What a beautiful day for a financial crisis:

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What did I tell you? Last Thursday, I came out and said that September was normally a terrible month for the markets; I didn’t realise that would be evident within the first few trading days of the new month. While it is a new month the stories and reasons behind the slip were far from original. Asia had taken us lower as they got a chance to react to the poor US jobs number on Friday and China’s record weakness in its services PMI numbers while Europe died a death as bond yields in the periphery continued to widen.

The services PMIs from the West were no better with only the UK, Germany and France staying above the 50 mark that denotes expansion. The UK figure was not treated like a success however as it had fallen by the single largest amount in a month since the foot and mouth epidemic of 2001. We had expected a fall but this was a real shocker. It is clear that the ‘soft patch’ of weak economic data has now turned into a quicksand-like bog and that the UK is being dragged down alongside other developed economies. While the services industry is still growing, albeit slightly, further shocks to consumer confidence or the supply chain would see this figure dip into contraction and pose a real threat to Q3 GDP. For my comments with ITV News yesterday you can

As we reported yesterday, tensions between Europe, Greece and the IMF were the waves that rocked the European financial ship. Angela Merkel was quoted as saying that Greece and Italy’s financial positions were “extremely volatile” and this would go hand in hand with their PMI releases which suggest a dip into recession once again.

The main headlines yesterday however came from the banking sector with shares in major names such as RBS tumbling as it became clear that the US government is looking to sue 17 banks over the mortgage crisis of 2008. The value of the lawsuit is said to be something in the region of £120bn.

With all this going on it is once again the safe havens that are doing well. Gold is set to hit $2000/oz and US 10 year yields are below 2%. In the FX space this has translated to a weaker euro, stronger US dollar and a pound caught in the middle. The Aussie dollar has also lost weight overnight after the RBA, previously one of the most hawkish central banks, decided to leave rates on hold overnight as the Australian economy feels the effect of a weakening China.

Today’s data calendar may prove to be irrelevant with a lot of traders waiting on headlines, speeches and flows from other markets. We do have the US’s services sector ISM at 15.00 which we do not believe will surprise to the upside like its manufacturing counterpart did last week. This should cause further risk falls in the New York open and throughout the afternoon.

For further analysis of the Bank of England and the European Central Bank you should tune in to our webinar on Thursday

Indicative Rates Sell Buy
GBPEUR 1.1409 1.1435
GBPUSD 1.6097 1.6120
EURUSD 1.4094 1.4116
GBPJPY 123.49 123.76
GBPAUD 1.5240 1.5269
GBPNZD 1.9357 1.9387
GBPCAD 1.5922 1.5952
NZDUSD 0.8303 0.8323
GBPZAR 11.43 11.48
USDZAR 7.10 7.1315
GBPPLN 4.8248 4.8524
EURJPY 108.12 108.38

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