httpvh://www.youtube.com/watch?v=n0HEAJ0sOuw

Data from the UK continued to disappoint on Friday heightening the fears of a double dip recession in the 2^nd half of 2010. UK services PMI, the most important of the purchasing managers surveys, came in at 51.3 vs. an expected 52.9. The previous figure was 53.1, so it easy to see a decline in the services industry. As we stated last week the PMIs are a forward looking indicator and as such falls or a slowing of growth in Q3 and Q4 are expected in the UK. While people may glance over the manufacturing figures with ambivalence, a decline in the services activity in the UK economy is a worrying, but not entirely surprising, development. Consumers are on the rack already and with the October spending review due to increase the pressure, things in the UK will get worse before they get better. We expect a stagnation of UK growth in Q3 as a result.

This shifted sterling lower in the morning session although trading was thin as the market waited on the status of the US employment in the form of the Non-Farm payrolls report.

The release is known for its volatility and Friday’s figure did not disappoint. The reading of -54k was a lot better than the consensus view of -105k and allowed risky assets to push onwards in the afternoon session with stocks, commodities and high-yielding currencies gaining and bonds, JPY and CHF the main casualties. However one swallow does not make a summer and looking behind these figures slow growth is still the order of the day. This does not change anything and does not alter our expectations of further quantitative easing in the future as the US veers back towards recession. The one thing this report will do is prevent the Fed from conducting any loosening of monetary policy at this month’s meeting.

The risk-on atmosphere was tempered by the US’s services PMI which, like the UK’s, was pretty poor. Further softening of this figure will lead to more job losses in the US and a weaker recovery.

GBP continues to battle against the euro and it is likely we see further falls in the short term, our near term target is 1.18.

There is no data today.