httpvh://www.youtube.com/watch?v=xcpFsyfbV5M

European and US equity markets followed their Asian counterparts higher yesterday with traders seemingly loving the Basel III capital rules although critics were quick to point out the costs to public and also the bank themselves. Even so, the FTSE finished 1.3% higher at 5565, the highest it has been in 4 months.

This ebullience was not easily translated into the currency markets however with the JPY actually gaining over the course of the day against the US dollar and the pound also falling. Our prediction of further euro strength against the pound has continued to prove correct as this morning it homes in on the lows it made last week (1.1920).

The data from the UK has continued to deteriorate in recent weeks with RICS house price balance shifting to -32 overnight. This means that 32% more surveyors and estate agents are seeing falls in prices as opposed to gains. It is the lowest the measure has been since May ’09 and signals that the mortgage lending market is still limiting the reemergence of the housing sector. Obviously this flies in the face of the Halifax survey published last week

Further GBP losses are forecast today as the Treasury Select committee hear from new MPC member Martin Weale for the first time. He has been on the dovish side of things and refuses to rule out a ‘double-dip’ recession here in the UK. Therefore we would expect to see a bit more downside on GBP crosses with it likely to break the 1.5325 level it needs to.

As we emphasized yesterday the possibility of strike action with the TUC voting yesterday for a campaign to fight the government’s planned spending cuts, with its general secretary warning that the cuts would make Britain “a darker, brutish, more frightening place.”  The big stand is likely to take place on the 19^th October, the day before the spending review.

In the past few minutes it has been released that Japanese PM Kan has survived a leadership challenge which has allowed JPY to strengthen to a fresh 15 year high against the USD.

The data calendar is packed today with UK CPI due at 09.30, German ZEW at 10.00 and US retail sales at 13.30.