Overnight excitement from the RBA (no rate cut) and concerns at China's GDP growth given a European recession did nothing to initially slow risk markets early on as they reached up to yesterday's highs as ES (the e-mini S&P 500 futures contract) and BE500 (the broad Bloomberg equity index for Europe) pushed higher out of the gate (as AUD strength sustained carry trades - which appear now to be leaking back off). EUR managed to get back to yesterday's highs and found resistance and once it began to leak lower (and USD lower implicitly) then equities (and commodities on China un-easing concerns) started to stumble pretty hard. Following China's Shanghai Composite, European stocks are now down around 1% and credit is slowly gathering pace to the downside (though not as weak as stocks for now). Portugal showed some strength early on but has given that back as most sovereigns are trading 0-3bps wider in 10Y cash spreads for now (likely the trigger for non-sovereign credit). Some comments from Juncker on special Greek accounts and Klass Knot on the Euro's success top off a quiet morning with some risk off starting to gather pace.
[7]
The blue line is the BE500 (European equities) which have swung from yesterday's highs to its lows this morning. Credit is lagging the sell-off for now with financials best performers for now, as they likely take their lead from sovereigns which are close to unch so far.
[8]
AUD is the star of the morning so far in FX as RBA didn't cut rates as expected. This AUD strength pushed our broad risk proxy (CONTEXT [9]) up close to ES (from extremely cheap levels earlier) but as Treasuries/Bunds are rallying modestly and EUR and AUD are now leaking back, risk in general is coming off.
[10]
Commodities are losing steam as the USD is rallying (and concerns over China's willingness to ease given RBA's explicit inflation concerns) leaves Copper down 2% on the week and Gold the outperformer though in the red on the week - tracking USD almost perfectly. Brent is modestly underperforming WTI for now (compressing the spread) as Brent in EUR reaches almost record highs once again.
Charts: Bloomberg and Capital Context [9]