Overnight market activity shows investors have entered a price discovery phase ahead of Friday's Jackson Hole conference, prompting losses across the risk spectrum and a stronger greenback. Markets are assessing each incoming data pulse in the context of the whether the Federal Reserve will launch a third round of quantitative easing, prompting a 'bizzaro world' scenario where good news can lead to losses across risk related assets as market lower the chances further Fed stimulus.

After finding some bids in the domestic session, the Australian dollar resumed a downward trajectory overnight, crossing the downside of 103-figure to 5-week lows of 102.75 US cents. The Euro outpaced its risk counterparts but remained capped under the weight of a stronger greenback. U.S equities also reflected the declining odds of QE3 with the DOW and S&P losing 0.81 and 0.78 percent respectively.

Although incoming data points show the U.S recovery remains tepid at best, bright spots across some leading indicators suggests the Fed may be reluctant to imminently launch QE3. Recent reports on retail sales, GDP, and housing all point to a slightly stronger than anticipated recovery and there's a sense some of the softer incoming data points could be worse. U.S economic data overnight showed personal consumption rose 1.6 percent in annual terms, falling from 1.8 percent in July. Personal income rose 0.3 percent in July to match estimates and June's growth and spending edged up 0.4 percent from a flat reading in June. Weekly jobless claims were unchanged at 374,000 for the week ending August 25, edging slightly higher above consensus estimate of 370,000.

Atlanta Fed President Dennis Lockhart also prompted a dulling of stimulus expectations overnight, stating in an interview with CNBC that additional easing is a "close call" while adding "I am not overly concerned with the longer-term costs of more action but at the same time I see limited benefit from more action." The effectiveness of further stimulus has been brought into question in recent times given borrowing rates remain near to record lows. This suggests that while QE3 may provide a superficial boost or short-term sense of euphoria for markets, it's unlikely to directly influence structural issues such as the high rate of unemployment. With U.S mortgage rates in some cases as low as the 3-4 percent region, it's clearly never been a more cost effective time to borrow, but given the housing bubble and subsequent global economic crisis, high unemployment and low credit worthiness has made the dream of owning a home illusive for many U.S citizens as lenders maintain conservative risk profiles. This suggests further Fed stimulus may be of only superficial assistance at best.

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