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

The seesaw has tipped back firmly in favour of market pessimism. Just a few days ago the Nikkei was at its highest since the tsunami, Eurozone leaders were confident on arranging a 2^nd Greek bail-out package and the ECB was firmly behind Portugal despite Moody’s downgrade of their debt. How quickly things can change.

 US employment data on Thursday was very positive with both ADP employment change and initial jobless claims outperforming expectations. However, US Non-farm payrolls data disappointed on Friday showing that 18,000 new jobs were created, way below the 90,000 that were expected. Data showed that the unemployment rate actually rose from 9.1% up to 9.2% reinforcing concerns about the health of the US economy. To make things worse, the deadlock remains between Obama and congress, and the President is struggling to push through a budget to cut national debt. The current budget runs out in just 3 weeks’ time and the US is running the risk of defaulting on its debts. The impact of a default is unthinkable and the hope is that Congress will vote to raise the debt ceiling an 11^th time since 2001.

 Equity markets were hit hard on Friday and have started poorly in Asia this morning. Chinese inflation came in above expectation meaning the PBoC may have to continue hiking interest rates in an effort to cool the economy. To make things worse, Eurozone leaders will meet in Brussels because of worries that Italy could be drawn into the debt crisis. On Friday the main Italian share index fell 3.5% and yields on Italian bonds rose sharply.

 It is fairly quiet on the data front today. The UK house price balance is out at midnight which we expect to disappoint and weigh on Sterling.