httpvh://www.youtube.com/watch?v=Nk8ECv1qgJA

Given the Labor day setting markets were fairly quiet yesterday with the lack of liquidity not affecting flows in a meaningful way.

Sterling was sold heavily however breaking to new monthly lows against the newly resurgent euro. The pair reached a low of 1.1918 before crawling back towards the mid 1.19s. We do see GBPEUR moving towards the 1.18 level however today’s move was at the behest of irrational market conditions.

Overnight however BRC shop prices have continued the pressure on sterling as they showed what we’ve been telling you for ages. People are not spending, and especially not on so-called ‘big ticket’ items, given the likelihood of job losses in the coming months. The euro has not been able to capitalise on this weakness however as an article in the Wall Street Journal suggests that the recent bank stress tests in the EU were flawed as they miscalculated the amount of sovereign debt European banks are holding on to and therefore the risk attached. As a result the euro is weaker alongside other risky assets.

Although the US markets were closed, President Obama was in full campaign mode as the states gear up for the midterm elections. The opposition Republican party are remaining cautious although it is likely they win seats in a campaign that will be all about the US economy. While the recent jobs figures showed a slight uptick the picture across the Atlantic continues to look bleak.

In Australian news, Julia Gillard has managed to gain the support of a key independent and is now able to form a government. The AUD spiked higher on the announcement but has slipped as a result of the WSJ article.

Once again the data calendar is fairly quiet with only German factory orders due at 11am.