Rajoy Lives to Fight another Day

The Spanish Prime Minister, Mariano Rajoy, earned victory in the election in his home region of Galicia, a development seen as adding support to the Spanish government’s austerity measures and a step closer to a request more aid. However, optimism might be slightly premature given the uncertainty over next month’s elections in Catalonia, the biggest near term threat. At home, all eyes are focused on third quarter GDP data due later this week, which is expected to closely influence the BoE’s monetary policy stance and the Chancellor’s forthcoming Autumn statement. US GDP figures and PMI releases from the Eurozone are other economic indicators to watch out for this week.

Pound Sterling – UK Markets

The Pound began the weekly session on a strong footing against the US Dollar, amid improved sentiment among traders. Data scheduled later this week is expected to indicate a sharp economic recovery in the third quarter, highlighting the British economy making its way out of recession. Meanwhile, the Pound is trading in a tight range against the Euro this morning, on account of a mixed set of cues emerging from the single currency union. The BoE injecting a fresh dose of stimulus still remains within the realm of possibility, especially after BoE policymaker, David Miles, stated that the central bank needs a more expansionary monetary policy to boost economic growth. Meanwhile, data released on Friday revealed that public sector net borrowing continued to climb for September. Markets breathed a sigh of relief, as the UK's budget deficit widened less than expected, offering the Chancellor some scope for meeting his budget goals. With a light domestic economic calendar ahead, market participants are expected to track global cues for further direction.

US Dollar – US Markets

Market participants have shunned the US Dollar in today’s trading session, as the outcome of Spain’s regional elections offered no surprises, spurring hopes that the nation would soon seek a fully fledged bailout. However, concerns over global economic growth persisted, as data showed a steep fall in Japanese exports. Key events and economic releases lined up for the week could offer near term direction to the greenback. The Fed’s October meeting, which wraps up on Wednesday, is not likely to offer any surprises. Meanwhile, US durable goods orders data is expected to lay the foundation for the US third quarter GDP data due for release on Friday. Market attention is also expected to remain centred around regional manufacturing indices for more hints on the latest trends in the sector. With existing home sales showing a greater than expected drop, traders are expected to keep a watch on other releases from the housing sector for a clearer picture.

Euro – European Markets

The Euro has started the week on a positive note against the greenback, as the latest Spanish regional election results reassured markets that the nation was moving closer to seeking a bailout. However, overwhelming support for nationalist and separatist parties in the Basque Country has sparked fresh fears ahead of the Catalonia elections next month. Meanwhile, Greece’s Prime Minister, Antonis Samaras, expelled the anti-austerity lawmaker, Nikos Stavrogiannis, from his party, spurring speculation that the nation is closer to carrying out required austerity measures. On Friday, the Euro was under pressure after the German Chancellor, Angela Merkel, stated that the Eurozone’s rescue fund would not take over liabilities from member nations for past bank rescues. With no major economic releases scheduled today, markets are expected to track the PMI readings due later this week for more insights into the state of the region’s economy.

Other Currencies – Highlights

Growing market speculation that the Bank of Japan (BoJ) might administer an additional round of stimulus for the Japanese economy has led the Japanese Yen lower against its major counterparts in today’s trading session. Markets continue to fret over the possibility of the Japanese economic situation worsening after data revealed that adjusted trade deficit widened for September, following a more than expected drop in exports. Monetary easing hopes received a boost after the BoJ Governor, Masaaki Shirakawa, indicated that slowing overseas growth is weighing on Japanese business sentiment. The dovish stance also triggered speculation that the central bank might cut its growth forecasts going forward. On the economic front, consumer price inflation data slated for release later in the week will be closely watched ahead of the BoJ’s monetary policy meeting next week.