httpvh://www.youtube.com/watch?v=r7J7BjUaPuo

The old investment adage of ‘Sell in May and go away’ was alive and well yesterday as risky assets were smashed lower with the market concerned over the possibility that the Greek debt problem spreads to other EU countries.

Market chatter that the Spanish government had asked the ECB for a EUR28bn were dismissed as ‘unfounded and irresponsible’ with the IMF adding that ‘There is no truth to these rumours’. While the Spanish have had a bad recession with youth unemployment rising to 40% and their property market crashing they are in a far better position than Greece. Spain has already enacted an austerity package, as has Ireland, and should be adequately padded from the impact of these issues.

So risky assets were smashed with global equity markets diving by an average of 2.5%. Banking shares took the brunt of the beasting with banks in Greece, Spain and Portugal suffering double digit losses. The euro moved to a 12 month low against the US dollar as it broke through the 1.30 level. GBPEUR has also moved to a new 9 month high of 1.1689 which is a real surprise given the election is tomorrow.

With the ‘risk-off’ mentality the US dollar was on top-form yesterday battering the pound down to a 5 week low of 1.5110. As long as the rate stays above 1.4980 then there is the prospect for a near-term bounce; anything lower and this dollar strength will continue down to a level of around 1.47.

We expect that we will hear a lot from Germany today as Merkel is outlying plans to the Bundestag on Greece. This will ensure a whippy euro although the prospects for a massive move higher are slim. Data wise we are fairly busy with the PMI for the UK’s Construction sector at 09.30, Europe’s Retail Sales at 10.00. The important precursor to Friday’s Non-Farm Payroll figures, ADP Employment Change, is due at 13.15 and should point to a positive move on Friday. We cap the day with Non-Manufacturing ISM at 15.00.

Regardless of the data however it will be further news on Greece and the other PIIGS that will dominate the market today.