German industrial production slumps

Today's Highlights

• German industrial production slumps

• Shares tumble on China fears

• Sterling rebounds on retail activity

FX Market Overview

If share markets in Asia continue to sell off, Chinese traders will come back on Monday after a week of partying for the New Year to find a very different landscape to the one they left in the last Chinese Year.

The British Retail Consortium reported the best sales growth in 4 months in January. An annualised 3.3% rise is at the top end of market expectations and the Pound stabilised a little on the news and even recovered some of yesterday's losses. Those losses appear to have been prompted by a sudden and unexplained panic over a potential British exit from the EU. The rhetoric surrounding Mr Cameron's negotiations and the ramifications of a UK exit is growing in volume and relevance and we can expect much more volatility in the value of the Pound in the months ahead. The sooner we get the referendum out of the way, the sooner we can start to see a direction for the Pound. An exit would probably weaken Sterling – good for exporters and those moving funds into the UK. IF Britain decides to stay within the EU, we should probably see a return to GBP strength but that is by no means a guarantee because it will depend on the terms of continued membership. In the here and now, what we get today is the UK trade deficit data which should show a small reduction in the size of the deficit.

We have already had this morning's announcement of German industrial production. The figure was a 2.2% decline on the year; much much worse than the markets had forecast and that has weakened the Euro in early trade. However, the drop in Asian share markets will also have unsettled the Euro traders. Asia is a major market for German goods in particular. The Eurozone has very little to focus on today so the focus will be on equities and commodities markets generally.

We saw a fall in Australian business confidence, as reported in a report from the National Australia Bank. And whilst the January reading was down on December's, the December reading was also revised downward. That is probably to be expected; what with China slowing and mixed data from the US; Australia's main export markets. The Aussie Dollar weakened a tad on the news. If the consumer confidence index, due for release tonight, is as poor, we can expect further weakness in the Australian Dollar as we enter Wednesday.

In other news, a skier in Spain has snapped a picture of what is being claimed is a Yeti like creature. To my eye it is someone in a white ghillie suit but what do I know. Either way, beware of a white fluffy thing near Formigal in north-east Spain.

Oh and by the way, it is only 6 days before Valentine's Day. I know some of you gentlemen need a bit of prep time and some still end up grabbing flowers from a petrol station at the last minute. This is your early Valentine's call so you get it right this year.