·         Financial fear spreads to Portugal, Spain

·         Euro falls to 8 month low against dollar

·         Bank of England ends QE, may come back if outlook remains poor

·         ECB hold rates, remain “inflexible” on stability pact

·         Dollar strong on haven flows, jobs expectations

All this and more is available on our blog. Click here  http://www.worldfirst.com/blog

Wow. It was a big day then but not for all the reasons we thought. The Bank of England’s announcement was even pushed into 2nd place on financial bulletins as news of what is going on Europe spread.

The dictionary definition of contagion is a corrupting or harmful influence that tends to spread; contagion is happening in Europe. The problems that hit Greece have now decided on an Iberian jaunt and are laying waste to confidence in Spanish and Portuguese markets; their respective stock markets were down close on 6% yesterday with the yields on their debt reaching near record levels.

This has weakened the euro to 8 month lows against the US dollar and shows no sign of letting up. GBPEUR would have been able to take advantage had we not been hamstrung by the Bank of England release. We have been bearish the EU for over a year now and it now looks like the market has cottoned on.

But to Threadneedle St. The 9 man MPC decided to ‘pause’ QE yesterday but reserve the right to restart should the outlook fail to improve. Sterling behaved exactly as expected with a short term bounce and then a softening in the afternoon. As I iterated to attendees of yesterday’s ‘Bank of England’ webinar, this is but one hurdle for the pound to clear in February and I would not be long GBP heading into next week’s BOE Inflation Report; probability is we get mullered.

In other news yesterday we saw the ECB hold rates at 1% and have to fight off suggestions in the press conference afterwards as Trichet said the ECB was “inflexible” over the rules to the stability pact; the law that says that government deficit must be less than 3% of GDP. This did not go down to well, further weakening the euro.

So with equity markets down, the pound weak and the euro also being sold hard there could only be one winner. The US dollar pushed to new lows against both the euro and sterling on haven flows and on the belief that today’s Non-farm figure will be the first positive in nearly 2 years. The consensus view is for a positive figure of around 15k as bad weather moderated in January in the US.

Other than the US jobs data we have producer price data from the UK at 09.30 which is unlikely to sway the pound here or there.

Have a great weekend

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