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Those fearful of a further meltdown in the European banking arena were able to breathe a slight sigh of relief as only 8 of the 91 banks surveyed failed the most recent batch of stress tests. 5 of these were Spanish,  2 Greek and 1 Austrian with a further 16 close to failing (within 1% of the pass mark) so while a near term catastrophe has been averted, problems in the area still require attention. There are of course concerns that these ‘stress tests’ were actually not that stressful at all; I’m sure most of us have more stressful commutes.

The euro and other risky assets spiked in the aftermath of the announcement as some had suggested that up to 1/3rd of the banks tested would come up short. This rally looks to have petered out over the weekend with traders seeming unwilling to give the single currency too much backing.

Another reason may be a simple belief that the world is slipping back into recession or at least this “soft patch” will prove to be more long term than had been previously thought. The Michigan Consumer Confidence measure published Friday afternoon fell to its lowest level since March 2009 as respondents worried over the current state of the US economy and I don’t doubt some of the wrangling over the debt ceiling and other partisan games of chicken in Congress that could further derail things.

Negotiations, if you could call them that, between the Republicans and the Democrats will continue this week in the hope of finding a deal that would raise the debt ceiling and bring in a plan to trim the long term deficit of the United States. Unfortunately the plans that are being bandied around at the moment seem to only include a deficit reduction plan of around $1.5trn over the course of the next 10 years. This is significantly less than the $4trn that the ratings agencies want and increases the chances that we hear further chat over a debt downgrade for the US.

Today’s data calendar is thankfully quiet however this week sees a return to focus on the problems plaguing the UK. The UK consumer will be in focus on Thursday with release of Nationwide’s June survey of consumer confidence and the retail sales number from the ONS. UK retail sales are expected to bounce slightly back from the catastrophic fall seen in the month of May although only by around 0.5%. We also see the Bank of England minutes from the July meeting on Wednesday; we expect to see a 7-2 reading against a rate rise whilst the vote will also remain at 8-1 against a further rise in QE.

Latest exchange rates at time of writing