Pain in Spain

With the spotlight once again shifting to Europe, market focus now revolves around gauging Spain’s next move. Although Spain is expected to unveil a fresh set of austerity measures during the course of the week, the nation still remains reluctant to seek support, as the Economy Minister reiterated his earlier stance that Spain would not rush to seek external aid to finance its debt. Back in the UK, tomorrow’s mortgage lending data and Thursday’s GDP figures are expected to act as key triggers for Sterling during the week. In the US, manufacturing information is expected to act as a trend setter in today’s session as markets await the Dallas and Chicago Fed’s manufacturing surveys.

Pound Sterling – UK Markets

In today’s session, Sterling gave up some of its recent gains against the US Dollar amid lower risk appetite, while it climbed against the Euro in the midst of uncertainty over Spain’s stance in tapping additional aid. Moreover, reports indicated that Sterling could get support from this week’s farm subsidy payments that the EU transfers to the UK, with an estimated €3 billion of payments to flow into the UK. Meanwhile, key releases during the course of the week are expected to provide further direction for Sterling. The final estimate of UK’s second quarter GDP data scheduled for release on Thursday is expected to remain unrevised. Tomorrow’s mortgage loan approval data from the BBA will be closely watched for a clearer picture in gauging appetite for home purchase loans. The Index of services and consumer confidence surveys are other indicators to watch out for this week. On Friday, the Pound managed to hang on to its recent gains against the Euro and US Dollar, as the UK public sector borrowing numbers for August were slightly better than expected. With no domestic releases scheduled for today, traders will concentrate on positioning themselves for the week ahead.

US Dollar – US Markets

The US Dollar managed to hold on to Friday’s highs against the Euro, as traders turned cautious amid growing uncertainty over the Eurozone’s debt problems. Spain continued to reiterate its reluctance to seek fresh assistance from its European counterparts for dealing with its fiscal problem. Meanwhile, Greece failed to finalise an agreement with its international creditors, as the coalition government continues to face difficulty in imposing the recommended austerity measures. Meanwhile, worries over China’s growth also supported safe haven currencies, after reports indicated that the nation would stick to its tight property sector policies. A raft of important economic releases this week from the US featuring the final GDP estimate, consumer confidence surveys and durable goods data holds relevance in determining the trend in currency markets. With recent regional manufacturing indices offering a mixed picture, today’s manufacturing survey for the Dallas area and Chicago Fed’s national activity index will be closely tracked ahead of ISM manufacturing data next week.

Euro – European Markets

The Euro began today’s session on a weak footing and hovered below the 1.30 mark against the greenback, as worries over Spain’s fiscal situation returned to haunt the markets. Losses intensified after data revealed an unexpected fall in the German business climate for September. Reports indicated that Spain was considering freezing pensions and speeding up a planned rise in the retirement age. However, the nation’s Economy Minister reaffirmed that Spain was in no hurry to seek a fresh dose of aid. The prevalent uncertainty over Spain’s stance prompted traders to adopt a cautious stance, ahead of Moody's credit review, due by the end of the current month. Meanwhile, an austerity deal in Greece remains evasive. Furthermore, Eurozone policymakers remained at loggerheads, as German Chancellor Angela Merkel rebuffed her French counterpart Francois Hollande’s appeal for an earlier implementation of the Eurozone banking union. Apart from releases from the US, markets are expected to keep a track over the developments in Spain for further direction in today’s session.

Other Currencies – Highlights

The Japanese advanced against its major peers in today’s session, as traders sought refuge in safe haven currencies. The situation in Spain and Greece triggered a “risk off” rally in the currency markets, thereby aiding the Japanese Yen in staging a recovery against its peers following last week’s losses. Moreover, the Yen also strengthened on the back of hopes that Japanese firms would repatriate their earnings ahead of the end of the third quarter. Minutes of the Bank of Japan’s monetary policy meeting in August revealed that the nation’s economy would return to growth track soon. Meanwhile BoJ’s Deputy Governor, Hirohide Yamaguchi, stated that the central bank is ready to take bold and flexible monetary actions when necessary to support the economy. On the data front, supermarket sales continued to decline for August, albeit at a slower pace. Apart from economic releases from the US, markets are expected to keep a watch on Japanese corporate service price data and small business confidence reading for further cues.