European Majors Firm In Risk Averse Markets

Overall markets were quite mixed. Equities weakened broadly as S&P 500 continued it's pull back from the new 2012 made earlier this week and Asian stocks followed. Some additional pressure was seen after Fed Bullard's comment on Fed minutes which was said to have played down the chance of imminent easing.

Commodity currencies were dragged down by stocks. However, bonds told another story as the 10-year US yield dived for another day to 1.666%, comparing to the 1.863% intra-week high and kept USD/JPY soft. Meanwhile, European majors remained firm against other currencies on the expectation of ECB actions in September.

St. Louis Fed Bullard reminded us that the FOMC minutes released earlier this week were for the July 31-August 1 meeting, and were "a bit stale because we have some data since then that has been somewhat stronger." In particular, that was actually before the July NFP number which showed 163k gain and the stronger-than-expected retail sales. Bullard also described that tone of that FOMC meeting as "gosh things are not as good as we thought and if it continues to decelerate here, we're going to have to do something." But he believed that "going along at this slow pace is not enough to justify gigantic action."

After all, recent comments from Fed officials were mixed and indicated a split inside the committee. The upcoming Jackson Hole Symposium would be a key event as Fed Chairman Ben Bernanke would give his comments on the economic outlook and the likelihood of further easing.

In Europe, Greek prime minister Samaras will continue his tour today to Berlin to meet with German Chancellor Merkel, and then to Paris tomorrow on meeting with French President Hollande. Merkel and Hollande presented an united message on Greece yesterday and urged the country to stick to its reform path. Merkel said she'd "encourage Greece to stick to the reform path, even though it has demanded a great deal from the people in Greece." Meanwhile, Hollande emphasized that it's "up to the Greek people to make the necessary efforts " to stay in the eurozone.

In Spain, it's reported that the country is negotiation over the conditions for conditions to seek financial assistance. A preferred option was using the EFSF to buy Spanish bonds at primary auction while ECB intervene in the secondary market at the same time. That's actually not new to the market. Nonetheless, it was later denied by the EU Commissioner Rehn who stated that there are "no negotiations underway on any other sort of program."

German Finance Minister Schaeuble said that while some claimed that ECB's bond buying risks breaching its mandate, he doesn't see that. It's reported yesterday that ECB could set a target to cap yields in its upcoming bond buying program but keep the target unknown to the public. Meanwhile, it's also reported that the target could be a pre-defined band of reasonable width. And with that, ECB could be allowed to reward to punish a country on implementation of the reforms.

RBA Governor Stevens said in his semi-annual testimony that the peak of the mining boom will "occur within the next year or two." But he stayed cautiously optimistic for the global economy and expect RBA to be "well equipped" to handle any turmoils. The central program for growth is "close to trend" with inflation staying inside the 2-3% target range, with current interest rates "a little below medium-term averages." Meanwhile, he noted that SNB's purchase of Australian dollar a "remarkable thing" and is a "picture of how bad the world is in Europe." And he's seeing more "official flows" from central banks and government recently.

On the data front, New Zealand trade balance stayed in surplus at NZD 15m in July. Australian conference board leading index rose 0.2% in June. Japan corporate services price dropped -0.2% yoy in July. UK GDP is expected to be revised higher to -0.5% qoq in Q2. US durable goods orders are expected to rise 2.0% in July with 0.5% rise in ex-transport orders.