Asian equity markets were not a pretty sight overnight, with losses seen across most markets as the overall risk environment remains negative. Losses were concentrated in the commodities/mining sector, with the fall in Glencore seen yesterday (nearly 30%) proving impossible for the rest of the sector to ignore. The impact on currencies was seen via the further appreciation of the yen and also the euro later in the day. As proved to be the case last month, the traditional safe havens are not behaving in the same way, with the Swissie still under negative interest rates and the dollar being impacted by the shift in expectations surrounding the Fed. Expectations for a move next month are just less than 20% according to interest rate futures. Meanwhile, market based measures of inflation expectations have fallen to the lowest level for the year, the favoured 5Y5Y breakeven inflation rate in the US down to 1.77%.
Against this environment, it’s perhaps not surprising that the Indian Central Bank chose to increase rates by a greater than expected 50bp, the weakness in commodity prices being cited, together with the need to stimulate domestic demand against the weakening global backdrop. Naturally the Rupiah was weaker as a result, this being one of the currencies that has held up better than most against its emerging market peers. There are no major data releases to cause any major upset today, with just German CPI data at 12:00 GMT together with US consumer confidence data later in the day at 14:00 GMT. Worth noting the outperformance of the euro vs. sterling, which has put EURGBP above 0.74 and to levels last seen in early May of this year. This reflects more the safe haven appeal of the euro (unwinding of carry trades), together with a further hollowing out of rate expectations for the UK (no rise seen until well into 2016).