According to weather forecasts, the storm may reach hurricane force, and as such becoming the first major storm in three years to threaten energy infrastructure in the Gulf of Mexico. The head of the International Energy Agency Nobuo Tanaka was on the wires yesterday, and he said the OPEC should keep oil output at current levels when it meets in September. He highlighted that still-high oil prices are especially hurting Emerging Markets. However, he also said that oil inventories will increase towards winter. Elsewhere, US equities closed the day in the black on the back of a session which saw the lowest traded volume this year, and the S&P500 closed up by 0.40%. On the back of higher crude oil prices, the energy sector led overall gains, while financials remained under pressure. In economic news, new home sales came in at 515k in July (cons: 525k, UBSe: 515k), a 2.4% gain. The trend has remained down sharply this year, in contrast to the pattern in existing home sales. Encouragingly for future house prices, the decline in July reflected an absolute decline in inventories: There were 416k homes for sale in June (not seasonally adjusted) after 440k in June. On a y/y basis, new home inventories were actually down 22.7%. The S&P/Case Shiller composite 20 home price index fell 15.9% y/y in Q2 (UBSe:-16.3%, cons:-16.2%, after -15.8% in March). Despite some moderation in its rate of decline in Q2, the national index has fallen a cumulative 18.2% from its Q206 peak. The Conference Board consumer confidence index rose more than expected in August to 56.9 (cons: 53.0, UBSe 53.5) from 51.9 in July.

In other news, the FOMC minutes revealed that some officials remained concerned that inflation wouldn't ease until 2009, and think the next move will be a rate hike. However, the tone of the minutes still suggests for the committee to stay on hold. What a shock, seems we heard this in Pro Traders Club? Going forward, we expect the greenback to remain supported up ahead. Intensifying weakness in economic growth outside of the US, capital flows and in our view waning upside momentum in crude oil pruces should remain supportive to the USD. The outlook in Europe, including Switzerland, worsens with companies turning more negative on exports and with little hope remaining for consumers.

Ahead today, Durable Goods Orders (UBSe -1.0% m/m, 0.8% previously), Durables Ex-Transportation (UBSe -2.3% m/m, 2.0% previously) and MBA Mortgage Applications (-1.5% previously). Atlanta Fed President Lockhart is scheduled to speak at 8:35 am regarding inflation and inflationary pressures in the US economy.In addition the EIA will report inventory data at 14:35 GMT.
EUR: Ifo lowest in three years - Historically, has the strength to move sentiment and drive a trend.

The German Ifo Business Climate was released at the lowest level in three years, supporting worries of a more intense slowdown in economic growth up ahead. The Ifo Business Climate came in at 94.8 , the Current Assessment 103.2 and the Expectations at 87.0 . According to the ifo institute the outlook worsened with companies turning more negative on exports and little hope left for consumers. Interest rate expectations adjusted to the downside; and the OIS market is now looking for 47bp of easing in the 12 months ahead, from only 25bp of easing on Monday. On the policy side, ECB Executive Board member Stark was on the wires yesterday, and he kept a hawkish rhetoric. He said that medium-term inflation risks have increased, and that he sees broad-based second-round inflation effects, which will not be tolerated by the ECB. However the commentary had little impact on the EUR, and we expect the impact of hawkish comments to remain limited in the current environment. Going forward, we expect the trend of deteriorating growth conditions to remain intact, also keeping inflation expectations under pressure.


AUD, NZD: More weak data

In data released overnight, construction work done in Australia fell by 2.6%q/q, weaker than market expectations of a 1.5% gain and well below 2.3% in the previous quarter. The number is the lowest since Q3 2006 and was led by falls in engineering and public sector construction. Our economists note that the data adds downside risk to our Q2 GDP forecast as on face value, private business investment looks like driving growth less than expected in Q2. In New Zealand, the NBNZ Business Confidence Index remained in negative territory, but overall confidence improved in August. The business outlook is now at -20.5 vs. -43.2 previously, and the own activity outlook is back in positive territory, with a net 4.7% of companies expecting their own business to improve over the next 12 months. GBP: Mortgage approvals linger near lows

In data released overnight, figures from the British Bankers' Association showed that mortgage approvals for home purchases fell by 65%y/y, near the record low set last month. Total approvals stood at 22,448, amounting to GBP4.3bn. The pound strengthened on the back of the news but the figures still point to further weakness in the housing market, which the Nationwide house price index due this week will likely reveal. In other news overnight, the CBI survey of businesses showed confidence in business and professional services fell to -42 in August from -18 in May, while the balance in consumer services fell to -61 to 60. Yesterday BoE Deputy Governor Charles Bean warned that the global slowdown will likely drag on but maintained optimism on UK growth, noting that the current period as "transitory" and normal levels will resume.

From UBS - Edited by Chris Lori