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All asset classes remained uncertain yesterday as doubts over the efficacy of last week’s European bond plan and further uncertainty over the state of US debt negotiations took their toll. Equity markets were lower in Asia overnight with falls seen here in Europe as well.

If we start in Europe, we saw 2 countries have their government debt ratings downgraded. Cyprus’s was lowered on its obvious and unfortunate exposure to Greek banks and government debt while there was another downgrade on Greece. The euro sold off sharply in the afternoon session on concerns about the ability of the latest crisis-fighting measures in the Eurozone to “ring fence” Italy and Spain. Both Italian and Spanish bonds are pushing closer to the dangerous level of 6% yield, with Spain already there, so the market still needs a lot of convincing. There is an Italian bond auction due today of medium term debt and you would expect that the market will be looking to push yields higher.

Still on debt, we saw some good news for the UK in that the yield on UK 10 year debt, which moves inversely to the price, fell below 3% for the first time since December. This will please the men in Whitehall as it makes any future borrowing cheaper and shows that investors who are looking for some form of stability are moving into UK debt.

Overnight however it has simply been more and more bad news from the states. The Federal Reserve said that more and more regions of the US are seeing slowing growth through the past few months. While it seems that there is still growth, that growth level has slowed in 8 of the 12 regions the Fed splits the country into; it was previously 4 that were seeing a slow down. This is being blamed on a slowdown in consumer spending; the same slowdown that most of the western hemisphere is experiencing. This will lead to more and more people talking about a potential 3^rd round of quantitative easing in the US especially after Bernanke said the possibility is “ on the table”.

The debt negotiations continue to stall however although there is a vote scheduled on House Speaker John Boehner’s plan. Originally the bill was said to need additional savings by the Congressional Budget Office after it found that only $850bn would be cut over the next decade instead of the $1.2trn that the Speaker had thought. This plan may pass the House of Representatives but will need some serious tinkering to pass the Senate in which the Democrats still hold a big majority. If Boehner’s plan fails, then it is likely Harry Reid’s will be picked up but we are getting closer and closer to the deadline of August 2^nd.

The data calendar is dominated by the European Commission’s survey of consumer confidence due at 10am which is expected to show a further softening of consumer expectations. The industrial sentiment measure is also expected to fall. All of this is, of course, as a result of the remaining uncertainty surrounding the periphery. We also get the first small look at how the UK is performing retail sales wise in Q3 courtesy of the CBI’s reported sales measure. In the US we are likely to get further evidence in a slowdown in housing from June pending home sales numbers.

Latest exchange rates at time of writing