Confidence dips on weak US data

It seems we have the Monday morning blues in the markets this morning. GBP/USD is down from 1.65 plus to 1.6330, EUR/USD is down from 1.43 to 1.4110 and GBP/JPY is also back below 155 from 160 last week. GBP/AUD is back up from 1.96 to just below 2.00- so what we are seeing is a classic swing into risk aversion and nervous markets. Evidence of this can also be seen in the equity markets with the S&P down 13 points. So what is causing this edginess in the markets? On Friday in the US the Michigan consumer sentiment data came in weaker than expected and this morning UK Rightmove house price data confirmed that the average cost of a home slipped 2.2% in August. This calls into question the recent gains in the UK housing sector and the sustainability of it- personally I anticipate a rocky road ahead in the housing sector.

In other news Japan has also officially exited the recession with GDP coming in at +0.9%, mirroring the recent exits from France and Germany. Similarly with Japan the jump in GDP could be stimulus related as the government stimulus represents 4% of GDP.

Now we have nearly exited the earnings season the markets will be looking for positive underlying economic numbers in the consumer section. The fear is that the recent bull-run is over extended and we could see a further sell off in the equity markets. A sustained dip/retracement in equities will not be good news for sterling especially as the recent QE measures have been ramped up. This would lead to GBP/USD falling below 1.60 again and GBP/EUR under 1.15. With little data out today the FX markets will be led by movements in equities; hopefully the nervousness will ebb away for the benefit of the pound.