UBS Sinks Risk Appetite

ForexGen were steady in Asian session until late in the day when news of another financial institution in trouble sent traders looking for the exists. It was reported that UBS sought $15b in additional capital. Switzerland's largest bank, which is the European bank most afflicted by the mortgage crisis that began in the US, is poised to announce further losses of SFr8.2bn for the first-quarter. There is also an imbroglio as to how the bank might consider facing all its problems. There is a motion from a Swiss pension fund asking for a raise of SFr10bn in rights issue. the bank seeks on the other hand a broader resolution so as to maintain maximum flexibility. The pressure on Marcel Ospel, the bank's chairman, to resign has been mounting. He has always sought, however, to steer the bank through the crisis. The rest everyone knows. The news caught the markets off guard and EurUsd tumbled from 1.5780 to 1.5665 as investors most certainly unwound risk and looked for the greenback as a safe haven. A trade that was duplicated across the G10 currencies. Risk appetite had been steady increase with the help of Paulson, equity markets, and stronger US data but it looks like in the short term the credit crisis has created a risk adverse environment.

In Japan, the Tankan survey was overall weaker then expected falling to a 4-year low in q1. The biggest drop was in CAPEX where capital spending fell 1.6%. After the release a Japanese spokesman said that the report would not change the government's forecast as it still expects the economic recovery to stall.

In Australia, the RBA left it benchmark rate at 7.25% as widely expected. But it was the accompanying statement which moved the Aud to lower levels : "[the] tightening in financial conditions has been substantial [and] inflation will remain high in short term, but decline over time". had clear overtones of prudence albeit less hawkish then the past two statements. Consequently traders sold the Aud as the probability of another hike decreased.

In the Eurozone today the release of both euro-zone and German unemployment rates will be watched. While the labor market in the euro-zone remains in healthy territory there are increasing signals that the recovery has peaked.

In the US ISM manufacturing index will hold the market's attention. We expect the indicator to fall slightly to 47.5. While this reading is more consistent with an economic slowdown then outright recession, the index is perhaps overly optimistic