EUR Remains Firm
Amid limited data or headlines on Monday, EUR edged higher across the board as investors covered their short positions from last week. IMM speculative positioning data showed that EUR shorts were only modestly trimmed last week, sustaining scope for EUR upside in thin markets. Italy successfully auctioned EUR8 bn of 364-day bills at an a average yield of 2.767%, slightly higher than the 2.697% result for a similar auction last month. The demand for the latest issue was stronger, with a bid-to-cover ratio of 1.69, as investors hoped that the ECB would eventually start buying short-term Italian debt, after the details of Draghi’s ‘new’ bond-buying programme are finalised. The ECB confirmed that it has not bought any sovereign bonds for a 22nd consecutive week through its Securities Market Programme (SMP). Greek central bank data showed that Greek banks’ reliance on the ECB’s financing operations fell by EUR49.7 bn after the ECB’s decision in July to make debt issued or guaranteed by Greek government ineligible as collateral. On the other hand, bank borrowing from the Emergency Lending Assistance (ELA) facility jumped by EUR44.4 bn over the same period. In the US, the selection of Paul Ryan as the Republican Vice-Presidential candidate by Mitt Romney has stirred up the election race. Ryan, a fiscal conservative, is known for his proposals to drastically cut government spending and support for revisions to the Federal Reserve Act so that the Fed has a single mandate of price stability. With the elections still three months away, it is too early to predict the market implications, but the S&P500 was heavy in the absence of clear incentives. Looking ahead, there will be a slew of data releases from Europe, followed by the retail sales report in the US.
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UBS Investment Bank