The Asian session has largely carried through the negative tone that was seen towards the end of last week, with the Shanghai Composite index down another 8%, with other equity markets in Asia down by around 4-5% as a result. A similar picture is emerging in Europe. Last week, the dollar was lagging behind more favoured safety plays, such as the yen, Swiss franc and gold. This pattern has largely been repeated in overnight trade, with USDJPY touching the 121.00 level, which has not been seen on a sustained basis since May of this year. Those underperforming the US dollar are the commodity currencies (kiwi, Aussie and Canadian dollar) together with cable, where interest rate expectations are reflecting the adjustment seen on dollar rate expectations. The performance of commodities in recent sessions underlines why related currencies have been pressured, with Brent crude now trading below the USD 45 level and nearly all other commodities heading in the same direction.
There is little else scheduled today to take away from the bearish and risk averse tone being seen in markets globally. There were expectations of some sort of action from the Chinese central bank overnight and markets are likely to remain on edge for some action, either in the form of a rate cut or a cut in the reserve ratio for banks. Otherwise, it’s going to be a case of watching equities and the extent to which the sell-off follows through from Europe into the US, together with the weakness in commodity prices. The prospects of an increase in rates from the Fed in September look very slim indeed at this point in time.