• French July CPI -0.4% m/m, -0.7% y/y, slightly stronger than median forecasts of -0.5%, -0.8% respectively
  • French June current account deficit -3.5 bln euros vs revised -2.3 bln in May – Bk of France
  • Italy July final CPI confirmed at flat both m/m and y/y -ISTAT
  • UK July jobless claims+24,900, slightly better than median forecast +28,000. Claimant count rate 4.9%, exactly in line with median forecast. ILO unemployment rate 7.8%, higher than median forecast of 7.7%, highest since Oct-Dec 1996
  • Euro zone June industrial output -0.6% m/m, -17.0% y/y, weaker than median forecasts of +0.2%, -16.4% respectively
  • BOE inflation report: Risks of CPI being above or below target in 2 years balanced if rates held at 0.5%, QE at 175 bln. BOE chart shows CPI below target at around 1.4% in 2 years time assuming market rate path, QE 175 bln. More likely than not inflation will fall below !% in Autumn, triggering letter to the government. Seems UK rates to remain steady for foreseeable future
  • BOE’s King: Recovery could be slow and protracted. Will take along time before spare capacity created by the recession is used up. The large margin of this spare capacity means high and rising unemployment.

Interesting, active, morning. Day started out with risk aversion being ratcheted higher with likes of euro, sterling, aussie under heavy pressure as European stocks, S&P futures fell.

Number of negative articles noted. One in the Handelsblatt had the head of the European Development Bank (ERBD) highlighting growing crisis in Eastern Europe. Another in The Telegraph by our old mate AEP outlined various issues pertaining to China. There were also a couple of noted pieces in the WSJ, one highlighting the travails of CIT who have delayed filing their quarterly report to the SEC as they continue to hammer out a restructurung plan with bondholders. The other reported that Atticus Capital have closed two back funds, handing back $3 bln to investors.

Against this backdrop, EUR/USD fell from an early 1.4145 to a session low 1.4087. There was talk of the BIS having stepped into the market buying around the lows and we were quickly back above 1.4100.

The pairing then started a steady recovery as the early risk aversion disapated and stocks made marked recoveries. Bank of Korea was seen buying good amounts on the way to 1.4160, where we stand at writing.

Cable came under early pressure against the backdrop of heightened risk averson. It also had the added weight of caution surrounding the UK jobs/BOE quarterly inflation report which were to come later.

Having started out around 1.6490, the pairing fell quickly, the move accelerating further when sell stops just below 1.6430 were triggered bringing about a session low 1.6392. From there it’s been a slow, choppy, recovery back to 1.6460 at writing. The jobs report, BOE inflation report and subsequent King comments didn’t offer anything too startling, which will have been greeted with relief by the GBP bulls.

USD/JPY sold off early, from around 95.50 to session low 95.15 on the heightened risk aversion and has seen subsequent rally to 95.80 as sentiment has improved.

AUD/USD started of around .8245 came under heavy pressure early from strong selling from model funds. Stops were triggered when .8210 gave out, accelerating the sell-off even further to a session low .8180. From there the subsequent strong rally has seen us go all the way back to where we opened, namely .8245.

If you like your markets choppy, you’d have been in your element this morning.