httpvh://www.youtube.com/watch?v=QIaIuL_6Aiw

The coalition government received a nice boost in the middle of the Labour convention from the IMF with the IMF calling the Conservative and Lib Dems’ plans to tackle the deficit as essential and meant the ‘recovery was underway’. The IMF did downgrade UK growth prospects from 2.1% to 2.0% but noted that the government’s planned cuts are unlikely to damage growth with sectors set to take up the slack from the diminished public portion.

Sterling was slow to react and was unable to gain significantly against either the euro or the dollar. Some good ground had been made up against the euro earlier in the session as Anglo Irish Bank’s subordinated debt saw its credit rating downgraded by Moody’s to Baa3. This is one step above junk bond status and was a bad blow to the Irish government before Thursday’s big reveal as to how much the bailout of the Irish banking sector has cost. A market rumour has put the cost of bailing out Anglo Irish Bank at EUR35bn; a figure that would trigger another downgrade.

Focus has not completely shifted to Europe over the weekend as the market vacillates over whether we will see further quantitative easing in the US soon. An article in the Wall Street Journal has been slightly dollar positive overnight as it argues that the Fed will not indulge in a ‘shock and awe’ smash of monetary easing and instead will limp in and then leave the door open to further money if needed. While this has supported USD overnight and may continue to in the coming days, we are still in a USD downtrend and I do not see that changing anytime soon.

So far this morning, Germany has come to the euro’s rescue slightly with Gfk Consumer Confidence coming in at a higher than expected 4.9 against the survey of 4.2. This increase is likely down to the recent moderation of the recent unemployment figures and a stable inflationary environment. There are more rumours surrounding Europe this morning however including a sovereign downgrade of Spain.

The data calendar was quiet yesterday but heats up today with the final reading of UK Q2 GDP (09.30), S&P Case Shiller House Prices (14.00) and US Consumer Confidence (15.00)