Spanish Auction Due
Risk assets consolidated yesterday’s gains overnight. The dollar failed to regain lost ground and Asian equities followed the S&P 500 higher. Respectable global manufacturing prints certainly helped, but the gradual easing of sovereign stresses in Spain and Italy probably played the greater role. We keep our cautious stance however, noting that European austerity measures are mostly only in their early stages of implementation, so there is scope for further deterioration in economic data as the process of fiscal consolidation begins to bite in earnest. At present, growth forecasts remain relatively conservative, and there is still some upside risk to our expectations of a recession in Europe in particular. However, pricing in early normalisation or at least policy stability is also too optimistic a view – a fact borne out by Wednesday’s US data where both the manufacturing ISM and the ADP report missed expectations. We believe the key risks still lie with the Eurozone, especially Greece as the market will likely start to run out of patience over repeated delays to the debt swap agreement. Today, trade figures are out in Switzerland along with US initial jobless claims. The results of Spain’s third auction of the year should be known soon after 0930 GMT. After a very successful pair of auctions in January, hopes are high of a repeat performance. EURUSD traded 1.3146 – 1.3198 and USDJPY traded 76.12-76.35.
Click here to read the full report:UBS Morning Adviser Europe
UBS Investment Bank