German Rumours and Bank of America Talk Dominate

Early optimism on Thursday was wiped out by a mysterious plunge in German stocks and a second look at Warren Buffetts investment in Bank of America. CHF and USD were the top performers. GBP and AUD lagged. Comments from RBA Governor Stevens will be closely followed in the Asia-Pacific session. The big event remains Friday's Bernanke speech. Ashraf's Intermarket Insight trades remain in progress. A new set of trades will be added in mid morning Friday Asia.

Stocks rose early in US trading after Buffet agreed to buy $5 billion of warrants in Bank of America at a strike price of $7.14 with a yield of 6%. Shares of the company rose nearly 10%. At first the news was seen as positive but once the terms were revealed the market became concerned that financials are undercapitalized. Just last week, BoA was saying it didnt need any capital.

Around the same time, the DAX fell 4% in 15 minutes on a pair of rumours. The first was that Germany was about to be downgraded. The second was that a short selling ban was about to be implemented on DAX futures. Officials from the ratings agencies and exchanges quickly denied the rumours and the DAX closed down 1.7%.

Economic data also weighed as US initial jobless claims rose to 417K compared to the 405K expected. After climbing as high as 1190 in early trading, the S&P 500 reversed and fell 1.6% to close at 1159 creating a bearish outside day pattern on the daily chart.

Gold moved in the opposite direction, after falling as low as $1702 in early US trading, it rebounded to $1770. Silver rebounded even more aggressively, closing above $41.

FX moves followed the risk trade. Weale sparked a slump in GBP, saying the BOE has to be prepared to support the UK economy if needed. USD/JPY closed at the highest since Aug 8.

Japanese CPI data +0.2% y/y in July as expected, ex- food & energy slowed to +0.1% from +0.4%.