Risk appetite is starting on a subdued tone today after Moody's cut Italy's sovereign credit rating by three notches to A2, outlook negative. The credit ratings agency cited downside risks to growth, general funding issues threatening to dog countries with high levels of debt, and the risks to Italy's fiscal consolidation plan as the key reasons behind their decision to downgrade. Whilst this move does bring Moody's in line with the grade given to Italy by S&P, Fitch still rates the country two grades higher - a rating which is likely to come under scrutiny in light of this morning's move.

The negative news however was counterbalanced by a report in the Financial Times overnight that suggested EU Finance Ministers are working on a coordinated plan to recapitalize European banks. If true, this should calm fears of a massive domino effect throughout the banking system in the event of a Greek default. Naturally, EURUSD rallied on the news, and has now hit a high of 1.3369.

In further encouraging news, Australia's retail sales figures were released this morning and came out surprisingly strongly. Month on month retail sales for August hit 0.6% compared to the forecasted 0.2%, and even stronger than the prior month's 0.5% print. This alone however is unlikely to change the RBA's neutral policy stance given the prevailing economic backdrop, but it does suggest consumers are handling the current climate with resilience.

Today's economic calendar is dominated by PMI services data out of Europe and Eurozone retail sales (exp: -0.3% MoM, prev: +0.2%). The final revision to UK GDP is not expected to show any deviation from the last reading at 0.2% QoQ, 0.7% YoY. In the afternoon session, the ADP unemployment report is expected to show a 73k increase in jobs in September, and any surprises will likely impact expectations for this Friday's non-farm payrolls report.

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