While the outcome of the weekend G20 meeting made note of the fact that the UK’s Brexit vote a month ago had increased the risks to the global economy, there was also an acknowledgment that the best response was to look at the reasons behind the result and look to address them by adopting policies that foster the benefits of economic inclusion, when it comes to promoting new growth friendly policies.

What was also notable was that the G20 preferred to focus less on the monetary policy side of things and more on the fiscal side, in an acknowledgement perhaps that central bank policy was starting to run out of road.

With the Bank of Japan and the US Federal Reserve set to meet later this week, this does appear to be a significant shift of emphasis, and while there is no expectation of action from the FOMC later this week the same cannot be said of the Bank of Japan.

Japanese policymakers have been wrestling with a sclerotic economy for years now and with interest rates already in negative territory speculation has been rising that the next step could be direct monetisation in the form of “helicopter money.”

This still remains a risky next step simply because it’s never been done before and while Bank of Japan Governor Kuroda has gone to great lengths to rule it out, he also ruled out the prospect of negative rates three days before implementing them, hugely damaging his credibility in the process.

Quite simply markets no longer take what central bankers say to them at face value.

As far as this week is concerned equity markets in the US and UK have come off four consecutive weeks of decent gains, against a backdrop of expectation that interest rates are likely to stay lower for longer, though as far as the US is concerned markets have started to be a little more cautious about when the US may look at nudging rates upwards.

Economic data has by and large been better than expected in the last couple of weeks, despite some pockets of weakness, with European banks in particular a cause for concern, and this remains the primary pressure point.

Italian policymakers still remain in denial about the problems in their banking system with the finance minister Pier Carlo Padoan denying that the banks have systemic problems, and rejecting the idea of any sort of bail-in. With stress test results due on Friday these words could well come back and bite him, particularly since there is little appetite for any form of tax payer’s bailout for banks that have consistently failed to deal with the problems of the past.

Banca Monte dei Paschi di Siena is a classic case in point having been bailed out twice already in the past few years and remains no nearer being fixed now than it was in 2013 when it first received a cash injection.

On the data front today we get the latest German IFO survey of German businesses for July, which is expected to show a mild deterioration from the June numbers of 108.7 as German companies look cautiously at how the events in the UK could affect one of their key export markets. A slight decline to 107.7 is expected. 

In the UK the latest industrial orders data for July will be closed scrutinised in light of last week’s disappointing flash manufacturing and services PMI data.

This is expected to see a decline of -6 from -2, though there is a risk it could come in worse, however as with last week’s flash PMI’s it is important not to read too much into a single disappointing month.

Instead the response needs to be set against the climate at the time, which was in part a little hysterical, given the political uncertainty.

The key test will come if the slowdown seen in the aftermath signals a direction of travel, or whether in the final days of July, and beginning of August we get a pickup in activity now that we have a more stable political environment and the Brexit fog continues to clear.

EURUSD – still finding it difficult to rally with the bias remaining towards a move towards the March lows at 1.0825. To stabilise we need to see a move back above the 1.1250 area.

GBPUSD – while above the 1.3050 area the risk remains for a move back through the 1.3300 area and up towards the range highs near 1.3500. Last week’s push above 1.3300 while not sustained does shift the current bias slightly higher, though a move below 1.3000 would negate, and argue for a return towards 1.2800.

EURGBP – having peaked just above the 0.8600 area earlier this month the euro has struggled for any sort of direction. With support at 0.8260 and resistance just above the 0.8400 area, the risk is for a move below 0.8250 towards the 0.8100 area.

USDJPY – the US dollar has pulled back sharply from the 107.50 area posting a key day reversal in the process. This suggests we could see further losses back towards the 103.50 area, on a break below 105.20 and the lows this week.

Equity market calls

FTSE100 is expected to open 2 points higher at 6,732

DAX is expected to open 18 points higher at 10,165

CAC40 is expected to open 5 points higher at 4,386