Equity markets are defying the events elsewhere in the financial world as the new levels in the FTSE, Dow et al are held with some ease.

The short term rebound in the Euro failed to even last one session as dealers took one look at the new European deal and decided ‘no thanks’. The Greeks now seemed to have decided that the way forward is to have an enquiry about what went wrong in the past (!?) rather than actually get their hands dirty in cleaning up the mess in the future. It almost sounds British. This may leave any actual remedy to some indeterminate point in the future and explains the reaction of the FX markets.

Trading continues to be fast and furious in all the major asset classes and our clients seem to be confident of rebounds in most!

The FTSE battered at the high 5200’s for the whole of yesterday’s session with little to show for it and the renewed series of poorish data coming out of the various government units may make it difficult for investors to get too ahead of themselves. But as mentioned earlier it is slightly surprising that events which normally drive the equity markets lower have failed to have this impact this time around. The confidence of BOE that the pike in inflation to 3.5pc will be short term seems to have been taken as gospel and we must hope with all our hearts that this proves to be correct. The consequences of having to fight an inflation battle, in the current economic environment, hardly bear thinking about.

Interestingly the price of Gold in Euro terms recently hit an all time high and while we all tend to focus on the dollar price being a hundred and twenty bucks off the peak it is always pertinent to follow events in other currencies as well. The recent weakness in the Euro has (of course) made other asset classes more expensive and Gold is one of the easiest products to see a graphical demonstration of this effect.

The pound (like the Euro) is under pressure as the fiscal situation in the UK deteriorates even further. Figures out this morning have shown a dramatic increase in the budget deficit with the first January shortfall since serious data numbers have been released. This may be the first major indication of the underlying feeling in the economy that things are not ‘turning around’. Figures showing that Public Sector employees gained pay increases of some 3.7pc last year versus nothing for the private sector were also hardly helpful. When you add into this equation the fact that productivity gains remain a foreign country for the Public Sector as well it is apparent how far this or any subsequent government is going to have to travel to make any impact on the deficits being created.

The pound has now fallen below 1.5600 and traders will be wondering if the support at 1.5550 which has held so well over the last few weeks will come under pressure again. It is pertinent to point out that if this support is broken there is not much to hold us up until 1.5000 hove’s into view; a far cry from yesterday morning when we were pushing to break higher. The effect of the weaker pounds seems to be having an almost opposite impact on the equity markets as investors presumably take the view that the travails of the currency will have limited impact on what is virtually a foreign index anyway.

Bank shares continue to strengthen as well as all the results from Europe and the UK beat expectations.  Barclays is back above 3 quid now having put on 20% in the last four sessions!

Gold is taking a breather after yesterday’s reversal.  For those that watch candle stick charts, yesterday provided rather a bearish signal so today traders are just waiting for confirmation that we could be in for some lower prices in the next few days.

Oil too is a little undecided below the near term resistance around $78.  Inventory numbers are this afternoon after the US bank holiday on Monday, so there might be some fireworks this afternoon.