Markets paused for reflection yesterday after Monday’s large gains with risky assets slipping off their yearly highs.

Equity markets were a mixed picture as we continue to move through European earnings season. Northern Rock announced larger losses than expected at £724m as repossessions and the number of its customers who find themselves in negative equity continued to stay high.

Equity market falls could have been larger were it not for some more bullish news from the US housing market. Pending Home Sales, a measure of homes were contracts have been signed but the sales has not been completed and therefore a good leading indicator, were 6.7% higher compared to a year ago which hints that the bottom in construction and home sales has passed.

Lloyds Banking Group are the latest UK bank to report earnings and have continued the trend of weak retail banking results. The UK government pumped £17bn into the company in October however bad loans jumped to £13.4bn in the first half of 2009. The difference between Lloyds and Barclays for example is the commercial side of the business. Barclays’ retail business was also weak but have a huge commercial enterprise to fall back on. Lloyds’ debts will continue to be high as long as the retail business is weak.

We move into 2 days of important data today. UK Consumer Confidence has already been released; rising to 60 against a consensus of 59. We have PMIs and ISMs from the UK (Services 09.30), Europe (Services 09.00) and US (Non-Manufacturing 15.00) today with European Retail Sales (10.00) and UK BRC Shop Prices (10.30) thrown in for good measure, To top it all off we have ADP employment change (13.15) from the US ahead of the all important Non-Farm jobs release on Friday.

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