Wednesday Update.Markets continue to follow Economics rather than Politics.

Appetite for risk continued to rise yesterday as markets focused on a batch of Economic data. In Europe and the UK Manufacturing data continued to improve ( In UK Manufacturing PMI up to a record 62) and although likewise in the US (Manufacturing ISM 60.8 vs. consensus 58) the US Currency continued to weaken. Sterling ( Cable) surged over 1.61 and the Euro over 1.38.The Euro reached highs of 1.3865 and Cable this morning a whisker shy of 1.62.
Despite events in Egypt and fears of a spread to Jordan and perhaps Syria enthusiasm for equities continued. The Dow Jones passing 12,000 to close at 12040. Some technical services calling for a move to 14000 this year.
The perception seems to be that interest rates will now rise first on this side of the Atlantic and together with growing belief of a strong EU support package the US Dollar continues to lose ground. It looks more likely to be a rerun of last week with slow progress and some setbacks as profit taking emerges. A move back under 1.38 and 1.61 for the EUR and Cable is quite possible.
US treasuries weakened yesterday as the safe haven rally unwound. I continue to favour Equities over Bonds as interest rate increases become more discounted in markets.

Weekly review

 No Chinese Takeaway

The Chinese rescued the week after denying the rumors that they were reviewing European Debt Holdings, confirming the Euro zone as one of the most important Investment Markets.
Hardly surprising when they have half a Trillion dollars worth of investments to protect.
The effect was to reverse the recent decline in Equities Oil and commodities together with the commodity currencies.
The Euro faired less well and thus far has achieved very little in terms of a rebound against the dollar closing just below the 1.2300 level. Against the recovering Australian and Canadian dollars it lost over 4% and 3% respectively.
The week ahead will again focus more on the equity markets for a lead although statistics , ISM indices and Non Farm payroll may add some weight.
Next weekend sees the G 20 meeting in Korea and one suspects voices to try and steady the markets. The worry that the Euro zone led panic will push Europe and perhaps elsewhere into a double dip recession will be high on the agenda.

Technically all eyes will remain on equity markets and on balance the likelihood that we have not yet seen a bottom will hang over markets. The Euro Dollar level of 1,2140/50 remains crucial but the odds are that it will be taken out  if equity markets and risk appetite in general suffer.That will lead to pressure on the 1.20 level

The Euro debate commands ever more press space. Whatever the immediate outcome further out into summer the problems will probably surface but may take a lead from how the austerity measures are reflected in civil unrest or not.