New York Session Recap

Risk sentiment eased and risky assets rebounded after yesterday's flight to safety. USD/JPY rebounded from 15-year lows of around 83.35 to current levels near 84.00 as the yen softened on positive risk sentiment. The market appears to have a short-term outlook as European debt concerns that created yesterday's demand for safe havens faded today. The Bank of Canada raised its overnight lending rate to by 25bps to 1.00% from the prior 0.75% as expected. The bank noted that 'unusual' uncertainty is a factor at future decisions and a weak U.S. is a main factor behind lower Canadian outlook. This leads us to believe that the BOC will be cautious moving forward and it is likely to pause on additional rate hikes. The Canadian dollar strengthened significantly with USD/CAD plummeting from above 1.0500 to session lows around 1.0345 before bouncing to current levels around 1.0375.

The Fed's Beige Book was released and showed 'widespread signs of deceleration'. The initial impact was for a pullback in the earlier risk rally, however this pull back was short-lived as equities clawed back from a dip and Treasury yields rebounded after a brief plunge. U.S. stock markets closed to the upside where they spent most of the session with the Dow Jones Industrial Average finishing up about +0.45% and the S&P 500 gaining around +0.64%. U.S. 10-year yields rose by about 5bps as markets demanded riskier assets and sold treasuries.

On the data front down under is New Zealand 2Q manufacturing activity and the August employment report from Australia. Japanese 3Q BSI Large All industry and manufacturing numbers are also due.