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Nervousness over the state of the global economy continues to remain the dominant theme in trading rooms at the moment. This was typified once again by equity market falls in the US, Europe and here in the UK and losses across other asset classes deemed as high risk.

There was no one factor that can immediately be pointed to for yesterday’s market; it is more of a general malaise. The equity and currency markets normally see a slowdown over the summer months and with tightening liquidity this will more than often lead to negative moves. It’s going to be a long hard summer unfortunately and sterling should slip versus most currencies, the euro excepted.

We expect this to be kicked off by the emergency Budget to be put forward by the coalition government on June 22nd. This plan to outline austerity measures will likely cause quite a bit of movement in both economic and political circles. Should the coalition follow the Canadian example that the media have been harping on about of late and propose a ‘bloodbath budget’ the risk of civil unrest once again rises. Our full thoughts on the budget will be published nearer the time.

Cameron’s speech yesterday had very little impact on the exchanges as they saved their judgement for June 22. The euro was allowed to strengthen somewhat in the morning session through a good German factory orders announcement however this came to a swift end in the afternoon. Any euro strength will instantly sold into by speculators looking to push the single currency lower.

We have had a surprising piece of data already. The German trade balance widened in the month of April as exports fell unexpectedly, even with the weaker euro. This has pushed GBPEUR back into the 1.21s and EURUSD down with EURUSD remaining below the 1.20  level.

The data calendar is once again fairly clear today with German industrial production due at 11am. You would expect that this figure would be slightly lower than expected given the fall in exports in April.