Rajoy Rattles Sentiment

Spain’s reluctance to seek support from its European counterparts has continued to weigh on market sentiment and has partly offset the optimism following the recent measures undertaken by major global central banks. The Spanish Prime Minister, Mariano Rajoy, shrugged off reports indicating that the nation would demand fresh aid this weekend, thereby hampering demand for high yield currencies. Meanwhile, the UK service sector continued to expand for September, albeit at a slower pace. Markets will now shift focus to the US labour market data and key European central bank meetings during the week.

Pound Sterling – UK Markets

Following minor declines in the Sterling-Euro pair yesterday, decline in the Pound against the Euro was kept in check in today’s trading session after Spain dampened bailout speculation for the near future. Meanwhile, risk aversion among investors has driven Sterling lower against the greenback. Data just released has revealed that the dominant service sector in the UK economy continued to expand for September, although at a slower pace, strengthening the chances of the UK escaping from recession in the third quarter a view shared by the British Chambers of Commerce (BCC), which in its quarterly economic survey, upheld the widespread belief that the British economy would avoid a recession in the third quarter. BCC expects the third quarter GDP to bounce to 0.5% but has urged the government to boost its infrastructure investment programme for a speedier recovery. The ADP employment data from the US will remain the key highlight in today’s session. Meanwhile, markets brace themselves for the outcome of the monetary policy meeting of both the BoE and the ECB due tomorrow.

US Dollar – US Markets

The US Dollar has managed to recover some of yesterday’s losses against both the Euro and the Pound this morning amid market speculation that the economic situation in Spain might worsen as Spain showed no urgency in seeking fresh assistance from its European counterparts. Meanwhile, focus is once again expected to shift toward economic indicators from the US for gauging the direction of the greenback against the majors. Today’s private payroll data from ADP will garner increased market attention, given the Fed’s continued focus on the labour market situation. With manufacturing data earlier in the week surprising on the upside, today’s services index from the ISM will be watched closely for a broader picture of the US economy in the latter half of the third quarter. Apart from today’s macroeconomic data, monetary policy meetings in Europe slated tomorrow and developments in the Euro area are expected to act as a catalyst in setting the direction of the US Dollar.

Euro – European Markets

The Euro has begun today’s trading session on a weaker footing against the greenback on account of concerns surrounding Spain. The Spanish Prime Minister, Mariano Rajoy, dismissed reports indicating that Spain would seek a bailout as early as this weekend. The Spanish Prime Minister’s denial dealt a severe blow to hopes of a resolution to Spain’s fiscal woes, raising prospects of the nation losing its investment grade rating in Moody’s credit rating review. Meanwhile, data earlier today revealed that services PMI in the Eurozone continued to contract, in line with the contraction in the manufacturing PMI and has raised eyebrows over the efficacy of the recent easing measures undertaken by the ECB. Today’s retail sales data will also hold significance in the build up to tomorrow’s monetary policy meeting. Apart from retail sales figures in the Eurozone, the employment and services data from the US could also act as a market mover in today’s trading session.

Other Currencies – Highlights

Growing risk aversion has driven traders to seek shelter in safe haven currencies and has weighed on the Kiwi Dollar against the majors in today’s trading session. The Spanish Prime Minister, Mariano Rajoy, poured cold water on hopes that the nation would demand an aid package as early as this weekend. Moreover, prevalent concerns over the global economy, dismal Australian trade data and weak opening to the European equity markets have also put pressure on the Kiwi Dollar against its major counterparts. Meanwhile, growth prospects of the New Zealand economy have turned gloomy after the Asian Development Bank cut most of its 2012 and 2013 growth estimates for developing economies in Asia. With little expected from the domestic market this week, market focus is now expected to revolve around macro events including the ECB meeting and the US non-farm payrolls data scheduled during the next two day.