Likelihood of Greek debt default increases

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The outlook for the Eurozone economy remains positively negative; and while it does remains in this state the pressure will undoubtedly build on the European Central Bank to reduce interest rates. Any reduction in Eurozone interest rates will add renewed pressure to the Euro.

In the meantime though the focus is firmly on sovereign debt risks with German Chancellor Merkel indicating that Greece is getting nearer and nearer to a default. With other governments becoming less and less supportive of further assistance to Greece with the Slovakian government reportedly set to veto any further payments to Greece. 

Is Greece really the issue here though? Didn't we all know that default was a matter of time for Greece? And surely the markets expected default? What is perplexing if that is the case is why the Euro has remained relatively strong. 

Italian and Spanish governments have also failed to convince the markets that their austerity measures have the ability to bring deficits and debt under control. It is here that the Eurozone governments should focus their attention rather than concerning themselves over a country that markets expect to default.

In the UK yesterday, the headline piece of data was the consumer price index measure of inflation which rose to 4.5% year-on-year in August, up from 4.4% in July and back at the highest levels this year. Despite the fact inflation is more than double the Bank of England's target, interest rates won't be going up but the higher inflation may mean the monetary policy committee holds off from further quantitative easing. The news was Sterling positive during the morning trading session.

Other UK data included the trade balance which increased to minus£8.92 billion, the largest trade deficit since December 2010. The Royal Institute of Chartered Surveyors house price balance continued to signal declines and fell to -23 in August from -22 in July.

Today attention will be on comments and statements from the Eurozone, but also regarding the performance of the UK and US economies. In the UK, labour market data will be of significant interest, especially after the sharp rises in jobless claims and the ILO unemployment level seen in last month's release. 

In the US, PPI figures for August should record still subdued prices, whilst August retail sales are expected to be up only slightly.