European economy back for weakness examination

Concerns about Europe’s debt crisis are growing and Spain is back for signs of economic weakenss with the price of Spanish 10 year bond yields rising to 6%. European economy back for weakness examinationIn addition there was also the announcement of a snap election in Catalonia and political demonstrations in Madrid and Athens adding to the tension.

A main focus for today will be on Spain as it presents its 2013 budget – will this pave the way for Spain to request official aid from the EFSF/ESM?

US equities fell for the fifth day in a row in a continued sign that the burst of confidence from QE3 is starting to wobble.

One point of optimism for the markets is speculation that China will embark on further stimulus to support economic growth and bolster equities.

This has lifted the negative tone somewhat and the main beneficiaries have been emerging market equities and currencies, however European stocks are also up on the rumour.

This morning the GB Pound/US Dollar is also higher before the final revision of Q2 GDP for the UK which is expected to confirm a -0.5% contraction.

Although this number is not pretty, there is renewed optimism that Q3 will show improvement as noted by Bank of England member Fisher who expects very strong UK GDP in the third quarter.

The money markets are a little mixed this morning caught in between risk on and risk off with negativity from Europe being hedged by optimism from China.

EUR/USD still remains below 1.30 and could come under further pressure unless we get some relief from Spain.

The big winners for today will be the commodity currencies such as the AUS Dollar & ZAR which should be bolstered further on the China rumours.

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