There was further evidence of a serious downturn in the retail sector with the latest CBI report recording a net sales balance of -46 from -36 and this was the weakest figure for over 25 years.

Bank of England MPC member Blanchflower continued to warn over the UK economic trends and re-iterated more forcibly that there should be sharp interest rate cuts, especially as there was likely to be a rapid medium-term drop in inflation.

The UK currency has remained under heavy pressure as confidence in the economy continued to crumble amid a stream of poor data. Sterling weakened to a fresh 2-year low below 1.83 against the dollar and fell to a 12-year low on a trade-weighted basis.

The Swiss economic data continued to suggest a slowdown. The UBS consumption index fell sharply to 1.85 in July from a revised 2.22 the previous month and the KOF leading indicator also weakened again to 0.68 in August from 0.85.

The dollar again hit tough resistance above the 1.10 level against the franc during the week. The Swiss currency firmed against the Euro, but hit resistance close to the 1.61 region as confidence in the European economy as a whole weakened.

The dollar retained a generally firm tone over the week, but it was subjected to a correction after recent rapid gains and was encountering tough resistance at levels beyond 1.46 against the Euro while stalling on a trade-weighted basis.

The Japanese government also announced a JPY11.7trn fiscal boost and the Japanese economic data over the week was actually stronger than expected with a 0.9% increase in industrial production for July compared with expectations of a further monthly decline while unemployment fell to 4.0% from 4.1%. Core consumer inflation rose to 2.4% in August from 1.9%.

There was still evidence of yen selling on significant rallies as margin accounts continued to sell the Japanese currency. Nevertheless, the yen strengthened slightly and challenged the 160.0 level against the Euro.

Sentiment towards the UK economy continue to deteriorate. The latest BBA mortgage approvals data showed some stabilisation over the month, but approvals were still down by over 60% over the year while Nationwide reported a further 1.9% decline in house prices for August to give a 10.5% annual decline.

by Darrell Jobman, Editor-in-Chief

With little in the way of major US economic data releases over the week, there was a tendency for markets to consolidate. There was still an acute focus on the state of the global economy and relative prospects between the major economic blocs.

The US industrial data offered some support with durable goods orders rising by 1.3% in July while core orders rose 0.7%. There was also a tentative recovery from near record lows for consumer confidence with an increase to 56.9 in August from 51.9 previously .

Both existing and new home sales stabilised close to the previous month’s levels. The inventory overhang remained substantial while prices remained weak, although there was some evidence that conditions were starting to stabilise.

The Case-Shiller house-price index recorded a 15.9% decline in prices in the year to June. These was evidence that the rate of decline was slowing and much if the weakness was again focussed in California and Florida with other areas more robust.

Second-quarter GDP was revised up to an annual rate of 3.3% from the provisional 1.9% estimate, primarily due to the impact of higher exports. Initial jobless claims remained above the 400,000 level while continuing claims continued to rise.

Minutes from the July Federal Reserve meeting confirmed the unease over growth trends with expectations of weakening conditions over the second half. The Fed stated that the next move in interest rates would be an increase, but the rhetoric lacked conviction and this pattern continued in comments from Fed officials over the week.

There was further weak German data over the week which maintained negative sentient towards the Euro-zone. The IFO index for August weakened to 94.9 from 97.5 the previous month and consumer confidence weakened to a fresh five-year low. In contrast, the employment data was stronger than expected with unemployment falling by 40,000 for July. As far as inflation is concerned, the flash Euro-zone estimate dipped to 3.8% from 4.0%.

There was further tough rhetoric from the ECB during the week with council members Weber and Liebscher both warning that it was too early to talk about interest rate cuts while there was the need for strong vigilance at this time.