Financial markets traded with great Tuesday. Concerns over debt problems in the Eurozone remained, sending European bourses -1% lower. Wall Street also fell with DJIA and S&P 500 losing -0.90% and -0.74% respectively. The biggest event happened during the day was SNB's intervention. The central bank announced, with immediate effect, it will no longer tolerate a EUR/CHF exchange rate below 1.20 as is prepared to purchase foreign exchange in 'unlimited quantities'. Gold initially jumped to a record high of 1923.7 but rapidly reversed gains as investors took profits and sold the metal to cover losses in their long CHF positions. On the contrary, oil rebounded strongly after plummeting earlier in the day. The threat of a storm in the Gulf of Mexico sent prices higher.

In the statement regarding currency intervention, the SNB said that Swiss franc, even under the new target, is still high and should 'continue to weaken over time'. The SNB pledges to take further measures, if 'the economic outlook and deflationary risks demand it'. CHF slumped -10% after the announcement while gold tumbled as much as -3.22% after surging to a new all-time high. Those who long Swiss franc usually seek safe haven and they normally bought gold simultaneously. The yellow metal's decline was due to liquidation as investors cashed in profits made from long positions in gold to cover losses incurred from long positions in CHF. Moreover, SNB's statement signaled moderation in inflationary pressures. Note that the central bank stressed that it will intervene further should the economic outlook and deflationary risks permit. It also stated that overvaluation in CHF 'carries the risk of a recession as well as deflationary developments'. Indeed, the latest report showed that Swiss inflation fell -0.3% m/m in August (consensus: -0.2%), after contracting -0.8% a month ago. From a year ago, CPI eased to +0.2% from +0.5% in July. Apart from a safe-haven, gold is also considered as inflation hedge. Ease in inflationary pressure should reduce the metal's demand.

While Italian and Spanish yield spread narrowed a tad, the crisis in peripheral economies remained far from being resolved. The German Constitutional Court will decide whether the country should participate in the bailouts. While it's unlikely for the court to reject the whole proposal, it may add some requirements limiting the government's ability to lend money.

On the macro front, Germany's factory surprisingly contracted -2.8% m/m in July, following a +1.8% growth in the prior month. The market had anticipated a milder drop of -1.5%. Eurozone's GDP growth eased to +0.2% in 2Q11 from +0.8% in 1Q11. In the US, the ISM non-manufacturing index unexpectedly rose +0.6 points to 53.3 in August, compared with consensus of a dip to 51.3. We will have BOC's rate decision today but no change in monetary policy is expected. The US will also release its Beige Book assessment of economic conditions in the NY session.