Awaiting ZEW, Euro Resilient After Italy Downgrade

Italy downgraded by S&P, Greek troika meeting set to resume, German ZEW survey due at 9 GMT may show further weakness, Swiss trade balance surplus shrinks further, RBA minutes show hawkish tone softening, Greece denies referendum on Eurozone exit.

Europe remains in focus this morning after ratings agency Standard and Poors beat Moodys to the punch last night and downgraded Italys sovereign credit rating one notch with a negative outlook, citing weak growth prospects and an uncertain political environment.

Greece officials say a new conference call with the EU/IMF will be held at 17:00 GMT. The latest meeting of the troika and Greek ministers ended last night on a slightly more optimistic note with talk of a deal being close, with talks set to resume later today on the basis that some work still needs to be done to arrive at an agreement.

The latest German ZEW economic sentiment survey for September is expected to continue to weaken from Augusts disappointing number of -37.6, sinking further to -45, as the fallout from the sovereign debt situation in Europe continues to weigh on sentiment. The European equivalent is also expected to weaken further from -40, to -42.3. German Producer prices for August are also expected to weaken with expectations that they will remain flat, down from Julys 0.7% rise, and underscoring the fact that the next move in interest rates is likely to be to the downside.

In Switzerland the August trade surplus shrank to CHF 0.81 bln from CHF, with exports -7% from previous -3% owing to the soaring price of the Swiss franc.

The latest minutes from the RBA showed policymaker have increasing concerns about the fall-out from the European sovereign debt crisis in Europe, after they kept rates unchanged at 4.75% at the last meeting. With so much uncertainty in global markets members felt it prudent to continue the wait and see approach. This accounts for the recent weaker tone in the Australian dollar, as well as some recent weakness in the economy as well as concerns about a slowdown in one of Australias key exports markets in China, with copper hitting 9 month lows yesterday.

In the US the latest housing starts data for August is expected to show further weakness, as is the building permits data ahead of the start of the latest FOMC meeting which concludes tomorrow.