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Yesterday’s shake-up in risk-correlated assets has abated for the time being, with global equities managing to staunch yesterday’s bleeding with major equities decently situated in the green heading into the end of the week.

The overnight Asian session was a mixed bag in terms of price action, with the Nikkei missing out in the risk appetite rebound even after inflation in Japan over the month of August came in lower than anticipated, and there was further rhetoric that the state-run pension fund would be amending laws to constructively help a rebalancing of assets towards higher-yield.

The Yen reversed its earlier gains despite the Nikkei falling by 0.88% on its final trading day of the week, with USDJPY vaulting back over the 109 handle as we head into the North American cross.

A lack of domestic data has helped the Euro find somewhat of a floor above the 1.27 area, though EURUSD is still trading with an offer tone that stems from an environment that is putting an increasing amount of pressure on Draghi and the ECB to explore a broader range of Quantitative Easing measures.

The lack of interest in the first round of the targeted LTRO, along with lagging money supply and private loan numbers have escalated expectations the European Central Bank will have to get more accommodating in terms of monetary policy considerations, driving a further wedge between the trajectory of monetary policies seen at the Fed and ECB.

The rising USD environment has also managed to assert itself in the face of downward yield pressure in the fixed income market over the last week, with the recent rally in the greenback as more a function of the USD being the “cleanest dirty shirt” in atmosphere where many developed central banks are poised to retain their easy money policies, as opposed to higher rates driving the strength in the dollar.

Heading into the North American open, the final reading for second quarter GDP for the US economy came in bang-on expectations at 4.6%, an upward revision to the second estimate which was situated at 4.2%. While fairly old news in terms of market moving impact from when the initial estimates were released, a collective sigh of relief that the engine of growth south of the 49th parallel is still marching along on a relatively strong road has also helped support traders positioning in the greenback, with USDCAD firmly entrenched north of the 1.11 handle as we get ready for the opening bell.

There is little in the way of economic releases that are likely to drive price action into the end of the week, though yesterday’s wash-out in equity markets looks to be the function of some geopolitical jitters along with a rebalancing of portfolio managers ahead of month end, so watch for a potential buying opportunity in high-yield assets to drive some sort of rebound as we close out the trading week.

In our latest episode, we talk about Contango vs. Backwardation, Scottish reverberations and key US data:

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