The US dollar is stronger vs. the majors as risk aversion carries over and intensifies.  EUR/USD is making new lows for this move but is finding some support around 1.26 for now.  We expect further losses for the single currency, and break of 1.26 would target the next retracement level around 1.2430.  The yen is firmer across the board, benefiting from risk off trading as well as lessened concerns about FX intervention.  USD/JPY traded at its lowest level since June 1995, while Swiss franc is mostly stronger but lagging a bit and so EUR/CHF has yet to hit our target of 1.3070.  EM currencies are largely softer, which is to be expected in this negative trading environment.  Only gainer vs. USD so far today is JPY, while biggest losers are HUF, PHP, AUD, NOK, and CAD.  US data out today could add to the negative sentiment, as housing data has really surprised to the downside in recent months.  Recent technical damage despite stronger than expected euro zone orders data (see below) points to further EUR losses in the coming days.  Canada reports retail sales today, but CAD along with Mexico is expected to underperform near-term due to close ties with the US. 

Asian equities were lower, with the MSCI Asia-Pacific Index posting a 0.7% drop after rising 0.1% Monday.  China and Malaysia outperformed and rose on the day, while Hong Kong, Philippines, and India underperformed on the day.  Nikkei 225 posted a 1.3% drop, with the strong yen continuing to weigh on Japan’s economic outlook.  European bourses are trading lower so far today.  US shares are likely to come under pressure too as futures trading points to down opens for the major US indices.

Core bond markets are higher in the wake of the recent rise in risk aversion.  Peripheral spreads to Germany have widened today, more as a result of Germany 10-year yield falling 5 bp to a record low 2.23% than rising yields in the periphery.  The Greek-German spread has widened 5 bp to +867 bp.  Portugal, Ireland, Spain, and Italy 10-year spreads are wider to varying degrees, with Portugal up the most (8 bp).  US Treasuries have continued to gain on the flight to quality trade, with 10- and 30-year yields 4 bp lower on the day.