Today saw correlations breakdown across the board. US Equities were essentially flat (-0.1%), Precious Metals got hammered (Gold -1.8% and Silver -2.9%), the USD was stronger across the board since 8am EDT this morning; EUR/USD -40 pips, USD/CHF +35 pips, USD/JPY +55 pips, USD/CAD +90 pips, AUD/USD -45 pips and NZD/USD -60 pips (except vs. GBP/USD +50 pips), and there was notable weakness in two particular currencies; the Japanese Yen and Swiss Franc – we believe predominantly due to extreme risk averse positioning being unwound.

On the data front today, US July Consumer Confidence dropped to 50.4 from 54.3 in June (revised higher from 52.9) which put a damper on investor optimism. More importantly, the lower reading solidified last month’s sharp decline from 62.7 in May, suggesting it was not a one-off event, and slipped to a 5 month low. Additionally, the US July Richmond Fed Manufacturing Survey fell for the third consecutive month, down to 16 from 23 in June. Day after day it seems we receive another number suggesting further erosion to the US economic recovery; however risk assets have decided to ignore most of this data throughout the better part of July and continue to rally as corporate earnings continue to show better than expected results.

Depending upon whether you believe the glass is half empty or half full, there’s two ways to view today’s developments. The bullish view; bears have capitulated – reducing their positions in metals and covering their shorts in JPY and CHF cross related pairs. Short term technicals should soon turn bullish and fresh buyers will enter the market. The bearish view; bulls are asleep at the wheel – belief that commodity prices lead at market tops & bottoms, and today’s drop in metals prices is a ominous sign for equity markets worldwide. All it will take is one relapse in risk assets technically, combined with the worsening US economic outlook and you’ll soon see bulls running for the exits. Rarely do you see such strong beliefs in two opposing views, and over the coming sessions we’ll find out who will be victorious.

Tonight’s data sees Australia Q2 Consumer Prices (QoQ & YoY) and New Zealand July Business Confidence.