The deficit on goods and services rose to £4.9bn, against £3.9bn in June, the Office for National Statistics said.

The goods deficit was £8.7bn, against £7.5bn a month earlier, the biggest deficit since figures began in 1998.

However, trade in services produced a surplus of £3.8bn.

Analysts are watching to see if the new figures will have an impact on third quarter UK GDP.

July’s dreadful UK trade figures cast further doubt over the ability of the external sector to drive the recovery once the boost from government and consumer spending fades.

Imports increased by 3.1% on the month in value terms, which was largely driven by an increase in imports of organic chemicals, pharmaceuticals and oil. Exports including chemicals and oil fell by 0.9%.

We can all agree that the economic data releases at the moment are confusing and clouded in fog.

Positive consumer confidence figures were followed by disappointing PMI index figures, with the net result that traders have been left bewildered and slightly uncertain and the markets necessarily choppy.

This morning’s releases are no different, industrial production came in lower than forecast and manufacturing production exactly as predicted, but we saw an almost one cent move upwards in Sterling in the run up to the figures, and are in the midst of a retracement back to where we started.

Conflicting data has also been a theme in the US, with the raft of negative data suddenly reversed with positive ISM & employment figures at the end of last week.

What was becoming a clear picture of a slowing US economy and potential re-entry into recession was suddenly muddled slightly with the apparently positive figures. However, investors remain fearful of the stalling US recovery (and impending QE2) with traditional safe haven currencies like the Swiss Franc and Japanese Yen continuing to perform strongly.

The Yen hit the highest level against the Dollar since 1995 yesterday, as the supposedly psychological key level of 84 was brushed aside easily. This afternoon sees Narayana Kocherlakota of the Federal Reserve speak, along with the release of their beige book & consumer credit statistics.

Euro worries have remerged with the  market’s realising the total uselessness of the eurp bank stress tests, and a unexpected drop in the growth of German Exports.

Back in July, 91 of Europe’s largest banks were required to disclose how much government liability from European countries they held on their balance sheets.

Release of the bank data was considered the main benefit of the stress tests, which were widely criticized as being lenient overall, but taken as showing that the exposures were not as widespread and extreme as had been feared.

According to an article in today’s Wall Street Journal, “An examination of the banks’ disclosures indicates that some banks didn’t provide as comprehensive a picture of their government-debt holdings as regulators claimed.

Some banks excluded certain bonds, and many reduced the sums to account for “short” positions they held—facts that neither regulators nor most banks disclosed when the test results were published in late July”.

Asian markets, starved of news or data input following the US/Canadian Bank Holiday, seized upon this article and dumped the Euro – especially versus the Yen – on fears that eurozone governments and institutions would accordingly find it difficult to raise new and renew maturing funding with doubts returning over the health of the region’s finance.

The Yen was the favoured recipient on the lack of mention of the strength of the currency in the statement from the Bank of Japan which followed their decision to leave Japanese rates and QE levels on hold.

The Central Bank now seems more confident of strong domestic growth, and the expectation is that lower unemployment and increasing inflationary pressures will prompt the Bank to resume a hike in official rates later this year.

Also this morning, Australia’s Labour Prime Minister, Julia Gillard, finally secured the support of two key Independent MPs which enable her to form a working Government with a majority of 2 over the opposition party.

The market now feels that removing the seasonally volatile short-term Government hirings gives a much more relevant picture of the employment situation.

Accordingly, August private payrolls were reported to have grown by 67,000 (against the consensus figure of 40,000) whilst the July number was revised up from the previously reported -131,000 to -54,000.

Economists quickly concluded that, although the US economy continues to face problems ahead, and that the unemployment rate will likely remain stubbornly high, Friday’s employment report is an important step in the right direction, and should weaken the case for additional quantitative easing on the part of Federal Reserve.

Today’s subdued market is likely to set the tone for certainly the early part of the week with only a light amount of data scheduled and no policy changes anticipated at any of the 3 Central Bank meetings over the coming days.

Following the additional easing measures decided upon at the emergency meeting on 30th August, the market expects the Bank of Japan to maintain its policy settings tomorrow morning.

Market focus will continue to be on the seemingly inexorable appreciation of the Yen and what the government is going to do to try and suppress it.

The Reserve Bank of Australia is also expected to maintain the status quo on rates given the unexpectedly low CPI figure for the 2nd Qtr of the year.

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Yesterday was an eventful day for the euro as it made significant gains versus both Sterling and the Dollar.

Nationwide house price data out overnight was also disappointing so we may see Sterling remaining on the back foot today.

Robust economic readings in both China and Australia overnight, spurred on demand for higher-yielding assets prompting the Dollar and Japanese Yen to fall against most of their major counterparts.

Australian GDP surprised strongly on the upside at 1.2% q/q, against the anticipated 0.9% q/q. This coupled with better than expected manufacturing numbers in China have led the market to the risk on trade.

Next on the menu for markets to digest is the US payrolls data tomorrow. Despite the ADP jobs report revealed a surprise 10k decline the employment component of the ISM manufacturing survey strengthened to 60.4, leading to an improvement in August manufacturing payrolls.

Ahead of the payrolls release the US data slate today largely consists of second tier releases including July pending home sales, August chain store sales, weekly jobless claims, and factory orders. It is worth paying particular interest to jobless claims given that the four week moving average has been edging higher, suggesting renewed job market deterioration.

The consensus is for a 475k increase in claims, which will still leave the 4-week average at an elevated level.

The highlight overnight was the release of the minutes from the August 10th Federal Reserve Open Market Committee meeting.

Also, a few policy makers said the economic effects of the decision “would be quite small,” but at the same time, some officials saw “increased downside risks to the outlook for both growth and inflation” and voiced concern that further shocks would cause “significant slowing in growth”.

The debate shows the challenge Fed Chairman Ben S. Bernanke may face in achieving consensus for any additional monetary stimulus to reverse a slowdown in growth and reduce joblessness more quickly.

In a speech last week, Bernanke said “Policy makers haven’t agreed on specific criteria or triggers for further action”.

In other important US economic releases, we had the Conference Board’s confidence index yesterday afternoon which showed that confidence among U.S. consumers rose more than forecast in August; a sign the biggest part of the economy may avoid a slowdown that would derail the recovery.

The Conference Board’s confidence index increased to 53.5 from a five-month low of 51 in July, figures from the New York- based private research group showed. More confidence may help ease concern that consumer spending, which accounts for about 70 percent of the economy, will falter.

As we approach the ECB meeting this Thursday, yesterday’s Eurozone annual inflation reading fell from 1.7 in July to 1.6 in August, coming in well under the ECB’s target of 2%. Inflation looks set to remain muted for the rest of 2010 and into 2011 as European governments implement austerity packages to shore up their sovereign balance sheets.

Yesterday we also saw German unemployment continuing to fall, for the 14 month in a row, slightly better than expected sparking a rally in the Eur/Usd which provided strong support going into the release of the Fed’s minutes. Investors had been keenly anticipating the release of these minutes but were somewhat disappointed as it lacked any new information triggering another move higher for Eur/Usd.

The measure is designed to stem the value of the currency, and boost lending to businesses.

Meanwhile the Japanese government has announced its own plans for a 920 billion yen stimulus package.

Prime minister Naoto Kan said ministers had agreed a plan to fight the rise in the yen, as well as to try and counter weakness in some economies – especially the US and in Europe – that buy Japanese goods.

Analysts fear the rising yen is undermining the country’s fragile economic recovery.

When making their plans for the year, many companies had been betting on the yen staying at about 90 to the dollar. So when it hit a 15-year high of 83 yen, it bit deeply into their profits.

A strong yen makes exports less competitive overseas. It also reduces the value of profits made abroad when they are repatriated to Japan.

In a statement, the BOJ said its decision to boost its low interest bank loan programme meant 30 trillion yen was now available for lending.

“The bank believes that the monetary-easing measure, together with government efforts, will be effective in further ensuring Japan’s economic recovery,” it said.

The BOJ hopes that increasing the amount of loans available will reduce market interest rates, curbing rises in the yen.

Last week the currency hit a 15-month high against the dollar – potentially a significant problem for the Japanese economy which relies heavily on exports for growth.

Global markets are in the doldrums and with decreased trading volumes and a lack of positive data there has been little to prevent a downward path this week.

In the UK the FTSE clawed back from the 6 week low of 5070 seen on Wednesday but is still 3.50% down on the month.  In Asia, the Nikkei and Hang Seng haven’t bucked the global trend also down 5.5% and 2% on the month.

Yesterday the Labor Department in the States reported a reduction in new U.S claims for unemployment benefits. Initial claims for state unemployment benefits fell 31,000 to a seasonally adjusted 473,000, below market expectations for a drop to 490,000.

However this figure did little to support the dollar as firstly the claimant’s number still remains high and there is still a real concern about the recovery of the States after the horrendous week it has had.

Many economists also look at the four week average price of initial claims which is viewed as a better gauge of employment trends; this figure was up slightly by 3,250 from 486,750.

Despite the onslaught of poor data Germany continues to shine as German consumer morale increased for the third month running, hitting its highest level since last October.

An unexpected boost in German IFO business sentiment gave the Euro a lift yesterday.

However, Irish woes continued with Standard & Poor’s, the ratings agency, downgrading their debt to AA- with a negative outlook.

The huge cost of supporting the Irish banking system will push debt towards 113 per cent of GDP according the S&P estimates, well above the Eurozone average putting increasing demands on the Celtic tiger’s public finances and creating serious headwinds for economic growth.

Irish ministers were understandably furious, but the fear is the austerity measures designed to reduce the government budget deficit may make the job harder because of increasing unemployment and depressing tax revenues.

This fear, applicable to the other indebted Eurozone nations, is once again hanging over the Euro and is allowing Sterling and the Dollar to regain lost ground against it.