Risk Appetite Eases, Chatter of more Fed Dovishness

Risk turning gradually off. Chatter making the rounds that doves at the Fed are trying to drum up support for further QE . This is likely to become a more recurring rumor as data goes from bad to wrse. German PPI fell; UK PSNB declined; World Bank president calls for restoration of stability; Eurogroup conference call; Spanish 10 year continues to rise. Canada CPI was on the soft side. More developments in latest Premium Insights below.

USD is gradually creeping higher as indices deepen in the red and EURUSD drops below 1.2180. Gld drops back below 1580, while oil tests 91.00.

Latest reports showed that German PPI fell 0.4% in June after printing -0.3% in May and UK public sector net borrowing declined in June to GBP 12.1 bln from previous GBP 16.1 bln. Market reaction to both reports was minimal and EUR with GBP traded in a narrow range. Later in the session, EURUSD came under pressure falling to 1.2225 while GBPUSD retraced to 1.5686.

In his first speech, the new president of the World Bank Jim Yong Kim called European policymakers to take necessary steps to restore stability as falling growth could erase the significant achievements in fight against poverty of the past decade.

Eurogroup conference call started today at 6 am ET and the approval of an agreement to lend Spain up to EUR 100 bln is widely expected. The exact details regarding the loan will be determined after bank stress test results are published in September. Meanwhile, the Spanish 10 year yield pushed to 7.11%.

Canadian CPI fell 0.4% in June, vs the expected 0.2%, for +1.5% y/y from 1.2% in May. Core annual CPI at 2.0% from 1.8% in May.

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