Slovakiaaaaarrrrgggghhh!

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Slovakia’s government is no more this morning after they became the first government not to pass the enhancements to the European Financial Stability Facility. The opposition arguments to voting for the enhancements were that Greece is already bankrupt and that throwing good money after bad would be bad for Slovakia. They won the day yesterday and another vote on the measures will probably take place later in the week.

The euro has held steady however over the Asian session as bad headlines were outweighed by the positives. Standard & Poor’s downgraded its assessment of the Spanish banking sector on the basis of sovereign debt issues and following rating agencies cuts to the sovereign rating of Spain itself. On the positive side the EU/IMF/ECB troika said that Greece will receive its next aid payment of EUR10.2bn when the Eurogroup and IMF approve the results of the review, which is most likely in early November while EC President Barroso said he will make some proposals to the European Commission today about a “comprehensive response to the crisis” something that we would expect to include bank recapitalisation.

We also saw a strong Italian bond auction as they sold EUR7bn in 1 year bills at a yield of 3.570% which is down over half a percentage point since the previous auction and despite ratings downgrades in the mean time. The bid-to-cover ratio, an indication of demand, was stronger at 1.876 vs. 1.529 previously.

News from the UK wasn’t bad either yesterday as the National Institute of Economic and Social Research’s estimate of Q3 GDP was 0.5%, above the previous number of 0.4%. Manufacturing and Industrial production was poor as we had expected but made little impact.

Equities are due to open lower in Europe this morning after the first results from the US earnings season missed estimates and increased fears of a slowdown stateside. Alcoa, an aluminium producer, said the economic slowdown hurt demand and knocked Aluminium prices lower. CEO Klaus Kleinfeld warned of weak economic conditions through the year, particularly in Europe, “as confidence in the global recovery faded.”.

The economic data calendar includes Eurozone August industrial production and the UK official labour market figures. Anyone who listened to the “Today” programme on Radio 4 today will have heard the UK Minister for Work and Pensions sounding fairly downbeat this morning. 09.30 could see some poor UK jobs numbers in other words.

The Fed will publish the FOMC minutes from the extended September 20-21 meeting, which should give us clues as to how unanimous the vote for “Operation Twist” was, whether further QE is on the way and if a cut in interest rates on bank deposits was discussed. The ECB, BoJ, BoE and SNB also conduct 3-month USD-liquidity operations for banks today.

What the future holds for sterling – Free Seminar

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Indicative Rates Sell Buy
GBPEUR 1.1410 1.1436
GBPUSD 1.5580 1.5604
EURUSD 1.3640 1.3663
GBPJPY 119.37 119.65
GBPAUD 1.5634 1.5660
GBPNZD 1.9904 1.9932
GBPCAD 1.6011 1.6040
NZDUSD 0.7817 0.7838
GBPZAR 12.30 12.35
USDZAR 7.8878 7.9244
GBPPLN 4.9188 4.9478
EURJPY 104.53 104.80

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