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

As most of you will know it was a bank holiday here in the UK yesterday so I’ll take you through what happened on Friday first and then the low liquidity session yesterday.

Friday was a massive day with both US and UK GDP due and traders waiting on a speech by Fed Chief Ben Bernanke in which he would either outline the economic outlook and vacillate over how to deal with it or whether the Fed would transform their recent QE lite into full blown QE2.

He did the former and said that ‘ We will continue to monitor economic developments closely and to evaluate whether additional monetary easing would be beneficial. In particular, the Committee is prepared to provide additional monetary accommodation through unconventional measures if it proves necessary, especially if the outlook were to deteriorate significantly’.

In the aftermath risky assets sold off with the dollar gaining as those who priced in a move to QE had to reevaluate their plays. The USD also strengthened on haven flows.

The greenback went into the speech trading well after Q2 GDP was released at 1.6% vs. the expected figure of 1.4%. While this is better than expected, this still fell from 2.4% and represents a sharp contraction in output in the past 3 months. The prospects for Q3 are not good either and we are calling further GDP falls over the coming quarters stateside.

Before all this had happened markets were already volatile after UK GDP rose to 1.2% QOQ in the 2nd quarter, the fastest rate in 9 years. Most of the bump was down a massive increase in construction spending but I would not get your hopes up. As I said in Saturday’s Telegraph, this is likely the best we will see for some time given the government’s planned austerity measures and nobody will have been popping the champagne corks for the extra 0.1% we saw over the expected 1.1%.

Moving into yesterday London markets were closed and the focus shifted to the far east and, in particular, Japan. The Bank of Japan announced that it was extending a liquidity scheme in an attempt to weaken the yen; it didn’t work however and after an initial slip weaker JPY has strengthened after equity markets lost weight yesterday. Yesterday the S&P 500 was down 1.47%, the Dow Jones down 1.39% and the Nikkei overnight has lost 3.55%. We are set for further losses today with FTSE futures forecasting a negative open too.

Overnight the UK has received a shot in the arm from GFK consumer confidence that rose for the first time since February. Sterling has not been able to capitalise however as the equity market falls have hit risky assets overnight, with GBPUSD currently trading close to a 5 week low.

We’re back with a data bang as well today starting with German unemployment at 08.55. This is followed UK mortgage approvals at 09.30, EU unemployment at 10.00n and US Case Shiller House Prices at 14.00. We finish with US consumer confidence at 15.00. We would expect to see equity markets continue to shift lower today and risky assets to follow.