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Despite the World Bank following suit and lowering its economic outlook for the global economy and slashing the Eurolands forecast to -0.3% from +1.8%, the Euroland had a good day yesterday. It was supported by an improvement in investor confidence; the ZEW's survey of economic sentiment showed a dramatic improvement in investor confidence. In Euroland the score improved from -54.1 to -32.5 while in Germany it soared from -53.8 to -21.6. No Euro gains; however it helped to steady the Euro against a backdrop of negative data from the UK.

Yesterday the UK inflation data come out at 4.2% an increase for the year yet down from the previous month's 4.8% and nearly a fifth down from its 5.2% peak three months earlier. The figures reiterated the words from the Bank of England governor predicating a fall in inflation to below its 1% - 3% target range. Whilst the falling rate of inflation does not guarantee an increase in the Bank's Asset Purchase programme, this possibility weighed on sterling, holding it back on most fronts. This was further exasperated by today’s employment data for November/December which showed a rise in unemployment to the highest level in more than 17 years; heightening concern for the economy and sending the pound lower.

Today Greece is resuming talks with its private creditors. Despite the European lenders agreeing to a voluntary 50% write off last year; it is now vitally important the private creditors agree to this as well.

There are three main possible outcomes to these negotiations:

Avoid a default - Private creditors take the hit. Greece's debts are reduced significantly and the next tranche of bailout funds will come from the European Commission, IMF and ECB. This will enable Greece to pay its debts due in March and avoid a default.

Default - No agreement is reached. Its bonds are issued under Greek law, which means the government has the power to change the law and force creditors to accept significant losses. This is likely to be deemed as a technical default.

Default - No agreement and Greece defaults on its debts. This is seen as the worse case scenario. Greece may be forced to give up the euro and there could be further far reaching consequences.

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