httpvh://www.youtube.com/watch?v=YcXnC2_Q17Q

The markets leapt out of the summer doldrums with a bang yesterday; unfortunately it was to sterling’s detriment. The pound lost a full percent against both the USD and the EUR as traders worried over the state of the world recovery.

There was little data over the long bank holiday weekend from the UK and although what was published was positive (UK consumer confidence surprising to the upside) the global macro picture took precedence. We expect a higher risk premium to be attached to the pound as we move closer to the October Spending Review much like the lead-up to this year’s General Election.

The euro also gained on good employment data from both Germany and the EU as a whole. German unemployment stayed at 7.6% however the amount of people unemployed fell by 17,000. The European level stayed at 10.0%. The US dollar also had good data to help it higher as consumer confidence rose unexpectedly to 53.5 vs 50.7. Respondents attitudes for the future were also higher; we do not expect this to last however should unemployment continue to rise as we think it will.

Overnight risky assets have had a good session as Chinese manufacturing PMI rose to 51.7 from 51.2 and Australian GDP rose to a year on year figure of 3.3%

We believe sterling will remain under pressure this morning as manufacturing PMI is reported at 09.30. While we expect it to stay way above the 50.0 level denoting expansion it likely reached its peak in April when it hit 58.1. We also have US mortgage applications at 12.30 and US ISM manufacturing at 15.00.