Spanish Bank Deposits Decline Further
The ECB’s bank deposit data showed Spanish bank deposits dropping 1.1% m/m in August (their lowest since April 2008), another timely reminder of the problems facing the banking system ahead of today’s presentation of a structural reform plan and 2013 budget to the EU later today. The government hopes that a “pre-approval” of its reform plan could help avoid tougher austerity measures when it finally requests EFSF/ESM aid. The third estimate of UK Q2 GDP was revised up slightly to -0.4% q/q vs -0.5% previous. However, the Q2 current account deficit of GBP20.8 bn, (5.4% of GDP), is up sharply from GBP15.4 bn in Q1. UBS economics notes that the current account deficit was driven wider mainly by the trade deficit (GBP 2 bn) and the income deficit (GBP3.2 bn). The rise in the income deficit was primarily due to an increase in foreign earnings on investments, particularly portfolio investments, in the UK. The trade deficit was wider because of falling exports. Details show that the trade balance has deteriorated in recent years, most notably against the Eurozone, although the latest data show a sharp deterioration against non-EU countries. Eurozone economic recovery is critically important for UK trade prospects. Overall, the balance of payment numbers are fairly negative numbers for GBP, though the pound was pushed higher by the GDP revision. Risk generally traded on a firm tone overnight, buoyed by renewed hopes of Chinese stimulus – the Shanghai composite index rose 2.6%. The Australian dollar held up quite well despite a major Chinese steel manufacturer announcing its decision to close a loss-making steel mill. We note that if other steel producers follow suit, national steel production levels would likely suffer a material decline, which would ultimately lead to falling Australian iron ore export volumes. Meanwhile, news reports indicate that iron ore prices are now so weak, 40% of Chinese iron ore mines have suspended operations. The Eurozone M3 number is due today and could provide further insights into commercial bank lending habits throughout the region.
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UBS Investment Bank