The move away from risk accelerated into the London open. Equity markets are lower across the board, the USD is generally higher, the yen has been a stronger beneficiary and while the AUD, NZD and CAD have all lost ground sterling has felt the greatest pressure, the GBP/JPY cross down over 2% from the previous US close.
Fears that the global downturn could be more pronounced than previously expected are the primary cause for the return to safe haven assets. These fears were heavily underpinned by last week's US labour market data. While Japan's May leading index rose slightly to 77 from 76.2 in April this morning, Eurozone investor confidence registered a greater than expected decline to -31.3 in July from -27 in June in contrast to market hopes for a modest improvement. UK new car registration also fell again by -15.7% y/y, though this is the smallest decline since June 2008.
The move lower in EUR/USD this morning is despite another instalment in the story about the future of the USD as a reserve currency. Russian President Medvedev stated that the world is too reliant on two currencies. Despite the prevalence of the view that it will take years for the global financial system to gradually reduce its dependence on the USD, uncertain about the USD's future as a reserve currency threatens to unsettle to USD in the run up to the G8 meeting on July 8-10. This morning, however, demand for safe haven fears overwhelmed fears about the USD's future and EUR/USD moved sharply lower to 1.3915 before EUR buyers stepped in.
Cable's heavy losses this morning followed on from its poorer tone at the end of last week. The poor tone reflects a growing perception that UK economic data and ongoing concerns over the poor fiscal situation do not warrant a continuation in the sterling rally that had been in place since March. Cable fell sharply in early London hours finding support at the 0.6100 area. EUR/GBP surged to the 0.8645 area before stabilising.
Australian June job adverts data fell -6.7% overnight suggesting further deterioration in the official jobs data due later in the week. These data will be closely watched but no change is expected in RBA rates tomorrow.
This afternoon US ISM non-manufacturing data are due.
