Talk of Chinese Hard Landing Compounds Worries

Sentiment reversed in US trading on worries about Europe and China. JPY and USD led while the commodity currencies lagged. Japanese retail sales data is the highlights of Asia-Pacific trading.

Modest risk appetite crumbled in US trading ahead of a key vote on the EFSF from Germany on Thursday. EUR/USD touched a one-week high of 1.3690 as North American traders arrived at their desks but steadily declined to 1.3544 afterwards.

There was no substantial news from the Eurozone and heightened fears triggered a cascading fall in risk appetite. Adding to the mood was talk of a Chinese hard landing after a report by BoA/Merrill Lynch highlighted the risks. After opening higher, the S&P 500 fell 2.1% to 1151.

US durable goods orders fell 0.1% in August compared to the -0.4% expected but ex-transport fell 0.1% compared to the +0.2% expected. Overall, the report was reassuring as it showed that demand was relatively stable amidst the market turmoil of the month.

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Precious metals and other commodities resumed nosediving as fold fell 2.4% to $1610, silver was down 5.1% to $29.85 and copper tumbled a whopping 7.5%. The close in gold was the lowest since July and is a disappointment to those who were expecting a larger bounce, at least. It may now retest the 200-day moving average around $1530.

Japan August retail sales fell 2.6% Y/Y from +0.6% in July versus expectations of -0.6%

At this point, Japanese policymakers are more concerned about deflation, industrial output and the strong yen than the health of the consumer so this report will not have a large impact. Plans are already believed to be underway for a comprehensive, long-term program to fight deflation and boost the yen. The risk is that a large negative miss increases the likelihood of deflation and that forces leaders to act more quickly or aggressively.