Australia: Offshore equity markets recorded significant losses as investor risk appetite turned sour. European bank stocks were targeted as concerns grow the European debt crisis is spreading. As a result of the nervousness, funds have been once again flowing back into the USD, JPY and CHF. Another dip back below parity for the AUD in the short term is a distinct possibility should the current volatility continue.

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Today’s labour force data release is unlikely to get too much attention given the current focus on offshore events, but market expectations are for an increase of 10,000 jobs in July and for the unemployment rate to remain unchanged at 4.9%. Should the result differ markedly from expectations we could see some flow on effect for the AUD as expectations for future interest rate moves from the RBA are priced into the market.

Majors: The French banking sector was in the spotlight overnight. Despite France’s AAA credit rating, investors are seeking increasing yields on French debt as fears grow that the European debt crisis is spreading. At one stage Societe Generale’s share price was down by as much as 22%.

The German DAX finished down around 5.0 while the FTSE 100 was down by over 3.0%. With the sell-off in risk the price of gold was forced higher again to close to USD1800 per ounce. In the US speculation is increasing that the Federal Reserve may be forced to review their position on QE3. While Bernanke’s recent clarification that cheap funding will be available for at least the next 2 years, the current outlook for slowing global growth suggest further stimulus may be required.

Economic Calendar
AU Employment Change JUL
AU Unemployment Rate JUL
US Trade Balance JUN