With the notable exception of the poor set of UK data, the overriding tone of economic statistical releases this morning has been positive.  However, after a positive start, stock markets in Europe turned negative undermined by a combination of ongoing fears that recent bullish sentiment has overcompensated for the economic improvement to date and concerns over the historical precedent of weak stocks in September.  

Last month's falls in Chinese equities has been a source of anxiety over the prospects for risk going into the autumn.  This morning's good Chinese PMI data at 54.0 in August helped settle fears that Chinese stocks have rallied too far this year.  While the better tone of the Shanghai Composite overnight supported other regional stock markets and led European equities higher at the start, the better tone was not sustained.  As equities fell in European, the yen and the dollar moved back into favour.   Strong Japanese vehicle sales (+2.3% y/y in August) helped support the notion that Japan's economy may be turning the corner, though scepticism is becoming apparent over the ability of the new government to significantly improve the economic backdrop.  Better than expected German retail sales data for July (+0.7% m/m), a rise in German manufacturing August PMI (49.2) and a better than expected fall in Germany unemployment at 8.3% failed to boost the EUR given the market preference for the safe haven assets.

The AUD has been a notable loser vs the USD this morning; the move triggered by the policy statement by the RBA.  Following the indication from RBA Governor Stevens that rates were 'appropriate' , the market has pared back expectations that RBA rates could rise as soon as next month.  AUD/USD fell as far as 0.8354 before finding support. 

Following a squeeze higher on the London open sterling was knocked lower after a poor set of economic data.  Manufacturing PMI fell back below the crucial 50 level in Aug to 49.7, signalling contraction in the sector.  In contrast to the recent signs of improvement in the housing market, UK net lending on dwelling declined by -0.4bln in July.  These data will promote the perception that the UK economy is lagging most others into economic recovery.

This afternoon US ISM data will be of note, US pending home sales are also due.