Markets have opened to the weak side as the news across the wires becomes increasingly grim.

The situation in the UK seems to be going from bad to worse from the Public Sector borrowing stance. While it makes for good political capital to continue to bash the financial sector the argument is beginning to look a little thin given that tax revenues have started to flow from the city once again. The expected £180bln shortfall in state revenues versus expenditure is more a function of the largesse of Gordon Brown over the last 12 years than for any other contributing factor.

It now appears that ‘the rich’ will be the first to have their pockets picked by the state but as all politicians known this is a law of diminishing returns as the more you tax the very wealthy, mysteriously, the lower your take becomes. As if by magic! Unfortunately, given the situation that we find ourselves in, the really hard decisions over spending cuts and more general tax takes will have to wait until after the election. For this reason the general populous will probably not notice much change until well into 2010 by which time the hole will be that much bigger.

Equities appear to be slightly lower but unusually for the current trends so do a wide range of asset classes. Dealers have been busily selling off after the spike higher on the good Non Farm Payroll data and (if the US is coming out of the dark tunnel) there may have to be a re-adjustment to value levels if interest rates start to climb and the various state liquidity injections are slowed and reversed. Banks over in the States have been busily repaying all the money ‘lent’ to them by the Fed and with the recent better than expected data this may well lead to revision over the prospects fro further major weakness in the dollar.

As we cautioned in our comment on Friday morning the news flow seems to be starting to be more ‘greenback’ favourable. The Euro cross responded by breaking through the medium/long term bullish trend line in place since March (at around 1.4950) and the weakness in early trade this morning shows no sign that dealers are keen to try to regain the Euro bull momentum just yet. There is support at 1.4725 and 1.4685 and of course there is some interest around the 1.48 region as well. To the upside 1.4860 (the old price level support/resistance) may prove difficult to regain and it appears that 1.5060 and 1.5140 eventually proved too much of a nut to crack.

Gold was the biggest loser of Friday and remains weak this morning. Punters (as mentioned on Friday) were not keen to be buying above 1200 and they managed to ride the fall all the way down in the afternoon/evening. There is a certain amount of buying coming back today but it seems of the ‘nervous’ variety taking a view of buying any Gold weakness as this has proved to be the game to play for many years. Support is indeed just around this level at 1130/1135 but dealers should be aware that ‘pull backs’ in gold can be very violent indeed. We have had two major retracements in the last four years from fast rallies. Both of these finally ran out of steam but not before wiping out at least 25pc of the price. If the same were to happen this time Gold would have slipped to nearer to $900.

Oil (Nymex) remains weak as well continuing the lack of progress that has been evident since Mid October. Dealers have found trading the crack spread more interesting than taking a directional position in oil, however clients are generally on the bullish side of oil.

In the absence of any major economic data releases today volumes might remain thin and ranges tight.  The beginning of the week is also quite quiet as we build into a crescendo with the Pre-Budget Report on Wednesday, the BOE interest rate decision on Thursday and a slew of US data to end the week on Friday.