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US equities opened lower yesterday but managed to retrace the early losses. Overall, however, sentiment for risky assets has deteriorated over the last few days. Last week’s disappointing US data triggered an unwind of existing pro-cyclical positions and potentially some re-positioning into more defensive trades. And this trading adjustment was not offset by the positive signals stemming from the non-manufacturing ISM release yesterday. US rates drifted lower but only in the front and mid end. FX markets responded with dollar strength and underperformance of risk-sensitive currencies. The most distinctive feature of this recent bout of risk-aversion, however, has been its broad commodity flavour, with commodities and commodity related sectors and assets underperforming.

Overnight, the RBA left policy rates in Australia unchanged at 3% as broadly anticipated, highlighting that external growth risks have declined, while domestic growth has held up better than initially expected. Today,