The focus remained on the events of Europe overnight with global markets concentrating on the contagion element of the crisis that just won’t take no for an answer. The Euro fell to near 6 week lows of 1.3421 against the greenback but managed to regain some composure as the European Central Bank began ramping up the purchasing of Italian debt. Italian 10yr yields dropped through 7 percent – an encouraging sign for market participants. Nevertheless, the artificial lowering of debt costs is largely seen as unsustainable in its current scale – it appears unlikely to be sustained given the barrage of negativity spilling from the region. Earlier, debt auctions in Spain and France also drew negative attention with respective yields considerably higher than recent Auctions.
A small concession to the decidedly risk-averse tone came from across the Channel with UK retail sales surpassing estimates to record growth of 0.6 percent in October, representing annual growth of 0.9 percent.
Across the Atlantic, US stocks slumped with the S&P 500 falling over 2 percent on the day closing below the key technical milestone of support at 1225. Meanwhile, U.S politics remain a key point of contention across the globe on concerns the ‘super committee’ tasked with cutting US$1.2 Trillion in spending may not do so by the November 23rd deadline. Failure to do so would enact a contingency plan involving automatic cuts of around US$110 billion per annum.
The Aussie dollar sunk alongside global risk assets with price action retreating to the downside of US dollar parity for the first time since mid October. The US dollar was a natural beneficiary across the board particularly against the commodity bloc currencies of the Aussie, Kiwi and CAD. Likewise the risk-off tone found little demand for higher yielding commodity markets with US dollar strength also providing natural headwinds for even the perceived flight to safety of Gold which has fallen around 2.5 percent in the last 24-hours.
The day ahead should see the Aussie hold above intra-day support of 99.7 US cents. At the time of writing the local unit is testing parity and we expect a convincing break to the upside will be reliant on the relative strength of the local and regional equities. Nevertheless, the global political and macro landscape is hardly conducive to risk asset strength and we expect any bounce to be short lived with the Aussie likely build a home below US dollar par in the near-term.