httpvh://www.youtube.com/watch?v=xmP0IXxYK9Y

The fairground attraction that is the Greek political
environment continued to spew out more and more rumour and rubbish yesterday
with it now seeming that, for all the talk of a referendum and a democratic
process, this was merely a ruse by George Papandreou to get opposition leaders
to agree to his proposals. The confidence vote in George Papandreou is still
going ahead but is not due until late tonight. Reuters reported that the PM would
be happy to stand down even after a successful confidence vote which of course
makes no sense but we have all been quick to learn that very little does when
you involve politicians. Unfortunately the euro was at the behest of these
people and swung in a 1.5% range over the course of the day against the dollar,
eventually ending up by around 0.5%.

The main cause of euro weakness yesterday was the ECB deciding
to cut rates in a move that surprised the majority of analysts. Even though we
have been arguing for a rate cut from the ECB for a while we thought that they
would wait until December and use a 50bps slash to show they mean business. Much
like in 2008 the ECB has had to reverse a string of rate hikes as the continent
teeters on the brink of a recession. It’s good to have seen the new ECB
governor Mario Draghi come out swinging and hopefully this will form part of a
concerted effort to drag the Eurozone economy off the canvas. We expect another
rate cut next month as well to completely erase the rises seen earlier this
year. In the press conference, it became obvious that the growth prospects for
the Eurozone economy are likely to be revised lower over the next month
alongside inflation expectations.

Contagion from the farce that Greece has become is continuing to
be seen in other markets. A French auction showed yields rising back to levels
that were seen before last week’s agreement while Spanish and Italian bonds
yields remain at unsustainable levels. Amongst all this we must remember that
Italy is actually the battleground for Q4 2011 and through 2012. Greece is
currently the field hospital if I can carry on the analogy and the market has
fully priced in the effects of an election and a resumption of its austerity
program.

With all that has been going on in Greece it can be easy to
forget that today is Non-Farm Payrolls day in the United States; normally the
most important measure of the US economy on a monthly basis. The market expects
to see a diminished rate of job creation in October with the consensus view at
95k versus 103k in September. September’s figure was boosted in part by the
conclusion of a labour dispute at Verizon with the workforce now returning to
payrolls after the end of their strike, while the construction sector (+26k) and
professional business services (+48k) posted relatively strong gains in versus
recent outturns. Away from the circus in Europe this will be the major driver
during the afternoon after what we expect will be a quiet morning’s trade.

This morning’s data consists of the services PMIs from Europe
and its constituent parts as well as EU PPI.

Latest
exchange rates at time of writing