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Equity markets and risky currencies moved higher yesterday as the news from Libya filtered through and the Gaddafi regime was all but over. This caused oil prices to fall by 1.5% on the day and oil companies therefore to rise boosting equities. European and European equities had started poorly but managed to eke out gains on the day. Even so, it was fairly quiet on desk with traders waiting for Bernanke’s speech on Friday but should become more busy today with the German ZEW economic sentiment survey out this morning and also PMIs from the services and manufacturing industries of Germany, France and the EU as a whole. We also have a Spanish bond auction and it will be interesting to see whether the market decides to take yields lower or if that is solely the remit of the ECB via their bond buying operations. Anyhow, it should guide risky assets through the session.

They’ve started the morning well as data from the Chinese manufacturing sector showing an improvement, albeit only a slowdown in the rate that factories are losing work. The PMI release was below 50.0 (49.8) and therefore shows contraction in the industry concerned. This was however a 2 month high and Asian markets have cautiously cheered the number.

Whether the same good will result from the European figures will be seen between 8am and 9am. Following the poor German GDP number last week it is crucial that their manufacturing base shows some form of expansion in the 3^rd quarter in order to make up for the pasting that the consumer spending GDP element delivered. Unfortunately this would be a major surprise and, combined with what is likely to be a poor ZEW number following the markets’ wild volatility in the past few weeks, the day may not be a great one for the single currency.

Sterling was also a little slippery yesterday as notes from the newest member of the MPC reiterated the difficulty the committee has in weighing up the current economic quandary. Broadbent said he was on the hawkish side of the interest rate debate when he joined the bank but is now “much more in the middle”. He also suggested that further quantitative easing may be needed if inflation prospects fell and growh remained weak.

Latest exchange rates at time of writing