May has been a difficult month with elections in France and Greece at the beginning of the month setting the tone. Bright spots in the flow of economic data from anywhere, let alone Europe, have been hard to find through the past four weeks and it is this pessimism that we now carry into June.

Spain remained the main offender yesterday with ECB President Mario Draghi criticising the Spanish authorities in its handling of Bankia’s funding problems. He said a central regulator alongside centralised bailout measures would prevent these issues taking down the banking system at large. While true, any centralised plan is one that the Germans are not going to be happy about and their opposition will be large and vocal.

As it stands at the moment however, Spain is seeing a fair bit of capital flight away from its banking system and, much like Greece, into the coffers of the safe havens. German assets are in so much demand that the yield on 2yr debt is now negative. In effect, you are paying to keep your money under the German mattress. That is the true dislocation; you cannot have these countries sharing a currency and not sharing the same rates.

Everyone is now asking for action from the Eurozone political classes and the longer that this action is absent then the deeper the slashes in the value of assets will be. Near-term political landmarks are the Greek elections in a fortnight but the ECB meeting next week could, hopefully,

be the game changer.

Draghi has been vocal that it is the politicians who now need to sort out the crisis and with the market screaming for some form of monetary easing from the ECB on Thursday it would be very easy for him to ignore them. By prolonging the pain in Europe, he is in effect holding the European politician’s feet to the fire. If you want someone to do something most people will ask kindly first time around. Then they may do so but not so calmly. Then try and bribe them. Finally comes force. We are at that final stage now.

It seems that no relief will be forthcoming from the economic data in early June either. Every single manufacturing PMI for the month of May that has been published this morning has been lower than April’s. India, South Korea, Japan, Taiwan, China, Vietnam and Indonesia all saw the number fall with the last 3 seeing a figure below 50.0 i.e. contraction. Similar news has to be expected in Europe and in the US, where yesterday’s ADP release showed that 2000 manufacturing jobs were lost in May.

We too, also have US Non-Farm payrolls at 13.30 which follows yesterday’s weak GDP and initial jobless claim releases. Analysts are expecting jobs to have increased by around 115,000 with anything sub-100k likely to only exacerbate further weakness.

As we in the UK get ready for the Jubilee weekend I would recommend that you leave the silly hat off for today and refasten the tin one.

Good luck, we will be back on Wednesday.

Latest exchange rates at time of writing