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Credit ratings agency Moody’s cannot be expecting too many Christmas cards this year. They have come under strong criticism from the European Commission following the downgrade of Portugal’s debt to junk status. The commission claim that Moody’s are guilty of making an assumption that Portugal will need a second bail-out. The concern is that this can lead to a self-fulfilling prophecy because it makes it harder for Portugal to borrow and keep afloat. The euro weakened during the day’s trading as market participants awaited the outcome of negotiations on Greece’s second bail-out package.

The chairman of the Greek debt negotiations, Charles Dallara, was confident a solution could be reached that would satisfy the credit ratings agencies. After the first round of talks, held in Paris yesterday, he commented “in spite of all the challenges, all the difficulties, the seeds of success are being planted.” We doubt this will be enough to reverse the fortunes of the euro and expect the single currency to weaken further.

China, the world’s second largest economy, announced a 25 basis point rise in interest rates taking them to 6.56%. This is the fifth time in 8 months that the PBoC have taken action in an effort to prevent the economy from overheating and curb inflation. A slowdown in China has wider implications for the global economy and although the decision was expected it put riskier assets under pressure.

EU GDP posted a 0.8% rise QoQ as expected and had little bearing on the Euro’s fortunes. The same can be said for factory orders in Germany which outperformed expectations but were shrugged off amid the Greek bail-out negotiations. In the US, ISM Non-manufacturing data showed that the services sector is still expanding but the rate of expansion is slowing. This did little to convince investors that the global economy is beginning to pick up.

At 9.30am all eyes will be on manufacturing data from the UK. PMI data indicates a drop off in performance of the manufacturing sector and we anticipate this will follow suit. For the BoE interest rate decision we are forecasting no changes in either rates or levels of quantitative easing. The minutes from the meeting, which are released in 2 weeks, will have more of a bearing on Sterling.

The ECB are widely expected to hike interest rates by 0.25% at 12.45, taking rates up to 1.5%. The press conference that follows shortly after will be closely watched to gauge whether or not the ECB will maintain its hawkish stance going forward.

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