httpvh://www.youtube.com/watch?v=fC9lwHC9qnk

The markets were fairly directionless yesterday, as if being marshaled by a pair of English centre-halves (oh, when will it end? – Ed).

The indecision stemmed from uncertainty over the full outcome of the G20 and what impact liquidity measures due to end midway through the week in the eurozone will have on the area’s currency and its banks.

Sterling was one of, if not the, best performers yesterday as known interest rate hawk Andrew Sentance explained his vote for a rate hike at the previous MPC meeting. He believes that inflation needs to be quelled now and subsequently plumped for a 25bps rise. He was of course the only one to vote for this but it now sets a benchmark moving Q3 and Q4 (we do not expect a rate rise in the UK until Feb/Mar 11).

The G20 was revealed to be another exercise of moving politicians from photo-op to photo-op while they talked with the inherited importance of the pub know-it-all. The thing is the markets have known what needs to be done for a while now. Cut spending, cut it quickly and live WITHIN your means for a while.

Problems with eurozone liquidity measures are an all together more important test however. One year ago the ECB opened its special liquidity scheme; the largest amount ever lent by the central bank to countries and banks. This ends on Thursday and will provide a ‘litmus test’ as to how well the Eurozone is recovering. Should we see a large amount of roll-overs i.e. requests for further funding then we would expect risky assets to hammer lower pretty quickly. A large amount works out at above EUR300bn according to Barclays. A lower figure would prove to be bullish as it shows that eurozone banks and countries are not having trouble raising funds in the markets. The shut-off is on Thursday.

Fears for the euro were shown in the EURCHF, EURUSD and EURGBP crosses yesterday. EURCHF fell to yet another record low as a SNB official was quoted as saying the central bank had ended its interventionist policies. EURGBP moved to near 19 month lows on Sentence’s comments while the USD was strong as equity markets slid into the close.

Releases today include BBA mortgage approvals from the UK at 09.30, EU Consumer Confidence at 10.00 and US Consumer Confidence at 14.00. Mortgage approvals are expected to creep higher but not by much (51k vs. 49.9k) while both EU and US consumer confidence measures are expected to fall.

I expect a day of risky asset falls today as numbers out of China (equity market hitting a 52 week low) and bad consumer confidence figures from the US and Europe.