The positive risk appetite seen yesterday took a hit when Moody's downgraded Greek bonds to junk status, placing its new rating inline with that of S&P. The timing for the cut was slightly odd since the performance of recent austerity measures were stronger than either the IMF or EU had anticipated. Greek Finance Minister commented rightly enough that the downgrade did not factor in the improvement made in recent months. We should expect some further Greek bond selling as indexes, whose mandate for investment grade bonds, will need to rebalance. However, so far the FX markets reaction has been muted. As stated in the last few reports we don't see any real momentum in either direction, and suspect range bound trading will continue to dominate trading. However, quietly Spanish, Irish, Italian, Greek vs. German bond yield spreads have continued to widen at the start of European trading. Spain particularly has come under scrutiny as local banks could provide the next crisis in the EU. The focus of today (outside the World Cup) will be the UK CPI reading. The BoE has been suffering with inflation levels way above their target band. BoE Governor King has stated that energy prices, recent hike in VAT and weak GBP were the key contributors to elevated CPI and these drivers should fade. So far the fade has not occurred and many economists are looking for today's figures as evidence of a directional trend. The sterling is at a precipice. Should inflation fail to taper off, then the buzz around a earlier than expect hike (pre-Q4) could be in the cards. However, if we see a solid drop today UK austerity measures and sagging demand from the EU could prompt the BoE to reenergize their shelved QE program.