Highlights: U.S. dollar was weaker vs. the majors, as the euro recovered to end the day higher after it fell to its lowest level vs. the dollar since July 6. Moody's downgraded Portugal to A1 from Aa2, but this was offset by a strong Greek T-bill auction.

The yen and Swiss franc both softened as risk appetite came back after a strong Alcoa ( AA) earnings report Monday kicked off U.S. earnings season.

EM FX was mostly stronger Tuesday. Biggest gainers on the day vs. USD were NOK, HUF, ZAR, MXN and SEK, while only losers vs. USD were KRW, PHP and TWD. The U.S. trade gap was bigger than expected in May (-$42.3 billion) and may drag down second-quarter growth forecasts slightly, while June budget gap was slightly lower than expected. Hungary and Poland CPI inflation were both higher than expected in June.

U.S. equity markets were higher, as DJIA, S&P 500 and Nasdaq ended up 1.4%, 1.5% and 2.0%, respectively. European markets were also higher, with Euro Stoxx 50 up 1.9%. Asian equities are likely to open up today as Asian ADRs were higher during N. American trading Tuesday. Nikkei futures point to an up Japan open, and the softer yen should help Japan exporters. U.S. earnings season continued with Intel after markets closed Tuesday. The company said it beat second-quarter estimates.

U.S. bond market was lower, as 2- and 10-year yields were up 1 bp and 5 bp, respectively. European bond markets were also mostly lower, as 10-year yields in U.K., France and Germany were up 4 bp, 4 bp, and 5 bp, respectively. Greek 10-year yields fell 4 bp, Portugal rose 9 bp, Italy rose 3 bp and Spain fell 2 bp.
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