Welcome Back, "Risk-Off"

It had been a while. The risk on/off wagon had stopped rolling through FX markets, replaced by odd pockets of momentum trading and breakout JPY- or USD-focused themes. It couldn't last. Steve Englander at Citigroup says there was a shift overnight from "USD-on to risk-off". He adds: "The traditional safe-havens, JPY and CHF, did extremely well overnight, so we had the much more traditional ranking of risk-off performance, rather than the recent buy USD against everything. Investors are long USD against everything right now so the pain from the JPY and CHF moves was partially offset by the weakness in higher beta currencies. The bigger buying of JPY and CHF than selling of more risk-correlated currencies reflects how heavily short these traditional safe havens investors are now." USD/JPY trades at 101.92.

• HSCB Flash Manufacturing PMI dropped to a seven month low; 49.6 vs 50.4 expected
• Weak Chinese PMI data put additional pressure on AUD
• Japanese accounts were large sellers of AUD/JPY
• Volatile JGB market moves led to BoJ intervention
• Nikkei dropping sharply post-Bernanke/FOMC, currently down 7 %
• Hang Sen trading 2 % lower, while the Shanghai Composite resilient, losing only 0.20 %
• Looking ahead, we have French, German and Euro Zone PMI data & UK GDP
• USD likely to extend rally, but markets will watch US econ data much more closely

European markets have been open for around half an hour, and things are ugly.

• England's FTSE is down. 1.4%.
• France's CAC 40 is down 1.7%.
• Germany's DAX is down 1.9%.
• Spain's IBEX is down 1.5%.
• Italy's FTSE MIB is down 1.9%.

This follows sell-offs in the U.S. and Asia. Japan's Nikkei fell by a stunning 7.3%.

On Wednesday, Federal Reserve Chairman Ben Bernanke told the Joint Economic Committee of Congress that the Fed could start tapering its quantitative easing (QE) program during one of its next few FOMC meetings depending on economic data. QE is one of the Fed's economic stimulus programs, which is intended to lower interest rates through bond purchases.

Over in China, the Flash Manufacturing PMI unexpectedly plunged to 49.6 from 50.4 a month ago.  A reading below 50 represents contraction, and this is the first sub-50 reading in seven months.