20131003

Good morning,

Most equity markets in Europe and in the US headed lower as the rate guidance from the ECB was biased away from lowering of interest rates favoring an LTRO and the partial shutdown of the US congress as well as further talk on the US debt ceiling kept American equities in uncertainty. With the current level of political turmoil, we should see a move towards high-liquid and lower yielding instruments, which are safer than the high yielding instruments normally being more volatile and less liquid. EUR/USD had a strong day, testing the 1.36-level on back of ECB, but also as a result of a positive development in Italy, where Italian PM Letta won a vote of confidence in the government. This also supported the FTSE/MIB, closing up 0.7% vs. a Euro STOXX down 0.5%.

Overnight, positive data from China triggered risk taking in Asia and stocks closed higher with the Hang Seng leading the pack, currently up 0.9%. The JPY continued on the bid, and USD/JPY closed below the daily Ichimoku cloud and trend support from June lows, which opens up for a test of the 200-day SMA at 96.80.

The upcoming trading session will be dominated by PMI data from UK and the Euro zone and in the US, markets will be watching the ISM Service Index. On the monetary side, US Fed speakers will also probably provide some noise in the markets. Most focus will be on FOMC voter Powell, which should be hitting the wires at 17:30GMT from Missouri. In addition, other Fed speakers; Williams, Fisher and Lockhart will also be giving their take on the economy at different venues.

Overall, we expect another day with focus on the situation in the US, and the European session could be pretty muted favoring additional depreciation of the US Dollar against. We should see yields coming down in Italy and stocks be a tad higher on back of Asia. However, we expect the bearish bias to continue.

Have a nice day.