The US dollar is again in decline and that is contributing to the concern in Asian markets as it will erode the competitiveness of exports from the region. The dollar-euro rate is at $1.2910 and the yen-dollar rate is at 87.02. The weaker dollar will, however, provide support for metals and for the price of oil. Brent crude (for August settlement) last traded at $75.86 p/bbl while the WTI contract is at $76.40 p/bbl. The weaker dollar is helping oil withstand the negative effect of the weaker US manufacturing data.

The weaker dollar and stable oil price should help the ruble to extend its gains against the dollar this morning.

The weekly fund flow data from EPFR Global shows that investor confidence in emerging markets picked up strongly last week. GEM Balanced funds took in $2,029 mln in the week to last Wednesday, up from the $460 mln reported the previous week. But, within the country specific funds, interest in Russia remains weak. While China funds reported new money flows of $322 mln, India funds took in $115 mln and Brazil funds reported $97 mln of new money, Russia funds only received $6 mln in the period. Within the EMEA region the preference has strongly shifted back to Turkey in recent weeks and last week these funds took in $27 mln of new money. Through most of the 1st half of this year, global investment funds favored Russia over Brazil for the commodity theme and EMEA investors avoided Turkey. Too early to say that these trends are now seriously being reversed but, at least in recent weeks, Russia has been sidelined.

Investors are more likely to wait until today’s indicators are released to see whether they should be slightly more optimistic or pessimistic going into the weekend. The University of Michigan sentiment report will show if US consumers are feeling more or less confident and is one of the reports that the market pays a lot of attention to. Two of the big Wall Street banks, Bank of America and Citigroup will report their numbers early today.

It was a day of very mixed signals in international markets yesterday with several positive and negative indicators almost balancing each other out. The weaker than expected Empire State manufacturing report led to a big opening slump in Wall Street that also pulled global markets lower, Moscow included. The settlement deal between Goldman Sachs and the market regulators allowed for the late bounce while the after hours Google results again hit the Futures and has directly contributed to the weakness across Asia today.

Moscow’s bourses opened with some optimism yesterday but morning strength was quickly reversed when global markets started to decline. MICEX fell over 2.5% from the session top to close at 1,340.2, a net fall of 1.4% for the day. The London IOB index fell 0.7%. The weaker than expected June Industrial Production report also hit sentiment towards Russian stocks. While the number is still strong, rising 9.7% year on year, it was less than the +11.7% expected by economists. Unless the number picks up in the coming months then the more optimistic forecasts of +5% GDP growth this year may have to be scaled back. Consumer activity indicators, in particular, are still weak and while we are expecting only a slow pick up in retail sales this year, the current indicators remain low. Trade in most Russian names was typical of summer activity with relatively light volumes and no major % changes.