Again, the press would have us all believe that the end of the world was upon us, as the financial woes of the banking sector come back to haunt us in the guise of public debt for the more profligate sovereign borrowers.

While this might be of interest to economists and the inhabitants of those nation states forced into a fiscal strait jacket, we cannot really say that this has caught us unawares. Most responsible commentators have been warning on the state of government finances for many, many years (certainly before the 08/09 crisis), as government after government has handed out billions of unearned income to tens of millions of people. While the attempts at social reform/wealth redistribution are noble in intent, they have all relied on ever increasing tax revenue and, unfortunately, the maw of the public sector gapes even more widely in times of economic stress.

Markets are starting off on the front foot this morning after nothing bad happened over the weekend (aside from the death of a small Spanish regional bank). I fear though, that it will need quite a few weekends of no bad news for confidence to return to the pre ‘Greek’ levels of March this year. The flight to quality argument is still holding good as Bunds, Gilts and US Treasuries continue to climb, with yields now stretching incredulity especially as inflation is looking a tad ominous. The prophets of doom are all about us on this note, as deflationary signs are apparently all about us (except, of course, with the actual number!). Either the bonds buyers of recent weeks will prove prescient, or this is just another bubble of which we have seen a depressing number in recent years.

The FTSE is now unchanged at 5060, having reached 5110 early in the session and one fears that the pressures are all to the downside. A classic scenario of recent times would be the Japanese markets of 1989 to 2010, where overall good corporate numbers were never enough to get the economy out of its deflationary cycle as its banks were fatally weakened in the late eighties real estate debacle (remind you of something?). It is very difficult to be too pessimistic, as the results of recent weeks from a wide range of corporates have been almost universally good and one feels that this should translate into higher valuations BUT the fact remains that they are not. As mentioned last week, I am a great believer in the truism that, in the markets, if something should happen but fails to then the opposite becomes most likely.

The FTSE still has good support between 4950 and 5000 and this was tested last week to no great effect. As mentioned previously the index, since regaining the 5000 level has had a series of bear move attempts, but they have all petered out at or around the support mentioned. Traders will be eyeing this level very cautiously as a break and close below 4950 may well be taken very badly indeed.

Our quote for the Dow actually managed to breach 10000 on Friday, but never in actual NYSE exchange hours as US traders took the market immediately higher on the open. Oddly enough, the market traded down to almost exactly the same level as the ‘mad’ moments a few weeks ago, when the Dow lost 1000 points in just a few minutes (6th May). The low on both days were within just 3 points of each other, just north of 9900 (this was also the support back in February).

In both the FTSE and Dow, we are now in the situation of either seeing a good buying level (at support) or just pausing for breath before the next move lower; basically a tossing the coin moment. Investors can be forgiven for continuing to sit on their hands.

On the currency front, the Euro has attempted a rebound, but has run into heavy selling this morning. Traders are not convinced as to the long-term viability of the Euro project, and this has not been helped by the fact that Mr Sarkosy apparently banged the table at the recent meeting of heads of state and threatened to pull France out! The Germans are probably feeling the same way too and, truth to tell, the other (weaker) members of the Euro would love to do the same if their current debt could be translated into local currency again. Greece has some 120pc (and rising) GDP/Debt ratio, if they pull out and the debt remains in Euros this could easily move to 160/180pc before you could blink. Support is still at 123.50/124.50 and also now at 121.50. Bears are still focussed on 116.50, as the first target has now been reached. Bulls will be taking some comfort from the support of recent days, but 126.00 looks a level too far just for the moment.