httpvh://www.youtube.com/watch?v=VpdhCQH7gUE

We’ve seen three reasons for a more risk positive environment over the weekend and this is being echoed in Asian markets this morning.

Firstly Hypo Real Estate (HRE) are set to receive another EUR40bn in state support. While this may seem strange the deal has to be put in context. HPV is a large German mortgage lender that was hit hard by the credit crunch of 2008 and was one of the first financial institutions to receive support from its government. The continuing lack of free-flowing capital and a weak recovery in the German housing market have caused it to list violently in the past few months prompting fears of yet another crunch. The news of the support will help the euro and the housing market in Germany and the benefits can already be seen in the EURUSD and GBPEUR prices this morning.

Also in the financial services space we have seen the announcement of the Basel III rules. These will see the amount of capital financial institutions must keep aside in reserves increase so as to protect against losses in the future. The banks have been given until 2019 for these rules to be met  and bankers hope that this will allow force banks to pursue less risky strategies and guard against another crunch.

Thirdly, we saw good Chinese data on Saturday with CPI rising at the fastest rate in nearly 2 years suggesting that the economy is not slowing down as much had been previously feared. All of these have pointed to weaker USD, CHF and JPY and stronger EUR and equity markets so far. Given the lack of data today, I doubt that we will see this change much in trade today.

Focusing on the UK, the fears of strike actions by the TUC and RMT over large-scale spending cuts have risen over the weekend with Bob Crow calling for a campaign of ‘civil disobedience’. This was highlighted last week in our ‘Bank of England Webinar’ and forms part of our reasoning for a weak pound over the coming 6 weeks