Risk Trades Edge Lower as the Waiting Game Begins

The market is like the Florida coast as Tropical Storm Isaac approaches. It’s the calm before the storm of activity that will kick off with Jackson Hall speeches on Friday. In the meantime, market action has been lackluster. The lone indicator on the Asia-Pacific calendar is Australian home sales.

The UK holiday slowed already-stale trading to start the week. A highlight was a report from the WSJ that the ECB may adopt flexible bond yield caps. The program would be informal and focus on short-dated debt, probably less than three years, they reported.

The WSJ story is the third article suggesting a program to bring down yields is under consideration. When there’s smoke there’s usually fire. At this point, however, the process doesn’t appear far enough along to be introduced at the September ECB meeting.

There were minor bright spots in the US economy as the Dallas Fed manufacturing index improved to -1.6 from -13.2. The Chicago Fed Midwest manufacturing survey also ticked up to 95.6 from 93.9.

Risk trades edged lower though US trading. The euro slipped to 1.2494 from an open at 1.2527. Similar-sized moves were seen in other pairs as the US dollar found scattered bids.

The SNB’s Jordan re-affirmed its commitment to the peg but EUR/CHF remained glued to 1.2010.

Asia-Pacific trading is likely to remain subdued. The lone item on the calendar is 0100 GMT release of HIA new home sales. The prior reading was +2.8%.

-AB