Waiting On Spain
Currencies traded in tight ranges on Friday during New York hours. Canadian CPI rose 0.2% m/m in August, slightly less than expectations of 0.3% but core inflation came in at 0.3% m/m, in line with expectations. The impact on USDCAD was fairly muted. EUR found support from news reports that Spain will present a structural reform plan to the EU later this week, hoping to avoid tougher austerity measures when it finally requests EFSF/ESM aid. This week will also see the Spanish government presenting the 2013 budget to its parliament on Thursday and releasing the results of its bank stress tests on Friday – the outcome of these events is likely to affect the timing of the Spanish request, and offer further guidance on EUR. German Finance Minister Schaeuble noted on Friday that Spain is “on the right path and does not need an assistance programme”. We note that like Spain, Germany wants the request to be delayed as much as possible though for different reasons. While a delay could make it easier for the German government to pass the new programme in Bundestag, it will help Spain negotiate for a less-stringent programme. Also, the Spanish government would prefer making the inevitable request after the regional elections in Galicia and the Basque country on October 21. The ECB, on the other hand, wants Spain to request an aid sooner than later so as to avoid higher costs in implementing its OMT programme. The uncertainty is likely to limit EUR price action on either directions in the near-term. A Greek Finance Ministry official refuted a Der Spiegel report that put Greece’s budget gap at EUR20 bn, noting that the gap currently is EUR13.5 bn. The Troika committee, meanwhile, left Athens to take a “brief pause” and return in a week. In the US, Atlanta Fed President Lockhart reiterated his support to the Fed’s QE decision, noting data through August suggested that the economy was slowing. He said the Fed will buy bonds until the employment situation improves and added more easing may be needed if jobs growth is still sluggish. Data releases are limited ahead today, putting the focus on the German IFO report for September.
Click here to read the full report: UBS Morning Adviser Asia
UBS Investment Bank