httpvh://www.youtube.com/watch?v=EIAHp_l2Fpw

The markets are starting to look a little tired at the moment as, certainly in the equity sphere, they try and eke out a 7^th consecutive day of gains. Preventing them from doing so however is a complete drop off in positive data from the United States.

The Philadelphia Fed manufacturing index was expected to have fallen over the past month but it was absolutely routed yesterday and combined with poor inventory data and wobbly news from the housing market stateside in the past couple of days as well, you have the recipe for risky assets to be sold across the board.

The euro, possibly the riskiest asset out there in the currency world at the moment, however didn’t sell off and instead gained against the USD and most of its counterparts as the Spanish debt auction surprised to the upside. The full EUR3.5bn was sold at a bid to cover ratio of 1.87x which was slightly lower than expected and while the yield was also higher it did show that you can sell anything for a price. While there is immediate relief that the auction did not fall over (something the national football team could learn from) all fears over Spain have not been assuaged.

This saw EURUSD move to a 3 week high of 1.2414 and pushed GBPEUR down to 1.1930 before it recovered as Treasury Minister Danny Alexander took to his feet.

We have been harping on about the budget for ages now and we got a taste of it yesterday as the coalition took the axe to some Labour programs floated in the last days of the previous government. He suspended 12 projects valued at £8.5bn and completely cut “£2bn of spending as well. Nick Clegg also signaled that we would see some changes to Child Tax Credits in the emergency budget, probably by an income barrier. We will of course get the full picture on Tuesday.

The data calendar is light today with only the UK PSBR and PSNCR to speak of. We expect these to be on consensus at £18bn. This could be the last day of sterling gains however before the budget as we do expect a lot of volatility in the coming weeks.

Have a great weekend.