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Top Headlines

o   Bernanke’s dangles QE3 carrot > Can kicked to NFP > then FOMC

o   Markets questioning whether pieces of ECB Bond Buying puzzle will really fall into place

o   Chinese Mf PMI misses > Markets quick to hail another CB joins the stimulus line

Market Moves

o   EUR continues to ride the ECB Hope trade; AUD remains friendless

o   Equity markets erase early losses thanks to PBoC speculation

o   Gold and Silver barely blink an eye on misses to CH data

Asian markets preferred to stgiate from the QE3 rut to create its own intraday story that has seen markets battle to align with the right gauge to follow. Today’s flows had something for everyone as once again, guessing Central Bank actions become the driving theme than the actual data itself.

Perceptions that the Fed are closer to QE3 saw equities rally initially on Friday only to be reversed by the hurdles that the ECB faces in implementing their overly priced-in Bond Buying program. Poor Official Chinese PMI data over the weekend had those markets highly reliant on its demand gap lower on open only to reverse and rally hard as the HSBC Manufacturing PMI came in at its worst since March 2009. That’s right, bad is good, as more pundits jumped on board the Stimulus express.

Risks surrounding a continued Chinese slowdown have opened considerably, mostly due to the delayed response from officials in countering its documented decline. This inaction, even on a verbal front, has allowed uncertainty to enter a market that always believed that  China had the means to do something about it when necessary and it seems that time is fast approaching. Until that clue is given, the pricing in of further slowing must be adhered.

Outlook

The US markets are closed for Labor Day but with plenty of data and headlining to contend with markets are sure to be on edge for the European session ahead. With another round of disappointing European Manufacturing data expected this will weigh on equity markets more than anything. You can only price in so much affect of a Bond buying program right or can you!

The AUD still looks to be floundering and will look to sell towards the 1.0300 level. The action needs to occur during the European session which means we need to keep things fairly tight with perhaps a stop just above 1.0320 and aiming to take half back around 1.0255 (move stop to entry) and then look to run the second half to 1.0225.

Andrew Taylor, Market Strategist,