Eurozone debt crises continues as stress tests results revealed

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The seemingly endless debt crises in the Eurozone continued last week, as the US now becomes embroiled in it's own debt crisis. It is a depressingly repetitious story as European Central Bank president Trichet and German chancellor Merkel continue to argue over who is going to take on the pain of a write-down of Greek government debt. Trichet (the ECB holds billions of Greek government bonds) insists there will be no default and that the politicians can solve the problem. The markets aren't sure as the Euro is over 4 cents weaker than it was when Greece passed the austerity measures.

In the US, the threat of the Government running out of money on 2nd August is becoming more of a possibility. There has been plenty of brinkmanship on the subject in the past, all of which has been followed by just-in-time agreements. The worry today is that the republicans and democrats in the US congress are so deeply entrenched that they will threaten the triple-A rated US Treasuries from the merely-mortal bonds issued by other Governments.

If Congress fails to reach an agreement, the US ratings agencies have said they will lower America's credit rating; they have already lowered their ratings of some Eurozone countries to "junk" status and even Libya has a higher rating than Greece.

Friday's economic statistics revealed a smaller than expected trade deficit at -€600 million in May for the Eurozone. In the US, inflation was exactly on target at 3.6% in June, industrial production rose by 0.2% and the University of Michigan index of consumer confidence fell by eight points to 63.8. None of data had any real impact on the currency markets though as the markets focused on teh results of the bank stress tests.

Of the 90 banks tested, eight banks failed - five Spanish, two Greek, one Austrian - by posting capital ratios below 5%. There was a surprise too, with Italian and Spanish banks among the top performers.

Compared with Friday morning, Sterling starts the week half a cent lower against the US Dollar and up just over a quarter cent on the Euro. It is a quiet start to the week for Sterling with only the Bank of England's monetary policy committee minutes out on Wednesday.

The only data today is a US report on international investment flows for May. Overnight, the Reserve Bank of Australia publishes the minutes of the last monetary policy meeting.