Risk appetite continues to deteriorate in Asian sessions. The news that US broker MF Global filed for Chapter 11 bankruptcy protection did not help to remove the dark cloud lingering over markets. While Greece's Mr. Papandreou's dramatic announcement to put the new EU bailout deal to a referendum has investors once again questioning the survival of the Eurozone. The EURUSD fell from 1.3871 to 1.3751, while AUDUSD dropped from 1.0567 to 1.0387. Clearly the EU proposed measures have failed to reduce investor's perceived risk. The plan to leverage the EFSF and bank recapitalize, and 50% haircut, lacks critical details that might have eased investors concerns. In addition, there wasn't anything in the announcement that went after the structural issues which were the root of the problem. That said, we are cautiously optimistic that risk sentiment could shift with just a few well timed European announcements. The most important development, trigger would be that China agreement to invest in the EFSF. Italian 10 yr yield moved higher yesterday to 6.18%, evidence that significant sovereign fears exist.

In Australia, the RBA cut rates by 25bp to 4.50% in a move that was generally expected and priced in. However, AUDUSD dropped sharply on the release, as the news caught short term speculative traders off guard. The statement came in moderately unbiased with RBA commenting that a more neutral stance of monetary policy would now be consistent with achieving sustainable growth and 2-3% inflation over time. Given this balance statement, we will need to see more data and hear further comments from policy makers to decide if this the end of a easing cycle or the RBA first foray into fine tuning policy. Earlier, China October PMI manufacturing came in significantly weaker than expected at 50.4 vs. 51.6 exp, 51.2 prior read. However, HSBC PMI rose to 51 from 49.9. The deterioration in external demand was the reason for the lower PMI reads. With growth easing pressure, on CPI should also comedown, allowing policymakers to feel more comfortable with broad based easing.

Finally in Asia, USDJPY saw an early morning spike from 78.30 to 79.10 fueling speculation of further FX intervention. At the time of writing, there has been no official confirmation, although we have heard of Japanese names buying. In normal conditions the Japanese FX intervention would make their conversations at the G20 complicated as the official policy is not aligned with market manipulations. However, with Europe petitioning for EFSF investment, especially Asian, we suspect Japan's action will be overlooked. Even the ECB which is generally opposed to FX intervention had ECB Governing Council member Paramo stating that Japan could do what they wanted. We guess that the hypocrisy of the ECB supports of the SNB and not the MoF has softened their stance for now.

On the European front, the initial news flow from China is that the local authorities are positive on the EFSF investment. Chinese President Hu Jintao stated that developments in the EU are very positive. While Dow Jones reports that Chinese minister of Commerce, Deming, said that China pledges active support for Europe. There was also a report that the G20 agenda has French President Sarkozy meeting with China President Hu for a working Dinner on Nov. 2nd. It was reported that Sarkozy hopes to finalize a number at this dinner. Perhaps it's this laissez faire attitude which worries the market. Greek TV has announced that parliamentary confidence motion in the Greek government is expected by end of the week. With Europe on holiday, trading volumes and news flow will be light and suggesting the risk reduction will continue today.
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