the euro. Comments from Executive Board member Jörg Asmussen also weighed on risk sentiment with Mr Asmussen suggesting that bank supervision by the ECB should be a ’pre-condition for receiving ESM aid‘. He also added it is ’unrealistic‘ to expect a supervisory mechanism for all banks to be in place by January 2013.
The European Commission is expected to deliver its proposals for single banking supervisory authority next week, but the timetable for its implementation is clearly going to test the market’s patience. The negative bias towards risk currencies was not helped by the release of US ISM manufacturing data, which showed US manufacturing contracted at its sharpest rate in more than three years, coming in at a reading of 49.6, down from 49.8 in July and below the consensus estimate of 50. This accentuated the flow of money into the US dollar at the expense of most commodities and risk currencies.
Today, there is more data on tap that will reveal the health (or lack thereof) of the European economy. Spanish, Italian and composite Europe Service PMI’s are all due for release, as is the latest European retail sales print. All of the aforementioned data is again expected to be in contractionary territory. The modest overnight weakness in both the euro and the pound has continued in early Asian trade with the pairs in the 1.2530s and 15860s respectively.