httpvh://www.youtube.com/watch?v=AkBdqGGfeY4

· German IFO moves lower for the first time in 9 months

· Mervyn King ‘we may see further quantitative easing’

· US Consumer Confidence shocks downwards

· Equity markets continue to lose ground

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

Data trumped sentiment yesterday as weak business confidence from Germany, disastrous consumer confidence from the US and a Bank of England Governor all to keen to warn of worst case scenarios tripped over risky assets.

We had broken from the market consensus in predicting a bad IFO figure from Germany as the pace of the recovery in Northern Europe is, we think, hampered by the efforts needed in Southern Europe. Euro began to weaken instantly against the USD but needed a bit more of a nudge against the pound.

In testimony to the Treasury committee Mervyn King and other members painted a fairly austere picture of the recovery. We learnt nothing new; the data and facts behind their assertions were all present in either the Inflation Report or the minutes from this month’s Bank of England meeting. However Mervyn King’s constant assertion that we may see further quantitative easing later in the year is acting like a dead weight around sterling’s neck at the moment. This, alongside concerns over our fiscal deficit heading into the election and how we are best to deal with it, will leave the pound unloved in the short term.

Risky assets were further hampered by news that Standard & Poors had downgraded the 4 largest banks in Greece to a credit rating of BBB with a negative outlook. BBB is one level above junk and means that both Greek banks and the Greek government are going to have to pay out higher yields if they wish to finance themselves in the debt markets.

The final nail in the coffin of risky assets yesterday was the consumer confidence figure out of the US which was sharply lower than expectation.

Sterling flirted like a drunken secretary with its range lows against the euro yesterday and 1.1320 will continue to act as support for the pound. Against the dollar we would like to see it consolidate above the 1.5530 level.

Data is quieter today with only EU industrial production (10.00) and US new home sales (15.00). Sterling may become volatile around 09.35 as Adam Posen, an external member of the MPC, speaks on ‘Unwinding Quantitative Easing’.